Cablegate: Responses to Commission Communication On Company

Published: Thu 18 Dec 2003 08:33 AM
This record is a partial extract of the original cable. The full text of the original cable is not available.
E.O. 12958: N/A
SUBJECT: Responses to Commission Communication on Company
Law and Corporate Governance
This cable is sensitive but unclassified. Not/not for
Internet distribution.
Reftel Frankfurt 10696 (2002)
1. (SBU) Summary: The European Commission has
published a synthesis of the results of the consultation on
its Communication on "Modernising Company Law and enhancing
Corporate Governance in the European Union". While there
was widespread support for a very large majority of the
proposals, some concerns on specific measures or their
legislative nature were expressed, for instance concerning
the use of directives in the field of corporate governance,
which may not take sufficient account of national legal
frameworks and traditions. End summary.
2. (SBU) The European Commission has published a
synthesis of the results of the consultation on its
Communication on "Modernising Company Law and enhancing
Corporate Governance in the European Union". The Action
Plan set out in the Communication had been adopted in May
2003. It proposed a number of initiatives aimed at
strengthening shareholders' rights, reinforcing protection
for employees and creditors and increasing the efficiency
and competitiveness of European business. Moreover, a
series of proposed corporate governance initiatives aims at
boosting confidence in the capital markets.
3. (SBU) The Plan was open for public consultation
until mid-September. The Commission received 114 responses,
mainly from industry representatives, institutional
investors, financial service providers and associated
professions. Few respondents commented on all points of the
Action Plan but only to the issues of greatest concern to
them. Thus, in the following reference to a "majority of
respondents" always means a majority of those who commented
on a specific issue.
General Comments
4. (SBU) The Commission stresses that there was
widespread support for a very large majority of the
proposals for legislative and non-legislative action and
that most responses also agreed to the timing envisaged for
the realization of the Action Plan and the prioritization
order of the individual measures. Nevertheless some
concerns on specific measures or their legislative nature
were also expressed.
5. (SBU) The large majority of respondents considered
the Commission's approach combining self-regulatory market
solutions, co-ordination of corporate governance codes and
legislation as appropriate. Several respondents, however,
expressed their concerns about an apparent contradiction
between the Commission's declared aim to avoid over-
regulation and the establishment of an extensive legislative
program, in particular the use of directives in the field of
corporate governance. It was generally argued that
directives are not an appropriate instrument in this area
due to their lack of flexibility and the risk the they could
be followed by further overly prescriptive and detailed
implementing measures. Thus, a large number of respondents
favored a more extensive use of recommendations, which would
allow for adjustments to nation legal frameworks and
traditions. Moreover, many respondents commented that the
Commission's timing might be too ambitious and would not
leave enough time for proper consultation of all interested
parties. It was also suggested to subject the main measures
of the Action Plan to detailed impact analysis.
Comments Regarding Corporate Governance
6. (SBU) The very large majority of respondents agreed
with the Commission's assessment that there is no need for
an EU corporate governance code, but that systems can be
expected to develop and progress in a "natural" way under
market pressure. General agreement was expressed on the
principle of enhanced corporate governance disclosure.
However, many respondents would prefer a recommendation over
a directive as an instrument for introducing some disclosure
requirements. Concerns were also expressed about the
potential duplication of existing requirements under
national legislation, about the scope of the required
Corporate Governance Statement and its inclusion in the
annual reports.
7. (SBU) The general feeling was that greater
accountability of institutional investors should be ensured.
However, the Commission's legislative initiative to that end
was received much more cautiously by the majority of
respondents. There was wide support for the Commission's
view that institutional investors should not be required to
systematically exercise their voting rights.
8. With regard to the objective to strengthen shareholders
rights, broad support was expressed for encouraging the use
of electronic facilities for receipt and dissemination of
information, provided that this was not made mandatory. A
very large majority of respondents supported the proposal in
the Action Plan to develop a regulatory framework to
encourage the exercise of various shareholders' rights in
listed companies and to solve problems related to cross-
border voting. This legislative proposal was the one most
positively received. Very diverging views were, however,
expressed on the proposal to establish the "one share = one
vote" principle throughout the EU.
9. (SBU) A significant majority of respondents
welcomed the Commission initiative to prepare a
recommendation aiming at strengthening the role of
independent executive and supervisory directors. A very
large majority suggested that the responsibility for
identifying candidates to fill board vacancies should in
principle be entrusted to a group composed mainly of
independent non-executive directors. Moreover, many
requested that with regard to the number of mandates that
may be held concurrently a one-size-fits-all approach would
take insufficient account of the complexity of individual
Other Issues
10. (SBU) Second Company Law Directive on the coordination
of safeguards regarding the maintenance and alteration of EU
public limited liability companies' capital: A very large
majority of respondents supported the Commission in
considering a rapid modernization.
11. (SBU) Disclosure of financial and non-financial
information: A small majority of respondents agreed with the
Commission on the need for additional measures at the EU
level to improve the information disclosed by groups when
the parent company is not listed. However, the need to
assess carefully the costs and benefits for reporting
companies and users of such statements was stressed.
12. (SBU) Tenth Company Law Directive cross-border mergers
and Fourteenth Company Law Directive on cross-border
transfer of seat: The Commission's intention to present
proposals in the short term was supported by a very large
majority of respondents.
13. (SBU) European legal statute for small and medium-sized
enterprises: The proposal to launch a feasibility study to
evaluate the advantages and problems of a possible statute
was very well received.
14. (SBU) Comment: The report on the modernization of
company law (reftel), which was produced in November 2002 by
the so-called Winter group at the request of the Commission
recommended a broader use of alternatives to primary
legislation through directives. In its Communication, the
Commission did not really follow this advice, aiming at
relying on directives to a significant extent and not so
much on recommendations or other alternatives. Not
surprisingly, respondents have criticized this approach.
End comment.
15. (U)This cable coordinated with USEU and Embassy
16. (U)POC: James Wallar, Treasury Representative, e-mail; tel. 49-(69)-7535-2431, fax 49-(69)-
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