6.5.3 Green Paper COM(2011) 164

In April 2011, the European Commission published a Green Paper on the EU corporate governance framework. Based on interviews with people from a diverse sample of listed companies, the European Commission formulated twenty-five questions. These questions have three focus areas: board of directors, shareholders, and the comply or explain approach of the EU corporate governance framework (European Commission 2011: 3). Interested parties were invited to submit their views on these questions. The results of this consultation round have not yet been published. Below, the content of the Green Paper concerning independence is addressed.

The Green Paper is rather brief about independence. It raises the question whether the EU should seek to ensure the clear separation of the duties of the chairman and the CEO. This question is not clarified. In addition, it proposes that the selection and composition of the board should fit the company. And the selection of supervisors should be based on a broad range of criteria, one of which is independence (European Commission 2011: 5). Furthermore, independence is mentioned in the composition of the remuneration committee, which requires ‘greater independence for [supervisors] involved in determining remuneration policy’ (European Commission 2011: 9). ‘Greater independence’ is not worked out further in the document.

Diversity, which is expected to have a positive influence on independence, receives more attention. Like independence, diversity belongs to the broad range of criteria on which selection should be based. The European Commission expects that diversity on the board will be effective against ‘groupthink’, which is described in section 11.4 of this study, and will lead to new ideas, more discussion, more challenges and eventually to better decisions (European Commission 2011: 5-7). Diversity is split into three categories, which should be strived for: professional diversity, international diversity, and gender diversity. Professional diversity entails a variety of professional backgrounds, which must result in the understanding of the board as a whole of complex issues. International diversity is important due to the knowledge of foreign directors of regional markets, but different cultural backgrounds can also lead to problems within the board. Gender diversity is expected to decrease the probability of groupthink and have a positive influence on the organisation and its performance due to different leadership styles and their effect on the collective intelligence of the group. The European Commission has asked the respondents whether listed companies should be required to ensure a better balance between men and women on boards of directors. The future will show what the responses are.