COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Action Plan: European company law and corporate governance - a modern legal framework for more engaged shareholders and sustainable companies
Date: 2012-12-12
Institutions: European Commission
Subjects: access to information, administrative transparency, company law, competitiveness, corporate governance, economic growth, shareholder, single market, small and medium-sized enterprises

EUROPEAN 
COMMISSION 

Strasbourg, 12.12.2012  
COM(2012) 740 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Action Plan: European company law and corporate governance - a modern legal 
framework for more engaged shareholders and sustainable companies 

(Text with EEA relevance) 

EN 

   EN 

 
 
 
 
 
  
 
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Action Plan: European company law and corporate governance - a modern legal 
framework for more engaged shareholders and sustainable companies 

(Text with EEA relevance) 

1. 

INTRODUCTION 

The  Commission’s  ‘Europe  2020’  Communication1  calls  for  improvement  of  the 
business environment in Europe. A modern and efficient company law and corporate 
governance framework for European undertakings, investors and employees must be 
adapted to the needs of today’s society and to the changing economic environment. 
The latest comprehensive review in this policy area stemmed from the 2003 Action 
Plan  on  Modernising  Company  Law  and  Enhancing  Corporate  Governance  in  the 
European Union2 and the subsequent consultation on future priorities for this Action 
Plan carried out in 2005 and 20063. A large number of initiatives announced in the 
2003  Action  Plan  have  been  adopted.  In  particular  rules  on  corporate  governance 
statements  have  been  introduced  in  the  Accounting  Directive4,  a  Directive  on  the 
exercise  of  shareholders'  rights5  and  the  Tenth  Company  Law  Directive  on  Cross-
border  mergers6  have  been  adopted.  Moreover,  the  Commission  adopted  two 
Recommendations  regarding  the  role  of  independent  non-executive  directors  and 
remuneration7. Besides, the Second Company Law Directive on formation of public 
limited  liability  companies  and  the  maintenance  and  alteration  of  their  capital8  and 
the  Third  and  Sixth  Company  Law  Directive  on  mergers  and  divisions  have  been 
simplified9.  Nevertheless,  new  developments  have  taken  place  since  that  require  in 
the Commission's view further action. 

Corporate  governance  defines  relationships  between  a  company’s  management,  its 
board, its shareholders and its other stakeholders10. It determines the way companies 

1 

2 

3 

4 
5 
6 
7 
8 
9 
10 

Communication  from  the  Commission  Europe  2020.  A  strategy  for  smart,  sustainable  and  inclusive 
growth, COM(2010) 2020 final, p. 16-17. 
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. 
Document available at: 
http://ec.europa.eu/internal_market/company/docs/consultation/consultation_en.pdf. 
Directive 78/660/EEC 
Directive 2007/36/EC 
Directive 2005/56/EC 
Commission Recommendations 2005/162/EC and 2004/913/EC 
See Directive 2006/68/EC amending Directive 77/91/EEC 
See Directives2007/63/EC and 2009/109/EC amending Directives 78/855/EEC and 82/891/EEC 
at 
of  Corporate  Governance, 
See  OECD 
http://www.oecd.org/dataoecd/32/18/31557724.pdf. The EU corporate governance framework includes 
legislation  in  areas  such  as  corporate  governance  statements,  transparency  of  listed  companies, 

accessible 

Principles 

2004, 

11, 

p. 

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are  managed  and  controlled.  An  effective  corporate  governance  framework  is  of 
crucial importance because well-run companies are likely to be more competitive and 
more sustainable in the long term. Good corporate governance is first and foremost 
the  responsibility  of  the  company  concerned,  and  rules  at  European  and  national 
level  are  in  place  to  ensure  that  certain  standards  are  respected.  The  EU  corporate 
governance framework is a combination of legislation and soft law, namely national 
corporate  governance  codes  applied  on  a  'comply  or  explain'  basis11  which  gives 
companies  and  their  shareholders  an  important  degree  of  flexibility.  Shareholders 
have a crucial role to play in promoting better governance of companies. By doing 
this they act in both the interest of the company and their own interest. 

in  credit 

institutions  and  ultimately 

However,  the  past  few  years  have  highlighted  shortcomings  in  this  area.  The 
financial  crisis  has  revealed  that  significant  weaknesses  in  corporate  governance  of 
financial  institutions  played  a  role  in  the  crisis.  In  order  to  respond  rapidly  to  the 
problem  of  excessive  risk-taking 
the 
accumulation of excessive risk in the financial system, the Commission launched in 
2010 a Green Paper on corporate governance in financial institutions12 and, in 2011, 
it  proposed  stricter  rules  on  corporate  governance  in  financial  institutions  in  the 
framework  of  the  CRD  IV  package13.  Although  corporate  governance  in  listed 
companies outside the financial sector did not give rise to the same concern, certain 
weaknesses  have  also  been  observed  In  particular,  there  is  a  perceived  lack  of 
shareholder  interest  in  holding  management  accountable  for  their  decisions  and 
actions, compounded by the fact that many shareholders appear to hold their shares 
for  only  a  short  period  of  time.  There  is  also  evidence  of  shortcomings  in  the 
application  of  the  corporate  governance  codes  when  reporting  on  a  ‘comply  or 
explain’ basis. Against this backdrop the Commission adopted its Green Paper on the 
EU  corporate  governance  framework  (hereinafter  ‘the  2011  Green  Paper’)14,  which 
launched  a  discussion  on  how  to  improve  the  effectiveness  of  the  current  rules. 
While  respondents  were  divided  as  to  the  need  for  further  regulation  at  EU  level, 
there  was  strong  support  for  EU  measures  in  some  specific  fields15.  The  European 
Parliament also expressed its view on the questions raised by the 2011 Green Paper 
in a Resolution adopted on 29 March 201216 highlighting the importance of corporate 
governance to society at large. 

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12 
13 
14 

15 

16 

shareholders’ rights and takeover bids as well as ‘soft law’, namely recommendations on the role and on 
the remuneration of companies’ directors. 
See infra, point 2.2 
COM(2010) 284 final. 
COM(2011) 453 final and COM(2011) 452final. 
COM(2011) 164 final, available at: 
http://ec.europa.eu/internal_market/company/docs/modern/com2011-164_en.pdf#page=2. 
See 
15  November 
http://ec.europa.eu/internal_market/company/modern/corporate-governance-framework_en.htm, 
hereinafter ‘the 2011 Green Paper feedback statement’. 
European Parliament Resolution of 29 March 2012 on a corporate governance framework for European 
companies, see point 41, P7_TA(2012)0118: http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-
//EP//TEXT+TA+P7-TA-2012-0118+0+DOC+XML+V0//EN&language=EN. 

responses 

statement 

feedback 

received 

2011 

and 

of 

at 

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European  company  law  is  a  cornerstone  of  the  internal  market17.  It  facilitates 
freedom of establishment of companies while enhancing transparency, legal certainty 
and  control  of  their  operations.  In  recent  times,  however,  it  has  become  more 
difficult to reach agreement at EU level on the adoption of company law initiatives. 
These  difficulties  are,  for  example,  illustrated  by  the  lack  of  progress  on  some 
simplification  initiatives18  and  on  the  proposed  statute  of  the  European  Private 
Company  (SPE).  Nevertheless,  at  the  same  time,  the  cross-border  dimension  of 
business has grown tremendously from both a company and a consumer perspective. 
The  Commission  services  have  therefore  launched  a  process  of  reflection  on  the 
future of European company law, beginning with the publication of a report prepared 
by an ad hoc reflection group19 and a public conference held in Brussels on 16 and 
17 May 201120. In order to gather views across a broad spectrum of stakeholders, an 
on-line consultation was launched on 20 February 2012 (hereinafter "the 2012 public 
consultation")21.  The  European  Parliament  also  expressed  its  view  on  the  way 
forward  for  European  company  law  in  a  Resolution  adopted  on  14  June  201222.  A 
majority  of  respondents  to  the  2012  public  consultation  were  in  favour  of  new 
measures to modernise the existing company law framework23. 

This Action Plan outlines the initiatives that the Commission intends to take in order 
to  modernise  the  company  law  and  corporate  governance  framework.  It  identifies 
three main lines of action: 

• 

• 

Enhancing transparency – companies need to provide better information about 
their corporate governance to their investors and society at large. At the same 
time  companies  should  be  allowed  to  know  who  their  shareholders  are  and 
institutional investors should be more transparent about their voting policies so 
that a more fruitful dialogue on corporate governance matters can take place. 

Engaging shareholders – shareholders should be encouraged to engage more in 
corporate  governance.  They  should  be  offered  more  possibilities  to  oversee 
transactions,  and  shareholder 
remuneration  policy  and 
cooperation to this end should be made easier. In addition, a limited number of 
obligations will need to be imposed on institutional investors, asset managers 
and proxy advisors to bring about effective engagement. 

related  party 

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21 

22 

23 

The  scope  of  EU  company  law  covers  the  protection  of  interests  of  shareholders  and  others,  the 
constitution  and  maintenance  of  public  limited-liability  companies’  capital,  branches  disclosure, 
mergers  and  divisions,  minimum  rules  for  single-member  private  limited-liability  companies  and 
shareholders’  rights  as  well  as  legal  forms  such  as  the  European  Company  (SE),  the  European 
Economic Interest Grouping (EEIG) and the European Cooperative Society (SCE). 
See, for example, COM(2008) 194 of 17 April 2008. 
Available at http://ec.europa.eu/internal_market/company/docs/modern/reflectiongroup_report_en.pdf. 
See http://ec.europa.eu/internal_market/company/modern/index_en.htm#conference. 
The text of the consultation is available at: 
http://ec.europa.eu/internal_market/consultations/2012/company_law_en.htm. 
European  Parliament  Resolution  of  14  June  2012  on  the  future  of  European  company  law, 
P7_TA(2012)0259: http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-
2012-0259+0+DOC+XML+V0//EN&language=EN. 
See feedback statement of 17 July 2012 and responses received at: 
http://ec.europa.eu/internal_market/company/modern/index_en.htm#consultation2012. 

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• 

Supporting  companies’  growth  and  their  competitiveness  –  there  is  a  need  to 
simplify  cross-border  operations  of  European  businesses,  particularly  in  the 
case of small and medium-sized companies. 

Besides  supporting  these  three  key  objectives,  the  Commission  will  launch  an 
overarching  codification  exercise  in  order  to  make  the  regulatory  framework  more 
user-friendly. 

This Action Plan is the fruit of the 2012 public consultation, of various discussions 
with  many  stakeholders  and  of  the  Commission’s  own  analysis.  It  sets  out  the 
initiatives  which  the  Commission  intends  to  take  in  the  areas  of  company  law  and 
corporate governance. The different measures in the Action Plan will not all have the 
same  scope.  EU  corporate  governance  rules  only  apply  to  companies  listed  on  a 
stock  exchange.  On  the  other  hand  EU  company  law  applies  in  principle  to  all  EU 
public  limited  liability  companies.  The  Commission  will  ensure  that  the  initiatives 
will  not  create  unnecessary  burdens  for  companies,  and  will  in  particular  take  into 
account the specific situation of SMEs.  

All  the  initiatives  will  be  subject  to  ex-ante  impact  assessments.  The  Action  Plan 
cannot  pre-empt  the  results  of  these  impact  assessments.  The  Commission  may 
therefore have to modify its planning, as regards either its content or timing, if need 
be.  New  issues  may  subsequently  arise  and  need  to  be  pursued  in  addition  to  the 
initiatives set out in this Action Plan. New elements might arise from the responses 
to  the  planned  consultation  on  the  long-term  financing  of  the  European  economy. 
The  forthcoming  Green  Paper  on  this  issue  will  launch  a  broad  debate  on  how  to 
strengthen  the  capacity  of  the  financial  sector  in  the  EU  to  provide  long-term 
financing  for  productive  investment  needed  to  drive  sustainable  growth.  It  will 
address issues such as the need to ensure there is access to diverse sources of finance; 
the importance of avoiding too much focus on short-term horizons only; and the need 
to  enhance  capacity  and  develop  new  products  conducive  to  long-term  financing. 
The scope of the Green Paper is therefore broader than corporate governance issues; 
but it may also provide further input on how long-term shareholder engagement can 
be  encouraged  and  how  appropriate  corporate  governance  arrangements  might 
support long-term financing. 

2. 

ENHANCING TRANSPARENCY 

2.1. 

Disclosure of board diversity policy and management of non-financial risks 

In  Europe,  different  board  structures  coexist.  Depending  on  the  country,  listed 
companies may put in place either a ‘single board’ system (also called ‘monistic’ or 
‘unitary board’ system), a two-tier (or ‘dual board’) system or some form of mixed 
system.  The  Commission  acknowledges  the  coexistence  of  these  board  structures, 
which are often deeply rooted in the country’s overall economic governance system, 
and has no intention of challenging or modifying this arrangement.  

Regardless of the board structure, board composition plays a key role in a company’s 
success. Effective oversight of the executive directors or the management board by 
the non-executive directors or supervisory boards24 leads to successful governance of 

24 

As applicable, depending on the (single, mixed or two-tier) structure of the board. 

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the company. In this regard, diversity of competences and views among the board’s 
members is very important. It facilitates understanding of the business organisation 
and  affairs  and  thus  enables  the  board  to  challenge  the  management’s  decisions 
objectively and constructively. In contrast, insufficient diversity could lead to a so-
called group-think process, translating into less debate, fewer ideas and challenges in 
the  boardroom  and  potentially  less  effective  oversight  of  the  management  board  or 
executive directors.  The Commission,  encouraged by  the results of  the 2011 Green 
Paper consultation25, considers that increased transparency as regards board diversity 
policy could make companies reflect more on the issue and take better account of the 
need for greater diversity on their boards. This initiative will also be complementary 
to  the  specific  proposal  on  improving  the  gender  balance  among  non-executive 
directors of listed companies26. 

The  Commission  believes  also  that  (supervisory)  boards  should  give  broader 
consideration  to  the  entire  range  of  risks  faced  by  their  company.  Extending  the 
reporting  requirements  with  regard  to  non-financial  parameters  would  help  in 
establishing  a  more  comprehensive  risk  profile  of  the  company,  enabling  more 
effective  design  of  strategies  to  address  those  risks.  This  additional  focus  on  non-
financial  aspects  would  encourage  companies  to  adopt  a  sustainable  and  long-term 
strategic approach to their business. 

In  order  to  encourage  companies  to  enhance  board  diversity  and  give  greater 
consideration to non-financial risks, the Commission will make in 2013 a proposal to 
strengthen  disclosure  requirements  with  regard  to  their  board  diversity  policy  and 
risk management through amendment of the accounting Directive27. 

2.2. 

Improving corporate governance reporting 

The  quality  of  the  corporate  governance  reports  produced  by  listed  companies  has 
been  subject  to  criticism.  Corporate  governance  codes  in  the  EU  are  applied  on  a 
‘comply or explain’ basis. This approach allows companies to depart from particular 
recommendations of the applicable code, provided they explain the reasons for doing 
so.  However,  the  explanations  provided  by  companies  are  often  insufficient.  They 
either  simply  state  that  they  had  departed  from  a  recommendation  without  any 
further  explanation,  or  provide  only  a  general  or  limited  explanation28.  As  these 
explanations are used by investors to make their investment decisions and assess the 
value of a company, such shortcomings limit the system’s usefulness and viability. A 
large  majority  of  respondents  to  the  2011  Green  Paper  were  in  favour  of  requiring 
codes’ 
explanations 
companies 
recommendations. 

to  provide  better 

for  departing 

from 

Following  on  from  the  2011  Green  Paper,  some  Member  States  have  initiated 
discussions  or  issued  guidelines  on  the  quality  of  the  explanations  provided  by 
companies. For example, in Finland, the Securities Markets Association issued on 20 
January 2012 guidelines on explanations that companies should provide. The Belgian 
Corporate  Governance  Committee  commissioned  an  independent  study  on  the 

25 
26 
27 
28 

See the 2011 Green Paper feedback statement. 
See XXXX 
Directive 78/660/EEC. 
See  the  Study  on  Monitoring  and  Enforcement  Practices  in  Corporate  Governance  in  the  Member 
States, available at http://ec.europa.eu/internal_market/company/ecgforum/studies_en.htm. 

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quality of explanation and, on the basis of the findings of this study, issued a number 
of  practical  recommendations  in  2012.  In  the  UK,  the  Financial  Reporting  Council 
launched in December 2011 a discussion between companies and investors on what 
constitutes  appropriate  explanation  and,  consequently,  introduced  guidelines  on  the 
'comply  or  explain  approach'  in  the  Corporate  Governance  Code.  The  Commission 
welcomes these initiatives. It also intends to encourage further cooperation between 
the  national  bodies  in  charge  of  monitoring  the  application  of  the  corporate 
governance  codes,  in  particular  through  exchange  of  best  practices  developed  in 
different Member States. 

The  Commission  will  take  in  2013  an  initiative,  possibly  in  the  form  of  a 
Recommendation,  to  improve  the  quality  of  corporate  governance  reports,  and  in 
particular the quality of explanations to be provided by companies that depart from 
the corporate governance codes. 

2.3. 

Shareholder identification 

The  2011  Green  Paper  asked  whether  stakeholders  saw  a  need  for  a  European 
mechanism  to  help  issuers  identify  their  shareholders  in order  to  facilitate dialogue 
on corporate governance issues. In addition, the Green Paper enquired whether this 
information  should  also  be  made  available  to  other  investors.  A  clear  majority  of 
respondents were in favour of such a mechanism29. Particularly strong support came 
from both businesses and investors. 

Opinions on what would be the best way forward were significantly divided though. 
Some respondents felt that requiring issuers to offer a forum to shareholders on their 
corporate websites was sufficient. Others, on the contrary, spoke  out in favour of a 
fully-fledged  EU  shareholder  identification  mechanism.  Quite  a  lot  of  respondents 
suggested  lowering  the  thresholds  for  notification  of  major  holdings  in  the 
Transparency Directive instead. Finally, a substantial group held that Member States 
should be required to provide mutual recognition for existing national identification 
mechanisms and, if necessary, should be obliged to introduce a national transparency 
tool respecting some minimum requirements. 

The  European  Parliament  supports  the  view  that  companies  issuing  name  shares 
should  be  entitled  to  know  the  identity  of  their  owners,  but  that  owners  of  bearer 
shares should have the right not to see their identity disclosed. This echoes concerns 
expressed earlier as to the privacy of retail investors. 

The  Commission  considers  that  additional  information  on  who  owns  shares  in  a 
listed  company  can  improve  the  corporate  governance  dialogue  between  the 
company  and  its  shareholders.  The  existing  tools  are  either  not  detailed  enough  or 
lack the necessary cross-border dimension. 

The  Commission  will  propose,  in  2013,  an  initiative  to  improve  the  visibility  of 
shareholdings  in  Europe  as  part  of  its  legislative  work  programme  in  the  field  of 
securities law. 

29 

See the 2011 Green Paper feedback statement. 

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2.4. 

Strengthening transparency rules for institutional investors 

Research  conducted  in  preparation  for  the  Commission  Green  Papers  of  2010  and 
2011  and  the  responses  to  them  highlighted  a  need  for  improvement  in  the 
transparency  of  voting  policies  adopted  by  institutional  investors,  including  asset 
management  firms,  and  the  exercise  of  these  policies30.  Currently,  the  UK 
Stewardship  Code31  and  the  Dutch  Eumedion  best  practices  for  engaged  share-
ownership32 as well as the Code for external governance of the European Fund and 
Asset  Management  Association33  and  the  International  Corporate  Governance 
Network Global Corporate Governance Principles34 already recommend institutional 
investors to be transparent about the way they exercise their ownership/stewardship 
responsibilities,  which 
information  about  voting  and 
in  particular 
engagement. 

includes 

Disclosure of such information could have a positive impact on investor awareness, 
enable  ultimate  investors  to  optimise  investment  decisions,  facilitate  the  dialogue 
between  investors  and  companies,  encourage  shareholder  engagement  and  could 
strengthen  companies’  accountability  to  civil  society.  Moreover,  this  information 
could be useful for investors before entering into a portfolio management contract or 
for  beneficiaries  of  institutional  investors  acting  on  behalf  of  or  for  the  benefit  of 
others.  In  the  light  of  its  overall  objective  to  engage  shareholders, the Commission 
believes this to be the right step forward. 

The Commission will in 2013 come with an initiative, possibly through modification 
of  the  shareholders  rights  Directive35,  on  the  disclosure  of  voting  and  engagement 
policies as well as voting records by institutional investors. 

3. 

ENGAGING SHAREHOLDERS 

Effective,  sustainable  shareholder  engagement  is  one  of  the  cornerstones  of  listed 
companies’  corporate  governance  model,  which  depends  inter  alia  on  checks  and 
balances between the different organs and different stakeholders. If for instance the 
majority  of  shareholders  remain  passive,  do  not  seek  interaction  with  the  company 
and do not vote, the functioning of the current corporate governance system is less 
effective.  In  such  circumstances,  no  corrective  action  can  be  expected  from  the 
shareholders’ side and supervision of management rests entirely on the shoulders of 
the (supervisory) board. 

30 

31 

32 

33 

34 

35 

Current reporting rules for undertakings for collective investment in transferable securities (UCITS) and 
alternative  investment  fund  managers  (AIFM)  only  require  providing  investors  with  information  on 
investment  objectives  and  policy,  including  in  particular  risk  profile,  past  and  expected  performance 
and different costs, see Directives 2009/65/EC and 2011/61/EU. 
See  http://www.frc.org.uk/getattachment/e2db042e-120b-4e4e-bdc7-d540923533a6/UK-Stewardship-
Code-September-2012.aspx, especially principles 1 and 6 
See  http://www.eumedion.nl/en/public/knowledgenetwork/best-practices/best_practices-engaged-share-
ownership.pdf, especially best practice 6 
See 
4035%20EFAMA%20ECG_final_6%20April%202011%20v2.pdf, especially principles 1, 5 and 6 
See 
https://www.icgn.org/images/ICGN/Best%20Practice%20Guidance%20PDFS/short_version_-
_icgn_global_corporate_governance_principles-_revised_2009.pdf,  especially  point  9.5.  See  also 
https://www.icgn.org/files/icgn_main/pdfs/best_practice/inst_share_responsibilities/2007_principles_on
_institutional_shareholder_responsibilities.pdf, especially p. 12. 
Directive 2007/36/EC. 

http://www.efama.org/Publications/Public/Corporate_Governance/11-

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3.1. 

Better shareholder oversight of remuneration policy 

Executive remuneration has been the topic of much discussion in recent years36. The 
Commission believes that companies could benefit from remuneration policies which 
stimulate  longer-term  value  creation  and  genuinely  link  pay  to  performance.  Poor 
remuneration policies and/or incentive structures lead to unjustified transfers of value 
from companies, their shareholders and other stakeholders to executives. Therefore, 
and  taking  into  account  existing  oversight  possibilities,  in  particular  as  regards  in 
companies with two-tier board structures, shareholders should be enabled to exercise 
better  oversight  of  remuneration  policies  applying  to  directors  of  listed  companies 
and the implementation of those policies. 

Accordingly, and as evidenced by the results of the 2011 Green Paper consultation37, 
shareholders  need  clear,  comprehensive  and  comparable 
information  on 
remuneration policies and individual remuneration of directors. This can be achieved 
through  basic  harmonisation  of  disclosure  requirements.  Moreover,  shareholders 
should be able to express their views on the matter, through a mandatory shareholder 
vote  on  the  company’s  remuneration  policy  and  the  remuneration  report,  providing 
an overview of the manner in which the remuneration policy has been implemented. 
Currently, not all Member States give shareholders the right to vote on remuneration 
policy  and/or  the  report,  and  information  disclosed  by  companies  in  different 
Member States is not easily comparable38. 

The Commission will propose in 2013 an initiative, possibly through a modification 
of  the  shareholders’  rights  Directive,  to  improve  transparency  on  remuneration 
policies and individual remuneration of directors, as well as to grant shareholders the 
right to vote on remuneration policy and the remuneration report. 

3.2. 

Better shareholder oversight of related party transactions 

Related  party  transactions,  i.e.  dealings  where  the  company  contracts  with  its 
directors  or  controlling  shareholders,  may  cause  prejudice  to  the  company  and  its 
minority  shareholders,  as  they  give  the  related  party  the  opportunity  to  appropriate 
value  belonging  to  the  company.  Thus,  adequate  safeguards  for  the  protection  of 
shareholders’ interests are of great importance. 

Current  EU  rules  require  companies  to  include  in  their  annual  accounts  a  note  on 
transactions entered into with related parties, stating the amount and the nature of the 
transaction and other necessary information39. However, since this requirement tends 
to  be  regarded  as  insufficient,  the  European  Corporate  Governance  Forum  issued  a 
statement  on  related  party  transactions  recommending  the  introduction  of  common 

36 

37 
38 

39 

Specific  rules  regarding  remuneration  in  financial  institutions  have  already  been  adopted  in  the 
framework  of the  CRDIII package,  and  have  been  in  force  since  January  2011.  As  inappropriate  risk 
management and excessive short-termism in financial institutions can create systemic risk and affect the 
economy  as  a  whole,  it  is  important  to  have  sound  remuneration  policies  that  do  not  encourage  or 
reward excessive risk-taking. 
See the 2011 Green Paper feedback statement. 
See  Commission  Report  COM(2010) 
http://ec.europa.eu/internal_market/company/docs/directors-remun/com-2010-285-2_en.pdf. 
See Article 43(1)(7b) of Directive 78/660/EEC and Article 34(7b) of Directive 83/349/EEC. 

8.  Available 

final, 

285 

and 

at: 

p. 

5 

EN 

9 

   EN 

 
                                                 
principles across Europe40. The Forum proposed in particular that transactions above 
a certain threshold should be subject to evaluation by an independent advisor and that 
the  most  substantial  transactions  should  be  approved  by  shareholders.  The  2011 
Green  Paper  raised  the  question  of  providing  more  protection  against  related  party 
transactions. A considerable proportion of respondents called for stronger safeguards. 
Having regard to this response and to the guidelines contained in the statement of the 
European  Corporate  Governance  Forum, 
that 
shareholders’ control over related party transactions should be strengthened. 

the  Commission  considers 

The Commission will propose in 2013 an initiative aimed at improving shareholders’ 
control  over  related  party  transactions,  possibly  through  an  amendment  to  the 
shareholders’ rights Directive. 

3.3. 

Regulating proxy advisors 

Institutional  investors  with  highly  diversified  equity  portfolios  face  practical 
difficulties  in  properly  assessing  how  they  should  vote  on  items  on  the  agenda  of 
general  meetings  of  investee  companies.  Therefore,  they  make  frequent  use  of  the 
services  of  proxy  advisors,  such  as  voting  advice,  proxy  voting  and  corporate 
governance  ratings.  As  a  result,  proxy  advisors’  influence  on  voting  is  substantial. 
Moreover, it has been argued that institutional investors rely more heavily on voting 
advice for their investments in foreign companies than for investments in their home 
markets. Thus, the influence of proxy advisors is likely to be greater in markets with 
a  high  percentage  of  international  investors.  Currently,  proxy  advisors  are  however 
not regulated at EU level. 

The influence of proxy advisors raises some concerns. During the preparation of the 
2011 Green Paper, investors and investee companies expressed concern about a lack 
of  transparency  in  the  methods  used  by  proxy  advisors  for  the  preparation  of  their 
advice.  More  specifically,  it  is  claimed  that  the  analytical  methodology  used  by 
proxy  advisors  fails  to  take  into  account  company-specific  characteristics  and/or 
elements  of  national  legislation  and  best  corporate  governance  practices.  Another 
concern is that proxy advisors are subject to conflicts of interest, such as when they 
also  act  as  corporate  governance  consultants  to  investee  companies.  Conflicts  of 
interest also arise when a proxy advisor advises investors on shareholder resolutions 
proposed  by  one  of  its  clients.  Finally,  the  lack  of  competition  in  the  sector  raises 
concerns,  partly  about  the  quality  of  the  advice  and  whether  it  meets  investors’ 
needs. 

In  2012  ESMA  issued  a  discussion  paper  on  proxy  advisors  requesting  views  on 
possible regulatory options for proxy advisors, ranging from no action and voluntary 
measures to quasi-binding or binding EU instruments.41 The Commission may draw 
on  the  results  of  the  discussion  to  ensure  a  coherent  and  effective  operational 
framework for proxy advisors. 

40 

41 

Statement of the European Corporate Governance Forum on Related Party Transactions for Listed 
Entities, of 10 March 2011, available at: 
http://ec.europa.eu/internal_market/company/docs/ecgforum/ecgf_related_party_transactions_en.pdf. 
http://www.esma.europa.eu/content/Discussion-Paper-Overview-Proxy-Advisory-Industry-
See: 
Considerations-Possible-Policy-Options.  The  synthesis  of  responses  and  ESMA's  position  will  be 
published shortly. 

EN 

10 

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The  Commission  will  consider  an  initiative  in  2013,  possibly  in  the  context  of  the 
revision  of  the  shareholders’  rights  Directive,  with  a  view  to  improving  the 
transparency and conflict of interest frameworks applicable to proxy advisors. 

3.4. 

Clarification  of  the  relationship  between  investor  cooperation  on  corporate 
governance issues and the ‘acting in concert’ concept 

A large number of respondents to the 2011 Green Paper called for clarification of the 
concept  of  ‘acting  in  concert’.  Indeed,  the  lack  of  legal  certainty  provided  by  the 
current  rules  contained  in  the  Takeover  Bids  Directive  and  the  Transparency 
Directive  and  their  transposition  in  national  law  is  perceived  as  an  obstacle  to 
effective  shareholder  cooperation.  Shareholders  need  to  know  when  they  can 
exchange information and cooperate with one another without running the risk that 
their actions may trigger unexpected legal consequences. 

If  such  clarification  is  not  provided,  shareholders  may  avoid  cooperation,  which  in 
turn  could  undermine  the  potential  for  long-term  engaged  share  ownership  under 
which  shareholders  effectively  hold  the  board  accountable  for  its  actions.  The 
Commission  recognises  the  need  for  guidance  to  clarify  the  conceptual  boundaries 
and  to  provide  more  legal  certainty  on  this  issue  in  order  to  make  shareholder 
cooperation easier. 

During  2013,  the  Commission  will  work  closely  with  the  competent  national 
authorities and ESMA with a view to developing guidance to increase legal certainty 
on the relationship between investor cooperation on corporate governance issues and 
the rules on acting in concert. 

3.5. 

Employee share ownership 

The  Commission  believes  that  employees’  interest  in  the  sustainability  of  their 
company  is  an  element  that  ought  to  be  considered  in  the  design  of  any  well-
functioning  governance  framework.  Employees'  involvement  in  the  affairs  of  a 
company  may  take  the  form  of  information,  consultation  and  participation  in  the 
board.  But  it  can  also  relate  to  forms  of  financial  involvement,  particularly  to 
employees becoming shareholders. 

Employee  share  ownership  schemes  already  have  a  successful  tradition  and  track 
record  in  many  Member  States.  Research  conducted  in  preparation  for  the  2011 
Green  Paper  and  responses  to  it  indicate  that  employee  share  ownership  schemes 
could  play  an  important  role  in  increasing  the  proportion  of  long-term  oriented 
shareholders. Since there are many angles to this issue (for instance taxation, social 
security and labour law) the Commission finds it important to analyse this subject in 
more detail, in particular as regards its internal market dimension. In the light of this 
analysis,  it  will  identify  which  initiatives  may  be  appropriate  to  encourage  the 
development of trans-national employee share ownership schemes in Europe. 

The  Commission  will  identify  and  investigate  potential  obstacles  to  trans-national 
employee share ownership schemes, and will subsequently take appropriate action to 
encourage employee share ownership throughout Europe. 

EN 

11 

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4. 

IMPROVING  THE  FRAMEWORK  FOR  CROSS-BORDER  OPERATIONS  OF  EU 
COMPANIES 

European  company  law  is  an  integral  part  of  the  internal  market.  It  facilitates 
freedom  of  establishment  of  companies  while  enhancing  legal  certainty  for  their 
operations. It can thereby support companies’ growth and competitiveness. 

4.1. 

Transfer of seat 

Apart from the rules contained in the Statutes for the European Company (SE), for 
the  European  Cooperative  Society  (SCE)  and  for  the  European  Economic  Interest 
Grouping  (EEIG),  there  are  no  EU  rules  enabling  companies  to  transfer  their 
registered office across borders in a way which would preserve the company’s legal 
personality.  Currently,  only  a  few  Member  States  allow  for  a  seat  transfer  without 
winding  up  and  subsequent  re-incorporation.  Companies  can  also  use  the  cross-
border mergers Directive or the SE as a tool for changing their home Member State. 
The  responses  to  the  2012  public  consultation revealed  considerable  interest  in  EU 
rules  on  cross-border  transfers  of  seats42.  The  Commission  acknowledges  the 
importance of this issue. However, it considers that any future initiative in this matter 
needs  to  be  underpinned  by  robust  economic  data  and  a  thorough  assessment  of  a 
practical  and genuine  need for  and use  made of European  rules on  transfer of seat. 
This is also in the light of the recent case-law of the European Court of Justice43 as 
well as of the developments in Member States' legal frameworks. For this purpose, 
the  Commission  will  conduct  public  and  targeted  consultations  on  the  outcome  of 
which it will report. 

Throughout 2013, the Commission will conduct public and targeted consultations to 
update  its  impact  assessment  on  a  possible  initiative  on  cross-border  transfer  of 
registered office.. Subsequently, the Commission will consider the appropriateness of 
a legislative initiative. 

4.2. 

Improving the mechanism for cross-border mergers 

Directive 2005/56/EC on cross-border mergers of limited-liability companies was a 
big step forward for cross-border mobility of companies in the EU. The framework 
thus  created  should  now  be  adjusted  to  meet  the  changing  needs  of  the  Single 
Market. The Commission will analyse the conclusions of a forthcoming study on the 
application of the Directive which will be available in the second half of 2013, taking 
into account both the experience gained and future needs in this field. There seems to 
be a particular case for enhancing the procedural rules, given that a number of issues 
have been identified as a potential source of uncertainty and complexity, in particular 
a lack of harmonisation as regards methods for valuation of assets, the duration of the 
protection period for creditors’ rights, and the consequences for creditors’ rights on 
completion  of  the  merger.  The  2012  public  consultation  shows  strong  support  for 

42 

43 

373 out of a total of 496 replies (337 in favour of a directive, 36 in favour of other measures), see 
feedback statement of 17 July 2012 and responses received at: 
http://ec.europa.eu/internal_market/company/modern/index_en.htm#consultation2012. 
Case C-378/10, VALE, point 34 

EN 

12 

   EN 

 
                                                 
improvement  of  the  cross-border  mergers  framework44.  The  study  that  is  being 
conducted will assist the Commission in preparing the necessary follow-up steps. 

In 2013 the Commission aims to report on the outcome of the study and subsequently 
it will consider the appropriateness of amendments to the Directive on cross-border 
mergers. 

4.3. 

Enabling cross-border divisions 

Divisions  at  national  level  have  for  some  years  been  harmonised  by  Directive 
82/891/EEC. However, this has not yet been reflected in the EU legislation on cross-
border  transactions,  under  which  only  cross-border  mergers  have  been  explicitly 
enabled. Currently, companies wishing to undertake a cross-border division have to 
perform several operations, such as creation of a subsidiary and a subsequent transfer 
of assets or a domestic division followed by a transfer of seat. Moreover, a clear legal 
framework  setting  out  the  conditions  under  which  cross-border  divisions  can  be 
made directly would help to reduce costs significantly. There is in fact considerable 
demand  for  a  clear  legal  framework  for  cross-border  divisions,  as  demonstrated  by 
the results of the 2012 public consultation45. 

In  2013,  following  the  results  of  the  study  on  the  application  of  the  Directive  on 
cross-border  mergers,  the  Commission  will  consider  an  initiative  to  provide  a 
framework  for  cross-border  divisions,  possibly  though  an  amendment  of  the  cross-
border mergers Directive, as the latter is well known to stakeholders and it provides a 
tested framework for cross-border restructurings. 

4.4. 

Smart legal forms for European SMEs 

European SMEs (small and medium-sized enterprises) have an essential role to play 
in  strengthening  the  EU  economy,  especially  in  the  face  of  the  economic  crisis. 
Significant work has already been done to make life easier for SMEs in a number of 
areas  in  which  they  seem  to  have  problems,  including  actions  following  the  2011 
review  of  the  Small  Business  Act46.  As  regards  company  law  in  particular,  the 
Commission  believes  that  SMEs  need  simpler  and  less  burdensome  conditions  for 
doing business across the EU and it remains a clear priority for the Commission to 
take concrete measures in this regard. 

In view of the lack of progress in the negotiations of  the proposal  of the European 
Private  Company  (SPE)  Statute,  the  2012  public  consultation  demonstrated 
stakeholders'  hesitation  about  continuing  the  negotiations  on  this  proposal.  At  the 
same  time  the  stakeholders  were  keen  to  explore  alternative  measures47.  The 
Commission  will  continue  to  explore  means  to  improve  the  administrative  and 
regulatory  framework  in  which  SMEs  operate  in  order  to  facilitate  SMEs’  cross-
border activities, provide them with simple, flexible and well-known rules across the 
EU and reduce the costs they are currently facing. 

44 
45 
46 
47 

331 out of a total of 496 replies. 
318 out of a total of 496 replies. 
COM(2011) 78, 23.2.2011. 
251 out of a total of 496 replies. 

EN 

13 

   EN 

 
                                                 
The Commission will continue to work on the follow-up to the SPE proposal with a 
view to enhancing cross-border opportunities for SMEs. 

4.5. 

Promoting  and  improving  awareness  of  the  European  Company  (SE)  and  the 
European Cooperative (SCE) Statutes 

The  SE  Statute  brought  a  number  of  advantages  for  companies  with  a  European 
dimension and, with 1 426 SEs registered as of October 201248, interest in this legal 
form  continues  to  grow.  According  to  the  2010  report  on  the  application  of  the 
Statute49,  companies  have  opted  for  this  legal  form  because  of  its  European  image 
and the possibility to transfer the registered office and to restructure more effectively 
on a cross-border basis. At the same time, stakeholders complain about high set-up 
costs,  complex  procedures  and  legal  uncertainty,  often  stemming  from  the  many 
references to national law, lack of sufficient awareness and practical experience with 
the  Statute,  and  some  reportedly  strict  requirements  in  the  Statute  that  must  be 
fulfilled to create an SE. Similarly, as far as the SCE is concerned, the Commission 
takes note of the fact that, following extended consultation50, the complexity of the 
Regulation is considered to be one factor explaining the weak use of this instrument 
(only 25 SCEs incorporated until July 2012), the other being the lack of awareness of 
the existence of this instrument and of understanding of its benefits for SMEs. 

The respondents to the 2012 consultation were supportive of revising EU legal forms 
in  general51.  However,  as  the  expected  benefits  of  a  revision,  in  terms  of 
simplification  and  improvement  of  both  Statutes,  would  not  outweigh  the  potential 
challenges involved in reopening the discussions, the  Commission  does not  plan to 
revise them in the short term. Instead, the Commission will focus on improving the 
awareness of companies and their legal advisers about the SE and the SCE Statutes 
(including the aspects related to employee involvement) in order to encourage them 
to opt for these legal forms more often. 

The  Commission  will,  in  2013,  launch  an  information  campaign  to  increase 
awareness of the European Company (SE) Statute through a comprehensive website 
bringing  together  practical  advice  and  relevant  documents  on  the  Statute  and  will 
examine how a similar action can be undertaken for the promotion of the European 
Cooperative (SCE) Statute. 

4.6. 

Groups of companies 

The 2012 public consultation has shown that the public is in favour of well-targeted 
EU  initiatives  on  groups  of  companies52.  In  particular  two  items  have  been 
previously identified on the basis of the reflection group report53 and other material 
submitted  to  the  Commission  before  or  during  the  consultation.  Simplified 
communication  of  a  group’s  structure  to  investors  and  an  EU-wide  move  towards 

48 
49 
50 
51 
52 

53 

EN 

See http://ecdb.worker-participation.eu/ 
Available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0676:FIN:EN:PDF. 
See http://ec.europa.eu/enterprise/policies/sme/public-consultation/past-consultations/index_en.htm 
61 % (307 out of 496) in favour. 
See 
17 
statement 
http://ec.europa.eu/internal_market/company/modern/index_en.htm#consultation2012. 
For  more 
see 
http://ec.europa.eu/internal_market/company/docs/modern/reflectiongroup_report_en.pdf. 

information, 

Reflection 

responses 

feedback 

received 

report, 

Group 

please 

pages 

2012 

July 

and 

of 

at: 

59-75, 

14 

   EN 

 
                                                 
recognition  of  the  concept  of  ‘group  interest’  would  be  welcomed  by  stakeholders. 
On the other hand the idea of a comprehensive legal EU framework covering groups 
of companies was met with caution. 

The  Commission  will,  in  2014,  come  with  an  initiative  to  improve  both  the 
information available on groups and recognition of the concept of ‘group interest’. 

5. 

CODIFICATION OF EU COMPANY LAW 

European company law provisions are spread across many different legal acts. This 
makes it difficult for users to have a clear overview of applicable law in this policy 
area. The large number of Directives dealing with company law also carries the risk 
of  unintended  gaps  or  overlaps.  The  2012  public  consultation  shows  that  there  is 
strong support for the idea of merging existing company law Directives54. More than 
75 %  of  respondents55  asked  for  either  the  creation  of  a  single  EU  company  law 
instrument  absorbing  the  existing  Directives  or  several  mergers  of  groups  of 
Directives  with  a  similar  scope.  The  European  Parliament  also  supports  this 
approach56. 

The  Commission  considers  it  important  to  make  EU  company  law  more  reader-
friendly and to reduce the risk of future inconsistencies. It will therefore prepare the 
codification  of  major  company  law  Directives  and  their  merger  into  a  single 
instrument. This exercise will encompass Directives covering mergers and divisions, 
the formation of public limited companies and the alteration and maintenance of their 
capital, single-member private limited companies, foreign branches and certain rules 
on disclosure, validity and nullity57. It will also include the changes introduced by the 
recent Directive on the interconnection of business registers58. Progress on the work 
will to some extent depend on the conclusion of parallel initiatives such as the crisis 
management  framework,  which  involves  minor  amendments  to  existing  company 
law Directives. 

The  Commission  plans  to  adopt,  in  2013,  a  proposal  codifying  and  merging  major 
company law Directives. 

6. 

CONCLUSION 

The  Commission  has  identified  in  this  Action  Plan  a  number  of  concrete  lines  of 
action  in  the  area  of  company  law  and  corporate  governance  to  ensure  further 
improvements  in  these  areas.  These  include  in  particular  initiatives  increasing  the 
level of transparency between companies and their shareholders, initiatives aimed at 
encouraging and facilitating long-term shareholder engagement and initiatives in the 

54 

55 
56 

57 

58 

of 

and 

July 

2012 

feedback 

statement 

See 
17 
http://ec.europa.eu/internal_market/company/modern/index_en.htm#consultation2012. 
376 out of a total of 496 replies. 
European Parliament Resolution of 14 June 2012 on the future of European company law, see point 10, 
P7_TA(2012)0259: http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-
2012-0259+0+DOC+XML+V0//EN&language=EN. 
Directives 1977/91/EEC, 1982/891/EEC, 1989/666/EEC, 2005/56/EC, 2009/101/EC, 2009/102/EC and 
2011/35/EU. 
Directive 2012/17/EU. 

responses 

received 

at: 

EN 

15 

   EN 

 
                                                 
field  of  company  law  supporting  European  businesses  and  their  growth  and 
competitiveness.  The  initiatives  in  the  area  of  corporate  governance  do  not  aim  at 
altering the current approach, but ensure, by encouraging proper interaction between 
companies,  their  shareholders  and  other  stakeholders,  that  this  approach  becomes 
more efficient. As regards company law, the initiatives proposed focus in particular 
on  providing  companies  more  legal  certainty,  in  particular  as  regards  cross-border 
operations.  The  Commission  will  continue  to  explore  with  stakeholders  possible 
further  actions  to  ensure  that  the  EU  framework  for  company  law  and  corporate 
governance contributes to the objective of smart, sustainable and inclusive growth. 

A  synopsis  of  these  initiatives  is  provided  in  the  annex.  Stakeholders  who  are 
interested  in  following  developments  in  more  detail  are  invited  to  consult  the 
Commission’s website regularly: 

http://ec.europa.eu/internal_market/company/index_en.htm 

EN 

16 

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Annex: Synopsis of the main initiatives of this Action Plan 

Initiative 

Disclosure  of  board  diversity  policy  and  of  risk  management 
arrangements 

Instrument and 
expected timing 

Amendment of the 
accounting Directive, 
2013 

Improving  the  visibility  of  shareholdings  in  listed  companies  in 
Europe 

Securities legislation, 
2013 

Improving  the  quality  of  corporate  governance  reports  and  in 
particular  the  quality  of  explanations  which  should  be  provided 
by  listed  companies  that  depart  from  the  corporate  governance 
code provisions 

Possibly non-legislative 
initiative, 2013 

Disclosure  of  voting  and  engagement  policies  as  well  as  voting 
records by institutional investors 

Improving  transparency  on  remuneration  policies  and  individual 
remuneration of  directors,  and  granting shareholders  the right to 
vote on the remuneration policy 

Improving shareholder control over related party transactions 

Possibly Shareholders’ 
rights Directive, 2013 

Improving 
frameworks applicable to proxy advisors 

transparency  and 

the 

the  conflict  of 

interest 

Working closely with competent national  authorities and ESMA 
with a view to developing guidance to increase legal certainty as 
regards 
investor  cooperation  on 
corporate governance issues and the rules on acting in concert 

the  relationship  between 

Guidance, 2013 

Increasing  awareness  of  the  European  Company  (SE)  Statute 
(including employees' involvement) and possibly of the European 
Cooperative (SCE) Statute. 

Information campaign, 
2013 

The  Commission  will  continue  to  work  on  the  follow-up  to  the 
SPE  proposal  with  a  view 
to  enhancing  cross-border 
opportunities for SMEs 

Further exploration 

Identification  of  obstacles  to  employee  share  ownership  in 
Member States 

Ongoing analysis 

Rules on cross-border transfer of registered office 

Further investigation, 
2013 and possibly an 
initiative 

Revision of the rules on cross-border mergers 

Study, 2013 and possibly 

EN 

17 

   EN 

 
 
Rules on cross-border divisions 

Codification of major company law Directives 

amending the cross-
border mergers Directive 

Proposal for a codified 
company law Directive, 
2013 

Improving the information available on groups and recognition of 
the concept of ‘group interest’ 

Initiative to be 
determined, 2014 

EN 

18 

   EN