Reforming Corporate Europe: the Action Plan

The Commission unveiled its Action Plan on “Modernising Company Law and Enhancing Corporate Governance in the EU,” also promising better business efficiency and competitiveness.

The plan is based on a set of proposals for action and is open to public consultation for three months. It is seen by some as the EU’s response to such corporate scandals as Enron and Worldcom, and the hard-hitting Sarbanes-Oxley Act in the US.

A separate paper deals with improving and harmonising the quality of statutory audit throughout the EU. It sets out objectives to ensure that investors and other interested parties can rely fully on the accuracy of audited accounts, to prevent conflicts of interest for auditors and to enhance the EU's protection against Enron-type scandals.

The intention is to create a comprehensive set of EU rules on how audits should be conducted and on the audit infrastructure needed to safeguard audit quality.

Internal Market Commissioner Frits Bolkestein said of the Action Plan:

"economies only work if companies are run efficiently and transparently. We have seen vividly what happens if they are not: investment and jobs will be lost; and in the worst cases, of which there are too many, shareholders, employees, creditors and the public are ripped off."

He added, “The Commission is shouldering its responsibilities: Corporate Europe must shape up and do the same.”

The Commission sees the following initiatives as the most urgent:

• introduction of an Annual Corporate Governance Statement. Listed companies should be required to include in their annual documents a coherent and descriptive statement covering the key elements of their corporate governance structures and practices;
• development of a legislative framework aiming at helping shareholders to exercise various rights (for example asking questions, tabling resolutions, voting in absentia, participating in general meetings via electronic means). These facilities should be offered to shareholders across the EU, and specific problems relating to cross-border voting should be solved urgently;
• adoption of a Recommendation aiming at promoting the role of independent non-executive or supervisory directors. Minimum standards on the creation, composition and role of the nomination, remuneration and audit committees should be defined at EU level and enforced by Member States, at least on a "comply or explain" basis;
• adoption of a Recommendation on Directors' Remuneration. Member States should be invited to put in place an appropriate regulatory regime giving shareholders more transparency and influence, which includes detailed disclosure of individual remuneration; and
• creation of a European Corporate Governance Forum to help encourage co-ordination and convergence of national codes and of the way they are enforced and monitored.

The Commission also intends to simplify the rules on contributions in kind, acquisition of own shares and pre-emption rights that allow a company's shareholders to have first refusal on new shares issued.

It could also include the introduction of "squeeze-out rights", to give new rights to majority shareholders to compel minority shareholders to sell their shares at a fair price, and of "sell-out rights" allowing minority shareholders to compel holders of a large majority of the capital to purchase their securities at a fair price.

The Commission also intends to present a new proposal to facilitate mergers between companies from different Member States, as well as a proposal for a Directive on the transfer of "seat" (a company's centre of activities and/or registered office) from one Member State to another.