In its comprehensive report entitled “Corporate Governance Policy in the European Union”, the CFA Institute details why it recommends taking a holistic approach to corporate governance.
Significant efforts have been made since the early 2000s to achieve corporate governance reforms. In 2001, the French Law on New Economic Regulations (NRE) separated the executive functions from the control functions, with the aim of reinforcing Directors’ independence from the Chairman. At the same time, the Law encouraged transparency towards shareholders. Two years later, in 2003, the French Law on Financial Security also created more transparency in terms of financial information.However, other underlying problems have since been identified, such as international proxy votes, protection of the minority shareholders’ rights and the increased liability of Boards of Directors. To tackle all these matters, the report suggests adopting a holistic approach to corporate governance policy.
WHAT IS A HOLISTIC APPROACH?
Stemming from the theory of holism, a holistic approach can be defined as considering individual phenomena to be parts of a whole. In other words, this theory recommends we take the environment as a whole into consideration, rather than focusing separately on each of its components.
To produce its report, the CFA Institute consulted over 30 professionals working in investment, governance and other key parts of the sector, at European level. The report revealed that in order to bring about major reforms, there needs to be a coordinated approach to governance policy.
"the holistic approach creates growth and productivity"
There are many advantages to adopting a holistic approach. According to the investors interviewed by the CFA Institute, a holistic approach can create growth and productivity. Centralised management of a company's activity results in a comprehensive understanding of the various potential areas for improvement.
The recommendations made by the investors included increased diversification of Boards of Directors. This means they would like to see more women represented on Boards, but also more members of different nationalities. To achieve this, it is necessary to have a general overview of the available resources in a company and then to take all the information into consideration before making any decision. The subject of diversity on Boards of Directors is a topic that we have previously dealt with on our blog, in the article: “Women on Boards: Persuading Boards by Linking Performance and Diversity.”
The holistic approach also takes environmental factors into account. For example, in addition to the needs for security and efficiency on Boards of Directors, the DiliTrust Exec solution also contributes to Corporate Social Responsibility (CSR). Using digital tools to become paperless and reduce travel helps companies attain a higher level of CSR.
The CFA Institute’s report therefore recommends taking a holistic approach to corporate governance, to obtain an overall vision of the challenges involved in running a company successfully. In 2017, the European Council adopted a Directive aimed at increasing the involvement of shareholders in major European companies. This recent Directive sets out specific requirements designed to encourage long-term involvement by shareholders and ensure transparency. The report can be accessed here.
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Adopting the DiliTrust Exec Board Portal enhances and streamlines the management of your Board and executive committees’ meetings for efficient corporate governance. Our board management software allows you to securely and efficiently meet the needs of your organisation via tablet or computer. Easily organise and access your most sensitive documents securely, thanks to our IS0 27001 certification which ensures stringent security standards. What is more, is that you remain fully in control of your information. DiliTrust as a French company with servers located in France, Canada and the Middle East does not subject your confidential data to the U.S.A Cloud and Freedom Act.
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published on 2018/18/07