FRANCE

By Julia Wittenburg

During the typically slower third quarter, a small number of French companies held their annual meetings, while a small number of corporations started to hold EGMs. Similar to the second quarter, non-routine items submitted to shareholder approval at the special meetings included refinancing packages and reorganization proposals, liquidations, and amendments to companies' articles of association.

Financial Security Legislation

After months of deliberations and amendments on the parliamentary level, the draft on financial security was passed into law on Aug. 2, 2003. A large part of the new legislation is dedicated to the merger of the Commission des Opérations de Bourse (COB), the French stock market watchdog, and the Conseil des Marchés Financiers (CMF), the main financial markets regulator, which will lead to the long-planned establishment of a combined entity, the Autorité des Marchés Financiers (AMF) with extended responsibilities.

Effective January 2004, French companies will be required to present a report to shareholders on the internal control measures that have been implemented at the board level. These include details regarding the board's organization and working methods, and, if any, the type of restrictions that have been imposed on the powers of the company's chief executive.

One of the most groundbreaking changes brought by the legislation pertains to the auditor role. Intended to prevent Enron-style accounting scandals, the legislation is likely to tighten control and oversight over French auditors and is targeted to strengthen the quality of financial reporting. Currently most French companies have a dual auditor system with terms that last for a period of six years. The new legislation now requires that one of the auditors must be appointed every three years, as to ensure a staggered rotation. After each auditors' six-year tenure, the same auditing firm may be reappointed. However, the signing partner must change in order to guarantee a partner rotation.

After legal changes to disclose audit vs. non-audit fees became effective for the first time in the past year, the new law now prohibits audit firms to provide both auditing and consulting services to the same company. Also, before appointment, auditors must inform the company of any affiliation with an international network and any fees already charged to the company by this network and may not assume any audit-related responsibilities at that company.

Finally, a new entity, Haut Conseil des Commissaires aux Comptes (High Council on Statutory Auditors), to be overseen by the AMF will be set up by the end of this year to scrutinize the auditor profession and guarantee auditor independence. Executive directors may no longer assist in assigning the auditor role, as the new legislation reserves this process entirely to the non-executive directors of the board of directors, or alternatively, the supervisory board. Despite this, the AMF will be authorized to oppose the appointment of a statutory auditor under certain circumstances. A number of additional restrictions and responsibilities apply to the role of the auditors, most notably the legal obligation to inform shareholders of the internal control procedures used to prepare and present the company's financial statements.