Law 3873 / 2010 regarding the obligation of listed entities to disclose a Corporate Governance Statement as part of their annual report
The recent enactment of Law 3873/2010 brings significant changes to the Greek Corporate Governance framework, along with a number of questions that need to be answered. The new law adopts European Directives 2006/46/EC and 2007/63/EC and, among other provisions, sets forth the obligation for listed companies to disclose a Corporate Governance Statement as part of their annual report. The Statement should include specific information, such as:
- the Corporate Governance Code to which the company is subject or may have decided to apply, as well any Corporate Governance practices additional to those stipulated in relevant existing laws (i.e. law 3016/2002, etc),
- a description of the main features of the System of Internal Controls and Risk Management in relation to the financial reporting process,
- information on the composition and operation of the Board of Directors and its committees, as well as on the rights of Shareholders in their General Meeting.
This is the first time that the 'Comply or Explain' principle is introduced in Greek legislation, as the new law allows companies to deviate from the Corporate Governance Code to which they are subject or may have decided to apply, as long as the Statement includes a detailed description of those deviations and an explanation of the reasons for non-compliance. In case of inaccurate or incomplete information in the Statement, the new law stipulates that Board members are collectively responsible and liable to fine, imprisonment, or both.
The disclosure of information described above in annual reports is clearly an important step towards increased transparency about corporate governance practices applied in companies. However, for the new law 3873/2010 to have the expected results, certain important parameters need to be clari-fied, such as:
- Currently no modern Corporate Governance Code exists in Greece which may serve as a benchmark for Greek companies, and which they would then have the opportunity to voluntarily apply, explaining any of its provisions that they have chosen not to comply with, as they are allowed to do under this new law. There is no Combined Code, such as in the UK. Cyprus is an-other example for this, closer to home: the Cyprus Stock Exchange issued a Corporate Governance Code in 2002 and has revised it twice since then to keep it up-to-date. This Code serves as a benchmark for all Cypriot listed companies, who have to “Comply or Explain”, as the new law 3873/2010 now calls Greek companies to do.
- The law’s provision for a description of the main features of the System of Internal Controls and Risk Management in relation to the financial reporting process is exceptionally vague, not providing any indication of the format and exact content of this description. Taking into consideration that the new law demands statutory auditors to check and report on the existence and completeness of the Corporate Governance Statement, it is imperative that some guidance is provided on the expected format of this description and the details required to satisfy disclosure needs.
For the Greek version, click here.