Critique of the proposed EU directive on Sustainable Management

The primary criticism is that the original report and the subsequent paper that will form the directive does not comply with the EU principle of subsidiarity (EU legislation to solve a problem if the Member States cannot solve the problem themselves) and that there are multiple unserious proposals on sustainability and that the initiatives must be based on a more rational Sustainable Management.

Extensive criticism primarily from the sound governance structures from the well-organised countries of Northern Europe is against the EU Commission to legislate the area of corporate governance. They would rather that the Member States themselves legislate or that they currently have a well-functioning system. Another concern is that the current proposal will seriously dilute investors’ power to elect their representatives to the board and senior management. The same criticism was prevalent many decades ago when employee representation on the board was introduced in the 1980s.

Sustainable corporate governance. The reason for the introduction is that sustainability is a high priority for the new Commission under the leadership of Ms. van der Leyen that includes climate change challenges.

It has always been the management’s responsibility to deal with all foreseeable risks. As climate change’s consequences become more transparent, corporate governance will help solve the issues and problems under normal circumstances. However, the report assumes that there is a problem because investors are short-sighted and greedy. This selfishness forces corporate executives to pay out large dividends and preventing them from thinking sustainably.

Investors and employees are deprived of influence. The critic is that the report fails to mention the many studies that contradict the above and that the greedy and unreliable investors were not the norm in corporate Europe.

This directive is perhaps a followup on the Shareholder Rights Directive that was updated and extended a few years ago. The update promoted investors’ role to support sustainability and included mandates on disclosure requirements and transparency regarding ESG.

Despite the Corona crisis, the directive will probably go thru the parliament in October 2021. At one of our Directors Dialogue or The Annual Board of Directors day on the 4^th of May 2021 https://www.copenhagencompliance.com/2021-board-of-directors-day/

Corporate Governance Day on the 17^th of September 2021 https://www.copenhagencompliance.com/2021-corporate-governance-day/

and during the annual GRC conference on the 4^th of November 2021 https://www.copenhagencompliance.com/2021-annual-european-grc-gdpr-summit/ we will discuss these and several other corporate consequences

• Protection for the sovereignty of the Member States.
• Lifting a uniform and harmonised corporate governance mandate at the EU level
• Will EU corporate governance harmonisation lead to substandard performance and results.
• The role and powers of the NGOs and investors to influence the board and management
• All stakeholders need to be involved in controlling the unreliable investors.
• How can investors sue members of board and management for non-performance
• How can companies raise capital from investors or attract qualified managers?
• Address the issues of the investors are deprived of their influence
• Employee influence on board and management representation.

For details and participation see: https://www.copenhagencompliance.com/2021-board-of-directors-day/