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Comments from ACCA
11 July 2005

ACCA is pleased to comment on the above consultation paper. ACCA is a recognised professional body which represents over 100,000 accountants, based in the EU and around the world, most of whom either work as in-house accountants in the business sector or provide professional services to that sector. Our comments on the proposals focus primarily on the implications of the proposals for in-house and external accountants, taking into account the provisional requirement, contained in the proposed Directive on revising the accounting Directives, for the new corporate governance statement to contain information on the operation of company’s annual general meeting.

General Comments

We agree with the Commission that the enhancement and harmonisation of the governance rights of shareholders is a legitimate aim of the EU. If individuals and corporate bodies are to be encouraged to invest in projects throughout the EU, they need to have minimum rights of access to high quality company information and to participate in company decision-making. Cross-border investors need to benefit from the same rights in these respects as home-state investors. This being said, when considering how to take any reforms forward, it needs to be recognised that shareholders of any kind are under no compulsion to participate in governance matters – while they should be entitled to exercise their rights, by no means all do so in practice. If shareholders wish to hold their shares purely as financial investment purposes, this is their right and it should be respected. This factor needs to be taken into account in considering what new responsibilities to impose on companies.

We would also argue that certain of the new rights being proposed in the paper are what we would consider to be ‘fundamental’ company law rights, viz rights which should attach to members of any type of limited company, whether it be listed or not. At the very least, we believe that, in introducing these new rights, the Commission should consider means of extending them, where appropriate, to shareholders generally. It would be anomalous, for example, if shareholders in listed companies enjoyed the right to vote by correspondence and to ask questions of company boards, while those in non-listed companies did not.

Finally, we consider that certain of the principles set out in this document cover ground already covered by the Transparency Directive, which also applies to listed companies. We consider that any new initiative on shareholder rights in listed companies should seek to build on the provisions already in place and not duplicate them unnecessarily.

Our comments on those of the proposed minimum standards which we feel are relevant to us as an accountancy body are set out below.

Section 4 - Pre general meeting communications

Proposal – annual general meetings of listed companies shall be convened on a first call with no less than 21 business days notice; other shareholders’ meetings shall be convened on a first call with no less than 10 business days notice

We agree. These proposals will not cause any problems to listed companies.

Proposal – any notice convening a general meeting shall at least

- indicate precisely the place, time and agenda of the meeting and give a clear and precise description of participation and voting procedures and requirements for voting at the general meeting; alternatively, it may indicate where such information may be obtained

- indicate where the full, unabridged text of the resolutions and the documents intended to be submitted to the general meeting may be obtained

We would only make the comment that the reference to the notice needing to indicate precisely the ‘agenda’ of the meeting must only mean the summary of the business to be transacted at the meeting, and not the full collection of material to be presented to the meeting. There must be a clear understanding on this point.

Proposal – the full text of the resolutions and documents related to the agenda items and intended to be submitted to the general meeting shall be made available at the latest 15 business days before any annual general meeting and at the latest 10 business days before any other general meeting.

We consider that listed companies should be expected to make this information available at the same time as they issue the notice to those entitled to attend the meeting.

Proposal – any notice convening a general meeting and any document intended to be submitted to the general meeting shall be made available in a language customary in the sphere of international finance, unless the general meeting decides to the contrary.

There are already minimum standards on this issue in the Transparency Directive. Issuers listed in their home country must publish information in a language acceptable to their stock market regulator (though they are free to translate information into other languages if they wish). Issuers listed on exchanges in additional states can choose between making the information available in a language acceptable to the host regulator or in ‘a language customary in the sphere of international finance’, which is presumably intended to mean English.

While we accept that the proposal is only for a minimum standard, which would not prevent companies from issuing their materials in additional languages, we do not think that it would be justifiable to require all listed companies throughout the EU to issue them in a ‘language customary in international finance’. As the narrative text in the document acknowledges, not all listed companies will have a significant number of cross-border investors. We consider that the basic legal requirement should be for listed companies to issue their materials in the language of the state of their incorporation and/or listing; they should thereafter be entitled to translate their materials into one or more additional languages.

The decision as to whether to do this should be left to the individual companies to make, although a minimum standard might usefully require all companies to take into account the need to ensure that all their shareholders are in a position to exercise their rights to participate. If significant numbers of shareholder representations were received by a company to make the material in question available in English (or German or French), then the company concerned would be expected to comply with those requests. Many companies may well choose to translate their materials into English or some other language, but for reasons of administrative cost-effectiveness, this should not be a binding requirement for those companies where this would not have the direct result of enhancing shareholder rights.

Proposal – member states shall ensure that issuers post on their web sites the information relevant to general meetings at the same time as such notices are published and/or sent to the issuers’ shareholders. Such information shall include at least the notice of the meeting, the full text of the resolutions intended to be submitted to the general meeting and other documents relevant to the general meeting, a precise description of the means given to shareholders to participate in the general meeting and cast their vote and the forms to be used to vote by correspondence and/or by proxy.

We agree with the proposal. Given that it is not feasible for companies to place newspaper notices of their general meetings in publications in all other member states, it would be reasonable to expect listed companies to place information relating to their general meetings on their web sites, preferably in a dedicated area of their site. There should additionally be a requirement for the notice to contain reference to the address of the web site where they can access this related information.

Section 6 – Shareholders’ rights in relation to the general meeting

Proposal - Member states shall remove existing requirements, and shall not impose new requirements, that act or would act as a barrier to the development of the participation of shareholders to the general meeting via electronic means.

We agree with the proposal.

Proposal – shareholders shall have the right to ask questions at least in writing ahead of the general meeting and obtain responses to their questions. Responses to shareholders’ questions in general meetings shall be made available to all shareholders. These principles are without prejudice to the measures which member states may take, or allow issuers to take, to ensure the good order of general meetings and the protection of confidentiality and strategic interests of issuers.

We agree in principle that companies should be expected to engage with their shareholders on matters of concern to them. We believe that listed companies should be subject to a minimum standard of providing the opportunity at general meetings for shareholders to ask questions of the directors. But the law needs to be careful to avoid raising shareholder expectations to unreasonable levels – if every shareholder felt that he or she had a legal right to be heard and to receive an answer this could render the general meeting unmanageable. Companies should, therefore, provide a reasonable opportunity at their meetings for questions and answers, but directors should retain a broad discretion to curtail the session and to decide that individual questions should not be responded to because they are either irrelevant, vexatious or defamatory.

Similarly, it could prove impractical and unreasonable to expect companies, by law, to respond to each and every written question submitted by shareholders ahead of the general meeting. We suggest that a minimum standard on this point should give shareholders the right to ask questions but require companies only to post a ‘question and answer’ section on their web site in advance of the general meeting, in which they should seek to provide answers to at least some of the questions they have received on a no-names basis. If very large numbers of questions are received, making it unreasonable to expect companies to respond to each and every one of them, they should be expected to address on their web sites a representative sample of the substantial questions received. This would not, of course, prevent companies from communicating directly with individual shareholders where this was appropriate or practical.

Proposal – shareholders, acting individually or collectively, shall have the right to add items on the agenda of general meetings and table resolutions at general meetings. Such right may be subject to the condition precedent that the relevant shareholder or shareholders hold a minimum stake (5%) in the share capital of the issuer.

We agree with the proposal.

Proposal – member states shall ensure that shareholders of listed companies have the possibility vote by correspondence. Member states shall remove existing requirements, and shall not impose new requirements, on companies which hinder or prohibit voting by electronic means in general meetings.

We agree with the proposal.

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