In a 2004 Financial System Stability Assessment the International Monetary Fund (IMF) noted that Austria has taken steps to improve governance in the financial sector in line with international best practices. A Corporate Governance Code, mandatory for listed companies on the stock exchange, was first introduced in 2002. The IMF report recommended making the Code fully mandatory for financial institutions. Amendments to the Joint Stock Companies Act and the Act on Companies with Limited Liability were adopted in 2005 to reflect certain provisions of the Corporate Governance Code. Comprehensive amendments were also introduced to the Stock Exchange Act and the Securities Supervision Act as a result of the transposition of the European Union (EU) Market Abuse Directive into Austrian law in 2005. Furthermore, the EU Transparency Directive was incorporated into Austrian law in April 2007, and the Code was expected to be amended accordingly. The Corporate Governance Code was last revised in June 2007. On January 1, 2008, the financial market supervision reform entered into force to provide for a comprehensive corporate governance package, according to a 2008 press release from the integrated supervisory authority, the Financial Market Authority.

General Overview

In 2002, the Austrian Working Group for Corporate Governance established a Corporate Governance Code which is mandatory for listed companies on the stock exchange. According to a 2002 study by Weil et al., Austrian corporate governance is similar to the German system in many respects, including the protection of shareholders' rights. As noted in a 2004 Financial System Stability Assessment by the International Monetary Fund (IMF), Austria has taken steps to improve governance in the financial sector, in line with international best practices. The IMF report recommended making the Corporate Governance Code fully mandatory for financial institutions. It further advised establishing "fit and proper" requirements for supervisory board members. The IMF report also noted that the role of the internal audit function would be strengthened by requiring it to report directly to the supervisory board rather than the management board. As a follow-up to the IMF's 2004 recommendations, governance is being strengthened in the banking sector in Austria through enhanced "fit-and proper" testing and stricter requirements for external auditors, as noted in the IMF's 2007 Article IV Consultation report. The 2007 IMF report further recommends strengthening the validity of corporate governance standards, and requiring the periodic rotation of external audit firms.

Since August 2004, as stated in a 2006 study by the Institute for Advanced Studies (IAS), the Vienna Stock Exchange's (VSE) new regulatory framework for the prime market has included the requirement to make a statement concerning the compliance or non-compliance with the Code of Corporate Governance. Most Austrian listed companies have declared they will adhere to the Code, while other companies have developed their own corporate governance code. In 2005, according to Albert Birkner and Clemens Hasenauer writing in the International Financial Law Review (IFLR) 2007 Global Report, Austria revised the Joint Stock Companies Act (Aktiengesetz, or AktG) and the Act on Companies with Limited Liability (Gesetz über Gesellschaften mit beschränkter Haftung, or GmbHG) to reflect certain provisions of the Code. The Corporate Governance Code was amended in January 2006 to convert comply-or-explain rules into legal requirement rules. Birkner and Hasenauer add that "the amendment of the Austrian Corporate Governance Code in 2006 not only consisted of changes resulting from the implementation of the Code's rules into the AktG but also changes due to new European Union (EU) guidelines." As a result of the transposition of the EU Market Abuse Directive No. 2003/6/EC into Austrian law in 2005, comprehensive revisions were introduced to the Stock Exchange Act (Börsegesetz, or BörseG) and the 1996 Securities Supervision Act (Wertpapieraufsichtsgesetz, or WAG) to cover market abuse, insider trading, and ad hoc disclosure requirements. Furthermore, EU Transparency Directive No. 2004/109/EC was incorporated into Austrian law in April 2007, and the Code was expected to be amended accordingly. The Corporate Governance Code and the WAG were last revised in June 2007 and November 2007 respectively.

The 2004 IMF report noted that capital markets in Austria were divided into the equity market, the bond market, the derivatives market, warrants, and "other listings." According to the 2007 U.S. Department of Commerce (DoC) Country Commercial Guide report, the VSE is connected to Deutsche Börse's electronic trading system (Xetra). Furthermore, Austria's central securities depository and settlement agency - the Österreichische Kontrollbank Aktiengesellschaft (OeKB) - acts as the clearing house for the VSE. In March 2005, per the same report, the VSE, with 103 listed companies and €118 billion in market capitalization, acquired a majority share in the Budapest Stock Exchange with the aim of establishing a broader "Central European Stock Exchange" alliance. The VSE also concluded Memoranda of Understanding (MoUs) for closer cooperation with stock exchanges in Banja Luka, Belgrade, Macedonia, Montenegro, and Sarajevo, and signed a cooperation agreement with the Zagreb Stock Exchange. The VSE is supervised by the Financial Market Authority (Finanzmarktaufsicht, or FMA), which was established in 2002 as an independent, autonomous and integrated financial supervisory authority, consolidating the supervisory agencies for securities, banking, insurance, and pension funds. Prior to the formation of the FMA, the Austrian Securities Authority (Bundeswertpapieraufsicht, or BWA) was responsible for securities supervision. According to a 2008 Press Release from the FMA, the financial market supervision reform which entered into force on January 1, 2008 provides for a comprehensive corporate governance package.

As stated in the World Bank's 2008 Doing Business report, investor protection in Austria in 2007 was significantly lower than the average enjoyed by Organization for Economic Cooperation and Development (OECD) member states. The Investor Protection Index is a subcomponent of the World Bank's 2008 Doing Business Indicators, and consists of three dimensions of investor protection: transparency of transactions (Extent of Disclosure Index), liability for self-dealing (Extent of Director Liability Index) and shareholders' ability to sue officers and directors for misconduct (Ease of Shareholder Suits Index). The indexes range from 0 and 10, with higher values indicating greater disclosure, greater liability of directors, greater powers of shareholders to challenge the transaction, and better investor protection. Austria scores 3 in the disclosure index against an OECD average of 6.4. It scores 5 in the Director Liability Index against an OECD average of 5.1 and 4 in the Shareholder Suits Index against an OECD average of 6.5.

The Principles

Principle I: Ensuring the Basis for an Effective Corporate Governance Framework

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In 2002, the Austrian Working Group for Corporate Governance established a Corporate Governance Code, which is mandatory for listed companies on the stock exchange. The Corporate Governance Code was last amended in June 2007, and amendments to the AktG and GmbHG were also adopted in 2005 to reflect certain provisions of the Code. Birkner and Hasenaure noted in 2007 that, as a result of the transposition of the EU Market Abuse Directive No. 2003/6/EC into Austrian law in 2005, comprehensive amendments were introduced to the BörseG and the WAG with regard to market abuse, insider trading, and ad hoc disclosure requirements. Furthermore, the EU Transparency Directive No. 2004/109/EC was incorporated into Austrian law in April 2007, and the Code was expected to be amended accordingly. The Corporate Governance Code and the WAG were last revised in June 2007 and November 2007 respectively.

Since August 2004, according to a 2006 IAS study, the VSE's new regulatory framework for the prime market has included the requirement to make a statement concerning the compliance or non-compliance with the Code of Corporate Governance. Consequently, most Austrian listed companies have declared they will adhere to the Code, while other companies have developed their own corporate governance code. Despite all the descriptive information provided above, neither assessments directly address Austria's compliance with this principle.

Principle II: The Rights of Shareholders and Key Ownership Function

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According to the 2002 report by Weil et al., Austrian corporate governance is similar to the German system in many respects, including the protection of shareholders' rights. The report noted that shareholder rights are primarily protected through courts, and the authority of the shareholders' meeting is expressly stated in the AktG. Furthermore, the law empowers shareholders to approve the actions of both the supervisory and management boards at the annual general meeting. As of July 2004, out of the four Austrian companies listed on the FTSE Eurofirst 300, two apply the "one share-one vote" principle, according to a 2005 Association of British Insurers report. However, the information provided above does not directly address Austria's compliance with this principle.

Principle III: The Equitable Treatment of Shareholders

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As noted in the IMF's 2004 report, Austrian legislation was in line with international best practices regarding requirements that holders of securities in a company should be treated in a fair and equitable manner. The Corporate Governance Code is based on the concept that "all shareholders must be treated equally under the same conditions," according to Birkner and Hasenauer's 2007 report. However, the information provided above does not directly address Austria's compliance with this principle.

Principle IV: The Role of Stakeholders in Corporate Governance

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There is insufficient information publicly available addressing Austria's compliance with this Principle.

Principle V: Disclosure and Transparency

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Amendments to the AktG and the GmbHG in 2005 were implemented to improve the independence of supervisory boards and auditing, as noted in Birkner and Hasenauer's 2007 report. Under the revised AktG, the supervisory board must audit and report to the management board on financial statements and consolidated financial statements. The Corporate Governance Code also compels listed companies to publish consolidated financial statements, and quarterly reports, as well as establish audit committees. Birkner and Hasenauer add that the FMA must be informed immediately of any postponement of the disclosure of inside information, as well as any substantial changes to such information (ad-hoc disclosure) As a result of the transposition of the EU Market Abuse Directive No. 2003/6/EC into Austrian law in 2005, comprehensive amendments were introduced to the BörseG and the 1996 WAG with regards to market abuse, insider trading, and ad hoc disclosure requirements. Furthermore, the EU Transparency Directive No. 2004/109/EC was incorporated into Austrian law in April 2007, and the Code was expected to be amended accordingly. The Corporate Governance Code and the WAG were last revised in June 2007 and November 2007 respectively.

As stated in the IMF's 2004 report, Austrian legislation was in line with international best practices regarding requirements that accounting and auditing standards should be of a high and internationally acceptable quality. Listed companies were also required to prepare their financial statements in accordance with the International Accounting Standards or U.S. GAAP. The IMF report recommended improving the implementation of accounting standards by auditors. The IMF report also noted that the role of the internal audit function would be strengthened by requiring it to report directly to the supervisory board rather than the management board. As of January 1, 2005 all listed European companies, including Austrian companies, were required to prepare consolidated accounts following the International Financial Reporting Standards (IFRS) endorsed by the EU. According to Birkner and Hasenauer's 2007 report, future amendments to the Corporate Governance Code are likely to include the requirement to draft financial statements in line with the IFRS, as well as a comply-or-explain rule requiring quarterly statements to be made in accordance with the IFRS. However, there is insufficient information publicly available regarding Austria's compliance with this principle subsequent to these changes.

Principle VI: The Responsibilities of the Board

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According to a 2002 report by Weil et al., although the supervisory board is not required to represent the interests of any particular constituency, it indirectly serves them by fulfilling its duties. Furthermore, members of the supervisory board who violate their duties are liable to the company for any resulting damages. Amendments to the AktG and the GmbHG in 2005 were implemented to secure the independence of supervisory boards, as noted by Birkner and Hasenauer in their 2007 report. Non-compete obligations for members of management boards were also incorporated into the AktG. Nonetheless, the information provided above does not directly address Austria's compliance with this principle.