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Corporate Governance and Company Law News

Topics: Corporate Governance Conference Berlin, Consultation on the European Private Company, Commission reports on application of EU recommendations, Corporate Governance Forum, Shareholder Rights Directive, Simplification Initiative, ETUC-Action Plan, Number of SEs, Books & Articles

Corporate Governance Conference Berlin

The Corporate Governance Conference took place in Berlin on 28 June. The main items on the agenda were: Corporate Mobility within Europe, the European Private Company, and the One Share–One Vote principle (OSOV). All contributions to the conference are available on the conference web page: The next Corporate Governance Conference under the Portuguese Presidency will take place on 17 October in Lisbon.

In the context of Corporate Mobility the future 14th company law directive was the main issue. This directive will also deal with worker participation provisions. Apart from Commissioner McCreevy there was broad agreement that this directive will be a useful measure for enabling legislation in the internal market. Despite this strong support Commissioner McCreevy halted work on the 14th company law directive, justifying his action by saying that currently there are no significant results in terms of impact assessment and that there is currently a case before the ECJ (the ‘Cartesio’-case: see newsletter November 2006) whose outcome must be awaited.

The ‘Cartesio’ judgement may be delivered in autumn this year. It is quite possible that Commissioner McCreevy will see the ‘Cartesio’ judgement in the end as a sufficient base for the cross border transfer of the registered seat of companies.

In contrast, MEP Lehne demanded a proposal for a 14th company law directive. He pointed out that the question of worker participation is no longer a problem because all stakeholders have found a workable solution in the merger directive on this point.

MEP Lehne’s opinion notwithstanding, it should be noted that the solutions of the SE and merger directives are not applicable to the 14th directive without modification because in the latter case only one company is involved. In any case, a solid ‘before-and-after-principle’, as found in the SE directive, will be a proper solution in this circumstance. Moreover, MEP Lehne said that he, as part of a legislative organ, has problems leaving this question to the Court; it would be better to adhere to the treaty and its provisions in general and not only in particular cases.

On this background the contribution of Silja Maul is also of interest. She pointed out that the ‘Cartesio’ case will not, due to its individual character, provide a secure basis for restructuring operations. Important questions – for example, how is board-level participation to be dealt with – will not be clarified by this judgement. This will, for example, hinder major German companies transferring their registered offices abroad. Therefore it would be much better to lay down enabling secondary legislation.

In this circumstance Professor Sonnenberger presented a proposal for a regulation in the field of conflict rules for the company statute. But this proposal fails, due to political considerations, to provide a sound solution to the question of how board-level participation rules should be dealt with in this context, which are also generally considered part of the company statute.

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The next issue of importance at the conference was the European Private Company (EPC). Commissioner McCreevy was sceptical about the EPC. Before the Commission comes out with a proposal, impact assessments should be carried out. From his point of view it must be ensured that the EPC is in the interest of companies all over Europe. MEP Lehne strongly supported the necessity of the EPC. He referred in this context to the European Parliament resolution on this context based on Art. 192 EC-Treaty (see newsletter March 2007). In this resolution the Parliament established a deadline of the end of this year. MEP Lehne stressed that if the Commission further delayed the legislative procedure of the EPC without good reason he would recommend that the European Parliament legal committee take action against the Commission for failure to act based on Art. 192 EC-Treaty. There was also a panel on the EPC which mainly underlined the need for the statute and dealt with the issue of regulatory competition in company law.

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Finally, the issue of OSOV was also on the Conference agenda. Commissioner McCreevy conceded that the recently published study on the OSOV principle showed that there is no widespread demand to impose the OSOV principle, even from the side of investors. Against the general preferences of Commissioner McCreevy the business community opposes the OSOV principle because it prevents companies from determining their shareholder structure as they please.

MEP Lehne highlighted his critical view of Commission actions in the context of the OSOV principle. In particular, he expressed his resistance to adopting a Recommendation in this field. The views of the panel regarding OSOV were quite controversial. But it was concluded that there is no empirical evidence that the OSOV principle would lead to better company performance. In the discussion MEP Ieke van den Burg pointed out that in some cases there are good arguments against OSOV, especially when control-enhancing mechanisms are set up to protect other stakeholders. One example in this context is the double voting right to promote long-term investment in companies. At the conference in Berlin also another conference on Control Enhancing Mechanisms in Corporate Governance at the Copenhagen Business School (18 September 2007) was announced.

It should be underlined that from a labour point of view the OSOV principle, which is deeply rooted in capital-market-based ideology, should be opposed because of its potential negative impact on employee rights. If this principle is applied consistently it is foreseeable that the influence of employees in company organs will be diminished and the power of (short-term-orientated) shareholders will be strengthened. Therefore it may run contrary to long-term value creation for the benefit of all stakeholders. Moreover, the OSOV principle misleadingly suggests a ‘natural’ link between cash-flow rights and voting rights. In practice, these two rights are increasingly being decoupled through such devices as share lending, use of derivatives, and so on.

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New Consultation on the EPC

The European Commission has launched a public consultation on the obstacles companies face when conducting cross-border business in the EU and on the content of a possible European Private Company Statute. The Corporate Governance Advisory Group was involved in the preparation of the consultation- questionnaire. Responses will be taken into account in a forthcoming impact assessment and possible legislative proposal. The deadline for responses is 31 October 2007.The questionnaire contains detailed questions on Social aspects, namely employees' involvement (information, consultation and participation) in the company's decision-making process (p. 8 and p. 14 of the consultation document).

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Commission reports on application of EU recommendations

The European Commission has published two reports on Member States' application of EU recommendations on company directors' pay and independence.

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Corporate Governance Forum

The European Corporate Governance Forum held its last meeting on 19 June. Agenda items included the issue of proportionality of capital and control in the context of the new Commission study. A forthcoming recommendation on shareholders' rights was also discussed.

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Simplification Initiative

In the context of the recent simplification programme the Commission has published a new communication on a simplified business environment for companies in the areas of company law, accounting and auditing (document COM (2007) 394 fin).

The Commission suggests two options in cases in which company law directives address mainly domestic situations (3rd, 6th, 2nd and 12th directives).

The first option is to address the question of whether today all existing directives are still needed or whether the EU acquis in the area of company law should be reduced to those legal acts specifically dealing with cross-border problems. The second, less far-reaching option consists in focusing only on concrete, individual simplification measures in order to help EU companies. With regard to the rest of the company law acquis that addresses specific cross-border problems, as well as the areas of accounting and auditing, individual simplification measures seem to be the right response. As far as the SE is concerned, a modification of Art. 7 SE-Statute, which provides inter alia that the registered office of an SE shall be located in the same Member State as its head office, may be considered.

Stakeholders are invited to submit their views on the proposals contained in this communication by mid-October 2007.

Moreover, the Commission has published a study on the administrative costs of the EU Company Law acquis.

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Shareholder rights directive

The shareholder rights directive was adopted by the Council on 12 June. This was the last step in the legislation process (see also Newsletter March 2007). It will soon be published in the Official Journal of the European Union.

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ETUC Action plan

At its 2007 Congress in Seville the ETUC adopted a new Action Plan. In the Seville Manifesto it highlighted that the ETUC plans to go on the offensive inter alia to expose and combat ‘casino capitalism’ and short termism more generally by taxation, regulation and worker involvement. In this context the ETUC Action Plan includes several topics in the Corporate Governance field. In particular it includes items such as ‘More Worker Participation’, p. 107, ‘Corporate Governance’, p. 111, and ‘Casino Capitalism’, p. 114.

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Number of SEs

By June at least 74 SEs had been established according to the research of the SEEurope network. For more information on existing SEs please visit the worker-participation section on the SE:

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Books & Articles

The Social Development Agency (SDA) has published a booklet in the context of the Paths to Progress Project under the leadership of Brian Bercusson. It aims to map innovation on information, consultation and participation for employee involvement in corporate governance.

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