EU Commission Proposes Action Plan for Corporate Governance

The following post comes to us from James R. Modrall, partner focusing on EU and international competition law at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum; the full publication, including footnotes, is available here.

On December 12, 2012, the European Commission published an Action Plan with initiatives it intends to undertake in 2013 in the fields of EU company law and corporate governance. These initiatives are primarily inspired by the responses to the Commission’s 2011 Green Paper on the EU corporate governance framework and an on-line consultation on the future of European company law. They are aimed at enhancing transparency, engaging shareholders and simplifying cross-border operations of EU companies. The Commission further plans to codify a number of major EU company law directives.

Enhancing Transparency. The Commission plans to undertake the following measures aimed at increasing transparency in EU companies:

  • A proposal (possibly through an amendment to the Accounts Directive) to strengthen disclosure requirements with respect to companies’ board diversity policies and risk management strategies;
  • A recommendation to improve the quality of companies’ corporate governance reports, in particular the quality of explanations provided under the “comply or explain” principle;
  • An initiative to improve the visibility of shareholdings in Europe (as part of the Commission’s legislative work program in the field of securities law); and
  • An initiative (possibly through an amendment to the Shareholders’ Rights Directive) on disclosure of voting and engagement policies and voting records by institutional investors.

Engaging Shareholders. The Commission intends to focus on the following initiatives to improve shareholder engagement in EU companies:

  • An initiative (possibly through an amendment to the Shareholders’ Rights Directive) to improve transparency on director remuneration policies and individual remuneration of directors, and to grant shareholders the right to vote on companies’ remuneration policies and disclosure;
  • An initiative (possibly through an amendment to the Shareholders’ Rights Directive) aimed at improving shareholders’ control over related-party transactions;
  • An initiative (possibly through an amendment of the Shareholders’ Rights Directive) to improve the transparency and conflict-of-interest frameworks applicable to proxy investors, based on the responses to ESMA’s 2012 discussion paper on proxy advisors;
  • Working closely with ESMA and competent national authorities to develop guidance regarding the relationship between investor cooperation for corporate governance purposes and the rules on “acting in concert” under the Takeover Bids Directive and the Transparency Directive; and
  • Encouraging the development of transnational employee share ownership schemes in Europe.

Cross-Border Operations. The Commission plans to take the following actions to encourage and facilitate cross-border operations of EU companies and to improve EU company law in general:

  • Conduct consultations to assess the need for an initiative on the cross-border transfer of companies’ registered offices (since there are currently no EU rules enabling companies to transfer their registered seat within the EU while preserving their legal personality);
  • Report on a current study on the application of the Cross-Border Mergers Directive and assess the need to revise the rules on cross-border mergers, given the complexity of and the uncertainty surrounding a number of (mainly procedural) issues (e.g., a lack of harmonization of valuation methods for assets, the duration of the protection period for creditors’ rights and the consequences for creditors’ rights on completion of the merger);
  • Consider an initiative to provide a framework for cross-border divisions (possibly through an amendment of the Cross-Border Mergers Directive);
  • Continue to explore ways to improve the administrative and regulatory framework applicable to SMEs to enhance their cross-border operations and to follow-up on the proposal to create a European private limited company;
  • Launch an information campaign to encourage the use of the European Company and European Cooperative statutes; and
  • Improve the information available on groups of companies and on the recognition of the “group interest” concept.

Codification. The Commission plans to merge and restate a number of major EU company law directives, including 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 nullity. The merged directive will also include the changes introduced by the recent directive on the interconnection of business registers.

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