National corporate governance codes need to be adapted to take account of the challenges that exist when companies have dominant shareholders or small groups of shareholders collectively have a dominant share of the total shareholder vote according to a survey of directors conducted by the accountancy firm Mazars, the international accountancy and advisory firm, and the European Confederation of Directors’ Associations (ecoDa).

The study of directors in 130 companies across 11 European countries found that while the UK and Ireland had a dispersed shareholder base there was a greatest dominance of large shareholders in the other countries in the survey: Belgium, France, Germany, Greece, Italy, The Netherlands, Poland, Spain and Sweden.

The report suggested that there are risks associated with either model of capital structure which could include dominant shareholders seeking to advance their interests at the expense of the minority shareholders; or a large group of shareholders with none holding a significant proportion of the shares and not taking an active interest in governance and leaving such matters very much to the board potentially reducing the expected checks and balances in the system.

The survey found that 83% of companies surveyed had revised their corporate governance model in the last financial year mainly as a result of changes in the corporate governance code they were applying or in European Union or national law. Of companies not revising their code, family-owned companies were in the majority.

While 76% of board members surveyed considered corporate governance was of interest to their shareholders almost a quarter (the remaining 24%) did not believe their shareholders were really interested in governance matters. The main topics discussed with investors were remuneration (40%) and the nomination of board members (40%).

The study suggested that the role of proxy advisers raised new challenges for the flexibility offered by the ‘comply or explain’ approach. The authors suggested that they were tending to expect companies to ‘comply’ rather than ‘explain’ regardless of the circumstances. Due to the concentration in the market for proxy advice, they could indirectly gain at least a blocking minority of votes which would hinder the necessary tailoring of governance practices to a company’s specific circumstances, the report suggested.

It was found that 59% of companies surveyed had made use of the flexibility provided by the ‘comply or explain’ approach. Just under half of the boards (48%) think additional guidance on ‘comply or explain’ would be helpful to promote high-quality explanations, offer clear guidelines or to provide more information on best practice.

The survey also recommended that time should be devoted by investors to better understanding how the boards of listed companies in which they own shares operate in practice rather than their just relying on a desktop review of their corporate governance.

Lutgart Van den Berghe, board member of ecoDa said: "Board members, investors and regulators all have their part to play in fostering an ecosystem that promotes long-term sustainable success for the benefit of all stakeholders in listed companies and wider society. Targeting full compliance will not, in itself, raise the bar higher for effective corporate governance.”