This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 FRANKFURT 010308 
 
SIPDIS 
 
STATE FOR EUR PDAS RIES, EB, EUR/AGS, AND EUR/ERA 
STATE PASS FEDERAL RESERVE BOARD 
STATE PASS NSC 
TREASURY FOR DAS SOBEL 
TREASURY ALSO FOR ICN COX, STUART 
PARIS ALSO FOR OECD 
TREASURY FOR OCC RUTLEDGE, MCMAHON 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EUN
SUBJECT: Responses to Commission Communication on Company 
Law and Corporate Governance 
 
T-IA-F-03-0064 
 
This cable is sensitive but unclassified.  Not/not for 
Internet distribution. 
 
Reftel Frankfurt 10696 (2002) 
 
¶1.   (SBU)     Summary:  The European Commission has 
published a synthesis of the results of the consultation on 
its Communication on "Modernising Company Law and enhancing 
Corporate Governance in the European Union".  While there 
was widespread support for a very large majority of the 
proposals, some concerns on specific measures or their 
legislative nature were expressed, for instance concerning 
the use of directives in the field of corporate governance, 
which may not take sufficient account of national legal 
frameworks and traditions.  End summary. 
 
¶2.   (SBU)     The European Commission has published a 
synthesis of the results of the consultation on its 
Communication on "Modernising Company Law and enhancing 
Corporate Governance in the European Union".  The Action 
Plan set out in the Communication had been adopted in May 
¶2003.  It proposed a number of initiatives aimed at 
strengthening shareholders' rights, reinforcing protection 
for employees and creditors and increasing the efficiency 
and competitiveness of European business.  Moreover, a 
series of proposed corporate governance initiatives aims at 
boosting confidence in the capital markets. 
 
¶3.   (SBU)     The Plan was open for public consultation 
until mid-September.  The Commission received 114 responses, 
mainly from industry representatives, institutional 
investors, financial service providers and associated 
professions.  Few respondents commented on all points of the 
Action Plan but only to the issues of greatest concern to 
them.  Thus, in the following reference to a "majority of 
respondents" always means a majority of those who commented 
on a specific issue. 
 
General Comments 
----------------- 
 
¶4.   (SBU)     The Commission stresses that there was 
widespread support for a very large majority of the 
proposals for legislative and non-legislative action and 
that most responses also agreed to the timing envisaged for 
the realization of the Action Plan and the prioritization 
order of the individual measures.  Nevertheless some 
concerns on specific measures or their legislative nature 
were also expressed. 
 
¶5.   (SBU)     The large majority of respondents considered 
the Commission's approach combining self-regulatory market 
solutions, co-ordination of corporate governance codes and 
legislation as appropriate.  Several respondents, however, 
expressed their concerns about an apparent contradiction 
between the Commission's declared aim to avoid over- 
regulation and the establishment of an extensive legislative 
program, in particular the use of directives in the field of 
corporate governance.  It was generally argued that 
directives are not an appropriate instrument in this area 
due to their lack of flexibility and the risk the they could 
be followed by further overly prescriptive and detailed 
implementing measures.  Thus, a large number of respondents 
favored a more extensive use of recommendations, which would 
allow for adjustments to nation legal frameworks and 
traditions.  Moreover, many respondents commented that the 
Commission's timing might be too ambitious and would not 
leave enough time for proper consultation of all interested 
parties.  It was also suggested to subject the main measures 
of the Action Plan to detailed impact analysis. 
 
Comments Regarding Corporate Governance 
--------------------------------------- 
 
¶6.   (SBU)     The very large majority of respondents agreed 
with the Commission's assessment that there is no need for 
an EU corporate governance code, but that systems can be 
expected to develop and progress in a "natural" way under 
market pressure.  General agreement was expressed on the 
principle of enhanced corporate governance disclosure. 
However, many respondents would prefer a recommendation over 
a directive as an instrument for introducing some disclosure 
requirements.  Concerns were also expressed about the 
potential duplication of existing requirements under 
national legislation, about the scope of the required 
Corporate Governance Statement and its inclusion in the 
annual reports. 
 
¶7.   (SBU)     The general feeling was that greater 
accountability of institutional investors should be ensured. 
However, the Commission's legislative initiative to that end 
was received much more cautiously by the majority of 
respondents.  There was wide support for the Commission's 
view that institutional investors should not be required to 
systematically exercise their voting rights. 
 
¶8.   With regard to the objective to strengthen shareholders 
rights, broad support was expressed for encouraging the use 
of electronic facilities for receipt and dissemination of 
information, provided that this was not made mandatory.  A 
very large majority of respondents supported the proposal in 
the Action Plan to develop a regulatory framework to 
encourage the exercise of various shareholders' rights in 
listed companies and to solve problems related to cross- 
border voting.  This legislative proposal was the one most 
positively received.  Very diverging views were, however, 
expressed on the proposal to establish the "one share = one 
vote" principle throughout the EU. 
 
¶9.   (SBU)     A significant majority of respondents 
welcomed the Commission initiative to prepare a 
recommendation aiming at strengthening the role of 
independent executive and supervisory directors.  A very 
large majority suggested that the responsibility for 
identifying candidates to fill board vacancies should in 
principle be entrusted to a group composed mainly of 
independent non-executive directors.  Moreover, many 
requested that with regard to the number of mandates that 
may be held concurrently a one-size-fits-all approach would 
take insufficient account of the complexity of individual 
companies. 
 
Other Issues 
------------- 
 
¶10.  (SBU) Second Company Law Directive on the coordination 
of safeguards regarding the maintenance and alteration of EU 
public limited liability companies' capital: A very large 
majority of respondents supported the Commission in 
considering a rapid modernization. 
 
¶11.  (SBU) Disclosure of financial and non-financial 
information: A small majority of respondents agreed with the 
Commission on the need for additional measures at the EU 
level to improve the information disclosed by groups when 
the parent company is not listed.  However, the need to 
assess carefully the costs and benefits for reporting 
companies and users of such statements was stressed. 
 
¶12.  (SBU) Tenth Company Law Directive cross-border mergers 
and Fourteenth Company Law Directive on cross-border 
transfer of seat: The Commission's intention to present 
proposals in the short term was supported by a very large 
majority of respondents. 
 
¶13.  (SBU) European legal statute for small and medium-sized 
enterprises: The proposal to launch a feasibility study to 
evaluate the advantages and problems of a possible statute 
was very well received. 
 
¶14.  (SBU) Comment:  The report on the modernization of 
company law (reftel), which was produced in November 2002 by 
the so-called Winter group at the request of the Commission 
recommended a broader use of alternatives to primary 
legislation through directives.  In its Communication, the 
Commission did not really follow this advice, aiming at 
relying on directives to a significant extent and not so 
much on recommendations or other alternatives. Not 
surprisingly, respondents have criticized this approach. 
End comment. 
¶15.   (U)This cable coordinated with USEU and Embassy 
Berlin. 
 
¶16.   (U)POC: James Wallar, Treasury Representative, e-mail 
wallarjg2@state.gov; tel. 49-(69)-7535-2431, fax 49-(69)- 
7535-2238 
 
Bodde