New Unified Code on Good Corporate Governance for listed companies

On 24 February 2015 the regulatory body of the Spanish Stock Market (Comisión Nacional del Mercado de Valores) published the new Unified Code on Good Corporate Governance for listed companies which substitutes the current version from 2006, partly amended in 2013. To do so, the regulatory body of the Spanish Stock Market has had the support and assistance from the Committee of Experts on corporate governance created by agreement of the Council of Ministers on 10 May 2013. This Committee also worked in drafting the Law 31/2014, published on 4 December 2014 and which amended the Companies Act in matters of corporate governance.

With the recent reform of the Companies Act, a number of the recommendations of the Unified Code of Good Corporate Governance for listed companies (the “Good Corporate Governance Code“) have become legally binding. The new Good Corporate Governance Code excludes these recommendations given that they have already been incorporated in a binding regulation, and therefore only regulates those matters considered of a voluntary nature, but subject to the principle of “comply or explain”.

Large part of the changes in the Good Corporate Governance Code revolve around the board of directors and its specialised committees, introduced with the purpose of favouring its efficient functioning and promoting the participation and dedication of its members. In this area, we underline the following changes:

• With regard to the recruitment of directors, gender diversity is encouraged, promoting the objective that in 2020 the number of women directors represents at least 30% of the members of the board of directors.
• It is recommended that the number of independent directors represent at least half of the total number of directors (this is reduced to a third in the case of companies that do not have a high capitalisation or when, if they do, count with one or various shareholders who jointly control more that 30% of the share capital).
• Regarding the figure of the coordinating director, its tasks are extended with respect to those regulated by the Companies Act, recommending that the coordinating director is in charge of maintaining contact with investors and shareholders to learn about their opinions and concerns regarding the company’s corporate governance.
• It is recommended that companies publish on their websites any information on the remunerated activities performed by their directors, whatever their nature.
• It is recommended that the board meets at least eight times a year. If a director does not attend a meeting, it is recommended that he or she confers representation with precise voting instructions.
• It is suggested that an internal risk control and management unit be created, which under the supervision of the audit committee, will ensure the correct functioning of the company’s risk control and management systems and monitor compliance of the policy defined by the Board.
• With regard to the nomination and remuneration committee, due to the importance given to the selection of directors and the plurality of technical considerations to be taken into account when establishing their remuneration systems, in high capitalization companies it is recommended that two separate committees be created, one for remunerations and the other for nominations, with the aim of increasing technical specialisation in each field. 

Another area where important changes have been introduced is the directors’ remuneration, drawing up a series of recommendations oriented towards there being a balance between the need to remunerate the directors’ talent and dedication and promoting corporate sustainability and profitability at long term. We highlight the following changes:

• It is recommended that the contract with the executive director includes the possibility that the company may claim reimbursement of the variable components of the remuneration when payment is not in line with performance conditions or when they have been paid in view of data that is later proved to be inaccurate.
• In relation to the termination compensation, it is recommended that a quantitative limit is established equal to the total annual remuneration for two years, and also that the compensation is not paid until the company has verified that the director has accomplished the established performance criteria.

One of the fundamental changes in this Good Corporate Governance Code is the inclusion of recommendations related to the policy of corporate social responsibility, a matter that in recent years has aroused particular interest and awareness within and beyond our borders. This is why, for the first time, it is recommended that companies examine the impact their activity has on society and the minimum recommended content of the corporate social responsibility policy is established. Moreover, it is recommended that the company informs (whether in its management report or in a separate document) about matters related to corporate social responsibility.

With the publication of the new Good Corporate Governance Code the last stage of the reforms in the area of corporate governance is completed, a project which started in March 2013 with the setting up of the Committee of Experts in matters of corporate governance. Together with the reform of the Companies Act, the updating of the Good Corporate Governance Code intends to promote business practices based on management transparency and risk control and thus achieve the aim that Spain reaches the highest levels of compliance in the field of corporate governance.