[A-List] EU integration struggles: corporate governance

["Michael Keaney" <michael.keaney@xxxxxx>]

EU to propose quarterly company reporting
By Francesco Guerrera in Brussels and Andrew Parker in London
Financial Times: November 18 2002

European companies will be obliged to report results every three months in
an attempt to increase investor protection and prevent an Enron-style
scandal if proposals by the European Commission are adopted.

Mandatory quarterly reporting is one of a wide range of new proposals aimed
at creating a single set of rules on disclosure for listed companies across
the 15 member states.

The new rules, known as the transparency directive, would force EU companies
to make radical changes to the way they deal with investors in some of
Europe's largest markets, including the UK, Germany and France.

The proposals for quarterly reporting, part of the EU's efforts to build a
single financial market by 2005, will be welcomed by shareholders across
Europe. However, they are set to be staunchly opposed by many companies,
especially in the UK, where listed groups have consistently objected to
quarterly reporting.

Mark Armour, chairman of the FTSE 100 group of finance directors, said the
EU's proposals for quarterly reporting posed a "considerable burden" for
many companies.

Mr Armour said: "At a time when boards will be very focused on improving
governance and introducing the new international accounting standards, to
put a quarterly reporting requirement on top is a step too far."

An advanced draft of the directive, seen by the FT, says that quarterly
reporting would increase transparency and allow investors to be better
informed about companies' performance. By bringing the EU in line with the
US, it would also attract foreign investors to European markets, it adds.

"Introducing quarterly financial information should be part of our efforts
to persuade international investors to diversify further their investment
across stock markets," the document says.

The proposals are to be discussed by member states and national regulators
in the coming weeks, but people close to the discussions say the Brussels
authorities are unlikely to back down on the quarterly reporting rules.

The directive is set to be officially unveiled in the next few months. If
approved by national governments and the European Parliament, it could come
into force in 2005.

Current EU law only obliges companies to publish results every six months.
However, eight EU members, including France, Italy and Spain, are already
requesting companies to provide financial information or trading statements
every three months. As a result, some 1,200 of the 7,000 companies listed in
the EU provide some form of quarterly information to investors.

Many of those companies, especially in France, would have to increase the
amount of information they provide to investors. Under the Commission's
plans, quarterly statements will have to include turnover, profit and loss
and a trading statement and be published within two months of the end of the
quarter.

Some companies argue that quarterly reporting would force management and
investors to take a short-term view of a company's prospects.

However, the Commission dismisses this argument, saying its 16-month
consultation on the proposals showed this fear "was not confirmed" by
companies in countries where quarterly reporting was already in place.

The draft also dismisses suggestions by some UK groups to allow companies to
choose when to report, saying that after the Enron and WorldCom scandals
transparency cannot be optional.

Under the proposals, which are part of the EU's efforts to build a single
financial market by 2005, companies will be encouraged to make more use of
the internet. Shareholders could be allowed to vote by e-mail at annual
meetings while companies will be able to publish their results on the
internet rather than through official news services.