The European Commission, in a 45-page economic paper, says the effects of poor corporate governance can trickle down to third parties, specifically retirees with pension assets tied up in company shares, or savers with investment funds. “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 generalized reluctance to save,” the paper said, according to an IP&E report.
This in particular could hit countries in the European Union that are currently facing a looming pension crisis with a workforce that may not be able to support the needs of its older workers. “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,” the report found.
To provide a crutch to the system, the report calls on an enhanced institutional investor role in the investment of companies. “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.”