• The shareholders' meeting will approve the remuneration policy on a binding basis, at least every three years
  • The capital necessary to exercise minority rights is reduced from 5% to 3%
  • The position of administrator must be exercised for a maximum period of four years, compared to the current six

The Council of Ministers today approved the Preliminary Draft Law (APL) by which the Capital Companies Act is amended, the purpose of which is to improve the corporate governance of these companies. The regulation addresses aspects such as the remuneration of directors, the duration of their mandate, appointments, situations of conflicts of interest and the duties of loyalty and diligence of administrators, among other aspects. The APL is now undergoing the public hearing process for its subsequent return to the Council of Ministers and the start of the parliamentary process.

The APL incorporates proposals for regulatory changes raised by the Committee of Experts on Corporate Governance. This commission was created by Agreement of the Council of Ministers of May 10, 2013 with the aim of preparing a study on best practices in corporate governance and promoting initiatives in this regard. Its creation follows from the National Reform Program for 2013, whose objectives include improving the current corporate governance framework for companies.

The Commission published its conclusions on October 14 and incorporated as an annex a series of specific regulatory proposals to reform the current Capital Companies Law. The Government has had two months to do so since then to prepare the corresponding APL, approved today. Modifications to this rule affect mainly listed companies, although new developments are also introduced in all companies. These modifications are the following:

Powers of the general shareholders' meeting

All societies

  • Intervention in management matters: The board is allowed to issue management instructions unless otherwise provided in the statutes.
  • Voting: The proposed resolutions must be voted on separately for those matters that are substantially independent.
  • Conflicts of interest between shareholders: It is proposed to extend to all companies the voting prohibition of the partner who benefits in certain very clear cases of conflict of interest.
  • Challenge of social agreements:

    • The distinction between null and voidable agreements disappears.
    • The challenge period is extended from 40 days to 1 year.
    • As for the legitimation, at least 1% of the capital is required to be able to exercise the challenge action.

Listed companies

  • Additional powers of the board: The decision on essential operations (those in which the volume of the operation exceeds 25% of the total assets on the balance sheet) is attributed to it.
  • Shareholder rights: The social capital necessary to exercise minority rights is reduced from 5% to 3%.
  • Attendance at the general meeting: The maximum number of shares that could be required to attend the meeting is reduced from 1 per thousand to 1,000 shares.
  • Fractionation and divergent vote: Entities acting on behalf of various persons may divide and delegate the vote, as is the case of foreign investors who make their investments through a chain of financial intermediaries who act as fiduciary holders on behalf of the last investor.
  • Right to information: It is proposed to lower the maximum period in which shareholders can request information from 7 to 5 days before the meeting is held.
  • Associations and shareholders forums: Its registration is established in a special register with the CNMV and the fulfillment of a series of accounting and information obligations.

Society administration

All societies

  • Duties and liability regime of administrators:

    • The duties of diligence and loyalty and the procedures that should be followed in the event of a conflict of interest are more precisely typified.
    • The scope of the sanction is extended, beyond the compensation for the damage caused, including the return of the unjust enrichment. The filing of the social responsibility action is facilitated by reducing the necessary participation (from 5 to 3% in listed companies) and allowing its direct filing (without waiting for the meeting) in case of breach of the duty of loyalty.
  • Powers of the board of directors: A new article is included with the non-delegable powers of the board, in order to reserve to the board the decisions corresponding to the essential core of the management and supervision of the company. In listed companies, these powers are joined by new ones such as the risk control and management policy.

Listed companies

  • President and CEO: When both positions fall to the same person, the appointment of the president of the council will require the favorable vote of two thirds of the members of the council. In addition, a coordinating director must be appointed from among the independentlead independent director) who is empowered to request the call of the board, expand the agenda, coordinate non-executive directors and direct the evaluation of the president.
  • Evaluation of the council and its committees: The board of directors must carry out an annual evaluation of its operation and that of its committees.
  • Appointments and remuneration committee: The boards of directors must imperatively constitute an appointments and remuneration committee.
  • Duration of the administrator position: It is proposed that the maximum period of each appointment does not exceed 4 years, compared to the current 6.

Directors' remuneration:

All societies

  • Programmatic references: The remuneration of the administrators must be reasonable, in accordance with the economic situation of the company and with the functions and responsibilities assigned to them, and the remuneration system must be aimed at promoting the profitability and sustainability of the company in the long term.
  • CEOs: The remuneration regime for the exercise of executive powers of the directors is clarified. In these cases, a contract must be signed with the director, which will include the different remuneration items. It will be approved by a qualified majority of the council and the abstention of the interested parties.

Listed companies

  • Remuneration policy: It must be approved by the board (binding vote), after a report from the appointments and remuneration committee, at least every three years. This policy will contain, at least:

    • Total remuneration to directors for their status as such
    • The remuneration system for executive directors (description of the components, global amount of the annual fixed remuneration and its variation in the reference period, the parameters for fixing the other components and all the terms and conditions of their contracts as premiums, compensation, etc.)
    • The board will decide the individual distribution always within the remuneration policy.
    • Any modification will require approval of the board and no payment can be made until it has been approved by the board.
  • Annual remuneration report: It will continue to be subject to an advisory vote by the board, but in the event of a negative vote, a new proposal for the remuneration policy must be made.

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