C 80/12 EN 30.3.2004 Official Journal of the European Union
Opinion of the European Economic and Social Committee on the ‘Communication from the
Commission to the Council and the European Parliament Modernising company law and
enhancing corporate governance in the European Union — A plan to move forward’
(COM(2003) 284 final)
(2004/C 80/05)
On 22 May 2003 the European Commission decided to consult the European Economic and Social
Committee, under Article 262 of the Treaty establishing the European Community, on the above-
mentioned communication.
The Section for the Single Market, Production and Consumption, which was responsible for preparing
the Committee’s work on the subject, adopted its opinion on 12 November 2003. The rapporteur wasMr Ravoet.
At its 404th plenary session of 10 and 11 December 2003 (meeting of 10 December) the European
Economic and Social Committee adopted the following opinion unanimously.
1. Introduction
1.1. The European Commission has just submitted a Com-
munication to the Council and the European Parliamententitled Modernising company law and enhancing corporate
governance in the European Union — a plan to move forward
(COM(2003) 284 final).
1.2. This communication is the Commission’s response to
the final report of the High Level Group of Company Law
Experts appointed by Commissioner Bolkestein entitled A
modern regulatory framework for company law in Europe.
1.3. The communication defines the key policy objectives
which should inspire any future action to be taken at EU level
with regard to the modernisation of company law and thereinforcement of corporate governance. In this connection theCommission is proposing an action plan, prioritised, over the
short, medium and long term. For each priority it indicates
which type of regulatory instrument should be used, and bywhen.
1.4. The action plan has two objectives: 1) strengthening
shareholders’ rights and the protection of third parties and2) fostering efficiency and competitiveness of business.
1.4.1. With regard to the first objective, the Commission
argues that an effective regime for the protection of share-holders and their rights, protecting the savings and pensions
of millions of people and strengthening the foundations of
capital markets for the long term in a context of diversifiedshareholding within the EU, is essential if companies are toraise capital at the lowest cost.1.4.2. Maintaining efficient protection of members and
third parties will be even more important in the future, in viewof the increasing mobility of companies within the EU.
1.4.3. With regard to the second objective, business
efficiency and competitiveness depend on many factors, par-ticularly a sound framework of company law. and a proper
balance between actions at EU level and actions at national
level.
2. Gist of the communication
2.1. The action plan divides into seven main parts: corpor-
ate governance, capital maintenance and alteration, groups and
pyramids, corporate restructuring and mobility, the European
private company, the European co-operative society and otherEU legal forms of enterprise and enhancing the transparencyof national legal forms of enterprise.
The Commission concentrates mainly on corporate govern-
ance.
2.2. With regard to corporate governance, the Commission
proposes that the EU should not develop a European code but
rather follow a common approach with respect to a few
essential rules and adequate co-ordination of corporate govern-ance codes.
These rules include:
— Enhancing corporate governance disclosure
On this point of the Commission proposes that listed
companies should be required to include in their annual
report and accounts a statement of corporate governance.
The Commission also intends that information should be
provided about the role played by institutional investors.
30.3.2004 EN C 80/13 Official Journal of the European Union
— Strengthening shareholders’ rights
The action plan proposes, inter alia, that shareholders of
listed companies should be provided with electronicfacilities to access the relevant information in advance ofgeneral meetings.
Moreover, in order to establish a shareholder democracy
based on the one share/one vote principle, the Com-
mission is proposing that a study be carried out in the
short or medium term on the consequences of such anapproach.
— Modernising the board of directors of listed companies
The action plan proposes that where there is the risk of a
conflict of interest for directors of listed companies,
decisions should be made exclusively by non-executiveor supervisory directors who are in the majority indepen-dent. The setting up of nomination, remuneration and
audit committees should also be encouraged.
With regard to the remuneration of the directors of listed
companies, the EU’s objective is to promote a regulatory
regime composed of four key items: disclosure ofremuneration policy in the annual accounts, disclosure of
details of remuneration of individual directors in the
annual accounts, prior approval by the shareholdermeeting of share and share option schemes in which
directors participate, proper recognition in the annual
accounts of the costs of such schemes for the company.
— Directors’ responsibilities
The aim is, inter alia, to make provision for the collective
responsibility of all board members for financial and key
non-financial statements.
— Co-ordinating corporate governance efforts of Member
States
The aim is to encourage the convergence of national
codes by the establishment of a European Corporate
Governance Forum.
2.3. The second part of the communication deals with
capital maintenance and alteration.
The aim is, inter alia, to simplify the Second Directive in order
to promote business competitiveness without reducing the
protection offered to shareholders and creditors.
2.4. The third part of the communication deals with groups
and pyramids.
The Commission does not intend to revive the draft Ninth
Directive on group relations but rather to adopt specific
provisions in a number of areas, e.g. the possible exclusionfrom listing of companies belonging to abusive pyramids.2.5. The fourth part deals with corporate restructuring and
mobility.
In the short term the Commission intends, inter alia, to adopt
proposals for directives on cross-border mergers and the
transfer of the seat from one Member State to another.
2.6. The fifth part deals with the European Private Com-
pany.
This optional form of company would serve the needs of SMEs
which are active in more than one Member State.
2.7. The sixth part deals with the European Co-operative
Society and other EU legal forms of enterprises (e.g. foun-
dations, mutual societies).
The Commission intends to actively support the ongoing
legislative process engaged on these statutes and to give
significant attention to the development of new European legal
forms of enterprises.
2.8. The seventh part deals with enhancing the transparency
of national legal forms of enterprises.
The Commission argues that it is necessary in the medium
term to increase disclosure requirements for all legal entitieswith limited liability.
3. General comments
3.1. The Committee welcomes the outlines of the Com-
mission communication laying down the action plan modern-ising company law and enhancing corporate governance.
3.2. The Committee endorses the Commission’s two objec-
tives, strengthening shareholders’ rights and protecting third
parties, and fostering efficiency and competitiveness of busi-
ness which are crucial components of economic growth andjob creation. Moreover, as the Commission points out, thisinitiative is one of a number of European initiatives geared to
these two objectives, taking account of workers, as stipulated
in the communication on corporate social responsibility.
3.3. The Committee therefore supports the Commission
when it proposes to make a proper distinction betweencategories of companies, with a more stringent framework forlisted companies and companies which have publicly raised
capital (point 2.1 of the communication). These distinctions
make it possible to take account of the specific features andneeds of each category of company.
C 80/14 EN 30.3.2004 Official Journal of the European Union
3.4. The Committee notes that the European Commission
communication contains a number of very general principles.
It remains to be seen how these will be fleshed out. This is
true, for example, of the measures which the Commissionintends to adopt in connection with strengthening share-holders’ rights and modernising the board of directors of listed
companies.
3.5. The Committee also points out that certain concepts
used in the communication are vague and should be clarified.
Thus, in connection with the annual corporate governance
statement, what exactly is meant by ‘any material transactionswith other related parties’ (point 3.1.1(e) of the communi-cation)?
3.6. Finally, the Committee generally approves the Com-
mission’s timetable of priorities. It stresses the importance ofresolving, as rapidly as possible and taking account of the
actual situation of companies, a certain number of problems,
including those of a cross-border nature, such as cross-bordermergers or the transfer of a company’s head office from oneMember State to another, as well as cross-border obstacles to
the exercise of shareholders’ rights.
4. Specific comments
Corporate governance
4.1. The Committee is pleased that the EU has no plans to
establish a European code of corporate governance. As a 2002study commissioned by the European Commission shows (
1),
the main divergences between the Member States result from
the differing national law and not from corporate governancecodes, which generally show a high degree of convergence.
The existence of a variety of codes in the EU is not generally
seen as a problem for investors.
4.1.1. However, in the context of globalisation and EU
enlargement, the Committee considers that it is in the interests
of companies and investors to have the certainty that foreign
companies are complying with a minimum number of essentialand internationally recognised good management principles.
These principles complement or clarify the regulatory pro-
visions already adopted by the Member States. Other rulesshould come within the domain of self-regulation, e.g. corpor-
ate governance codes drawn up directly or with the close
cooperation of issuers. The flexibility of this generally success-ful approach makes it possible to take greater account of the
development of markets and the specific features of companies.
The Committee points out that failure to comply withrecommendations is punished by investors, who will not investin companies which do not observe corporate governance
standards.
(1) Comparative Study of Corporate Governance Codes relevant to
the European Union and its Member States http://europa.eu.int/comm/internal–market/en/company/company/news/corp-gov-
codes-rpt–en.htm4.1.2. Although the Committee generally endorses the
corporate governance principles adopted by the Commission,
it remains to be seen how they will be fleshed out in practice.
4.1.3. The Committee feels that the EU should lay down
essential internationally recognised principles rather than
becoming involved in too much detail. The latter approach
would not meet the need for flexibility which is a preconditionfor the effective operation of companies.
4.2. With regard to enhancing corporate governance dis-
closure, the Committee endorses the principle of an annualcorporate governance statement, which in a number ofcountries is already drawn up at the request of shareholders.
The Committee feels that listed companies must be transparent
and that they must provide investors with information ontheir mode of operation.
4.2.1. However, the Committee considers that the planned
inclusion of an annual declaration in the accounts of listedcompanies should not place the Commissioner under an
obligation to carry out a detailed examination of the content
of the declaration. His role should, rather, be to check that thedeclaration has been made.
4.2.2. Moreover, with regard to information on the role
played by institutional investors, the Committee stresses that aclear distinction should be made between institutional inves-
tors and shareholders holding a certain percentage of shares. To
this end, the Committee feels that the concept of ‘institutionalinvestor’ should be defined in line with the definition set out
in the rules on financial markets, and in particular those
concerning investment services.
4.3. With regard to strengthening shareholders’ rights, the
Committee considers that companies should be given the
opportunity to use new information technologies and that thecurrent rules should be adapted accordingly. This should be anoption rather than an obligation.
4.3.1. The Committee generally approves the measures
envisaged by the Commission to make it easier for shareholders
to exercise their voting rights. Companies should be able to
make it easier for shareholders to vote, e.g. without theirhaving to be present at the general meeting.
30.3.2004 EN C 80/15 Official Journal of the European Union
4.3.2. The Committee also notes the Commission’s inten-
tion of carrying out a study on introduction of the one share/
one vote principle. This study should clearly be part of the
more general examination of the financing of companies andcorporate governance.
4.4. With regard to modernising the board of directors, the
Committee favours the drawing-up of a recommendation
setting out a number of minimum criteria for the establish-ment, membership and role of the nomination, remunerationand audit committees. However, of the Committee feels that
these should be minimum criteria and that the Commission
should not enter too much into detail with the risk ofcompromising the flexibility which is essential for the effective
operation of a company.
4.4.1. Moreover, the Committee points out that the concept
of ‘conflict of interest’ should be defined. It also considers thatthe principle of collective decision-making by the board of
directors should not be called into question. Even if it should
be considered desirable for the preparatory work for decisionsof the board of directors to be done by committees, these
committees should under no circumstances take the decision.
4.4.2. With regard to the remuneration of directors of
listed companies, the Committee endorses the Commission’sobjective: greater transparency of remuneration for directors
of listed companies is what investors want. The Committee
feels, however, that the EU should not intervene here. At thetime of enlargement it should be ensured that the question isdealt with by national rules or recommendations which take
account of specific national situations and of the culture of
each state.
4.5. With regard to directors’ responsibilities, the Com-
mittee considers that the question should, in keeping with the
subsidiarity principle, be dealt with by each individual Member
State. If the Commission is to intervene, it is essential that adetailed study first be carried out on the various aspects of
directors’ civil and criminal-law responsibilities and that the
question of responsibility be dealt with as a whole rather thanin piecemeal.
4.6. With regard to co-ordinating corporate governance
efforts of Member States, the Committee notes the plan to
establish a European Corporate Governance Forum. Theobjective of the Forum should be, as the Commission envis-ages, to promote the convergence of national codes and not to
lay down new obligatory rules on corporate governance. The
Forum should include representatives of the players concerned,including issuers and financial intermediaries.Capital maintenance and alteration
4.7. The Committee endorses the Commission’ policy in
this area. The examination of the recommendations of the
SLIM Group on Company Law should be continued.
Groups and pyramids
4.8. The Committee is glad that the Commission does not
intend to revive the draft Ninth Directive on group relations.
4.8.1. The existence of groups of companies is a useful and
legitimate feature of economic life. Any Commission initiatives
on groups of companies or pyramids should be based on a
prior study of the usefulness and impact of the plannedmeasures. The Commission should not indirectly establishlaw on groups of companies and thus prevent them from
operating.
4.8.2. The scope of certain terms should be clarified. Thus,
it appears that the Commission is planning the exclusion from
listing of companies belonging to abusive pyramids, if such
action appears appropriate on the basis of a detailed study andin the opinion of experts, and not only that of the EuropeanSecurities Committee. What is meant by ‘abusive pyramids’?
The difference between ‘normal’ and ‘abusive’ pyramids should
be clarified.
Corporate restructuring and mobility
4.9. In the process of establishing a truly integrated market,
the Committee considers it essential that obstacles to com-
panies’ mobility be eliminated. In this context, the Committee
points out that the Commission is intending in the short-termto adopt two proposals for a directive, one on cross-bordermergers and the other on the transfer of a company’s head
office from one Member State to another.
4.9.1. However, the Committee considers it necessary to
look into the question of the involvement of workers in the
context of these cross-border operations. Provisions shouldpreserve the rights of workers, e.g. their right to informationand consultation, in accordance with the rules of social
dialogue, and more generally in the framework of governance.
4.9.2. Finally, the Committee approves the objective of
simplifying the Third and Sixth Directives on mergers and
divisions of companies and the principle of introducing
provisions on squeeze-out and sell-out rights. It remains to beseen how these objectives will be fleshed out in practice.
C 80/16 EN 30.3.2004 Official Journal of the European Union
European private company
4.10. The Committee has already in the past given its
wholehearted support to the development of an optional
statute (1) in this area. The Committee therefore endorses the
Commission’s initiative to launch in the short term a ‘feasibilitystudy in order to clearly identify the practical benefits of —
and problems related to — the introduction of an EPC statute’.
The Committee would like to see the early introduction of astatute which responds to the needs of SMEs.
The European Co-operative Society and other EU legal forms of
enterprises
4.11. The Committee points out that in July 2003 the
Council adopted the Regulation on the Statute for a European
Cooperative Society and the Directive supplementing the
Statute for a European Cooperative Society with regard to theinvolvement of employees (
2).
4.11.1. The Committee also supports the initiatives for the
optional adoption of new legal forms of European enterprise.
The cooperative and mutual sectors must have instruments
(1) OJ C 125, 27.5.2002.
(2) OJ C 129, 27.4.1998.
Brussels, 10 December 2003.
The President
of the European Economic and Social Committee
Roger BRIESCHenabling them to participate fully in the advantages of an
integrated European market.
Enhancing the transparency of national legal forms of enterprises
4.12. The Committee shares the Commission’s concern and
agrees that there is a need in the medium-term to examine thescope and nature of the directive which may be adopted.
5. Conclusion
5.1. The Committee endorses the European Commission’s
initiative. It is part of a new phase in the harmonisation of
company law and the strengthening of corporate governance.The action plan takes account of the cross-border dimensionof commercial relations. In particular, with regard to corporate
governance, the Committee calls for basic, internationally
recognised principles of good management to be drawn up atthe earliest opportunity.
5.2. The action plan is concerned mainly with relations
between shareholders, investors and companies with a view to
optimising their management. The Committee points out that
the Commission’s action must be part of a more general policyfor companies which takes account of the protection of
workers.