New EU directive to compel disclosure of corporate ABC policies
A new directive approved by the European Parliament on 15 April 2014 will require large companies operating within the EU to disclose details of their corporate social responsibility policies. Companies with over 500 employees and others will have to make public details of their anti-bribery and corruption compliance programmes, alongside information on policies, risks and outcomes relating to the environment, human rights and diversity. However, the directive gives companies a wide discretion to decide what information they will release and how - whether it will be done in their annual report or a separate report and the indicators and standards to be adopted. As a result, comparisons between companies’ efforts may be difficult.
Member states will be free to impose stricter reporting requirements when the directive is implemented into national law. However, the new rules are unlikely to pose a problem for most UK companies, which are already under an obligation to provide a strategic report including details of the company’s strategy and business model, human rights issues and diversity information.
While the directive includes no sanction for companies failing to disclose such details, commentators have suggested that the obligation may encourage more robust compliance policies to be adopted as companies compare their own programmes to those of their competitors. In addition, where companies choose not to disclose their policies, their shareholders and other stakeholders may demand an explanation.
The draft directive has now to be passed by the European Council and published in the EU Official Journal. Member states will then have two years in which to implement it into their national legislation.
New EU debarment regime will reduce effects of mandatory debarment for companies
In April 2014 a new EU Directive on public procurement came into force (2014/24/EU), repealing the previous Directive (2004/18/EC). There are important changes to the rules on excluding companies convicted of certain offences from bidding for public contracts (also known as “debarment” or “blacklisting”). Member States now have two years to implement the new Directive in national legislation. Until the UK does so, the Public Contracts Regulations 2006 will remain in force.
Under the existing Regulations, if a company or one of its directors (or any other person who has powers of representation, decision or control of the company) is convicted in any Member State of certain offences (which include corruption, bribery, some types of fraud, and money laundering), the company faces mandatory debarment from the tendering process for UK public contracts, subject to a narrow exception applying where the public authority in question is satisfied that there are overriding requirements in the general interest to disregard the usual rule. Discretionary debarment arises where, for example, there has been a conviction for any offence relating to the conduct of the company’s business or it has not fulfilled its tax obligations. In relation to both mandatory and discretionary debarment, although some Member States have provided for companies to regain eligibility for public contracts by demonstrating sufficient evidence of the implementation of compliance measures (the so-called “self-cleaning principle”), the UK has not done so.
When the new Directive is implemented, the debarment risks for a company will be different in two particularly significant ways:
(i) there will be a maximum term of exclusion (five years for a mandatory exclusion unless otherwise provided for by the convicting court); and
(ii) public authorities will have to bring the exclusion to an end where a company satisfactorily demonstrates self-cleaning.
As to what “self-cleaning” is likely to entail, Paragraph 102 of the new Directive’s Preamble gives the following examples:
- severance of all links with persons or organisations involved in the misbehaviour;
- appropriate staff reorganisation measures;
- implementation of reporting and control systems;
- creation of an internal audit structure to monitor compliance;
- adoption of internal liability and compensation rules.