CNMV holds public consultation on changes to certain recommendations in the Code of Good Governance for Publicly Traded Companies

The changes are limited in scope and are intended to bring the Code in line with legislative changes introduced since 2015 and strengthen, among others, recommendations on diversity and sustainability, supervision of non-financial information, and monitoring and management of non-financial risks.

On January 15, the Spanish National Securities Market Commission [Comisión Nacional del Mercado de Valores] (“CNMV”) announced that it was holding a public consultation until February 14 on changes to certain recommendations in the code of good governance for publicly traded companies (the “Code“).

The proposed changes are limited in scope, and we highlight two of the main objectives: to bring the Code into conformity with the current legal framework, given that since it took effect in 2015, the statute on publicly traded companies has made certain recommendations compulsory; and  to strengthen and promote the role of certain issues in corporate governance related to socially responsible investment, such as gender diversity, anti-corruption measures, sustainability, and social and environmental issues. It is, then, a compilation of changes introduced by Spanish Law 11/2018 of December 28, 2018 and the proposed changes being introduced by the draft bill on fostering long-term stockholder engagement, and it goes further into the considerations made in the CNMV’s announcement of November 2019 on cases of alleged illegal practices at some publicly traded companies.

Chief among the proposed changes are that:

• Publicly traded companies have a general policy concerning reporting corporate economic and financial information through the channels they consider appropriate.

• The board of directors set up a policy aimed at fostering a suitable composition of the management body and, among other measures, favor diversity in several areas (know-how, experience and gender), with a presumption that diversity is fostered if measures are in place that help lead the Company have a significant number of top female executives. Likewise, it is advisable that the gender with lower representation make up at least 40% of the total number of members of the management body.

• Rules should be implemented requiring directors to report and, if necessary, resign in any situations that may affect them, including cases of corruption, regardless of whether their conduct in the company is called into question. The board should review the case without delay (without waiting for the director to be charged or arraigned) and decide whether any measures should be taken in that regard (e.g., asking the director to resign, recommending dismissal, or starting an internal investigation).

• As indicated in the Technical Guidelines 3/2017 on Audit Committees of Public-Interest Entities [Guía Técnica 3/2017 sobre Comisiones de Auditoría de Entidades de Interés Público], this committee’s mission should be expanded to include oversight of non-financial information and systems for monitoring financial and non-financial risks, and its members (especially the chairperson) should be knowledgeable and experienced in these matters.

• It is envisaged that publicly traded companies will set up a specialized committee on environmental and social affairs and corporate governance to be composed entirely of external directors, at least two of whom will be independent directors.

• In connection with the Code’s recommendation that directors’ severance payments on termination of their contracts, should not exceed two years’ total annual remuneration, the proposed changes specify that calculation of such amounts should include any payment obligations or payments accruing as a consequence of termination of the contractual relationship (including indemnity, previously unconsolidated amounts from long-term savings schemes, or indemnity for post-contractual non-compete covenants).