Croatia: consultation on new corporate governance code

The Croatian Financial Services Supervisory Agency and Zagreb Stock Exchange have begun a consultation on a revised edition of their joint Corporate Governance Code. A copy of the revised Code is available here (pdf). The accompanying consultation paper and consultation questionnaire can be found, respectively, here (docx) and here (docx).

The revised Code applies to all companies whose shares are listed on the regulated markets of the Zagreb Stock Exchange and comes into force on 1 January 2020. Among the new recommended practices included within the Code are those concerning codes of conduct for supervisory and management board members; engagement with minority shareholders; and the setting of targets for the proportion of women on both boards (with annual reporting of progress towards those targets).

Netherlands: new governance code expected by the end of 2016

Earlier this year, the Dutch Corporate Governance Code Monitoring Committee published for consultation the principles, best practice provisions and guidance it proposes to include in the revised edition of the Dutch Corporate Governance Code in respect of companies with a single tier board: see here (pdf). The Committee has announced that the new Code will be published by the end of 2016, together with additional guidance for those companies choosing to have a single board: see here.

Update (27 October 2016) - the new Code will be published on December 8, 2016: see here.

Europe: Commission publishes proposals to improve non-financial reporting by companies

The European Commission has adopted proposal for a directive to increase the disclosure provided by certain large companies in respect of environmental, social and employee matters, respect for human rights, anti-corruption and bribery. Proposals are also included in respect of the disclosure by large listed companies of their policy on board diversity.

For further information see: Press release | FAQs | Copy of proposed Directive (pdf) | Impact assessment: full text (pdf), summary (pdf) | Further background information |.

Germany: Commission proposes changes to Corporate Governance Code

The Government Commission on the German Corporate Governance Code yesterday published for consultation the changes it proposes to make to the German Corporate Governance Code. An overview of the changes, in English, is available here (pdf). These include the recommendation that the supervisory board place a cap on the total remuneration of directors as well as those elements which make up remuneration. A more detailed explanation of the proposed changes is available, in German, here (pdf). A copy of the Code, reflecting the proposed changes, has also been published (in German): see here (pdf).

Europe: EBA publishes Guidelines on the assessment of the suitability of members of the management body and key function holders

The European Banking Authority has published Guidelines on the assessment of the suitability of members of the management body and key function holders: see here (pdf). The Guidelines are published in accordance with Article 16 of Regulation (EU) No 1093/2010 (the EBA Regulation) and Member State regulators are required to comply with them or to provide reasons for their non-compliance.

Europe: EBA consults on proposed Guidelines for assessing the suitability of credit institutions' management body members and key function holders

The European Banking Authority has published for consultation a draft of its proposed Guidelines for assessing the suitability of credit institutions' management body members and key function holders: see here (pdf). The Guidelines seek in particular to harmonise the assessment criteria and to make clear the expectations placed upon Member States' supervisory authorities and credit institutions.

Existing EBA Guidelines, including those relating to internal governance, are available here. Article 16 of the Regulation established the EBA (No 1093/2010 - see here, pdf) outlines the role of Guidelines within the European financial supervisory framework: Member States' Authorities must, within two months of Guidelines being issued, confirm whether they comply (or intend to comply). Where there is non-compliance, or proposed non-compliance, an explanation must be given to the EBA.

Netherlands: company law update

A very useful update, in English, of forthcoming company law changes has been published by the law firm NautaDutilh: see here. The update reports that 1 July 2012 is the expected date for the coming into force of legislation providing for single tier boards and the simplification of the rules applicable to private limited companies.

Netherlands: the re ASMI case and Dutch corporate law

The Netherlands Supreme Court gave judgment last week in re ASMI. An excellent summary, in English, is available on The Defining Tension blog: see here. The case raised important questions concerning, amongst other things, the relationship between the shareholders and the management board as well as the role of the supervisory board.

Poland: WSE Code of Best Practice for Listed Companies - new edition published

The Warsaw Stock Exchange has published a revised edition of its Code of Best Practice for Listed Companies: see here (pdf). The revised Code comes into force on 1 July 2010. A summary of the revisions is available here (pdf) and further background information is available here. The amendments to the code concern, amongst other things, gender diversity at board level, remuneration policy and electronic communication.

Europe: Commissioner Barnier calls for stronger corporate governance

The new European Commissioner for the Internal Market, Michel Barnier, delivered a short speech earlier this week outlining his priorities and calling for stronger corporate governance: see here (html). More specifically, the Commissioner observed:

On top of supervision and regulation by public authorities, I am convinced that if we want to prevent future crises, financial institutions themselves, and other companies, need to change. We need stronger corporate governance. We may need to think about targeted measures to strengthen the responsibility and the independence of management boards, and look at the role of shareholders and external audit. And I am convinced that binding rules on remuneration across the financial sector would also be an incentive for taking less risk".

Germany: 'say on pay' arrives and other remuneration reforms

The German Bundestag yesterday adopted the Gesetz zur Angemessenheit der Vorstandsvergütung (VorstAG, Act on the Appropriateness of Management Board Remuneration). The Act introduces important changes concerning the composition of management board remuneration and the manner in which it is determined by the supervisory board. It also introduces 'say on pay' in Germany, i.e., a non-binding advisory vote on remuneration for listed company shareholders. 

Further information about the Act has been published here (in English) by the Federal Ministry of Justice, from where the following summary of the Act's provisions is taken:

In future, there must be an appropriate relationship between the remuneration of the management board of a public limited company and the management board's performance, and this remuneration may not exceed the usual (sector or country-specific) level of remuneration in the absence of special reasons.

The remuneration structure of listed companies must be oriented towards sustainable corporate development. Components of the remuneration package that are variable should be based on assessment criteria covering a number of years; the supervisory board should provide the possibility of introducing caps in the event of unusual developments.

Share options may be exercised at the earliest four years after the option was granted. This is intended to give managers who benefit from such schemes a greater incentive to act with sustainable goals in mind and in the interests of the company.

The supervisory board's right to subsequently make cuts in the level of remuneration in the event that the company's situation worsens has been extended. Explicit statutory regulation is necessary in this respect since this constitutes an interference with existing contracts. An example of 'worsening' in this sense would be where a company is forced to make redundancies and is unable to distribute profits; in such a case, continuing to pay the agreed remuneration to the management board members would be inequitable for the company in question. There is no requirement of insolvency to enable this. The possibility of reducing pensions is restricted to the first three years following the board member's departure.

A decision concerning remuneration of a board member may - unlike at present - no longer be delegated to a committee of the supervisory board but must be made by the supervisory board in a plenary meeting. This will contribute to making the determination of remuneration more transparent.

The liability of the supervisory board has been increased. If the supervisory board determines a level of remuneration that is inappropriate, it thereby makes itself liable to compensation vis-à-vis the company. This rule makes it clear that determining an appropriate level of remuneration is one of the most important duties of the supervisory board and that it is personally liable for any violations of its obligations.

Companies are required to disclose more extensive information regarding remuneration and pension payments made to management board members when they discontinue their board activity, be it premature or under normal circumstances. This will enable shareholders to gain a better insight into the extent of agreements entered into with members of the management board.

If the company takes out so-called 'directors and officers liability insurance' (D&O insurance), something which is common practice, a mandatory deductible amount must be agreed. This amount must not be lower than one and a half times the amount of annual fixed remuneration. This is intended to promote business conduct that is focused on greater sustainability.

In future, the general meeting of shareholders of a listed company will be able to give a non-binding vote on the system of management board remuneration. In this way, an instrument for controlling the existing executive remuneration system is put at shareholders' disposal, which enables them to express their approval or disapproval thereof. Thus pressure will be exerted on those responsible to act particularly conscientiously when determining management board remuneration.

Lastly, former management board members may not become a member of the supervisory board within a two-year period following their departure from the management board, in order to prevent any conflict of interest arising. This restriction period rule does not apply if election to the supervisory board takes place at the instigation of shareholders who hold more than 25% of voting rights in the company. This balanced rule permitting exceptions is designed to take account the interests of family-run companies, in particular".