In France the Corporate Governance Code of Listed Corporations (December 2008) is commonly referred to as the MEDEF Code. The MEDEF Code is corporate governance principles resulting from the consolidation of the October 2003 AFEP and MEDEF report and the January 2007 and October 2008 AFEP and MEDEF recommendations concerning the compensation of executive directors of listed companies.
The recommendations were designed for companies with securities on a regulated market, but also for other companies to adopt in whole or part, as appropriate.
The MEDEF Code Summary
The Board: A Collegial Body
Boards must act in the interests of all shareholders. The Code allows for organisation of the Board’s duties and membership to suit individual companies.
The Board and the Market
The Board must decide upon the company’s financial disclosure policy and how this is communicated to analysts and the market. Off-balance sheet items and corporate risks procedures and reporting requirements are covered.
Separation of the Offices of Chairman and Chief Executive
In France the law allows for both unitary Boards and the two-tier system, and whichever is chosen this must be disclosed and transparency ensured.
The Board and Strategy
Boards should focus on strategy and consider the use of ad hoc committees for that purpose. Boards should have rigorous rules for when it should vet strategies, financial positions and anomalies.
The Board and Shareholders Meetings
This section covers the role of the Board and its duties and what should be brought before shareholders.
Membership of the Board: Guiding Principles
The personal qualities of directors, how a director should act, the balance of Board membership, and Independent Directors and their role are outlined in the Code.
Representations of Specific Groups or Interests
The appointment of specific representatives is actively discouraged and instead the role of NEDs is encouraged.
Independent Directors
Under the MEDEF Code an Independent Director is defined as a NED and also must have no other association with the company. The qualities and expectations of NEDs are outlined in this section. NEDs must also make up half the Board membership, with an annual review of criteria and membership reported to shareholders.
Board Evaluation
Boards are expected to evaluate their ability to meet shareholder expectations by reviewing, preferably annually, membership, organisation and operation. This includes balance of Board membership. The MEDEF Code states that a Board Evaluation should have three objectives, namely to: assess the way in which the Board operates; check that the important issues are suitably prepared and discussed; and measure the individual contribution of directors.
The recommendations for Board Evaluation include an annual debate by the Board of its operation; a formal evaluation every three years led by a NED with help from an external consultant; and the results and actions to be included in the annual report.
Meetings of Boards and Committees
The annual report should contain mention of the number of Board meetings held in the year and an account of directors’ attendance. Board meetings should be held often enough for a long enough period of time to allow in-depth review and discussion of agenda items. The content of Board minutes is also specified.
Directors’ Access to Information
This section provides that companies must allow their directors access to all necessary information for them to perform their duties appropriately. It also covers the duty of the directors to request additional information, as necessary and the requirement for NEDs to have additional business specific training.
Directors’ Terms of Office
Directors’ terms should be limited to a maximum of four years, staggered across the Board to provide continuity. Details of terms must be recorded in the annual report together with details of individual directors’ shareholdings. Appointments must be agreed by shareholders and biographies of directors being appointed supplied.
Committees of the Board
The MEDEF Code provides that the accounts, internal audit monitoring, selection of auditors, remuneration policy, and appointments are subject to preparatory work by Board committees before being considered by the full Board.
The Audit Committee
Membership of the audit committee should comprise at least two thirds NEDs and no executive directors. The appointments committee must gain approval from the full Board if the chairman of the audit committee’s term is to be extended.
The main duties of the audit committee are review of the accounts and monitoring of the rules surrounding the appointment and role of the external auditors. The MEDEF Code also outlines operation of the committee, committee members’ training, and working methods.
The Appointments Committee
This committee has responsibility for the appointment of directors and executive directors. It may also include the role of compensation or remuneration within its remit. In addition to the appointment of new directors it is responsible for succession planning for executive directors.
The Remuneration Committee
This committee may not include any executive directors and should have a majority of independent directors. The Code covers its duties and operation.
Ethics for Directors
Directors’ obligations are covered by deontology ethics in detail.
Directors Remuneration
Shareholders should determine directors’ compensation or remuneration packages as set by the Board. Fees should be calculated on responsibility and experience and stated in the annual accounts.
Termination of Employment in Case of CEO Appointment
The MEDEF Code states that a senior executive, when appointed as executive director should have their employment contract terminated.
Executive Directors Remuneration
This section contains specifics on the principles for determining the compensation of executive directors and the role of the Board and compensation policy relating to share options and performance shares.
Reporting of Directors Remuneration
Executive Directors remuneration must be stated in the annual report, reported on an on-going basis and the company’s policy disclosed.
Implementation of Recommendations
Companies are obliged to report in reference documents or their annual reports compliance with the MEDEF Corporate Governance Code or explain their reasons for not doing so.
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AFEP – Association Francaise des Enterprises Privees
MEDEF – Mouvement des Enterprises de France