Corporate governance practices in Europe: revisiting the independence criteria on Board of Directors

In this study we examine the corporate governance practices in Europe according to the best practices guideline of 17 countries. We focus on the independence criteria and in particular the recommendations of the codes of best practices regarding the proportion of independent members in the board of directors, audit committee and the division of duties between the CEO and Chairman. We wish to understand how these best practices are enforced in the actual corporate governance guidelines in Europe. We then develop firm-level statistic for a sample of 463 European listed firms to measure the level of compliance of the firms with their respective country codes and also with the Anglo-Saxon best practices of corporate governance. As the definition of independence in the countries’ best practices is different, to measure the degree of independence for the sample of firms we develop our own criteria of independence taking into account the European commission recommendation of (2005), the SEC rules on corporate governance, the OECD principles of (2004) and the countries’ best practice guidelines. We measure the level of compliance of the firms with their respective country codes. We also analyze the level of compliance of the companies with the Anglo-Saxon principle of corporate governance to see if there is any convergence towards the Anglo-Saxon model. This study contributes to the existent literature by presenting descriptive statistics on the compliance of European firms to their national guidelines and Anglo-Saxon principles of corporate governance. The findings show that the best practices in Europe differ from one country to another regarding their recommendations on the proportion of independence. We show a high level of compliance of the firms with their respective country codes. We also show a high level of compliance with the Anglo-Saxon best practices of corporate governance suggesting convergence in a firm-level versus the Anglo-Saxon model of corporate governance.