Austria

Author: | Published: 9 Oct 2003
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On October 1 2002, the Austrian Working Group on Corporate Governance passed the Austrian Code of Corporate Governance as a private initiative. The working group mainly consisted of representatives of listed companies, investors, the Vienna Stock Exchange, audit firms and academics. During two public posting periods in 2002, the working group opened its discussions to the public. These discussions finally led to the Austrian Code of Corporate Governance (see www.corporate-governance.at and www.wienerboerse.at/corporate/pdf/OesterrCGKodex0902.pdf).

Beginning in 2000 and pursuant to various corporate governance initiatives in the US and the UK and investors´ demands for corporate governance standards as a source of guidance for their investments, the corporate governance discussions in Germany and Austria had intensified. Although Austrian and German law have rules governing Aktiengesellschaften, the equivalent of the English public limited companies, and Gesellschaften mit beschränkter Haftung which perform the functions of the English private limited company, the German and Austrian Corporate Governance Codes aim to meet the expectations of investors and to give a transparent and clear picture of the system of management and control of corporations in Germany and Austria. The Austrian and German Corporate Governance Codes thereby cover the standard of good corporate management common in international business practice as well as the most important provisions of Austrian corporation law relevant in this context.

The voluntary self-regulatory initiative is designed to reinforce investor confidence by improving reporting transparency, the quality of cooperation between the supervisory board, the management board and the shareholders, and by taking long-term value creation into account. The Code aims to establish a system of management and control of companies and groups that is accountable and is geared to creating sustainable, long-term value and to increasing the degree of transparency for all stakeholders.

THE LEGAL NATURE OF THE CODE

The Austrian Code of Corporate Governance primarily applies to Austrian stock-listed companies. It is based on the provisions of Austrian corporation law, securities law and capital markets law as well as on the principles set out in the OECD Principles of Corporate Governance. It is also recommended that companies not listed on stock exchanges follow the Code to the extent that the rules are applicable. Companies must voluntarily undertake to adhere to the principles set out in the Austrian Code of Corporate Governance as amended. All listed companies are therefore called on to make a public declaration of their commitment to the Code and to have their adherence to the Code's rules monitored by an external institution on a regular and voluntary basis, and to report the findings to the public. Generally, the Code will be reviewed once a year taking any relevant national and international developments into consideration.

The Code is neither a statute nor a decree. Adherence to the Code is voluntary, no legal consequences are connected to non-adherence or non-compliance with the Code's provisions. Time will tell whether the provisions contained in the Austrian Code of Corporate Governance and their acceptance by companies and administrative bodies will increase the standard of care and diligence owed by the management board and the supervisory board under Austrian corporation law.

The Code comprises the following categories of rules:

  • Legal requirement: the respective rule refers to mandatory legal requirements under Austrian corporation law, securities law and capital markets law.
  • Comply or explain: the respective rule must be complied with; any deviation must be explained by expressly stating the reason for it in order to be in compliance with the Code.
  • Recommendation: the nature of the respective rule is a recommendation; non-compliance with the rule requires neither disclosure nor explanation.

If a corporation decides to adhere to the Austrian Code of Corporate Governance, the obligation to comply must be included in the annual report and disclosed on the company's website. A report must be published once a year regarding compliance with the Code, including explanations and deviations from it. Every shareholder will have the right at the annual general meeting to request information on these annual explanations. The management board will be responsible for reporting on implementation and compliance with the Code.

Unlike Germany, compliance with the Austrian Code of Corporate Governance is voluntary. In Germany, the Act on Transparency and Publicity (Transparenz- und Publizitätsgesetz - TransPuG) of July 19 2002, expressly obliges board members of German listed corporations to declare formerly compliance or non-compliance with the provisions of the German Code of Corporate Governance. A corresponding statutory obligation does not exist in Austria. The Austrian Code of Corporate Governance so far has not brought any changes to Austrian corporation law, securities law or capital markets law.

SCOPE OF APPLICABILITY OF THE CODE

The Code primarily applies to Austrian stock-listed companies. However, the Code also recommends that companies not listed on stock exchanges follow its provisions to the extent that the rules are applicable. This also means that the applicability of the Code to corporations listed on stock exchanges outside Austria is not explicitly excluded. As the Code in many provisions refers to Austrian securities and capital markets law, it does not seem to suit Austrian companies listed abroad. The same applies to foreign corporations listed on the Vienna Stock Exchange with reference to provisions contained in the Austrian Code of Corporate Governance repeating statutory Austrian corporation law. In view of its voluntary nature and the investors´ expectations, the Austrian Code of Corporate Governance will most likely be accepted by Austrian corporations listed on the Vienna Stock Exchange. Austrian corporations listed abroad will have to comply with the (voluntary) codes of corporate governance applicable in the country where the shares are listed.

DECLARATION OF COMPLIANCE

The declaration of compliance with the Austrian Code of Corporate Governance must be included in the company's annual report and disclosed on the company's website. A report must be published once a year regarding compliance with the Code, including explanations and deviations from it. The management board will be responsible for reporting on the implementation and compliance with the Code. The management board therefore is responsible for the declaration of compliance. However, the decision on compliance with the Code falls within the scope of the respective corporate body addressed by the Code. Various provisions of the Code refer to issues outside the scope of responsibility of the management board, such as, issues regarding auditing, compensation of the members of the management board or the internal rules of procedure of the supervisory board. The self-regulating decision of the respective corporate body on the compliance of the Code forms a precondition for the declaration of compliance by the management board.

The declaration of compliance both has an ex ante and an ex post quality. The management board therefore declares compliance with the Code by the company during the last business year as well as pro futuro the following business year. Pursuant to the voluntary nature of adherence to the Code, the declaration of compliance - as far as this refers to its ex ante character - can be amended during the year.

CONTENTS OF THE CODE

The Code contains five material sections on:

  • shareholders and the general meeting;
  • cooperation between the supervisory board and the management board;
  • the management board;
  • supervisory board; and
  • transparency and auditing.

These sections are discussed below.

  • Shareholders and the general meeting: Shares must be construed in accordance with the principle of one-share-one-vote. The invitation to the general meeting, the agenda, motions and underlying documentation must be made available to the shareholders on the company's website.
  • Cooperation between the supervisory board and the management board: The management board must provide the supervisory board periodically in a timely manner or - in the case of the occurrence of an event of great significance - immediately, with comprehensive information on all the relevant issues of business development including a risk assessment.
  • Management board: The management board has sole responsibility for the management of the corporation thereby taking into account the interests of the shareholders, the employees and the public good. The management board must consist of several persons, one member acting as the chairperson. Depending on the size of the enterprise, a separate staff unit must be set up for internal auditing.
    Members of the management board must not pursue personal interests in their decisions on behalf of the company. Any conflict of interest must be disclosed to the supervisory board and to the other members of the management board. Within the limits of statutory law, members of the management board must report any purchase or sale of shares in the company to the supervisory board. The acceptance of a position on the management board or the supervisory board of a company outside the group, must be consented to by the supervisory board. The compensation of management board members will comprise a fixed salary and a performance-linked component.
  • Supervisory board: The supervisory board examines and supports the management board. The supervisory board will formulate a list of business transactions that are subject to supervisory board approval. The supervisory board defines a profile for the management board members and appoints the management board members in line with that profile.
    The supervisory board will form special committees. Each chairperson of these committees will report periodically to the supervisory board on the work of the committee. Special committees to be formed are at least an audit committee for accounting and auditing issues, a strategy committee for the preparation of decisions of fundamental significance, and a human resources committee dealing with human resources issues of the management board members. The chairperson of the audit committee must not be a former member of the management board. The chairperson of the human resources committee will always be the chairperson of the supervisory board.
    Supervisory board members may not assume functions on the boards of other competing companies. Any conflict of interest has to be disclosed to the chairperson of the supervisory board. No more than two former members of the management board can be appointed members of the supervisory board. Supervisory board members cannot hold more than eight positions on the supervisory boards of listed companies and the position of the chairperson counts twice.
  • Transparency and auditing: The company can use suitable communication media (such as the internet) for shareholders' information. Ad-hoc reports, a calendar of corporate financial events and other events of relevance for the capital market must be published on the company's website.
    The audit of the consolidated financial statements must be conducted according to international recognized auditing principles (ISA or US-GAAS). In the notes to the financial statements, the company must state in detail potential risks such as sector risk, geographic risks, risks related to interest rates, currencies, derivative instruments and off-balance sheet transactions, and must also describe the risk management instruments used. Special rules apply to the conduct of the audit procedure.

CONCLUSION

The first year of applicability of the Austrian Code of Corporate Governance has shown a wide-spread acceptance of the Code. Many of the big Austrian corporations, such as Andritz, Böhler Uddeholm, Erste Bank, EVN, Gericom, OMV, RHI, VA TECH, Verbund, Voestalpine and Wienerberger have declared their adherence to the Code. However, it seems doubtful whether the system of voluntary adherence will be sufficient to motivate all Austrian stock-listed corporations to comply with the corporate governance rules. Already, only a year after the introduction of the Code, there are requests for a mandatory declaration of compliance with the Code from Austrian stock-listed companies. Corporate governance principles in Austria are still on the move.


Cerha Hempel Spiegelfeld Hlawati
Parkring 2
A-1010 Vienna
Austria
Tel: +431 514 350
Fax: +431 514 3535
www.chs.at