A European Commission paper has suggested that poor corporate governance could hit retirees and lead to lower savings rates.
“The effects of poor corporate governance can extend beyond shareholders and management to third parties, eg retirees with pension assets tied up in company shares, or savers with investment funds,” a Commission paper stated.
“Thus, the negative effects of a lack of corporate governance can extend beyond a reduced willingness for investors to invest in companies to a more generalised reluctance to save,” said the Commission’s Directorate-General for Economic and Financial Affairs in a 45-page economic paper.
“Apart from the shorter-term implications for investment and economic growth, lower savings rates in the more developed economies would pose particular challenges in the context of their ageing populations.”
And the paper is also critical of compensation consultants, saying they may help to “camouflage” bosses’ pay “in the form of pensions, deferred compensation plans, management loans, post-retirement perks etc.”
It also suggested that the role of institutional shareholders could be enhanced. “Accordingly, these mainly institutional shareholders – such as pension funds - could be encouraged to vote in shareholder meetings, to raise issues of concern to other shareholders in general, and even to solicit votes against management proposals.”
It called for the creation of “larger investors” saying that diffuse ownership of shares “magnifies the principal-agent problem by limiting the scope for collective action among shareholders”.