EU Corporate Guidelines

The first challenge and most important need is to know what the relevant EU corporate guidelines are, to know where they apply and to know how to find them. Unlike the United States, where corporate matters are generally covered by individual state law, in the European Union these matters have long attracted centralized legislation from Brussels which affects the entire EU (now 25 countries, which in 2007 will be joined by Bulgaria and Romania). Norway and Switzerland (although not in the EU) often legislate regarding these matters much as EU member countries do and thus, for our purposes here, we can talk about 29 countries in Europe rather than the 25 that currently make up the EU.

Legislative Activity

The legislative activity of the EU in matters involving corporate laws and guidelines has been quite extensive. For instance, as long ago as 1968, the EU enacted Directive 68/151/EEC, regulating certain matters relating to company internal accounts, for companies organized under the laws of all EU member countries. Since EU Directives and EU Regulations are, by virtue of various Treaties among the EU countries, supreme national law as well as EU law, that means that whenever one encounters an EU law (variously called 'EU Regulation' or 'EU Directive') one should realize that there is a national law equivalent of that paramount EU law. Directive 68/151/EEC in France is found in various ordinances and decrees (Ordonnance N 69-1176 and D'cret N 69-1177, both from December 1969). In Sweden, however, it is part of the Lag om 'ndring i aktiebolagslagen (1975:1385) [Law amending the Companies Act], in Romania it is part of Lege Numar: 31 Din 16/11/90 privind societatile comerciale [Law no. 31/1990 relating to commercial companies, consolidated, amended by Law no. 161/2003] and, similarly, in Malta it is in Chapter 386 of the general laws of Malta, as part of the Att dwar il-Kumpanniji [the Maltese Companies Act, 1995].

In Poland, however, Directive 68/151/EEC is part of the Ustawa o rachunkowo'ci (Dz.U. Nr. 121, poz. 591) [Accounting Law, Law of 29 September 1994, Journal of Laws No. 121, item 591], as amended and, similarly, in Norway is the equivalent of Lov nr. 56/1998 (L17.07.1998) om 'rsregnskap m. v. (regnskapsloven) [Accounting Act of 17 July 1998, No. 56]. In Estonia, it is found in both the 'riseadustik [Commercial Code] and in the Raamatupidamise seadus [Accounting Act], both as of December 2003. And so forth.

It should be noted however that none of these national laws contains the key number EU '68/151' in its name. This is typical for EU laws when they are 'transposed' into national law and this makes finding EU corporate guidelines unnecessarily difficult, not to mention that they exist in over 20 European national languages.

What It Means

In U.S. terms, this is as if SEC Regulation S-X were called that in Washington, but called and numbered something else in every state. In the EU, this renaming and numbering issue is pervasive. It is as if every federal law had a different name and numbering system in each state, plus a federal name and number that was hard to find.

In the area of company accounts, the EU has enacted many additional Directives and Regulations that affect companies, just to list some of the most important ones (which also, of course have national law equivalents): Directive 83/349/EEC (consolidated accounts), Directive 78/660/EEC (company internal accounts, certain types of companies), Directive 84/253/EEC (persons responsible for accounting documents) and Regulations 1606/2002 and 1725/2003 (accounting standards for companies, international norms).

In the area of what in the U.S. would be called 'securities regulation,' the EU has enacted these (among others and some of which overlap or replace each other but these factors are not easy to discern, using the EU's official documentation): Directive 82/121/EEC* (interim reporting by publicly listed companies), Directive 88/627/EEC* (disclosure of substantial shareholdings in publicly held companies), Directives 89/298/EEC and 2003/71/EC (public offers and prospectuses for transferable securities), Directive 94/18/EEC* (the 'Eurolist' Directive, obligation to publish listing particulars) and Directives 82/148/EEC* and 2001/34/EC (consolidated stock exchange listings), Directive 78/855/EEC (mergers of public companies), Directive 2004/25/EC (takeover bids), Directive 89/592/EEC* (insider dealing in securities), Directive 2003/6/EC (insider dealing, market manipulation, market abuse), Directive 2003/124/EC (disclosure of inside information and definition of market manipulation), and Directive 2003/125/EC (disclosure of conflicts of interest and fair presentation of investment recommendations). (* no longer in force)

For corporations in specific businesses, there are numerous special EU corporate laws and guidelines. Thus, for example, Directives 93/6/EEC, 98/31/EC and 98/33/EC (capital adequacy of credit and investment establishments) and Directive 2002/87/EC (supervision of credit institutions, including insurance and investment firms). There are also EU laws addressing special subjects, such as Directives 91/308/EEC and 2001/97/EC (financial measures against money laundering), Directive 97/9/EC (investor compensation programs), Directive 90/434/EEC (taxation regarding mergers, divisions, transfers of assets and company shares) and Directive 90/435/EEC (taxation, parent and subsidiary companies).

Brussels has by no means reached the end of its agenda regarding this area of EU legislative activity. In May 2003, the European Commission announced a comprehensive 'Action Plan on Corporate Governance' in which it proposed a number of new laws and corporate guidelines (some are included above). What in the USA would be known as proxy solicitation rules and rules dealing with the independence of mutual fund chairpersons has not even been tackled systematically in Europe.

EU Organization of Laws Relating to Corporations

If, in the USA, Swift v. Tyson, 41 U. S. 1 (1842) had not been overturned, after almost 100 years of movement toward a 'federal common law' and if a truly 'federal corporate law' system had developed, one could today readily imagine a US federal government that was as fully engaged in lawmaking in this field as the EU is for Europe. However, even if that had happened in America, one would expect such federal laws at least to be organized in accordance with normal U.S. statutory formats. For instance one would expect to find most such laws under (for example) Title 15 of the U.S. Code and the equivalent portions of the Code of Federal Regulations or at least in one main, logical place.

These matters are quite different in the EU. All EU laws are 'organized' pursuant to EU 'Directory Classification Codes', somewhat like Dewey Decimal numbers. Thus, Directive '68/151' is assigned DCC '17.10'. DCC numbers are very important for finding the national equivalent of EU laws and are very important for watching for new EU legislation.

One would thus expect related Directives and Regulations to have similar numbers or at least numbers that are logically nearby each other, as in the U.S. Key Digest system. Unfortunately this it not the case for official EU materials and there is no key digest numbering system anywhere in Europe. The DCC numbers for just the EU laws mentioned above (which are all related to some form of corporate activity) range widely, over the following DCC numbers: 06.10; 06.20.20; 06.20.20.10; 06.20.20.25; 09.20.20; 09.50; 10.40; 13.49 and 17.10. When you arrive at the national level (for the 29 countries) even those numerical 'patterns' are unrecognizable and this makes laws difficult to find, even in individual European countries which may otherwise have excellent systems for organizing their local national laws.

Eversheds' 'Law of Europe'

We at Eversheds have had so many inquiries from our international corporate clients about this European legal maze, plus their practical requirement that 'there must be a better way', that we decided to invent one. We call it 'Law of Europe'. It is an all-electronic guide to EU and national laws affecting businesses and significant parts of it will soon be available at our website. In fact, the first available module is called 'Directors' Law of Europe', a comprehensive guide to the national laws and codes of best practice in 29 countries, regarding directors' duties and liabilities, with appropriate references to SOX and PCAOB and other SEC matters that may affect European companies.

The user does not need go through a legal labyrinth in order to find the relevant national laws. We provide lists of them. The user does not need to worry about 20 or more different languages. We have translated everything needed and also added an interactive Glossary of important corporate governance terms in 23 languages, including Turkish.

In the main Law of Europe product, we organize all EU laws of general relevance to business in an easy to use database, which makes DCC numbers unnecessary. These laws are selected from about 10,000 EU laws (for which the EU provides no easy to use index) and a great many of which are relevant only to very special businesses (such as Regulation 1054/73, one of several which relate to silkworms or Regulation 1573/199 relating to dried figs or Regulation 1677/88 relating to the straightness of cucumbers). In fact, more than one third of all EU laws relate solely to agriculture and fisheries. Those that are relevant to the vast majority of other types of businesses are covered in the Law of Europe database. Since the database is kept current, it makes it unnecessary to have a library of EU law books, which are sure to become out of date, anyway, as new laws are enacted.

In Directors' Law of Europe, we also give an overview of 100 corporate governance codes and studies, in all 29 countries, plus the EU, plus Turkey plus the U.S. This allows the user to realize that whether they see a reference to the Cromme Code in Germany or the SWX Code in Switzerland or the 'CGK in Austria or the N'rby in Denmark or the HEX Code in Finland or the Preda report in Italy or the NYSE or NASDAQ rules in the U.S., it all boils pretty much down to the same thing. Good corporate governance and director accountability is expected and is required, wherever you conduct business.

We will soon add to Directors' Law of Europe our own 'Eversheds Model Code', designed such that public companies following its guidelines should be in compliance with law and best practice in the 29 countries. Instead of reading 100 corporate governance codes, clients can read just one.

Watch for Further Developments

Matters of legal significance to the subject of corporate guidelines are not just found in EU statutes and national laws but also in court cases. The European Court of Justice, based in Luxembourg, has taken an increasingly proactive role in this regard and, in this respect at least, the EU does offer a research tool that is perhaps unique. Before cases are decided by the ECJ, the Advocate General (one of the court officers) renders a formal 'Opinion' (setting forth a proposed decision for the case, with detailed analysis and citations of legal authorities). Unlike the US Supreme Court, which does not allow publication of its pre-judgment internal deliberations, these ECJ Opinions are publicly available In a substantial number of cases, the ECJ follows closely the reasoning and reaches the same conclusion as does the Advocate General. Hence, these Opinions can be very important previews into the Court's thinking and likely course of action.

In the area of company accounts, in fact, the most recent such Opinion was published as recently as Oct. 14, 2004. It is not yet available in English (but, given the way the ECJ works, it is available in German, Finnish, Portuguese and some other languages). It is also available in Italian which is understandable, since it relates to a very important issue of corporate accounting law, not just for Italy but for the entire EU. In re Sylvio Berlusconi and others, joined cases C-387/02, C-391/02 and C-403-02. Briefly stated, the case arises out of national (Italian) corporate accounting laws and standards alleged to deviate from the supra-national norms established, inter alia, by Directives 68/151/EEC and 78/660/EEC. The Opinion (page 26) notes that the Directives require not only accounting in accordance with EU norms but prohibit false accounts and must be transposed into national law and enforced in such a way as to ensure investor confidence and concludes that 'whether a particular national legal system includes sanctions for wrongdoing which are effective, proportionate and dissuasive must be decided [by the ECJ] on the facts and circumstances of each individual case'. (author's translation). Watch this space! What the ECJ decides is the Law of Europe.

Paul Smith is a partner in Eversheds LLP and is head of the firm's health, safety and environment group, the largest in Europe. He has particular expertise of crisis management and has acted for a number of major chemical companies following major incidents at their facilities. He is the author of numerous publications on environmental law and liability, especially in a pan-European context. Smith may be reached at 44-20-7919-4500 or [email protected].

The first challenge and most important need is to know what the relevant EU corporate guidelines are, to know where they apply and to know how to find them. Unlike the United States, where corporate matters are generally covered by individual state law, in the European Union these matters have long attracted centralized legislation from Brussels which affects the entire EU (now 25 countries, which in 2007 will be joined by Bulgaria and Romania). Norway and Switzerland (although not in the EU) often legislate regarding these matters much as EU member countries do and thus, for our purposes here, we can talk about 29 countries in Europe rather than the 25 that currently make up the EU.

Legislative Activity

The legislative activity of the EU in matters involving corporate laws and guidelines has been quite extensive. For instance, as long ago as 1968, the EU enacted Directive 68/151/EEC, regulating certain matters relating to company internal accounts, for companies organized under the laws of all EU member countries. Since EU Directives and EU Regulations are, by virtue of various Treaties among the EU countries, supreme national law as well as EU law, that means that whenever one encounters an EU law (variously called 'EU Regulation' or 'EU Directive') one should realize that there is a national law equivalent of that paramount EU law. Directive 68/151/EEC in France is found in various ordinances and decrees (Ordonnance N 69-1176 and D'cret N 69-1177, both from December 1969). In Sweden, however, it is part of the Lag om 'ndring i aktiebolagslagen (1975:1385) [Law amending the Companies Act], in Romania it is part of Lege Numar: 31 Din 16/11/90 privind societatile comerciale [Law no. 31/1990 relating to commercial companies, consolidated, amended by Law no. 161/2003] and, similarly, in Malta it is in Chapter 386 of the general laws of Malta, as part of the Att dwar il-Kumpanniji [the Maltese Companies Act, 1995].

In Poland, however, Directive 68/151/EEC is part of the Ustawa o rachunkowo'ci (Dz.U. Nr. 121, poz. 591) [Accounting Law, Law of 29 September 1994, Journal of Laws No. 121, item 591], as amended and, similarly, in Norway is the equivalent of Lov nr. 56/1998 (L17.07.1998) om 'rsregnskap m. v. (regnskapsloven) [Accounting Act of 17 July 1998, No. 56]. In Estonia, it is found in both the 'riseadustik [Commercial Code] and in the Raamatupidamise seadus [Accounting Act], both as of December 2003. And so forth.

It should be noted however that none of these national laws contains the key number EU '68/151' in its name. This is typical for EU laws when they are 'transposed' into national law and this makes finding EU corporate guidelines unnecessarily difficult, not to mention that they exist in over 20 European national languages.

What It Means

In U.S. terms, this is as if SEC Regulation S-X were called that in Washington, but called and numbered something else in every state. In the EU, this renaming and numbering issue is pervasive. It is as if every federal law had a different name and numbering system in each state, plus a federal name and number that was hard to find.

In the area of company accounts, the EU has enacted many additional Directives and Regulations that affect companies, just to list some of the most important ones (which also, of course have national law equivalents): Directive 83/349/EEC (consolidated accounts), Directive 78/660/EEC (company internal accounts, certain types of companies), Directive 84/253/EEC (persons responsible for accounting documents) and Regulations 1606/2002 and 1725/2003 (accounting standards for companies, international norms).

In the area of what in the U.S. would be called 'securities regulation,' the EU has enacted these (among others and some of which overlap or replace each other but these factors are not easy to discern, using the EU's official documentation): Directive 82/121/EEC* (interim reporting by publicly listed companies), Directive 88/627/EEC* (disclosure of substantial shareholdings in publicly held companies), Directives 89/298/EEC and 2003/71/EC (public offers and prospectuses for transferable securities), Directive 94/18/EEC* (the 'Eurolist' Directive, obligation to publish listing particulars) and Directives 82/148/EEC* and 2001/34/EC (consolidated stock exchange listings), Directive 78/855/EEC (mergers of public companies), Directive 2004/25/EC (takeover bids), Directive 89/592/EEC* (insider dealing in securities), Directive 2003/6/EC (insider dealing, market manipulation, market abuse), Directive 2003/124/EC (disclosure of inside information and definition of market manipulation), and Directive 2003/125/EC (disclosure of conflicts of interest and fair presentation of investment recommendations). (* no longer in force)

For corporations in specific businesses, there are numerous special EU corporate laws and guidelines. Thus, for example, Directives 93/6/EEC, 98/31/EC and 98/33/EC (capital adequacy of credit and investment establishments) and Directive 2002/87/EC (supervision of credit institutions, including insurance and investment firms). There are also EU laws addressing special subjects, such as Directives 91/308/EEC and 2001/97/EC (financial measures against money laundering), Directive 97/9/EC (investor compensation programs), Directive 90/434/EEC (taxation regarding mergers, divisions, transfers of assets and company shares) and Directive 90/435/EEC (taxation, parent and subsidiary companies).

Brussels has by no means reached the end of its agenda regarding this area of EU legislative activity. In May 2003, the European Commission announced a comprehensive 'Action Plan on Corporate Governance' in which it proposed a number of new laws and corporate guidelines (some are included above). What in the USA would be known as proxy solicitation rules and rules dealing with the independence of mutual fund chairpersons has not even been tackled systematically in Europe.

EU Organization of Laws Relating to Corporations

If, in the USA, Swift v. Tyson , 41 U. S. 1 (1842) had not been overturned, after almost 100 years of movement toward a 'federal common law' and if a truly 'federal corporate law' system had developed, one could today readily imagine a US federal government that was as fully engaged in lawmaking in this field as the EU is for Europe. However, even if that had happened in America, one would expect such federal laws at least to be organized in accordance with normal U.S. statutory formats. For instance one would expect to find most such laws under (for example) Title 15 of the U.S. Code and the equivalent portions of the Code of Federal Regulations or at least in one main, logical place.

These matters are quite different in the EU. All EU laws are 'organized' pursuant to EU 'Directory Classification Codes', somewhat like Dewey Decimal numbers. Thus, Directive '68/151' is assigned DCC '17.10'. DCC numbers are very important for finding the national equivalent of EU laws and are very important for watching for new EU legislation.

One would thus expect related Directives and Regulations to have similar numbers or at least numbers that are logically nearby each other, as in the U.S. Key Digest system. Unfortunately this it not the case for official EU materials and there is no key digest numbering system anywhere in Europe. The DCC numbers for just the EU laws mentioned above (which are all related to some form of corporate activity) range widely, over the following DCC numbers: 06.10; 06.20.20; 06.20.20.10; 06.20.20.25; 09.20.20; 09.50; 10.40; 13.49 and 17.10. When you arrive at the national level (for the 29 countries) even those numerical 'patterns' are unrecognizable and this makes laws difficult to find, even in individual European countries which may otherwise have excellent systems for organizing their local national laws.

Eversheds' 'Law of Europe'

We at Eversheds have had so many inquiries from our international corporate clients about this European legal maze, plus their practical requirement that 'there must be a better way', that we decided to invent one. We call it 'Law of Europe'. It is an all-electronic guide to EU and national laws affecting businesses and significant parts of it will soon be available at our website. In fact, the first available module is called 'Directors' Law of Europe', a comprehensive guide to the national laws and codes of best practice in 29 countries, regarding directors' duties and liabilities, with appropriate references to SOX and PCAOB and other SEC matters that may affect European companies.

The user does not need go through a legal labyrinth in order to find the relevant national laws. We provide lists of them. The user does not need to worry about 20 or more different languages. We have translated everything needed and also added an interactive Glossary of important corporate governance terms in 23 languages, including Turkish.

In the main Law of Europe product, we organize all EU laws of general relevance to business in an easy to use database, which makes DCC numbers unnecessary. These laws are selected from about 10,000 EU laws (for which the EU provides no easy to use index) and a great many of which are relevant only to very special businesses (such as Regulation 1054/73, one of several which relate to silkworms or Regulation 1573/199 relating to dried figs or Regulation 1677/88 relating to the straightness of cucumbers). In fact, more than one third of all EU laws relate solely to agriculture and fisheries. Those that are relevant to the vast majority of other types of businesses are covered in the Law of Europe database. Since the database is kept current, it makes it unnecessary to have a library of EU law books, which are sure to become out of date, anyway, as new laws are enacted.

In Directors' Law of Europe, we also give an overview of 100 corporate governance codes and studies, in all 29 countries, plus the EU, plus Turkey plus the U.S. This allows the user to realize that whether they see a reference to the Cromme Code in Germany or the SWX Code in Switzerland or the 'CGK in Austria or the N'rby in Denmark or the HEX Code in Finland or the Preda report in Italy or the NYSE or NASDAQ rules in the U.S., it all boils pretty much down to the same thing. Good corporate governance and director accountability is expected and is required, wherever you conduct business.

We will soon add to Directors' Law of Europe our own 'Eversheds Model Code', designed such that public companies following its guidelines should be in compliance with law and best practice in the 29 countries. Instead of reading 100 corporate governance codes, clients can read just one.

Watch for Further Developments

Matters of legal significance to the subject of corporate guidelines are not just found in EU statutes and national laws but also in court cases. The European Court of Justice, based in Luxembourg, has taken an increasingly proactive role in this regard and, in this respect at least, the EU does offer a research tool that is perhaps unique. Before cases are decided by the ECJ, the Advocate General (one of the court officers) renders a formal 'Opinion' (setting forth a proposed decision for the case, with detailed analysis and citations of legal authorities). Unlike the US Supreme Court, which does not allow publication of its pre-judgment internal deliberations, these ECJ Opinions are publicly available In a substantial number of cases, the ECJ follows closely the reasoning and reaches the same conclusion as does the Advocate General. Hence, these Opinions can be very important previews into the Court's thinking and likely course of action.

In the area of company accounts, in fact, the most recent such Opinion was published as recently as Oct. 14, 2004. It is not yet available in English (but, given the way the ECJ works, it is available in German, Finnish, Portuguese and some other languages). It is also available in Italian which is understandable, since it relates to a very important issue of corporate accounting law, not just for Italy but for the entire EU. In re Sylvio Berlusconi and others, joined cases C-387/02, C-391/02 and C-403-02. Briefly stated, the case arises out of national (Italian) corporate accounting laws and standards alleged to deviate from the supra-national norms established, inter alia, by Directives 68/151/EEC and 78/660/EEC. The Opinion (page 26) notes that the Directives require not only accounting in accordance with EU norms but prohibit false accounts and must be transposed into national law and enforced in such a way as to ensure investor confidence and concludes that 'whether a particular national legal system includes sanctions for wrongdoing which are effective, proportionate and dissuasive must be decided [by the ECJ] on the facts and circumstances of each individual case'. (author's translation). Watch this space! What the ECJ decides is the Law of Europe.

Paul Smith is a partner in Eversheds LLP and is head of the firm's health, safety and environment group, the largest in Europe. He has particular expertise of crisis management and has acted for a number of major chemical companies following major incidents at their facilities. He is the author of numerous publications on environmental law and liability, especially in a pan-European context. Smith may be reached at 44-20-7919-4500 or [email protected].