EUROPE - The European Federation for Retirement Provision (EFRP) has proposed an EU Stewardship Code on corporate governance acceptable to all member states, which could follow in the footsteps of the UK Stewardship Code.

In its response to the Green Paper on Corporate Governance in Financial Institutions and Remuneration Policies by the European Commission, EFRP said it supported the Commission's aim to encourage shareholder engagement, but opposed any form of compulsion.

Instead, pension funds should be able to decide by themselves whether the benefits of engagement outweigh the costs of implementing such policies, it said.

The EFRP said adherence to responsible investment principles on a comply-or-explain basis may be a good way to contain free-rider behaviour and that an enhancement of corporate governance in financial institutions may help prevent future banking crises.

Angel Martinez-Aldama, chairman at the EFRP, said: "The Commission should consider developing an EU Stewardship Code containing a limited number of high-level principles on engagement, voting and disclosure.

"This would prevent a proliferation of codes around Europe and ease the administrative burden on institutional investors."

However, the EFRP stressed that the potential achievements of active ownership policies should not be exaggerated, as the direct influence of shareholders in areas like nomination/dismissal of individual board members, governance practices and remuneration policies was limited in many EU member states.

Chris Verhaegen, secretary general at the EFRP, said: "Sometimes, shareholders are blamed for not having done enough to prevent the financial crisis,

"However, in large parts of Europe, company boards operate quite independently from shareholders to represent the interests of all stakeholders.

"If it is felt shareholders have an important role in overseeing corporate governance and strategy, a logical consequence would be that shareholders' rights are enhanced. You cannot have it both ways."

The full EFRP response is available in the publications library.