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Europe Lags in Corporate Governance Efforts

Boards of directors of large multinational companies based in Europe have lagged their U.S. counterparts in increasing the time and effort they spend on corporate governance in the wake of corporate scandals, according to PricewaterhouseCoopers' Management Barometer.

Far fewer boards in Europe than the U.S. — 32 percent, versus 62 percent, respectively — spent more time and effort in 2003 than the previous year. A majority of European boards, 54 percent, expended about the same amount of time and effort. Only one percent spent less time.

Regardless of their level of time and effort, 20 percent of boards in both Europe and the U.S. received an increase in total compensation over the past year. Looking ahead, 11 percent of companies in Europe, and 10 percent in the U.S., plan to increase board member compensation over the next 12 months.

The magnitude of increases granted to board members was also comparable: an average of 16.6 percent for Europeans receiving a raise, versus 17.9 percent for U.S. directors. Average increases for directors' compensation over the next 12 months are expected to be 10.4 percent in Europe, 10.0 percent in the U.S.

“Boards of directors in Europe and the U.S. are clearly working harder to meet the increased scope of work demanded by new regulations,” said David Phillips of PricewaterhouseCoopers' corporate governance practice. “European companies face new, more demanding requirements in many countries, and those with securities registered in the U.S. also must meet demands of the U.S. Sarbanes-Oxley Act as well.”

Forty-four percent of European audit committees increased their time and effort over the past year, compared with 68 percent in the U.S. Thirty-nine percent spent about the same amount of time; none less time. Only 12 percent of European audit committees received raises over the past year, compared with 22 percent for U.S. audit committees. The average raise for European audit committees was 14.0 percent, compared with a 26.2 percent rise for their U.S. counterparts.

“Audit committees are the unsung heroes of corporate governance in Europe,” said Phillips.

Just seven percent of respondents in Europe and one percent in the U.S. said they had problems retaining their most valuable directors over the past year, while 81 percent reported no difficulties. Likewise, only 17 percent of Europeans and 18 percent in the U.S. reported any difficulty recruiting new board members. Twenty-eight percent of Europeans noted they didn't need to recruit new directors.

© 2004 SmartPros Ltd. All rights reserved.

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