Flash Info : the French High Committee for Corporate Governance has published its eighth annual report, 22/11/2021


  • The High Committee for Corporate Governance (“HCGE”) published on 10 November 2021 its eighth annual report (the “Report”).
  • The mission of the HCGE is to monitor compliance with the principal French Corporate Governance Code, the Afep-Medef Code of Corporate Governance for Listed Companies (the “Code”), by those companies whose shares are listed on a regulated French market who have decided to adopt it. The HCGE seeks to encourage the effective implementation by such companies with the requirements of the Code, which apply on a “comply or explain” basis. As at 1 April this year, 113 of the issuers comprised within the SBF 120 benchmark have adopted the Code, including 36 of the CAC 40 companies.
  • Since 2014, the HCGE has published annual reports outlining its interpretation of and recommendations concerning various provisions of the Code, based on questions raised by issuers or which the HCGE has itself decided to consider. The HCGE also uses its annual report to describe and comment on the rate of compliance with the Code by the relevant SBF 120 and CAC 40 companies and to “name and shame” non-compliant and uncooperative companies.
  • Some of the key points to note from this year’s Report are outlined below.

1. Non-compliance: areas of concern
At the end of last year, the HCGE wrote to all of the issuers within the SBF 120 who have adopted the Code, to invite them to comply with certain recommendations which remain insufficiently respected.
Amongst the requirements mentioned were:
– the Code recommendations regarding gender balance within senior management teams;
– compliance with the rules regarding the number of independent directors;
– establishing senior management succession plans;
– the presence of an employee representative director on remuneration committees.
The Report notes that rates of compliance with these requirements have subsequently continued to improve.

2. Governance and the COVID-19 crisis
The Report comments on the measures taken by issuers in response to the COVID-19 crisis, notably as regards the conduct of their general shareholders’ meetings (generally the move to remote electronic voting systems is judged to have been widespread and successfully implemented).

The Report also noted that the majority of issuers adjusted their bonus schemes, either by reducing financial objectives in line with revised budgets, or by adding non-financial criteria relating to the management of the COVID 19 pandemic. The HCGE observes that whilst these changes represented a modification of the remuneration policy previously approved by the shareholders in general meeting in accordance with French “say on pay” rules, few issuers submitted the changes to an ex-post shareholder vote, instead relying on a provision of the Commercial code (article L. 22-10-8) which allows a board to approve changes to the remuneration policy between AGMs in “exceptional circumstances”. The HCGE refrains from any observation regarding the merits or otherwise about such reliance and there is no doubt that the COVID 19 pandemic is an exceptional circumstance. However, it is arguable whether the remaining requirements of that article – that the changes are “necessary to guarantee the perennity or the viability of the company” were satisfied, an illustration of the potentially excessively restrictive effect of these words.

3. Collegiality of board deliberations
The Report notes that at its most recent annual general meeting, certain shareholders of a CAC 40 company exercised their legal right to require the addition of a resolution to the agenda for the meeting, requiring each of the directors individually to express their view on the group’s strategy. The HCGE quite rightly noted the inconsistency of such a proposal with two fundamental tenets of corporate governance: that the board of directors is a collegiate body and that its deliberations are confidential.

4. CEO successions
The HCGE also comments on a perennial issue for public companies both in France and elsewhere, the scenario in which an individual who is the chair and CEO, is succeeded in the latter function whilst remaining non-executive chair. Such transitions have been the subject of criticism in the French media, with voices being raised in favour of changes to the Code to discourage them. The HCGE is unmoved, considering that boards themselves are best placed to judge whether these succession arrangements are optimal for their company when transitioning its executive leadership. Just under 45 per cent of the SBF 120 companies who have adopted the Code have split the functions of chair and CEO.

5. Controlled companies and directors’ conflicts of interest
The Report indicates that in 2020, just under 36 per cent of the SBF 120 companies surveyed had controlling shareholders. This statistic underscores the interest of observations made by the HCGE in the Report, concerning the case of an issuer which was the subject of a protracted and complex strategic transaction, supported by its management but opposed by a shareholder whose employees were amongst the board members. The Report quotes the following statement from the HCGE’s 2019 annual
report: “….a director who, because of a general and enduring conflicts of interest is unable to simultaneously respect his obligations [under the Code] to abstain [from deliberations of the board in relation to which he has a conflict of interest] and to be fully engaged as a board member, risks committing a serious breach of the Code and should draw the [appropriate] conclusions by resigning”.
In the case at hand, the directors concerned had been appointed in their personal capacity, not as personal representatives of the shareholder: the HCGE considered that this made no difference to the conflict of interest issue, because of their subordinate relationship with the shareholder as the latter’s employees.

6. Executive sessions
The Code recommends organizing at least one meeting of the board each year without the participation of executive board members (and where relevant, members of the senior management team who, whilst not directors, habitually attend board meetings) and the Report strongly recommends compliance with this recommendation. The Report is silent as to whether the HCGE expects employee representative board members to attend executive sessions, a point which could usefully be clarified.

7. HCGE priorities for 2022
The HCGE indicates that its priorities for the coming year will include (i) sustainable governance, (ii) corporate social and environmental responsibility and (iii) gender diversity in senior management teams.

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