EU's governance forum wants more disclosure of related-party deals

The European Corporate Governance Forum, a body that advises the Commission of the European Union on company law, wants to see tighter measures to let shareholders know about transactions that companies undertake with related parties. Directors, it says, should provide leadership, but that authority is not absolute. It "should be balanced with a requirement to inform shareholders of important developments and in certain instances to seek authorisation for their actions either from independent agencies or from the shareholders themselves". It suggests a variety of rules, including:

• A one per cent threshold: Deals worth less than one per cent of the assets of a company wouldn't need to be reported, but independent directors "should take particular care" that such deals are in the interests of minority shareholders.
  
• A five per cent threshold: Deals that add up to five per cent of assets over any 12-month period would trigger a requirement for a shareholder vote on further such deals.
  
• Between the thresholds: Once aggregate deals reach one per cent of assets, they would have to be disclosed to shareholders individually, though no right of approval would accrue until the deals reach five per cent.
  
• Five per cent deals: Individual deals worth five per cent of assets or more would need specific shareholder approval, with the related party excluded.

In all board deliberations, the related party should abstain, the forum concludes. The European Commission intends to consult on these recommendations in a Green Paper on the Corporate Governance Framework, due shortly. That it's a Green rather than White Paper suggests this is still some distance from becoming law.

Source document: The Forum statement is a one-page pdf file.