FEE reply to Consultation Document of High Level Group of Company Law Experts

27 July 2002

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FEE responded to the consultative document 'A Modern Regulatory Framework for Company Law in Europe: A Consultative Document of the High Level Group of Company Law Experts'.

In addition FEE has now submitted some further thoughts on two of the subjects included in the extension of the mandate: the responsibility of management for the preparation of financial information; and the role of non-executive directors and of Supervisory Boards.

With regard to the responsibility for financial information and the role of non-executive directors the principles in such a framework, which should fit for both one-tier and two-tier board systems, should address the following issues:

With respect to the responsibility for financial information the framework legislation should:

set out the principal elements for a framework for high quality financial reporting

indicate that directors of the company have the ultimate collective responsibility for financial information

require a positive statement in the annual report by directors of their responsibility for financial information and proper application of IFRS or the applicable accounting standards and compliance with other relevant legal and regulatory reporting requirements

cover reporting in the annual report on the board’s performance in applying and complying with the principles of a specified corporate governance code, with disclosure of any instances of non-compliance with the code

cover reporting by directors whether the business is a going concern

ensure active involvement of non-executive directors in reviewing and approving the annual financial statements, including review of processes for preparing financial information and review of the financial statements as well as the application of accounting policies and for assessing the significant judgements and estimates made in preparing financial information.

With respect to the role of non-executive directors the framework legislation should

encourage the use of audit committees within the Board of Directors or Supervisory Board, and make the performance of the audit committee function mandatory for listed companies. The audit committee function needs to be fulfilled by non-executive directors, where there is no separate audit committee

set out the principal features of the role of non-executive directors, many of which could be addressed in codex or soft law, covering such matters as:
- tasks and due process, including reviewing and monitoring an ethics policy for the company
- membership and independence
- skills and competence
- time commitment
- appraisal of performance
- access to information and right to independent advice
- reporting and communication obligations
- maintaining an appropriate relationship with the external auditors

recognise that all directors have to act in accordance with the company’s best interest. No member of the Board or Supervisory Board may pursue personal interests in decisions to use business opportunities intended for the company for him or herself, at the expense of other stakeholders, without full transparency and consideration of the consequences by the full board

recognise the need to attract experienced and competent people to the function of non-executive director and therefore should propose a range of possible mechanisms for addressing at national level the risk and liability issues and related protection in law and by insurance.

FEE letter 26 July
FEE letter 27 June
Commission Consultation

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