Brussels, 08/03/2006 (Agence Europe) - On 6 March the European Corporate Governance Forum (EFCG) published a declaration clarifying the 'comply or explain' principle, which obliges companies to justify any deviation from corporate governance codes. In 2006 the EFCG will continue work on the rules and rights of shareholder, as well as continue further work to examine the "one share one vote" concept.
In its eight point statement, the EFCG said that it “firmly and unanimously” supported the 'comply or explain' principle, mainly because this approach more effectively merged national legal structures and corporate governance. The EFCG considers that effective application of this principle “constitutes a better and more efficient approach than detailed legislation”. The EFCG explains that in order for this to work the principle will need to be anchored in national legislation and is therefore urging Member States which have not done so, to introduce a national code, as well as an application follow-up system. Shareholders should have the option of requesting their boards of directors to take account of their decision and apply their codes of good governance or not. In this connection the EFCG considers that the “regulatory authorities must limit role to checking the existence of a declaration” from companies on corporate governance and should not interfere in the assessments. According to the Forum, this assessment should be carried out by shareholders and “ought to constitute an element in the voting decision”. According to the Forum, “particular attention” should also be paid to “companies controlled by one or several large shareholders”. In cases where a company is quoted on the stock market in several Member States, the EFCG considers that “at least a code should be applied”, while avoiding “double application”.
In its annual report for 2005 the Forum indicates that it is interested in the role and rights of shareholders. It declares that it is “unanimously” in favour of an “external study” sought by the Commission on the concept of “one share one vote” to deal with the issue of proportionality between capital and control. In October 2005, Charlie McCreevy, European Commissioner for the internal market indicated that he wanted to help get rid of a practice which he regarded as discriminatory against shareholders, by recommending the application of the principle of “one share one vote” (EUROPE 9052). In 2006, the EFCG will set up a work group to work on this delicate matter and plan a conference. It also examined the draft directive for facilitating the cross-border exercise of shareholders' votes in companies quoted on the stock market, an initiative it had wholeheartedly called for (EUROPE 9106 and 8978).
Still in the area of shareholders, the Forum identified powers that should be conferred on shareholders so that a high level of corporate governance is assured. This mainly involves the right of engaging certain individuals in a company and, the right of dismissing them, voting on important deals and changes to the structure of a company's capital. In 2006 the EFCG will discuss the repercussions of publishing he identity of shareholders, the process for voting in financial institutions and the impact of the securities lending system.
In the context of internal enterprise control, the EFCG believes that at this stage it is not necessary to take new initiatives. It was also unanimous in refusing the imposition of “an obligation on boards of directors to certify the efficiency of internal controls”. According to its members, the amendments of the 4th and 7th European directives on corporate law would lead to the publication of more information. The Forum took note of the public consultation open till 31 March on the future priorities of the action plan on modernising corporate law and strengthening corporate governance in the EU (EUROPE 9095).