Corporate Governance : European Commission's initiatives

This article aims to concisely present the innovation of the three texts.

1. Recommendation on the quality of corporate governance reporting by listed companies

Most corporate governance is soft law. 

According to the “comply or explain” principle, a company must however explain why it has not respected the corporate governance code. 

Well, the explanations are often insufficient and unsatisfactory.

This is why the Commission has prepared a Recommandation to provide guidance to listed companies, but also to investors and Member States in order to improve the quality of corporate governance reporting and statements published by listed companies.

The information should be sufficiently clear, accurate and comprehensive to enable concerned parties to assess the consequences arising from the departure from a particular recommendation.

We will see in the next few years if these guidelines will have been enough to improve significantly the quality of corporate governance reporting by listed companies but this is at least a step forward.

2. Proposal for a Directive amending the Shareholder Rights Directive

Given the lack of involvement of most of the minority shareholders in companies in which they have invested, the Commission is willing to amend the Directive 2006/36/EC.

One way of involving the shareholders is to promote their long-term commitment. 

Several measures are planned, particularly : a better identification of shareholders so that they can exercice their rights more efficiently ; stronger transparency requirements for institutional investors and asset managers on their investment and engagement policies regarding the companies in which they invest ; a “say on pay” will be introduced. The companies will have to disclose clear, comparable and comprehensive information on their executives’ remuneration policies so that the shareholders can be informed. Besides, the remuneration policy will be regularly submitted for approval by the shareholders.

The proposal for a Directive increases considerably the content of the Directive 2006/36/EC and seems to give a more subjective dimension to transparency. 

Once again the Commission is headed in the right direction taking care of the shareholders’ investment, but it remains to be determined if these measures will have positive and tangible effects concerning the involvement of the shareholders in companies in which they have invested.

3. Proposal for a Directive on Single-Member Companies

This proposal relates to single-member private limited liability companies. 

The standardisation of this new company form enables to avoid obstacles that hamper the economic activities of SMEs within the European Union. It will be easier for SMEs to conduct their activities in another european country, without having to complete the current formalities.

The Societas Unius Personae (“SUP”) will be the common label in all Member States. It will be incorporated into each national legal system. 

The registration of SUPs will be done on-line. According to several observers, it could be a problem regarding the checking of the founders’ identity which is mandatory in the fight against money laundering. Likewise, the absence of formalities seems to go against the prevention of terrorism financing risks and of the tax evasion.

A uniform template of articles of association is provided for in the proposal. It is available in each of the Union’s languages. 

A minimum capital of € 1 is required to found a SUP. A balance sheet test and a solvency statement are intended to protect the creditors.

This proposal for a Directive has been criticised for the lack of care regarding workers’ rights, the tax evasion, the fight against the money laundery and the corporate governance.

The work of the Commission can be welcomed because the initiatives have clearly laudable objectives. Both proposals will be submitted to the European Council and the European Parliament for further consideration and discussion. It appears likely that the Single-Member Companies Directive will be seriously debated.