During the summer of 2007, the Austrian Chamber of Labour revealed that only six out of 10 Austrian companies listed on the Viennese stock exchange comply with the Corporate Governance Code. Therefore, it is demanding the introduction of a legally binding code instead of the current voluntary regulation. However, this proposal has been rejected by business representatives and the government commissioner for the capital market.
Since the early 2000s, corporate social responsibility (CSR) has been a particular focus of debate in Austria. This is mainly due to financial scandals in the US and – to a lesser extent – in Europe during the late 1990s, which have in turn generally reduced the public’s trust in business proceedings. In 2002, after some CSR initiatives had separately rather than jointly been launched by organised labour and business, the voluntary Austrian Corporate Governance Code came into force. The code primarily, albeit not exclusively, targets enterprises that are listed on the Viennese stock exchange and lays down principles of good corporate governance. According to the preamble of the code, this voluntary initiative is designed to ‘reinforce the confidence of investors by improving reporting transparency and the quality of cooperation between supervisory board, management board and shareholders, and by taking long-term “value creation” into account’ (AT0502204F).
Findings of study on corporate governance
However, organised labour has repeatedly criticised that Austrian enterprises have shown only slight readiness thus far in complying with the code. As a follow-up to a survey carried out by the Chamber of Labour (Arbeiterkammer, AK) in 2005, a recent study – 5 Jahre Corporate Governance Kodex. Die praktische Anwendung des Kodex an der Wiener Börse 2007 (in German, 176Kb PDF) – presented in August 2007, revealed that only 60% of the companies listed on the Viennese stock exchange (Wiener Börse) had signed up to the code by the summer of 2007. This study focuses on 90 Austrian enterprises listed in certain segments of the Viennese stock exchange only, such as the prime market, mid market, standard market auction and standard market continuous. Enterprises listed in the segment ‘other listings’ – most of which have failed to commit to the code with the exception of just one company – have not been taken into account.
In the top segment of the Viennese stock exchange, namely the prime market, about 85% of enterprises have explicitly accepted the code, which mainly ensues from the fact that prime market participants have been obliged to publicly announce their commitment to the code or – in exceptional cases – explain why they cannot comply with the code’s requirements. All but seven of the companies listed in the other segments of the Viennese stock exchange have proved unwilling to sign up the code. Even those enterprises which have committed to complying with the code frequently do not observe all of the code’s rules. Only 10 out of the 56 companies that had signed up to the code have never or only on one occasion breached a rule. In contrast, several companies have recorded more than 10 breaches of the code’s rules. Infringements are often related to a company’s disregard for the code’s recommendation on the independence of supervisory board members and the latter’s number in maximum. Moreover, only 14 corporations have publicised the salary levels of individual management board members, while just 21 companies have commissioned external bodies to examine their compliance with the code, as recommended. In addition, only a small minority of enterprises has published (annual) reports dealing with corporate social and ecological sustainability, as required by the governance code.
AK demands
Favouring greater compliance with the code, in the autumn of 2007, the AK urged the government to introduce legally binding regulations instead of the existing recommendations, since voluntarism is not proving to be a sufficient motivation for companies to meet the code’s requirements. Furthermore, the AK is demanding the extension of the good governance code to other sectors of the economy that have been associated with a number of financial scandals in recent years – such as the banking and insurance sector (AT0604019I).
Response of business and government commissioner
Business representatives want to prevent the introduction of any new regulations in the field of CSR. The Austrian Federal Economic Chamber (Wirtschaftskammer Österreich, WKO) argues that many entrepreneurs have already found it difficult to cope with the current regulatory framework. Likewise, the government commissioner for the Austrian capital market, Richard Schenz, rejected the AK’s criticism. He has identified an ‘excellent compliance of the prime market establishments with the code’, which altogether represent 97% of the capital market volume traded on the Viennese stock exchange. Mr Schenz also emphasised that those enterprises which do not comply with all of the code’s rules, but reasonably expound why they deviate from a rule, make an effort to meet the code’s principles of good corporate governance. In general, he believes that the principle of voluntarism should by no means be abandoned.
Georg Adam, Department of Industrial Sociology, University of Vienna