CSR in the Corporate Governance Code of Spain. February 2015

Corporate Governance Code in Spain. New version, February 2015

• On 24 February 2015 the regulatory body of the Spanish Stock Market (Comisión Nacional del Mercado de Valores, CNMV) published the new Unified Code on Good Corporate Governance for listed companies which substitutes the previous version from 2006, partly amended in 2013. 
• The CNMV  had the support and assistance from the Committee of Experts on corporate governance created by agreement of the Council of Ministers on 10 May 2013 that also worked in drafting the Law 31/2014, published on 4 December 2014 and which amended the Companies Act in matters of corporate governance.
• The new Good Corporate Governance Code excludes some recommendations of the previous Code as they have already been incorporated in a binding regulation. It  only includes matters subject to the principle of "comply or explain".
• One of the fundamental changes in this Good Corporate Governance Code is the inclusion of recommendations related to the policy of corporate social responsibility, a matter that in recent years has aroused particular interest and awareness within and beyond our borders. This is why, for the first time, it is recommended that companies examine the impact their activity has on society and the minimum recommended content of the corporate social responsibility policy is established. Moreover, it is recommended that the company informs (whether in its management report or in a separate document) about matters related to corporate social responsibility.

NEW COMPANY ACT IN SPAIN (2014). DIRECTORS DUTIES.

NEW COMPANY ACT IN SPAIN (2014). DIRECTORS DUTIES.

The amendments to the Revised Text of the Corporations Act (LSC), approved by Royal Legislative Decree 1/2010 of July 2, introduced by Law 31/2014 affect Directors’ duties, as it follows

1.- The reform provides important developments in the regulation of the legal status of the directors (functions, duties, liabilities and remuneration)

2.- Thus, in the case of the duty of care, the comprehensive reform of the general statement ("directors must perform and discharge  the duties imposed by the laws and statutes with the diligence of a prudent businessman, (...)"). Diligence in performing the duties should be assessed according to the functions assigned to each member of the board, thus taking into account the division of functions therein. (Article 225.1 LSC). The 2014 reform includes a duty to dedicate time in accordance with the position of each director (Article 225.2 LSC) as well as the duty to demand and the right to obtain from the company the information necessary (Article 225.3 LSC) 

3.- As for the duty of loyalty the Reform Act 31/2014 reinforces its regime expressly stating that it is mandatory: "The rules governing the duty of loyalty and liability for its violation are mandatory. Statutory provisions restricting this duty will be void (Article 230.1 LSC). It also

·         Reformulates the definition of generic duty: "Managers must hold their position with the loyalty of a faithful representative, acting in good faith and in the best interest of society" (Article 227.1 LSC).

·         Increases the detail in the definition of unfair behavior, completing the previous catalogue (especially on conflicts of interest), and dividing the content of the preceding Articles 227-230 and 232 LSC into two groups:

o    i) obligations derived from the basic duty of loyalty (new Article 228 LSC) and

o    ii) the duty to avoid conflicts of interest (new Article 229 LSC):

The former include the traditional duty of secrecy, abstaining from voting in cases of conflict of interest and acting independently without interference from third parties. The later refer to the duty not to take advantage of business opportunities of the Company and not to compete with the company.

The reform regulates dispensation from the obligations associated with the duty of loyalty (Article 230.2 LSC)in relation with conflicts of interests the waiver may be granted by the board, provided that it is safe for the company's assets , it takes place at market conditions, and with transparency. However, in the most relevant cases listed in Article 230.2 LSC, this is authorizing Directors to perform competing activities (it can only be waived when it is not expected to harm the Company) or the expected damage would be compensated by providing benefits obtained (Article 230.3 LSC). This waiver is granted by express and separate agreement of the general meeting. The duty of loyalty extends to de facto directors managers (art. 236.3 LSC).

The scope of the penalty for breach of duty of loyalty is extended because not only will bring the obligation to compensate the damage to the Company but also there would be an obligation to give back to the Company any unjust enrichment obtained (Article 227.2 LSC).

Case C‑172/13, JUDGMENT OF THE ECJ (Grand Chamber). Groups of Companies 3 February 2015

•  Case C‑172/13.- (Failure of a Member State to fulfil obligations — Article 49 TFEU — Article 31 of the EEA Agreement — Corporation tax — Groups of companies — Group relief — Transfer of losses sustained by a non-resident subsidiary — Conditions — Date to be used for determining whether the losses of the non-resident subsidiary are definitive)

CG, CSR and Multiple listings

Interesting paper by Nasr Taha Hassn "Corporate Governance, Degree of Multinationality, and Corporate Social Responsibility" 

The companies with multiple listing are more likely to have a greater number of shareholders  which increases monitoring costs. One method to reduce shareholders' monitoring costs and alleviate the moral hazard problem is through disclosure in corporate annual reports.

See Journal of Empirical Research in Accounting & Auditing,

ISSN (2384-4787), J. Emp. Res. Acc. Aud. 1, No. 1 (Oct-2014)

  

Branches opened in a Member State

From: Internal Market, Company Law, EU Website

 

Eleventh Council Directive 89/666/EEC of 21 December 1989 concerning disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State . The directive applies to branches opened in a Member State either by limited liability companies (listed in Directive 2009/101/EC) governed by the law of another Member State or by companies governed by the law of a non-EU country which have a comparable legal form.

 

Branches of companies from other Member States

• The compulsory disclosure requirements cover: address and activity; company's place of registration and registration number; name and legal form of the company, and name of the branch (if different from company); appointment, termination of office and particulars of the company representatives; winding-up of the company, appointment and particulars of liquidators; accounting documents; closing of the branch.
• Items that need to be compulsorily disclosed will be made publicly available through the interconnection system of central, commercial and companies registers established by Directive 2012/17/EU and available by mid-2017. Branches must have a unique identifier to allow identification of at least: Member State of the register; domestic register of origin; branch number.
• It should also contain, where appropriate, features to avoid identification errors.
• The Member State of the branch may require additional disclosures, e.g. signature of the company representatives or instruments of constitution.
• Where disclosure requirements of the company and branch differ, those concerning the branch apply for transactions with the branch. If a company opens several branches in a Member State, it can choose in which branch's register it discloses the accounting documents and the instruments of constitution, and make a reference in the registers of the other branches.
• The company’s register must make available without delay, through the registers interconnection system, information on any winding-up or insolvency proceedings of the company and on the striking-off from the register, if this has legal consequences in the register Member State. The branch register must be able to receive such information through the registers interconnection system, so that branches can also be struck off the register.

 

Branches of companies from non-EU countries

• Compulsory disclosure requirements for branches of companies from outside the EU, having a legal form comparable to that of EU limited liability companies, cover the following additional ítems:
• the law of the State governing the company;
• the instruments of constitution, memorandum and articles of association;
• the company's legal form.
• Where accounting documents are not drawn up under EU legislation or in a similar way, Member States may require that these be drawn up and disclosed for the branch's activities.

The penalty for insider trading does not require having obtained a specific economic benefit

The penalty for insider trading does not require having obtained a specific economic benefit

The Division of Administrative Litigation of the Supreme Court of Spain delivered a ruling dated November 14, 2014 ( application number 5244/2011 and rapporteur Mr Bandrés Sánchez- Cruzat ) , whereby it confirmed the fine of 210,000 euros to the Ministry of Economy imposed in 2010 the president of a company insider trading in connection with the sale of shares of the same Company in 2005 .

The Court rejected the appeal against the judgment of the High Court in 2011 and confirmed the fine.

In its judgment , the Supreme Court of Spain considers that the purchase in December 2005 by an entity of 51,780 shares of real estate amounting to 54.26 euros per share was prompted by information that the then president of that entity forwarded to the assignee of the acquiring company , given the close ties of family and professional character existing between society and punished.

The Supreme Court underlines: "it is not required to show that with the misuse of information either of the persons involved obtained a specific economic benefit. " The intention of the legislature with the imposition of this legal duty to agents and individuals operating in the stock market is to preserve the integrity of the securities markets and ensure equal conditions of potential investors.