Internal Market Commissioner Frits Bolkestein said: "Recent
financial scandals show that investors and the public need more
protection against cheats. We want to kill four birds with one
stone".
The changes are: first, establishing that board members are
collectively responsible for financial statements and key
non-financial information; second, making unlisted companies'
transactions with related parties more transparent; third, ensuring
that all companies provide full information about off-balance sheet
arrangements, including Special Purpose Vehicles which may be
located offshore; and fourth, making listed companies issue an
annual "corporate governance statement".
The proposals form part of the Commission's Company Law Action
Plan, published in May 2003.
Responsibility of board members
The proposal would confirm that board members of limited
companies are collectively responsible to the company for the
financial and other key information that they publish and that
Member States must have appropriate sanctions and liability rules
where board members do not comply with accounting rules. This is in
line with what currently exists in all Member States. In some,
there is debate on going further, so the Commission considers this
proposal may be a first step at EU-level.
Related party transactions
For listed companies, disclosure requirements on transactions
with all related parties such as family members and company
managers already exist under International Accounting Standards
(IAS). The proposed amendments would extend these to unlisted
companies, though the amendments would apply only to significant
transactions with related parties not carried out under normal
commercial conditions. Member States would be able to exempt small
unlisted companies.
Off-balance sheet arrangements
Certain financial instruments can involve Special Purpose
Entities located offshore that are not captured in the balance
sheet. The Commission proposes that all companies – listed or not –
should disclose all off-balance sheet arrangements, including their
financial impact, in notes to the annual and consolidated
accounts.
Corporate governance statement
Companies that perform well tend to be well-governed. Investors
need transparency on corporate governance to make informed
investment decisions. The Commission is proposing that all listed
EU companies should provide a corporate governance statement in
their annual report. That statement would cover key issues such as
whether the company complies with a corporate governance code,
information about shareholders' meetings and the composition and
operation of the board and its committees.
