Anne d'Arcy

Implementation of Article 41 of the 8th EU Directive in the EU member states – impact on internal governance mechanisms

In reaction to accounting scandals, national and international standard-setters have introduced and enforced additional corporate governance mechanisms in recent years. These regulatory changes have had an especially large effect on external governance mechanisms like disclosure requirements, the accountability of management and board members and statutory audits. For the first time, in Article 41 of the 8th EU Directive, European legislation addressed the relationship between audit committees (which are now mandatory for public-interest entities) and other internal governance mechanisms such as internal controls, the internal audit function, and the risk management system. This study investigates the current level of implementation of the items addressed in the 8th EU Directive within the EU member states. Implementation varies considerably from one jurisdiction to another, and there is no consensus regarding the internal audit function and other internal governance mechanisms within Europe.

The challenges of imperfectly unbundled TSOs : can corporate governance or regulatory action mitigate such imperfection?

This article provides a framework for analyzing the effects of imperfect ownership unbundling and the effectiveness of related corporate governance mechanisms as well as regulatory actions to mitigate against such effects in the case of operators of an electricity transmission grid, i.e., so-called Transmission System Operators (TSOs). We propose a matrix analysis that considers three main tasks of a TSO (as one dimension) for different unbundling scenarios (as the other dimension). We apply the matrix for analyzing the case of the Swiss TSO Swissgrid as a special form of imperfect unbundling. Based on a task based welfare analysis, we argue that full ownership unbundling is optimal for certain strategic decisions such as the transfer of the grid from old to new owners. In some cases, corporate governance mechanisms, no matter how sophisticated, will not solve conflicts of interest within an imperfectly unbundled electricity firm. Also, in some cases, regulatory action cannot mitigate such imperfection. In contrast, we find no evidence that operations suffer from this lack in corporate governance. Insofar, trade-offs arise between different degrees of unbundling.