Proposal to amend the Good Governance Code of Listed Companies

Written on 27 Apr 2020

The Spanish National Securities Market Commission (the "CNMV") is expected to approve, at the end of the first semester of 2020, the amendment of the Good Governance Code of Listed Companies (the "Good Governance Code"), after analysing the comments received concerning its amendment proposal during the public consultation period.

The CNMV plans to approve, no later than June / July 2020, the amendment of certain recommendations of the 2015 Good Governance Code, in order for said amendment to apply to the annual corporate governance reports of listed companies for this year. The proposed amendment, presented in early 2020, was submitted to public consultation and has received comments from 45 interested parties.

The proposed amendments tentatively concern 19 of the 64 recommendations of the Good Governance Code. The most significant are the following:

  • Recommendations 14 and 15: The updating of the recommendations regarding the gender diversity within the boards of directors, by raising to 40% the threshold for directors of the under-represented sex and by proposing that the board shall approve a selection policy that includes measures that encourage the company to have a significant number of female senior managers. This update has been the most objected in the public consultation, with many interested parties asking for a transitional period for the compliance with the new threshold.
  • Recommendation 37: The relaxation of the composition of the executive committee, in the case of companies in which it exists, requesting only two external directors, with at least one of them being independent. It is further recommended that the committee´s secretary is that of the board of directors.
  • Recommendations 39 and 42: The attribution to the audit committee the duty to supervise  non-financial information, as well as to supervise the financial and non-financial risk control and management systems, therefore, its members and, especially, its chairman, shall have knowledge and experience in the field.
  • Recommendations 53, 54 and 55: The unification of concepts such as “environmental, social and corporate governance aspects” or “sustainability”, which correspond to the English acronym ESG (“Environmental, Social and Governance“). Likewise,  the possibility is foreseen to assign the duties related to this matter to a specialized committee and especially dedicated to sustainability matters, composed solely by external directors,  with at least two of them being independent.
  • Recommendation 4: The approval of a general communication policy regarding economic-financial and corporate information through the channels deemed more appropriate (including new online media and social networks), which helps to maximize its broadcast and quality of  information, as well as the correct compliance with the rules on market abuse.
  • Recommendations 22 and 24: The strengthening of the control mechanisms of the directors´ actions that may affect the credit and reputation of the company. Upon the circumstances in which the internal rules of the companies must disclose, those of corruption are expressly mentioned, and it is proposed that the board should examine any situation that affects a director and may harm the credit of the company as soon as it is known (without waiting, as before, until the director is prosecuted).

In relation to the compensation of directors, the amendment would include, mainly, the following new developments:

  • Recommendation 59: The deferral of the payment of all (and not only part) of the compensation components for a period of time sufficient to verify the effective compliance with the magnitudes or conditions associated with their collection.
  • Recommendation 62: The implementation ─in the compensation plans referred or based on shares─ of a period of at least three years between the time the shares, options or other referenced financial instruments are granted and the time when the director can dispose of them. This recommendation aims to align the interests of the directors with the long-term interests of the companies and, therefore, the proposed amendment does not include the case of the directors who maintain an economic exposure to the shares price variation for a market value equal to an amount of at least twice their annual fixed remuneration.
  • Recommendation 64: Lastly, in relation to contract termination payments (for which the current Good Governance Code recommends that they should not exceed an amount equivalent to two years of the total annual compensation) the amendment would clarify that the indemnities, the amounts of long-term savings systems that have not been previously consolidated, the indemnities for post-contractual non-competition agreements, as well as any other payment of which accrual or payment obligation arises as a consequence of the termination of the contractual relationship, shall be included.