The Plan will affect publicly listed and private limited liability companies through EU company law and, with respect to publicly listed companies only, corporate governance initiatives. Company law proposals include the merging of major company law directives into a single instrument; the improvement of awareness of corporate groups, European Company (Societas Europaea or SE) and European Cooperative (Societas Cooperativa Europaea or SCE) Statutes; and a possible initiative on cross-border mobility. Corporate governance measures include improvements to board diversity policies and non-financial risks disclosure, non-compliance explanations in corporate governance reports, shareholder identification, disclosure of institutional investor voting policies, employee share ownership and shareholder influence in relation to board remuneration.
In 2003, the Commission released a consultation that was aimed at modernising EU company law and improving corporate governance. Measures adopted following the consultation included directives on improving shareholder rights (2007/36/EC) and corporate governance statements for listed companies (2006/46/EC), together with recommendations on non-executive directors (2005/162/EC) and the regime for directors’ remuneration (2004/913/EC).
In March 2010, the Commission adopted a Europe 2020 Strategy (IP/10/22) calling for an improved business environment in Europe. In particular, and in addition to promoting competitiveness and sustainability, it was proposed that EU company law and corporate governance rules for companies, investors and employees needed to evolve to adapt to the changing economic environment.
In 2011, the Commission initiated a detailed consultation to evaluate the effectiveness for European companies of corporate governance rules (the 2011 consultation). The 2011 consultation focused on three areas: i) improving board composition, ii) engaging shareholders on corporate governance issues and iii) improving monitoring and enforcement by looking at how to apply more efficiently the “comply or explain” approach (IP/11/404). The results of the 2011 consultation were summarised in a feedback statement in November 2011 and, in March 2012, the European Parliament adopted a non-legislative resolution on a corporate governance framework for European companies.
In February 2012, the Commission launched another consultation on the future of European company law (the 2012 consultation). The 2012 consultation invited responses on the objectives and scope of European company law, the consolidation of legislation, an analysis of European legal entities, cross-border mobility, the capital regime for European companies and issues arising in relation to groups of companies. The Commission published a summary of the responses in July 2012 and, following a non-legislative resolution of the Parliament, developed the Plan on the basis of the results.
The Plan includes the following findings and initiatives for 2013.
1. Transfer of seat
EU rules do not sufficiently allow for the cross-border transfer of a company’s registered office without changing its legal personality (except in relation to SEs and SCEs and European Economic Interest Grouping (EEIG)). Appropriate legislative initiatives will be considered, following public and targeted consultations conducted by the Commission.
2. Facilitating cross border mergers and divisions
On basis of an analysis of a forthcoming (second half 2013) study on the application of Directive 2005/56/EC on cross-border mergers of limited liability companies (the Cross-Border Mergers Directive) the Commission will consider whether the Directive should be amended, in particular to enhance procedural rules for cross-border mergers. The Commission also plans to consider an initiative to provide a framework for cross-border divisions by amending the Cross-Border Mergers Directive.
3. Smart legal forms for European Small and Medium-Sized Enterprises (SMEs)
SMEs play an essential role in strengthening the EU economy. There is a need for simpler and less burdensome conditions for EU business. The Commission therefore intends to continue its work exploring measures to facilitate SME cross-border activities and its proposal for a European private company.
4. Improving awareness of SE and SCE Statutes
The Commission plans to launch an information campaign to increase awareness of the SE Statute. The Commission will also consider how similar action can be undertaken to promote the SCE Statute.
5. Groups of companies
In 2014, the Commission aims to improve the information available to investors on corporate groups and enhance EU-wide recognition of the concept of “group interest”.
6. Codification of EU company law
The Commission intends to adopt a proposal codifying and merging major company law directives into a single instrument in order to resolve various difficulties and the lack of clarity when expanding EU company law across many different acts.
1. Disclosure of board diversity policy
The Commission intends to create a proposal to strengthen the disclosure requirements of companies’ diversity policies through amendments to the Accounting Directive (78/660/EEC).
2. Non-financial risks
Further proposed amendments to the Accounting Directive serve the purpose of increasing disclosure of non-financial risks.
3. Improving reporting
The Plan notes the criticism directed at corporate governance reports and, in particular, the lack of detail when explaining non-compliance with certain national corporate governance codes. An initiative is planned to improve the quality of corporate governance reports and, in particular, in relation to the “comply or explain” approach (possibly in the form of a recommendation).
4. Shareholder identification
In order to improve the corporate governance dialogue between companies and their shareholders, the Commission intends to propose legislation to improve the visibility of shareholdings in Europe.
5. Transparency rules for international investors
Knowing the ways in which institutional investors exercise their ownership/stewardship responsibilities could potentially be of use to investors. In particular, it is noted that transparency could improve investor awareness on the importance of engagement and therefore optimise investment decisions. The Commission will therefore propose an initiative, possibly by amending the Shareholder Rights Directive (2007/36/EC), to improve the disclosure of voting and engagement policies, as well as the voting records of institutional investors.
6. Remuneration policy
In order to promote remuneration policies that both stimulate long-term value creation and encourage genuine performance-related pay, the Commission intends to harmonise disclosure requirements on remuneration policies and individual payments, and to grant shareholders a right to vote on remuneration policy and the remuneration report. This may be achieved by amending the Shareholder Rights Directive.
7. Related party transactions
With the aim of increasing safeguards protecting shareholders’ interests in related-party transactions, the Commission proposes an initiative to strengthen shareholder control of related party transactions, possibly through an amendment to the Shareholder Rights Directive.
8. Regulating proxy advisers
Potentially in the context of revisions to the Shareholder Rights Directive, the Commission is considering an initiative to address concerns raised by the influence of proxy advisors on company voting. Such concerns include those identified in a 2011 green paper on corporate governance, which related to transparency about potential conflicts of interest and the methodology used by proxy advisors when giving advice.
9. Clarification of investor co-operation and acting in concert
The Commission recognises the need to clarify for shareholders the possibility of exchanging information and co-operating (on corporate governance issues) without the breaching rules contained in the Takeover Bids Directive and the Transparency Directive. As a result, the Commission intends to work with the European Sales and Marketing Association and national authorities to develop guidance to increase legal certainty surrounding the relationship between investor co-operation on corporate governance issues and the rules on acting in concert.
10. Employee share ownership
In order to promote long-term orientated shareholdings, the Commission plans to identify and investigate potential obstacles to trans-national employee share ownership schemes, and to then take action to encourage employee share ownership throughout Europe.
All the initiatives in the Plan will be subject to ex-ante impact assessments, which may, therefore, result in modifications to the planned content or timing of the proposals. In addition, a forthcoming green paper on the long-term financing of the European economy is expected to raise new issues to be pursued. In particular, it is expected that the green paper may provide additional insight on improving long-term shareholder engagement, and how corporate governance might support long-term financing of the European economy.
Robert Lister, a trainee solictor in the London office, also contributed to this article.