The Spanish Corporate Governance Code for listed companies
Corporate governance refers to those practices and processes that direct and control a company. The Spanish Corporate Governance Code provides the framework for attaining a company’s objectives and includes every sphere of its management from a company’s internal controls to its disclosure. The initiatives concerning good practice in corporate governance have multiplied since the global crisis, which showed the importance of economic efficiency and strengthening investor trust.
In this context, in May 2013, a committee of experts was appointed to comment on the situation of corporate governance in Spain and to propose measures to improve the effectiveness and responsibility of Spanish companies. As a result, the board of the National Securities and Market Commission (CNMV) finally approved by resolution the new 2015 Spanish Corporate Governance Code for listed companies on 18 February 2015.
The main goal of the Code is to guarantee proper functioning of the governing and administrative bodies of Spanish companies in order to improve competitiveness as well as build trust and transparency for shareholders and investors. The Code also aims at improving corporate control and responsibility systems and ensuring the correct internal distribution of duties and responsibilities under the maximum professionalism standards.
Main characteristics of the new Code
The 2015 Corporate Governance Code applies to all firms whose shares are admitted to trading on the official secondary market, meaning all listed companies, no matter their size or market capitalization.
This new code has replaced the former Good Governance Code (2006) and presents some notable aspects. Specifically, several of the 2006 recommendations have been expressly excluded from the Code because they have been incorporated into the Spanish Companies Act, thus, becoming legally mandatory (such as those concerning the exclusive powers of the General Shareholders’ Meeting or the Board of Directors, or the separate voting of resolutions).
At the same time, the new Code has included specific recommendations concerning corporate responsibility, which is increasingly acknowledged as a key to better corporate governance systems. This is why corporate responsibility has clearly justified its place in the 2015 Corporate Governance Code.
Noteworthy is the fact that the Code’s recommendations are voluntary, meaning that listed companies decide whether to follow them or not. However, at the same time, companies are subject to the so-called “comply or explain” principle. This means that despite its voluntary nature, companies have the obligation to specify in the annual corporate governance report the “degree of compliance with the corporate good governance recommendations, justifying any failure to comply”. Companies shall have to indicate if the compliance is full, partial or non-existent. Thereafter, shareholders, investors and the market in general can use this information in order to evaluate a company’s actions.
Overview of some of the main recommendations
The list of recommendations introduced by the 2015 Code is considerable. In particular, the Code is composed of 64 recommendations, divided into three sections: general arrangements (recommendations 1 to 5), general shareholders’ meetings (6 to 11) and the Board of Directors (12 to 64) section, which also comprises corporate responsibility.
There are some important recommendations concerning general shareholders’ meetings. Prior to holding shareholders’ meetings, listed companies are encouraged to publish reports concerning different aspects such as the functioning of the board of directors’ committees, the auditor’s independence or the related parties’ transactions. Likewise, shareholders are asked to attend the meetings and exercise their rights as well as to suggest resolutions to be passed.
However, the majority of the recommendations focus on the board of directors. In this regard, the Code provides guidelines on the performance of the post, the structure and the composition of the board of directors. For example, the Code suggests that the board contain between five and fifteen members with at least 30% of female representation (by the year 2020), it should hold a minimum of eight (8) meetings per year, the executive directors’ remuneration should vary according to performance of the company and personal performance, etc.
Overall, this new 2015 Code serves as a step forward towards the improvement and implementation of good practices within corporate governing bodies and it is expected that the majority of the leading Spanish listed companies will follow it.
Riikka Tuomisto & José María Mesa
This article is not intended to be, nor should be considered legal advice