| Author (Person) | Davies, Eric | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Publisher | ProQuest Information and Learning | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series Title | In Focus | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series Details | 27.5.03 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Publication Date | 27/05/2003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Content Type | News, Overview, Topic Guide | In Focus | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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On 21 May 2003 the European Commission published an Action Plan on 'Modernising Company Law and Enhancing Corporate Governance in the European Union'. A response to the November 2002 Report from the High Level Group of Company Law Experts (the 'Winter Report'), the Action Plan seeks to:
On the same day, the Commission also published 10 priorities for improving and harmonising the quality of statutory audit throughout the EU. Background Issues surrounding corporate governance have been under the spotlight for some time, but were particularly newsworthy following the collapse of the US company Enron at the end of 2001. The emergence of the Enron case coincided with the January 2002 launch of the European Corporate Governance Institute - a research centre established, said the Financial Times, in a Enron's collapse injured its employees, shareholders and creditors, together with the auditing world (the company's auditor, Arthur Andersen, suffered huge job losses and no longer has an audit practice) and the wider business community. In June 2002 the business world was hit by another scandal involving a US company, when financial irregularities at the telecoms giant WorldCom were revealed. (Background to both cases can be read found on BBC News Online: The Enron affair and Q & A: The latest on WorldCom). Although both these affairs involved US companies, the implications were much wider. As the European Commission pointed out when announcing its Action Plan on corporate governance: 'Most Europeans are investors in one way or another, not only through direct shareholdings but also through pension funds, savings accounts, life assurance etc. Their livelihoods are tied up in the proper, responsible performance and governance of listed companies in which they invest.' Shareholders - perhaps sensitised by the publicity surrounding cases such as Enron and WorldCom - have recently raised concerns about companies' financial arrangements. In the week the Commission published its Action Plan, shareholders attending the annual meeting of the pharmaceutical company GlaxoSmithKline voted against a proposed pay package for its chief executive, which would have given him some £23m. With 50.72% against and 49.28% for, the vote was close, but it represented - the BBC reported - the 'biggest shareholder revolt of its kind in UK corporate history.' The 'damaging impact of recent financial scandals' is one reason cited by the Commission for modernising company law and corporate governance in the EU. Other reasons are: the importance to European companies of cross-border trade (within the Internal Market), the continuing integration of European capital markets, the development of information and communication technologies, and the Union's imminent enlargement. A better-regulated business community should encourage investment, economic growth and jobs. There is also evidence, says the Commission, that 'Well managed companies, with strong corporate governance records and sensitive social and environmental performance, outperform their competitors.' Improving corporate governance can help businesses perform up to 3% better than their rivals, according to Deminor Rating. Commenting on the increasing attention being paid to corporate governance, the company's latest annual review stated that 2002 'was undoubtedly the big year for corporate governance. It emerged from a rather exotic and once-mocked corporate and academic discipline to an omnipresent value. A host of companies from all parts of the word involved in fraud, mismanagement and other accounting fine-tuning measures surely lent impetus to its rising fame.' Whilst highlighting examples of recently-introduced codes in Switzerland, Germany and Italy, Deminor's Trends & Results 2002 also stated:
Disparities between national systems were also of concern to the international law firm Weil, Gotshal & Manges, which produced a report on corporate governance for the European Commission in April 2002. According to the Financial Times ( Also in April 2002, Commissioner Bolkestein presented a paper entitled 'A first response to Enron related policy issues' to an informal meeting of Economics and Finance Ministers in Oviedo. The paper emphasised that the Union's Financial Services Action Plan was already addressing many of the regulatory issues raised by the Enron affair (see Financial services: Commission services publish analysis of repercussions of Enron collapse). It is not only the Union's own disparate legal systems which pose problems for corporate governance legislation. In the wake of the Enron scandal, the US introduced the Sarbanes-Oxley Act, which requires senior company officials to guarantee their company's accounts are accurate. Any accounting irregularities could lead to those executives facing very large fines and up to 20 years in prison. The Act applies not only to US companies, but also to foreign ones listed on the New York Stock Exchange. However, a spokesman for Siemens, quoted in the Financial Times, said that some provisions of the Act couldn't be applied because they clashed with EU Member States' own legislation (see The Commission's proposed Action Plan is a direct response to the Final Report of the High Level Group of Company Law Experts, presented in November 2002 (the Winter Report). The Competitiveness Council of 30 September 2002 had invited the Commission 'to organise an in-depth discussion on the forthcoming report and to develop - in co-ordination with Member States - an Action Plan for Company Law, including Corporate Governance'. The Action Plan was to be 'a considered response to recent corporate failures' and 'should strengthen and clarify particularly a number of corporate governance issues such as:
Six months later the Brussels European Council of 20-21 March 2003 called 'for the adoption, by the end of 2003, of an Action Plan on better company law and corporate governance, prepared by the Commission drawing on the report of the High Level Group (Winter Group).' The issue of corporate governance is also on the agenda of other organisations. The Organisation for Economic Cooperation and Development (OECD) issued corporate governance principles in 1999, and is preparing a revised version for publication in Spring 2004. The OECD argues that 'The sharp deterioration in financial markets in the wake of a series of major corporate governance failures has shaken public confidence in the integrity of capital markets. To respond to the weaknesses in the governance framework and to restore public confidence presents a major challenge for policy-makers and regulators and financial service providers alike. In addition to measures aimed at improving financial reporting and disclosure, increasing transparency and management accountability for corporations in general, special efforts targeted to the role of financial institutions and institutional investors are warranted.' France is chairing the G8 in 2003, and one of its four main themes is 'the spirit of responsibility that not only Governments, but all economic actors, especially business corporations, need to display in the financial, social, environmental and ethical spheres'. Corporate governance will thus be discussed at the Evian Summit in June. A message of welcome to a pre-Summit meeting of G8 Finance Ministers, in Deauville, stressed the importance of corporate governance: 'In partnership with the business leaders concerned, we will ... encourage and organise responsible corporate measures towards more transparent, unambiguous and ethical conduct.' The Financial Times reported that the G8 'will call on companies involved in oil, gas and mining to make public the payments they make to governments'. At the same time as it revealed details of the Action Plan, and in a further move aimed at preventing Enron-type scandals, the European Commission also announced 10 priorities to address the quality of statutory audit in the EU. Some two million statutory audits are conducted each year in Europe. The 10 priorities are split into short- and long-term issues. The former are: modernising the Eighth Company Law Directive, reinforcing the EU's regulatory infrastructure, strengthening public oversight of the audit profession, and requiring International Standards on Auditing (ISAs) for all EU statutory audits. Medium-term priorities are: improving disciplinary sanctions, making audit firms and their networks more transparent, corporate governance (strengthening audit committees and internal control), reinforcing auditor independence and code of ethics, and deepening the Internal Market for audit services. In addition to the Communication regarding statutory audit, there are a number of other initiatives related to company law and corporate governance: the 1999 Financial Services Action Plan, the Financial Reporting Strategy of 2000, and two Communications from 2002 - on Corporate Social Responsibility and Industrial Policy in an Enlarged Europe. The Commission's Action Plan The proposed Action Plan (Communication from the Commission to the Council and the European Parliament: Modernising Company Law and Enhancing Corporate Governance in the European - A Plan to Move Forward) is a mix of legislative and non-legislative measures. It includes a number of Recommendations, which the Commission believes can - and will - be implemented more quickly than Directives or Regulations. The Plan identifies three priority periods for action (short-term - 2003-2005, medium-term - 2006-2008, and long-term - 2009 onwards) and presents its proposals under the following main headings:
Internal Market Commissioner Frits Bolkestein said: 'The Action Plan provides a clear and considered framework combining new law where necessary with other solutions. It will help deliver the integrated and modern company law and corporate governance framework which businesses, markets and the public are calling for. The Commission is shouldering its responsibilities: Corporate Europe must shape up and do the same. Working in partnership, we have a unique opportunity to strengthen European corporate governance and to be a model for the rest of the world.' The Action Plan will be discussed by the European Parliament and the Council - the Competitiveness Council has said it will treat the proposal as a priority. Comments are invited by 31 August 2003 (to markt-complaw@cec.eu.int). Further information within European Sources Online
Further information can be seen in these external links: EU Institutions Other organisations Eric Davies On 21 May 2003 the European Commission published an Action Plan on 'Modernising Company Law and Enhancing Corporate Governance in the European Union'. |
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| Subject Categories | Law | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
