6.3.5 Uncertainty about review of Directive 2006/46/EC

Taking the items as discussed above and sections 6.4.2 and 6.4.3 below into account, the amendments suggested as regards Directive 2006/46/EC seem an important step in the recommended route towards improving the comply or explain approach within the EU corporate governance framework, partly because Directive 2006/46/EC lacks detail and thus some extra matters (e.g. regarding three-level supervision) need to be added. By modifying the directive the 'made to measure' and 'one size does not fit all' approach will not be abandoned but the framework around the comply or explain principle will be strengthened and this is expected to result in an improved use of the comply or explain principle.

Modifying the relevant articles in Directive 2006/46/EC in fact means amending Directive 78/660/EEC of 25 July 1978 (based on Article 54 (3) (g) of the Treaty on the annual accounts of certain types of companies) once again, since the relevant articles (articles 1(7) and (8)) of Directive 2006/46/EC are already amendments to this directive. Unfortunately, neither Directive 2006/46/EC, nor Directive 78/660/EC have an article on revision. For example, Directive 2004/ 25/EC of 21 April 2004 on takeover bids has such an article (art. 20) stating that five years after the implementation date the directive will be examined in the light of the experience acquired in applying it and, if necessary, its revision will be proposed. Moreover, article 20 states that Member States shall provide the Commission annually with information on the takeover bids which have been launched against companies, the securities of which are admitted to trading on their regulated markets. Having such an article on providing information annually would have been an asset in achieving a common understanding of the comply or explain principle's scope and its most effective form, as well as clarity with regard to an examination and, if deemed necessary, a revision. Up till now of course the EU Green Paper 2011 on the EU Corporate Governance Framework and the study of RiskMetrics Group from 2009, as commissioned by the EU Commission, can be considered a revision procedure. Nevertheless, the steps to be taken in this respect are still not clear and no official procedure exists. Only after it has received the response to the Green Paper will the EU Commission take a decision on the next steps. The Green Paper states that any future legislative or non-legislative proposal will be accompanied by an extensive impact assessment, taking into account the need to avoid disproportionate administrative burdens for companies (EU Green Paper 2011, p. 20). With regard to reaching a common understanding of the comply or explain principle's scope and its most effective form and thus improving its application, it is argued in the underlying research that Directive 2006/46/EC (or in fact articles 46a, 50b and 50c of Directive 78/660/EC) needs to be amended in the near future to implement recommendations 4, 6 and 7. Disproportionate administrative burdens for companies as a result of these amendments are not expected, since the proposed modifications only involve the regulators and supervisors who partly already apply recommendations 4, 6 and 7. The modifications remove the ambiguities (recommendation 4) from the directive and strengthen the comply or explain principle approach (recommendations 6 and 7) in the EU corporate governance framework.

Recommendation 5: Directive 2006/46/EC needs to be amended in the near future, providing more guidance and strengthening the comply or explain principle approach in the EU corporate governance framework.