Reporting as an Instrument of Corporate Governance

This chapter explores how and to what extent reporting and reporting requirements help to shape corporate governance inside corporations operating within the EU and the corporate governance framework around them. The chapter tracks the broader EU policy developments connected to company law and corporate governance, highlighting the developing EU policy shifts – from harmonization towards re-shaping the legal and regulatory frameworks within the global economy. The ‘four freedoms’ (movement of workers, goods, services, and capital) were at the heart of the harmonization efforts and as these have been consolidated, the EU has moved towards encouraging stewardship and responsible business. This part shows how such shifts have also resulted in a broadening focus from protecting shareholders and strengthening their rights towards a more sustainable value creation approach that sees both shareholders and stakeholders as important. This tracking exercise may help to explain the developments in the reporting regime described and mapped onto those EU policy shifts later in the chapter. Section 4 considers how the evolving reporting requirements are instrumental for corporate governance as they support or even influence corporate governance practices and structures and how the more recent reporting developments may lead to more extensive changes to those practices and structures. Section 5 identifies outstanding challenges for establishing an effective reporting regime that will contribute to the broader corporate governance goals. The chapter concludes with some predictions about the future of reporting and how the reporting framework might be a trigger for further structural and behavioural changes to corporate governance across the EU. The argument presented is that the earlier focus of EU legislators upon harmonization of financial reporting largely mirrored support for a shareholder primacy approach to company law and corporate governance, seeking to protect shareholders’ interests and increasingly encouraging greater levels of shareholder engagement.