European Commission unveils company law reform plan to enhance governance

REGULATORY FRAMEWORK: experts call for convergence of legislation across union

The European Commission is set to unveil an action plan for company law early next year on the back of work done by the High-Level Group of Company Law Experts, which reported last week.

The group, which includes solicitor Jonathan Rickford, a member of the UK Competition Commission, called for a convergence of laws across the union that falls short of a single pan-European code for corporate governance.

The post-Enron report on a modern regulatory framework for company law in Europe said there should be enhanced corporate governance disclosure requirements.

Annual reports should refer to a national code on corporate governance or company law with which they comply or in relation to which they explain deviations.

Other recommendations included a strong and effective role for independent non-executive or supervisory directors; an 'appropriate regime' for directors' remuneration; confirming, as a matter of EU law, the collective responsibility of directors for financial and key non-financial statements of the company; and setting up a structure to co-ordinate the corporate governance efforts of member states.

Welcoming the report, internal markets commissioner Frits Bolkestein said it 'gives us a platform to begin the definition of which areas [of corporate governance] need to be strengthened.

I want a full and open debate on the report's recommendations before we define our forward strategy in early 2003'.

Vanessa Knapp, a partner at Freshfields Bruckhaus Deringer and chairwoman of the Law Society's company law committee, praised the report, and said its approach to corporate governance was sensible.

If it had proposed a single corporate governance code across Europe, 'we could have been arguing about what the code should be for some time'.

She also welcomed the shift in focus from harmonising company law to making it more facilitative.

Steven Philippsohn, a partner at City firm Philippsohn Crawfords Berwald, said that although in some respects the recommendations are more extensive than the US Sarbanes-Oxley Act, the proposals lacked teeth.

'Other than a penalty of disqualification for directors found to have made misleading statements, all sanctions are left as a matter for the individual member state,' he said.

'This may lead to a piecemeal and unsatisfactory approach to corporate governance across Europe.'

LINKS: http://europa.eu.int/comm/internal_market/en/company/company/modern/index.htm

Neil Rose