Corporate Governance Forum
One of the measures outlined in the action plan, the forum was set up in Oct 2004. Made up of senior member state experts, its aim is to advise the Commission on how to achieve convergence of national corporate governance codes. (For links to the codes of all the member states see ECGI site). At its first meeting on 20 January 2005, the forum identified as priorities: the role of shareholders, internal company control and the independence of directors.
European Company Statute/Societas Europae (SE)
SEs became available for use from October 2004, following a 2001 Regulation, but member states have been slow to implement it. By using the SE, businesses operating in several member states can establish themselves as a single company instead of having to follow different rules for each country in which they have subsidiaries. They are only suitable for large companies. Disagreement on employee participation, which dogged the proposal for 30 years, was finally overcome via the introduction of special negotiating panels.
European Private Company
A European private company (EPC) would be, confusingly, a similar entity to SEs (above) but one appropriate for SMEs. There are proposals for EPCs in the Commission's company law action plan and a study is being carried out, the results of which are expected late 2005.
Directors: remuneration and independence
Following consultation, the Commission issued two recommendations dealing with the relationship between directors and shareholders. Recommendations give advice to member states on how national legislation should be formulated, but are not binding.
Remuneration: company policy on remuneration and details of individual salary levels should be disclosed and discussed at shareholder meetings. Payment in shares should be subject to prior AGM (annual general meeting) approval.
Independence: should be ensured through the inclusion of non-executive directors on company boards. These would be people with no business or family relationship with the company who could act as an independent check on board decisions.
Responsibilities of Board – Accounting
Part of the 2003 action plan was four revisions of accounting directives to the effect that:
board members of listed companies to be responsible to the company for financial statements;
requirements for disclosure of transactions with family members etc, which apply to listed companies, to be extended to unlisted companies for large deals;
all companies to disclose arrangements made "off balance sheet" e.g. with off-shore companies;
all listed companies to provide an annual "governance statement" showing they are complying with corporate governance rules.
First put forward in 1984, initial proposals for a directive on cross-border mergers could not get past disagreement on employee participation and the proposal was withdrawn. The new proposals put forward in 2003 and agreed by Council in 2004, followed the same principles on employee participation as the European Company Statute. The new proposal allows, as far as possible, each company to follow its own member state rules. The Commission is examining how to remove barriers to cross-border mergers specifically in the banking sector.
As with issues related to corporate governance, the EU seeks to implement:
International Accounting Standards (IAS): The EU, advised by representatives of the member states sitting on the Accounting Regulatory Committee, has adopted most of the IAS (see EURACTIV 9 Dec 2004). However, there is still controversy over IAS 39 in particular, and over whether the EU should have more influence on the IASB, the body which sets the standards (see EURACTIV 15 March 2005).
International Standards on Auditing (ISA): In March 2004, the Commission proposed a directive to combat fraud and malpractice through a new directive on statutory audit.
The very basis of corporate governance is to avoid conditions developing within a company in which financial malpractice can go unnoticed. All the issues above, set out in the September 2004 Commission communication, go towards this goal. On enforcement, there are also a range of proposals outlined. A number of framework decisions are already in place regarding sanctions for financial fraud, freezing and confiscation of assets and mutual recognition. Other proposals are on mutual recognition of disqualification to be a director and possible recording of electronic payments to allow traceability of financial flows.