Responsibilities of the board (supervisory)Board’s legal responsibilities
What are the board’s primary legal responsibilities?
The board of directors is the corporate body in charge of setting the main lines of the company’s business activity and strategy and of ensuring their implementation, in accordance with the powers reserved by law to the shareholders and the company’s executives. If the board is legally entitled to deal with any issue it considers relevant, it has by law exclusive competence in the following matters:
- drawing up of the annual (consolidated) accounts and management report;
- suggestion of dividends allocation;
- convening of shareholders’ meetings and fixing their agenda;
- appointment and removal of the company’s executives;
- authorisation of guarantees granted by the company and of transactions with related parties; and
- bonds’ issuance (unless reserved to the shareholders’ meeting by the articles of association).
In two-tier structures, the supervisory board’s role is mainly to appoint (remove if permitted by the articles of association), control and supervise the executive board (eg, review of the accounts, management reports and strategy, prior approval of transactions with related parties) and refer to the shareholders’ meeting. The executive board and the supervisory board may each convene shareholders’ meetings.Board obligees
Whom does the board represent and to whom does it owe legal duties?
The board has no legal personality and is only a corporate body that promotes and defends the company’s interests.
Ultimately, the board is responsible to the shareholders, who can decide, at each meeting, to remove any of its members (including all of them). However, civil and criminal liability of directors may be sought where applicable either by the company itself or by shareholders (see question 18) (or third parties in limited cases and public prosecutor as regards criminal liability).Enforcement action against directors
Can an enforcement action against directors be brought by, or on behalf of, those to whom duties are owed?
Legal actions may be brought against directors individually or collectively. The ‘corporate’ derivative action aims at indemnifying against losses suffered by the company itself as a result of faults of its directors. It can be initiated for the account of the company either by the company’s legal representative or by a shareholder acting on behalf of the company. Shareholders may also bring an action in order to be indemnified for losses that they have directly suffered.
Such actions may only be brought in the event that directors have committed a breach of law or of the company’s articles of association, or mismanagement acts. When the fault is committed collectively, the enforcement action is led against all directors taken individually, but each member of the board may elude its liability if it can prove that it opposed the disputed decision.
Criminal liability may be sought in specific cases, mainly in the event of misuse of corporate assets, abuse of powers, distribution of fictitious dividend and publications of untrue accounts. It may be initiated by any purported victim, but the legal action is controlled by criminal judges.Care and prudence
Do the board’s duties include a care or prudence element?
Directors owe a duty of care to the company at all times. Case law has promoted a specific duty of loyalty by board members in the event that such directors hold sensitive information and are involved in share transactions with other shareholders.
Internal rules of the board often describe more precisely the scope of such duty (eg, attendance of members, conflict of interests).Board member duties
To what extent do the duties of individual members of the board differ?
The duties of the various board members are the same and considered on an equal basis.
Directors may be members of specific board committees (audit (which is compulsory in listed companies), appointment, compensation, strategic, ethical, etc) and their work (and exposure) may so differ in practice. Usually, members of specific committees are chosen among directors with skills and experience corresponding to their field of expertise.Delegation of board responsibilities
To what extent can the board delegate responsibilities to management, a board committee or board members, or other persons?
The board may delegate to the management some of its specific powers such as the authorisation of guarantees (by law), or the issuance of new shares (upon shareholders’ approval).
The board may create committees in charge of monitoring specific questions. It can also appoint any person in order to perform specific tasks. But the aim of such committees or such appointments is only to facilitate or improve the work of the board and its decision-making process. Directors cannot ignore any of the matters discussed in board meetings: committees or individuals that the board has appointed always act under its authority.Non-executive and independent directors
Is there a minimum number of ‘non-executive’ or ‘independent’ directors required by law, regulation or listing requirement? If so, what is the definition of ‘non-executive’ and ‘independent’ directors and how do their responsibilities differ from executive directors?
Companies listed on a regulated market must appoint at least one independent director at their audit committee. The Afep-Medef and MiddleNext codes require that at least half of the directors are independent or one-third in case of a company controlled by a majority shareholder or a group of shareholders. The Afep-Medef Code also provides that independent directors should represent two-thirds of the audit committee and the majority of the appointment and compensation committee if applicable.
The definition of independence is left by law to the board (or supervisory board). Governance codes propose criteria in order to assess independence, which may be adapted by companies to the extent that they explain their approach. For companies referring to the Afep-Medef Code, independent directors are defined as having no particular relationship (majority shareholder, employee, family, others) with the company’s executives. According to these criteria, an independent director is someone who:
- has not been an employee or an executive officer for the last five years in the company or a related company;
- is not a significant supplier, a client or a financing institution; and
- has not been an independent director for longer than 12 years (renewal included). This last provision is specific to the Afep-Medef Code.
While they are expected to be particularly cautious of the company’s interests, their liability does not differ by law from that of the other directors.