EU Launches Consultation On Corporate Governance Transparency

by Ulrika Lomas, for LawAndTax-News.com, Brussels

06 May 2004

The European Commission late last month launched a consultation on increasing the transparency of companies' corporate governance structures and processes, as part of its Company Law and Corporate Governance Action Plan.

Explaining that the overall aim of the initiative is to increase confidence in Europe's capital markets, the EC revealed that currently, with regard to the responsibility of board members, the prevailing principle in Europe is – in contrast to the US - collective responsibility for the financial statements.

The Commission went on to reveal that it intends to clarify the application of this principle and to extend it to key non-financial information, observing that recent corporate scandals have confirmed a need to clarify that all board members are collectively responsible for financial statements and key non-financial information, and that all board members have to be held accountable for their actions and proper conduct of their responsibilities.

Observing that many companies are organised in group structures, the EC suggested that intra group transactions and groups' transactions with related parties often lack transparency seen from the perspective of investors, shareholders and other stakeholders, which can make it difficult for them to assess the true risks of investing in the companies. In relation to transactions within a group and with related parties, the Commission announced that it will be considering how further improvements can be made in line with International Financial Reporting Standards.

Furthermore, according to the EC, corporate governance practices used differ across Member States, and enhanced disclosure about these practices could provide a useful insight into what happens in practice and to promote best practices.

In its Action Plan the Commission therefore proposes that listed companies should publish an annual corporate governance statement. The main objective would be to collect all relevant information concerning corporate governance elements and practices in listed companies in one single place. This should allow shareholders, investors and other stakeholders to assess whether the company pursues good corporate governance.

Submissions commenting on the European Commission's plans are invited by June 4.

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