Stéphane Bertouille participates in the IR Global Guide – International Governance: The Risks You Face as a Global Director
Foreward by Andrew Chilvers
As companies continue to look for opportunities in global markets, directors from diverse jurisdictions are hired to serve on the boards of foreign businesses as well as domestic ones that have operations and assets in other countries.
Enterprises across the world look for directors from other jurisdictions for any number of reasons. Hiring board directors from other countries can help to build investor confidence, for example. Likewise, an enterprise that is headquartered in a different jurisdiction but with a subsidiary in the US or Europe could seek directors to gain expertise and credibility. The director may have valuable international or local geographic expertise regarding business objectives, strategy, operations and risk management.
Nevertheless, serving as a director on the board of a global enterprise can bring major challenges. It’s true that during the past few years corporate governance laws and regulations have started to converge across regions, but there remain critical international differences regarding the responsibilities and liabilities of directors.
With recent data protection legislation across different jurisdictions, companies are now being held to account regarding their use of personal data. Will this result in a more litigious culture for companies and what does this mean for boards?
Actions for injunction and collective redress in order to obtain compensation for damage suffered by a group due to a breach of the Privacy Act (and since 2018, a breach of the GDPR) are possible in Belgium since 2014. Any action for collective redress must be initiated by associations which are active in the protection of personal data for at least three years, and only pertaining to damages suffered either by consumers or small or medium sized-enterprises.
To date, only a dozen actions have been launched in Belgium since the creation of this mechanism. To our knowledge, no collective legal action in GDPR matters has yet been tried. This is not in itself surprising given that the procedure might seem long and cumbersome.
The collective redress must be directed against the enterprise liable for the GDPR’s breach (most likely the company acting as data controller, or as data processor), not directly against the director(s).
An infringement of the GDPR by a company can, however, result in a fine. Third parties could also seek to sue a director in case of damages suffered based on liability for torts.
It should be noted that the rules of directors’ personal liability have been substantially modified by the Code of Companies and Associations (“CCA”). The three main changes are:
- The CCA provides expressly a ‘test of reasonableness’: directors are liable only for decisions that are obviously outside the scope of what a normally careful and prudent director, placed under identical circumstances, would have reasonably decided.
- The CCA extends to management faults the joint and several liability of the members of the collegial administrative body.
- The CCA introduces maximum amounts to directors’ liability, both towards the company and towards third parties.
We strongly recommend our clients to revise their D&O liability insurance up to the amount of the cap and align any exclusion with this new framework.
With global directors now increasingly in demand, how important is it for boards and directors to understand the different expectations of directors and different cultures of governance?
Appointing global directors in a group of companies is obviously a matter of efficiency, but what should global directors know about their fiduciary duties under Belgian law?
Facing possible conflicts between the best interest of the Belgian subsidiary and the factual reality of corporate groups, Belgian courts have accepted that the strict application of the legal autonomy of companies should be reduced when confronted with the “group interest”.
Several criteria have been developed by Belgian courts (influenced by the “Rozenblum” ruling of the French Court of Cassation in 1985) in order to keep a reasonable balance between the legal independence of subsidiary companies and the recognition of the interest of the group. It follows that certainty on whether intra-group operations are genuine under Belgian law will require:
- i) an existing structured and organised group of companies which together contributes to a common policy;
- ii) a fair balance between the various subsidiaries so that the Belgian subsidiaries would not be discriminated; and
iii) a proportionality in relation to the financial possibilities of the subsidiaries so that the Belgian subsidiaries would not be placed in a difficult financial situation.
The fiduciary duties of the directors (not the shareholders), vis à vis the Belgian subsidiaries under Belgian law, are subject to a sui generis status organised by the CCA and implemented also by the general principle governing the mandate under the Civil Code.
For global directors the duty to act in the interest of the Belgian subsidiary is de facto extended to the necessity to act in the interest of the group. What about the issues of corporate opportunities, when global directors have to decide to which company of the group to allocate a business opportunity likely to be in the best interest of various companies of the group?
The criteria stated above developed by our courts will help determine, for instance, to what extent a company may be compelled by a parent company to incur a loss, or to allocate part of its resources to the development of another affiliated company.
How important is an effective board that follows core principles of international corporate governance? Does this give boards a shield against litigation and other issues such as bankruptcy and bribery?
The Belgian Corporate Governance Code of 2020 governs listed companies. The Buysse III Code recommends (not compulsory) practical guidelines and advices to entrepreneurs. Belgian corporate governance is largely inspired by the rules that have been enacted at the European Union level.
To what extent is a parent company able to enforce for the whole group a uniform application of a group governance policy?
In general, the shareholder who holds more than 50% of the voting rights at the general meeting freely decides on the appointment of the members of the Board of Directors and thus has a fundamental influence and may interfere on the management of the company subject to its control.
The right of a parent company willing to implement governance rules in respect to risk management, processes against bribery etc to interfere in the management of its subsidiaries being often considered as an exception to the principle requiring that the legal personality of a subsidiary be distinct from that of its parent company, can obviously not be unlimited or unconditional.
This right does not in any way exempt the corporate bodies of the subsidiary from operating within the bounds of the local law. The strategic policy decided by the parent company only becomes binding on the subsidiary if and insofar as the competent bodies of the subsidiary adopt themselves the decisions implementing this policy.
Moreover, if the right to interfere is justified by the interest of the group, it is unanimously accepted that the group interest is itself subject to limits and conditions as stated in Question 2 hereabove.