11.3.2 Has the Commission consistently taken into account this relevant characteristic?

The table in Annex VII gives an overview of the decisions that mention that the bank will improve its corporate governance framework. Of the 90 bank State aid cases that were analysed in this PhD-study, only 43 decisions mention that the corporate governance of the bank will be strengthened.1 In 47 decisions, corporate governance is not mentioned. How can this be explained?

To some extent, the fact that the relevant characteristic is not mentioned in 47 cases can be explained by the relevant context. Corporate governance is not mentioned in cases in the W-context. Indeed, if a bank is to be wound-down, then there is no need for measures that improve the corporate governance framework of that bank.

Decisions related to cases in the T-context and S/T/W-context2 do usually not mention corporate governance issues. While there may be corporate governance problems, these problems are not addressed by means of corporate governance measures. However, the transfer of the bank’s activities may constitute a solution to the corporate governance problems. This is illustrated by the decision on AB Ukio bankas, in which the Commission remarked that the sale of the legacy business to a buyer with a proper corporate governance structure would contribute to remedy the causes of the bank’s difficulties and set it back on the path to a long-term viability.3

Corporate governance is thus mainly relevant in the C-context (and S/C/W- context). However, not every decision in the C-context mentions corporate governance measures. A possible explanation for the omission is that in those cases, the restructuring plan of the bank in question did not include corporate governance measures. This would correspond to “situation A/O” of the matrix (introduced in section 11.2.2.2). Two questions are of importance: can the absence of corporate governance measures in the restructuring plan be justified? And can the omission to mention the absence of corporate governance measures be justified?

This first question can be answered affirmatively. Indeed, if a bank did not experience corporate governance problems, then there should be no need to improve the corporate governance framework. In that regard, it is worthwhile to recall that the Recapitalisation Communication provides that there should be “a thorough and far-reaching restructuring, including a change in management and corporate governance where appropriate”.4 The terms “where appropriate” indicate that restructuring plans should only focus on corporate governance where there are problems with the corporate governance of the bank.

The absence of corporate governance measures in the restructuring plan may thus be justified. Can it also be justified that the Commission did not mention the absence of corporate governance measures in the restructuring plan? On a side note, it should be recalled that the Commission should always assess whether the relevant characteristic is present. In one of its decisions, the Commission considered that “under the Restructuring Communication it has also to be assessed whether the restructuring plan addresses any existing or potential weaknesses in the corporate governance structure”.5 This consideration – and especially the phrase “has to be assessed” – would imply that the relevant characteristic is an assessment criterion. It could, however, be argued that this assessment does only have to be expressed in the decisions when the restructuring plan contains corporate governance measures. Consequently, it does not have to be mentioned when the restructuring plan does not contain corporate governance measures.

There is a difference between the current relevant characteristic and the one discussed in the previous section. Indeed, one would expect a replacement of the senior management to be present in every case. And if there is no change of senior management, one would expect a justification for the absence of this relevant characteristic. By contrast, one does not expect corporate governance measures to be present in every case (but only in cases in which there are corporate governance problems). This could justify that the absence of corporate governance measures in the restructuring plan is not mentioned in the decision.

The aforementioned explanation does not leave out the possibility that the omission to mention the relevant characteristic is due to an inconsistency. This can be clarified by an example: assume that a beneficiary bank has taken measures to improve its corporate governance framework. In other words: the relevant characteristic is present. Assume further that the Commission did not take into account these corporate governance measures undertaken by the bank. In other words: the Commission omitted to mention the presence of the relevant characteristic. This corresponds to “situation P/O” of the matrix. The omission to mention the corporate governance measures in this case is clearly inconsistent with the Commission decisions in which it did welcome corporate governance measures (“situation P/M”).

To conclude, “situation A/O” seems to be a plausible explanation for the fact that there are 47 decisions that do not mention corporate governance measures. Nonetheless, “situation P/O” cannot be excluded.