HOW HAS CORPORATE GOVERNANCE EVOLVED?

In recent years, the concern for Corporate Governance has increased given the great economic and legal impact that it generates. Thus, what were once mere codes of conduct or principles of good corporate governance were progressively positivized.

1. Codes published at European level 

The leaders of the European Union have always been aware of the need to improve corporate governance of companies to eliminate so-called “agency conflicts” as much as possible (conflicts between directors and shareholders, majority and minority shareholders, etc.), as well as to provide greater transparency and credibility to the financial information issued by the companies:

• Cadbury Report (London 1992).
• Principles and Recommendations of the European Association of Securities Dealers (2000).
• Guide on Corporate Governance of Euroshareholders (2000).
• Report of high Level Group of Company Law Experts on a Modern Regulatory Frame work for Company Law in Europe (2002).
• Pittsburgh Declaration (Global Unions, G-20 Summit, September 2009).
• Publication of the Green Paper in 2011 to analyse the effectiveness of non-binding regulation on Corporate Governance by the European Commission.

2. National Codes and Recommendations

In order to identify and recommend appropriate conduct within corporate governance, expert groups (1997, 2003 and 2006) were created in Spain to study the operation of listed companies and to develop criteria and recommendations to improve Corporate Governance standards. The ultimate goal is good corporate practice. The most relevant national reports are:

 

Olivencia Report (1998)	Need to separate management and ownership of the company;
	Mission of the counsellors to defend the interests of the company, making decisions that improve the management;
	Establishment of delegated control committees (audit, nominations and remuneration);
	A single mandate of 4 or 5 years is recommended;
Aldama Report (2003)	Modifies the previous one and includes new recommendations:
	Gives greater protection and security to shareholders and investors;
	Increases the transparency of markets;
Decálogo del Directivo [Director Do’s and Dont’s] (2004)	Basic principles of the manager/director, as well as rights and obligations;
	Commitment, shared vision and mutual responsibility;
	Initiative to reach established goals and expectations.
Unified Code of Good Governance of Listed Companies, Conthe Report (2006, current)	Transparency, reliable information and investor confidence.
	Increases the protection of minorities in three areas:
	– Quality of information
	– Structure of the Board
	– Transparency of the remuneration of the directors.
	Clarifies the model of the independent director.
	Clarifies the establishment of remuneration.

Transparency and the quality of information are two of the key aspects in which most codes converge.

3. Main content of positive law

Likewise, in recent years, these recommendations have been positivized, creating an area of prescriptive compliance. Among others, we can highlight:

• Law 44/2002, dated November 22, on Measures to Reform the Financial System: since then, public companies have been compelled to have an Audit Committee;
• Transparency Law (Law 26/2003, of July 17), which regulates obligations of transparency and a new regime of duties of loyalty and fidelity of the directors and managers;
• Law 25/2011, of August 1, partial amendment of the Capital Companies Act and incorporation of Directive 2007/36/CE, on the exercise of certain rights of the shareholders of listed companies;
• Law 2/2011, of March 4, on Sustainable Economy, which marked great progress in the area of transparency of remuneration systems and Order ECC/461/2013, which determines the content and structure of the annual report of corporate governance, on remuneration and other information instruments of corporations;
• Law 31/2014, of December 3, on Improvement of Corporate Governance. The most important changes (among others) refer to the remuneration of directors (art. 217 and ss LSC) with the need to sign a contract with the director delegate(s) regulating their content (art. 249 LSC); duties of administrators (art. 225 and ss LSC); the responsibility of the administrators (art. 236 and ss LSC).

4. Implementation of business ethics

In short, in order to achieve good Corporate Governance, regardless of the regulations in the matter, any organisation has to converge some fundamental principles such as:

• Clear obligations of the directors: diligence and loyalty.
• Criteria for selection, classification and remuneration of directors.
• Need for committees to support the board: mainly audit and compliance, remuneration, nominations and strategy.
• Preventive risk management.
• Evident internal control.
• Separation of powers.
• Balanced incorporation of non-executive and independent directors.
• Creating value as a measure of good performance.

5. Conclusions

The ethical and/or philosophical principles of diverse origins, applied to the good corporate governance of companies, were formed in a first phase in various Codes of Recommendations. Subsequently, some of these recommendations have been incorporated as mandatory rules.

The rest of the rules, even by unlisted companies, cannot be ignored because they progressively integrate the judicial interpretation of indeterminate legal concepts such as due diligence, duty of loyalty, proper management of conflicts of interest, etc.

LEQUID