Corporate Governance - European Commission Approves New Action Plan

On 12 December 2012, the European Commission approved a new action plan outlining future initiatives in the areas of company law and corporate governance for the purpose of improving corporate competitiveness and sustainability.

The action plan identifies three main areas for action: (i) enhancing transparency, (ii) increasing shareholder engagement, and (iii) supporting corporate growth and competitiveness. These goals are to be achieved through the implementation into the national laws of the Member States of sixteen different actions considered fundamental.

As regards enhancing transparency between companies and their shareholders, the Commission would like to introduce measures aimed at:

• encouraging companies to enhance board diversity (i.e. in terms of skills and views of the board members) and assign greater weight to the reporting of non-financial risks;
• improving corporate governance reporting on the reasons for derogating from particular recommendations of the applicable corporate governance codes;
• improving the visibility of shareholders and the identification of shareholders by issuers; and
• strengthening the transparency rules applicable to the voting and engagement policies of institutional investors.

Various initiatives will also be taken to encourage and facilitate long-term shareholder engagement in order to avoid the inability to take corrective action and the supervision of management exclusively by the board. These initiatives include:

• ensuring greater transparency with regard to remuneration policies and the individual remuneration of directors, as well as a right of shareholders to vote on and approve remuneration policies and the remuneration report;
• implementing adequate safeguards to protect the interests of shareholders in related-party transactions, i.e. transactions between the company and its directors and/or controlling shareholders (conflicts of interests, corporate opportunities, etc.);
• ensuring a coherent and effective operational framework for proxy advisors, especially as regards transparency and conflicts of interest;
• clarifying the concept of "acting in concert" with a view to increasing legal certainty on the relationship between investor cooperation with corporate governance issues and the rules on acting in concert; and
• investigating whether employee share ownership can and should be encouraged.

Finally, the Commission will improve the legal framework for cross-border transactions in order to support the growth and competitiveness of European businesses. To this end, various actions will be taken with respect to:

• the cross-border transfer of a company's registered office without the loss of legal personality;
• the cross-border merger rules, in particular asset valuation methods, the duration of the period of protection for creditors, and the consequences of completion of the merger for creditors;
• a new legal framework for cross-border divisions;
• follow-up of the proposed European Private Company Statute with a view to enhancing cross-border opportunities for SMEs;
• information campaign on the European Company and European Cooperative Statutes in order to encourage companies to opt for these corporate forms; and
• measures targeting corporate groups, i.e. greater transparency regarding the information available about corporate groups and recognition of the concept of "group interest".

In addition, the action plan foresees merging all major company law directives into a single instrument. This would make European company law more accessible and comprehensible and reduce the risk of future inconsistencies.

Certain measures proposed by the European Commission have already been implemented in Belgium, such as the right of the shareholders of a Belgian listed company to vote on and approve the remuneration policies of the company's executive directors and the remuneration report. However, many of the proposed measures will require legislative initiatives that will apply either to only listed companies (e.g., voting policies of institutional investors) or to all companies, listed or not (e.g., provisions on cross-border divisions).

As regards the timeframe, the European Commission aims to take these initiatives in 2013, with the exception of those concerning corporate groups, which are scheduled for 2014.

We will of course keep you informed of any new legislative developments in these areas.