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Corporate Governance and Company Law News

Topics: New Priorities in European Company Law, Copenhagen Conference on Control-Enhancing Mechanisms in Corporate Governance, Statement of the European Corporate Governance Forum on Proportionality, Paper of the European Corporate Governance Forum Working Group on Proportionality, Cartesio case at the ECJ, running consultations, number of SEs, Books & Articles

Commissioner McCreevy sets out new priorities in European company law

In the follow-up to the public consultation held in 2006 on future priorities in EU company law, on 3 October Commissioner McCreevy introduced, in front of the European Parliament’s Legal Committee, the DG market’s new agenda for the forthcoming period.

The first surprise was the cancellation of all activities in the field of the one-share-one-vote principle (also called proportionality principle). McCreevy justified this step by reference to the results of the ISS study, which showed that there is no sound causal link between the one-share-one-vote principle and the economic performance of companies.

The next surprise was that the European Private Company (EPC) had now become the top priority of the DG market activities, after a long period during which the Commission was highly reluctant to move forward in this area. Commissioner McCreevy said that the EPC will be a vehicle to reduce compliance costs and to enhance the mobility and competitiveness of European SMEs. He announced a legislative proposal for an EPC which should be ready by mid-2008 at the latest. From the employee perspective, it has to be ensured that the EPC statute will contain sound worker participation provisions (see ETUC position).

Somewhat less surprising was the announcement to cancel the work on the 14th company law directive. According to McCreevy, the economic analysis of the possible added value of a directive had proved inconclusive. Furthermore, he said that there exist already sufficient means for cross-border mobility, such as the European Company Statute (SE) and the cross-border merger directive. Important voices in the European Parliament have been quite critical of the decision to cancel the 14th company directive because there remain some mobility gaps. The SE and the cross-border merger directive deal with different legal questions than those that would be covered by a 14th company law directive.

Commissioner’s statement on future priorities

ISS study and other information regarding one share one vote

Copenhagen Conference on Control-Enhancing Mechanisms in Corporate Governance

On September 18 the Conference on Control-Enhancing Mechanisms in Corporate Governance took place in Copenhagen. The conference was organised by the European Corporate Institute, Copenhagen Business School. It was sponsored by Hermes Investments and the Novo Nordisk Foundation.

The proponents of the proportionality principle came under quite heavy attack, not only from representatives of companies (i.e. Novo Nordisk, Pernod Ricard, and Fuller) but also from academics and from a Danish government civil servant who opposed EU intervention.

The role of employees was hardly mentioned at the conference. However, Christopher Clerc from Sherman & Sterling said that broader assessments are needed, including the effects on stakeholders including employees, and the effects on research and innovation. Lars R. Sørensen, the CEO of Novo Nordisk, stressed that NN’s system with different shares favours long-termism, which is decisive in the pharmaceutical sector and also involves a concern for employees (reported by Herman Knudsen SEEurope Network)

Conference background

Statement of the European Corporate Governance Forum on the one-share-one-vote principle

On September 12th the European Corporate Governance Forum released a Statement on Proportionality which contains several suggestions for action. This statement is basically driven by a shareholder-value approach, as is the case in most of the measures taken in the field of company law and corporate governance. As far as the definition of proportionality is concerned, the paper refers to that given by the High-Level Group of Company Law Experts in 2002. Most of the suggested measures can also be found in the paper from the Forum's working group on Proportionality (see below).

According to the statement, there is at the current state of information no basis for mandating across the EU as a whole proportionality rules to which all listed companies in the EU would be required to adhere. On the other hand, the paper highlights that there are still some concerns relating to non-proportional systems.

In the light of these concerns relating to non-proportional systems, the Forum suggests the following measures to the Commission:

1. Increased transparency

2. Information gathering and follow-up

3. Developing EU voting architecture and the responsible investor

Link to the statement

Paper of the European Corporate Governance Forum Working Group on Proportionality

Beside the Statement from the European Corporate Governance Forum, a paper from the Forum's working group was also published on this issue. This paper identifies “some arrangements of co-determination” as contrary to the proportionality principle. From the standpoint of employee rights the most important facts of the paper are the following: the relevant EU objectives p.8; deviations from the proportionality principle p. 10; competing objectives p. 17.

Insofar as the paper deals with the overarching EU policy objectives, it focuses firmly on removing the remaining economic barriers for financial services and capital. There is no mention of any social aims.

In relation to the deviations from the proportionality principle, the paper establishes four different categories of such deviations. One of these categories is “other corporate institutional entrenchment mechanisms”, examples of which are share transfer restrictions, staggered board provisions, and certain codetermination arrangements. See also Annex p.32.

In identifying different reasons for the deviation from the proportionality principle, referred to as competing objectives, the paper mentions long-term and stakeholder protection as one such competing objective. The conclusion of the paper is that, although the objectives put forward in this area may well be sincere, there is doubt as to whether the means proposed to further these objectives are always appropriate and justified; sometimes, indeed, they may be in breach of free movement of capital and freedom of establishment. It has to be stressed here that – possibly contrary to the opinion expressed in the paper – rules on co-determination are consistent with the market freedoms.

Link to the Document

Cartesio decision ECJ (C-210/06)

This decision might have indirect impact on board-level participation rights (see newsletter July/August). The opinion of the Advocate General will probably be delivered before the end of this year and the decision of the ECJ will most likely come up in the fist half of 2008.

Ongoing consultations

In June the Commission launched a First phase consultation of social partners under Article 138(2) of the EC Treaty concerning the directive on transfers of undertakings. The consultation document raises, among other issues, the question of which information and consultation rules should apply to cross-border situations.

Consultation document

Beside this there is still running a consultation on the EPC. The deadline is 31 October 2007. Worker participation issues are part of this consultation (See also Newsletter July/August 2007).

Consultation document

ETUC position

Number of SEs

As of October the SEEurope database provides information on a total of 108 companies. However, only 94 out of the 108 can be considered as established – registered – SEs. For more information on existing SEs, please visit the SE section of the worker-participation website:


Information on established SEs on worker-participation.eu

Books & Articles

Claire Leca, 'The Participation of Employees’ Representatives in the Governance Structure of the Societas Europeae' (2007) 18 European Business Law Review pp. 403-441

Beate Sjåfjell , The Golden Mean Or a Dead End? The Takeover Directive in a Shareholder Vs Stakeholder Perspective. Abstract of the article.

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