• The shareholders meeting will approve the remuneration policy on a binding basis, at least every three years
  • The capital needed to exercise the rights of minorities 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 approved today the Draft Law (APL) modifying the Capital Companies Law whose purpose is to improve the corporate governance of these companies. The rule 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 now submits to the public hearing process for its subsequent return to the Council of Ministers and the beginning of parliamentary proceedings.

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 objective 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 are the improvement of the current corporate governance framework of companies.

The Commission published its conclusions on October 14 and incorporated as a annex a series of concrete regulatory proposals for the reform of the current Capital Companies Law. The Government has had a two-month term since then to prepare the corresponding APL, approved today. The modifications of this norm affect mainly in the listed companies, although innovations of draft are also introduced in all the societies. These modifications are as follows:

Powers of the general meeting of shareholders

All societies

  • Intervention in management matters: The board is allowed to issue management instructions unless otherwise provided in the bylaws.
  • Voting: The proposed agreements for those matters that are substantially independent should be voted separately.
  • Conflicts of interest between shareholders: It is proposed to extend to all societies the prohibition of voting of the partner that is benefited 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 regards legitimation, at least 1% of the capital is required to be able to exercise the challenge action.

Listed Companies

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

Company administration

All societies

  • Duties and liability regime of administrators:

    • The duties of diligence and loyalty and the procedures that should be followed in case of a conflict of interest are more precisely defined.
    • The scope of the sanction is extended, beyond compensation for the damage caused, including the return of unjust enrichment. The filing of the social action of responsibility is facilitated by reducing the necessary participation (from 5 to 3% in listed) and allowing its direct interposition (without waiting for the meeting) in case of breach of the duty of loyalty.
  • Powers of the board of directors: A new article with the non-delegable powers of the board is included, 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 charges fall on the same person, the appointment of the chairman of the board will require the favorable vote of two thirds of the board members. In addition, a coordinating advisor must be appointed among the independents (lead independent director) who is empowered to request the convening of the board, expand the agenda, coordinate non-executive directors and direct the chairman's assessment.
  • Evaluation of the board and its commissions: The board of directors must carry out an annual evaluation of its operation and that of its commissions.
  • Appointments and Remuneration Committee: The boards of directors must imperatively constitute a commission for appointments and remuneration.
  • Administrator term: It is proposed that the maximum period of each appointment does not exceed 4 years, compared to the current 6.

Remuneration of directors:

All societies

  • Programmatic References: The remuneration of the directors must be reasonable, in accordance with the economic situation of the company and with the functions and responsibilities attributed to them and the remuneration system must be oriented to promote the profitability and sustainability of the company in the long term.
  • CEOs: The remuneration regime is clarified for the exercise of executive powers of the directors. In those 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 by the appointments and remuneration committee, at least every three years. This policy will contain at least:

    • Total compensation to directors for their status as such
    • The remuneration system for executive directors (description of the components, overall amount of the annual fixed remuneration and its variation in the reference period, the setting parameters of the remaining components and all the terms and conditions of their contracts as premiums, compensation, etc.)
    • The council will decide the individual distribution always within the remuneration policy.
    • Any modification will require board approval and no payment can be made as long as it has not been approved by the board.
  • Annual report on remuneration: It will continue to be submitted to the board's advisory vote but, in the case of a negative vote, a new remuneration policy proposal must be made.



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