Comply or explain: Preserving Governance Flexibility with Quality Explanations

On 27 March 2012, the European Confederation of Directors' Associations (ecoDa) is holding a conference on the topic "Comply or Explain – Preserving Governance Flexibility with Quality Explanations", with Mazars as the main sponsor.
ecoDa Chairman Philippe Zurstrassen, presents the confederation and discusses the changing role of independent company directors, with special focus on the role they play on audit committees.

Philippe Zurstrassen, ecoDa Chairman

1) Would you please describe ecoDa and its major objectives?

 In the early 2000s, the European Commission and public opinion in general became interested in issues and activities related to companies and governance. This powerful trend coincided with global events affecting economic and financial players.

 Politicians, the media and professionals agreed on the importance of creating professional associations of company directors, in order to help them understand their roles, teach their counterparts how to better perform their duties and improve their interaction with the European Commission.

 We founded ecoDa because we wanted to centralise the ideas and issues raised by the national organisations in one European body. This not-for-profit association was created in 2005 and acts as the "European Voice of Directors". Today, ecoDa represents more than 55,000 board directors from across Europe.

 ecoDa has three main goals:

  1. Coordinate discussions between the various independent directors' associations that work with the European Commission and European Parliament, with the aim of facilitating discussions and ensuring consistency;
  2. Foster the sharing of best practices between the national associations so that they can help each other learn what works best;
  3. Hone directors' professional training for a more in-depth understanding of challenges and regulations.

2) What is the role of independent directors? Has it changed in recent years? What major challenges do they face?

 During the industrial revolution, most directors owned shares in the company. This double role led to excesses, prompting companies to modify their systems and appoint directors with no financial interest in the business. This change first emerged in the English-speaking world before spreading across Europe as companies became increasingly aware of the importance of neutral oversight.

 In its recommendation of 15 February 2005, the European Commission strongly encouraged listed companies to appoint independent directors in order to avoid conflicts of interest. This recommendation was acted upon in many countries, and even became a legal requirement in some.

 The philosophy is now identical in every country: relying on independent directors provides better conflict management for both stakeholders and society as a whole.

 The main difficulties we face concern changes in the market and the professions:

  • Numerous new regulations are adopted each year;
  • An independent director must assimilate an increasingly significant amount of information to understand companies' issues and perform a director's responsibilities;
  • A share of responsibility for the current economic crisis appears to fall upon independent directors and others.

 Moreover, it is important to mention the lack of female independent directors. We have seen progress in this area but there is clearly considerable room for progress. The best approach would be to professionalise practices and train directors. In this way, we hope to attract women, who are still reluctant to take on such responsibilities, and to change mindsets in companies where necessary.

3) Independent directors are members of audit committees. Do these bodies have specific rules? If so, what are they?

 These bodies definitely have one specific characteristic: only independent directors can take decisions in audit committees. Any other professionals sitting on them have no decision-making power.

 It should, however, be noted that audit committee members' multidisciplinary skills are important for meeting a company's needs. Financial and industry-specific professionals do not take the same approach to a company's business, and therefore offer complementary perspectives when it comes to understanding the business and ensuring its continuity. The audit committee has become an important body for companies, and its role is likely to expand even further, given the importance of reliable, transparent financial information for corporations and their stakeholders. The new European directive is likely to confirm this.