Sources of corporate governance rules and practicesPrimary sources of law, regulation and practice
What are the primary sources of law, regulation and practice relating to corporate governance? Is it mandatory for listed companies to comply with listing rules or do they apply on a ‘comply or explain’ basis?
Corporate governance in Luxembourg is primarily based on statute law, which consists mainly of the Civil Code, the Law of 10 August 1915 on Commercial Companies, as amended (the Companies Act) and, for listed companies, the rules and regulations of the Luxembourg Stock Exchange (the Rules and Regulations). The statute law contains only very general governance rules or principles. The Luxembourg Stock Exchange (LSE) has published a set of principles on corporate governance, which first came into effect on 1 January 2007. A fourth revised version was published in December 2017 (the LSE Principles). They were drawn up to provide guidelines for the best practice in corporate governance for all Luxembourg companies listed on the regulated market of the LSE. Luxembourg companies, the shares of which are admitted for trading on a regulated market operated by the LSE, must apply the LSE Principles, whereby they are asked to comply with the recommendations included therein or explain why they are departing from them.Responsible entities
What are the primary government agencies or other entities responsible for making such rules and enforcing them? Are there any well-known shareholder groups or proxy advisory firms whose views are often considered?
In general, the LSE is the primary institution for making and enforcing such rules. Monitoring solely by the market would not have been sufficient, thus, a combined approach has been chosen, handing over the monitoring of compliance with the LSE Principles to the companies’ shareholders, the boards of directors and the LSE.
Rights and equitable treatment of shareholdersShareholder powers
What powers do shareholders have to appoint or remove directors or require the board to pursue a particular course of action? What shareholder vote is required to elect or remove directors?
The Companies Act organises the management of a company under a single-tier system (ie, board of directors) or a two-tier system (ie, management board and supervisory board).
Directors are appointed by the shareholders in a general meeting. They shall be appointed for a term set by the general meeting of shareholders, which may not exceed six years, but are eligible for reappointment after this period. Directors may be removed at any time by the shareholders in a general meeting.
Members of the supervisory board are appointed by the shareholders in a general meeting. They shall be appointed for a term set by the general meeting of shareholders, which may not exceed six years, but are eligible for reappointment after this period. They may be removed at any time by the shareholders in a general meeting. Members of the management board are appointed by the supervisory board unless the articles of association reserve such competence to the general meeting of shareholders. The duration of their office may not exceed six years. They may be removed by the supervisory board or by the general meeting of shareholders, if provided by the articles of association.
Directors are elected and removed by a resolution of the general meeting of shareholders adopted by a simple majority of the votes.Shareholder decisions
What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?
The general meeting of shareholders has powers reserved to it under the Companies Act. An amendment to the articles of association, an increase in the capital of the company and a reduction of the capital require the approval of the general meeting of shareholders (both by a two-thirds majority of the votes cast at an extraordinary general meeting, the quorum for which is at least 50 per cent of the issued share capital). An increase in the commitments of the shareholders requires a unanimous vote of the shareholders in a general meeting.
At least one general meeting of the company must be held in the Grand Duchy of Luxembourg every year, within six months of the end of the financial year. The annual accounts, the auditor’s report and the directors’ report (which are available for prior inspection) must be approved by the annual general meeting of shareholders by a simple majority of the votes cast. The annual dividend is also approved by the shareholders’ annual general meeting, though, if provided for in the articles of association of a company, the board of directors may proceed to the payment of interim dividends.
Further, in cases of mergers, divisions or liquidations, the approval of the general meeting is also required, generally, by a two-thirds majority and a 50 per cent quorum.
The Companies Act does not set out specific matters that are required to be subject to a non-binding vote.Disproportionate voting rights
To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?
Luxembourg corporate law is governed by the ‘one share, one vote’ rule. However, where shares are of unequal value or where there is no indication of value, each share, unless otherwise provided for in the articles, shall ipso jure carry the right to a number of votes proportionate to the corporate capital represented by it, with one vote being allocated to the share that represents the lowest proportion.
The articles of association may provide that the board of directors or the management board, as the case may be, can suspend the voting rights of any shareholder in breach of his or her obligations as foreseen in the articles or the subscription deed.Shareholders’ meetings and voting
Are there any special requirements for shareholders to participate in general meetings of shareholders or to vote? Can shareholders act by written consent without a meeting? Are virtual meetings of shareholders permitted?
There are no special legal requirements to attend shareholders’ meetings or to vote. The articles of association may, however, provide rules in this respect. Shareholders can, if the articles of association allow, attend the general meeting by any telecommunications method that allows the identification of such shareholders and guarantees their effective participation in the meeting.
It is also possible for companies to allow their shareholders to vote in advance by post.
The Law of 24 May 2011 on the exercise of certain rights of shareholders in listed companies, as amended, provides, in principle, that only shareholders holding shares of the listed company on the record date may participate and vote at a general meeting of shareholders. The record date is set at midnight (Luxembourg time) on the date falling 14 days before the date of the general meeting of shareholders. Shareholders of a listed company may now freely transfer their shares at any time before the general meeting of shareholders and are no longer subject to transfer restrictions and blocking of shares prior to the meeting. The articles of association of a listed company may authorise shareholders to vote by correspondence or electronically prior to a shareholders’ meeting by means of a voting form provided by the company.
Pursuant to the Law of 6 April 2013 on dematerialised securities, the holders of dematerialised securities may participate in the general meeting provided that they hold these securities at the latest on the 14th day before the meeting at midnight, Luxembourg time.
The shareholders may not act by written consent without a meeting. However, shareholders in private limited liability companies having less than 60 shareholders (except in the event of amendments to the articles of association), may cast their votes in writing upon receipt of the text of the decision to be adopted.Shareholders and the board
Are shareholders able to require meetings of shareholders to be convened, resolutions and director nominations to be put to a shareholder vote against the wishes of the board, or the board to circulate statements by dissident shareholders?
In a public limited liability company, shareholders representing one-tenth of the capital of the company may request the holding of a meeting, with an agenda indicated by them. Such meeting must be convened by the board of directors so as to be held within one month of the request. In addition, one or more shareholders representing together at least 10 per cent of the capital of the company may request the addition of items to the agenda of the shareholders’ meeting if such request is sent to the registered office of the company by registered mail at least five days prior to the holding of the meeting.
In a private limited liability company, general meetings may be convened by the members representing more than half of the capital.
In listed companies, one or more shareholders representing together at least 5 per cent of the share capital are entitled to request that additional items be put on the agenda of any shareholders’ meeting and to submit draft resolutions for items on the agenda. Requests for both must be in writing and addressed, by letter or electronic means, to the address mentioned on the shareholders’ convening notice and reach the company at the latest on the 22nd day preceding the date of the meeting.
The agenda items requested by the sufficient shareholding percentage may include director nominations, even against the wishes of the board. Shareholders may not, however, force the board to circulate any kind of statements as they shall be under duty not to divulge any information that they have concerning the company, the disclosure of which might be prejudicial to the company’s interests, except where such disclosure is required or permitted by a legal or regulatory provision applicable to the company or is in the public interest.Controlling shareholders’ duties
Do controlling shareholders owe duties to the company or to non-controlling shareholders? If so, can an enforcement action be brought against controlling shareholders for breach of these duties?
Controlling shareholders do not owe any particular duty to the company or to the non-controlling shareholders under the Companies Act. However, pursuant to the Law of 19 May 2006 on takeover bids, if a shareholder acting alone or in concert acquires securities of a company whose securities are admitted to trading on a regulated market that, when added to any existing holdings of those securities, give him or her voting rights representing one-third of all of the voting rights attached to the issued shares in the company, such person is, in principle, obliged to make a bid for the remaining shares as a means of protecting the minority shareholders of that company. Also, the Law of 11 January 2008 on transparency requirements for issuers of securities, as amended, provides that a shareholder shall make a notification to the company, where Luxembourg is the home member state of the company and the shares of the company are admitted to trading on a regulated market, if the shareholder acquires or disposes of shares so that the proportion of shares held by that shareholder reaches, exceeds or falls below the thresholds of 5 per cent, 10 per cent, 15 per cent, 20 per cent, 25 per cent, one-third, 50 per cent or two-thirds. The Law of 21 July 2012 on mandatory squeeze-out and sell-out finally provides that the majority shareholder, when it acquires or disposes of securities resulting in attaining, falling below or exceeding a previously attained threshold of 95 per cent, must notify the company and the Luxembourg Supervisory Commission of the Financial Sector as soon as possible and no later than four business days thereafter.Shareholder responsibility
Can shareholders ever be held responsible for the acts or omissions of the company?
In Luxembourg, companies may be set up by limited or unlimited members. Unlimited members will be jointly and severally liable without limitation for all obligations of the company. Examples of corporate forms that may have unlimited members include general partnership (SNC), limited partnership (SCS), cooperative company (SC), partnership limited by shares (SCA), temporary association and equity association. The liability of limited shareholders is limited to the amount of share capital they have subscribed. Examples of corporate forms that have only limited members are the public limited liability company (SA) and the private limited liability company (SARL).
Limited shareholders of an SCA or SCS are prohibited from carrying out any act of management with regard to third parties. They will be jointly and severally liable for any commitments of the SCA or SCS in which they participated despite the aforementioned prohibition. Such a limited member will also be jointly and severally liable towards third parties for commitments in which he or she did not participate, if he or she has regularly managed the business of the SCA or SCS in relation to third parties. The Companies Act lists certain management acts for which the liability of the limited shareholder is not unlimited in relation to third parties.
Under Luxembourg bankruptcy law, in the event of the bankruptcy of a company, shareholders may be held liable if they behaved as de facto directors and carried out acts that contributed to the insolvency of the company.
Corporate controlAnti-takeover devices
Are anti-takeover devices permitted?
Under Directive 2004/25/EC on takeover bids (the Takeover Directive) the target’s board should remain passive before the takeover bid (the ‘board-passivity’ rule). In addition, the Takeover Directive provides that restrictions on the transfer of shares, or on the voting rights of a target company (whether statutory or contractual), are not effective in relation to the bidder during the acceptance period for a bid (the ‘breakthrough’ rule).
The law implementing the Takeover Directive gives Luxembourg companies the choice as to whether to apply the board passivity and breakthrough rules.
Companies that apply the board passivity and breakthrough rules can be exempted from applying those rules if they become the object of a takeover bid launched by a company not applying those rules, provided authorisation is given at a general meeting of shareholders of the target company.Issuance of new shares
May the board be permitted to issue new shares without shareholder approval? Do shareholders have pre-emptive rights to acquire newly issued shares?
The board is only permitted to issue new shares if so authorised. Authorisation to increase the capital on one or more occasions up to a specified amount (the authorised capital) may be granted to the board of directors or the management board by the company’s articles of association or by the general meeting of shareholders by means of an amendment to the articles of association. The authorisation shall be valid only for a period of up to five years from publication of the constitutive instrument or the amendment of the articles or, if so provided by the articles, from the date of the constitutive instrument or the instrument amending the articles. It may be renewed on one or more occasions by the general meeting of shareholders deliberating in accordance with the requirements for amendments to the articles, for a period which, for each renewal, may not exceed five years. Shareholders generally have pre-emptive rights to acquire newly issued shares in the proportion of the capital represented by their shares. However, if new shares are issued within an authorised share capital increase, the articles may authorise the board to withdraw or restrict pre-emptive rights.Restrictions on the transfer of fully paid shares
Are restrictions on the transfer of fully paid shares permitted and, if so, what restrictions are commonly adopted?
The transfer of fully paid shares in an SA may not, in principle, be restricted. However, clauses such as pre-emption rights, rights of first refusal or prior board approval are acceptable, to the extent that the transferability of the shares is not absolutely restricted. Lock up provisions must be limited in time. Corporate units of an SARL may not, however, be transferred to non-members unless members representing three-quarters of the corporate units agree on the transfer; however, the articles of association may lower this majority to half of the corporate units.Compulsory repurchase rules
Are compulsory share repurchases allowed? Can they be made mandatory in certain circumstances?
A compulsory share repurchase is, in principle, not acceptable under Luxembourg law. As an alternative, the voting and dividend rights may be restricted in certain circumstances.
In listed companies, if following a takeover bid made by a shareholder (alone or in concert), a shareholder becomes a majority shareholder or a majority shareholder acquires additional securities, the remaining shareholders may require their securities be sold out by the majority shareholder under certain conditions laid down by the Law of 21 July 2012 on mandatory squeeze-out and sell-out.Dissenters’ rights
Do shareholders have appraisal rights?
Generally, shareholders do not have appraisal rights by law. Only the members of an SC may resign under certain conditions in the case of a merger. However, the articles of association of a company can grant shareholders appraisal rights.
Responsibilities of the board (supervisory)Board structure
Is the predominant board structure for listed companies best categorised as one-tier or two-tier?
The predominant board structure for (listed) companies organised under Luxembourg law is one-tier. In this case, a company is only managed by a board of directors, which is vested with the broadest powers to act in the name and on behalf of the company.
The two-tier structure was introduced into Luxembourg corporate law by the Law of 25 August 2006. In a two-tier system, the company is managed by two corporate bodies: a management board, which is in charge of the day-to-day management of the company, and a supervisory board, which is in charge of controlling the management board.Board’s legal responsibilities
What are the board’s primary legal responsibilities?
The board of directors or the management board can take any action necessary or useful to realise the corporate object of the company, except the powers reserved to the shareholders’ meeting by the articles of association or by law. Any limitations to the powers of the board of directors or the management board resulting either from the company’s articles or from a decision of the competent corporate bodies are not enforceable towards third parties, even if they are published.Board obligees
Whom does the board represent and to whom does it owe legal duties?
The board of directors or the management board represents the company. The directors or the members of the management board must act with loyalty, honesty and in good faith for the exclusive benefit and in the corporate interest of the company. The notion of corporate interest is thereby not limited to the interests of the shareholders, but also entails the interests of employees, minority shareholders, third parties and creditors.Enforcement action against directors
Can an enforcement action against directors be brought by, or on behalf of, those to whom duties are owed?
The liability of the directors or the members of the management board and of the supervisory board in the performance of their mandate is conceived as a contractual liability with regard to the company. The shareholders cannot sue the directors as individuals; it must be a collective decision.
However, there is an exception to this general rule. Where there is a violation of the Companies Act or a violation of the articles of association of the company, the directors, the members of the management board and the supervisory board are jointly and severally liable with regard to the company and any third parties, including individual shareholders, if the individual shareholders or third parties have suffered a distinct and independent prejudice. The directors and the members of the management committee shall be discharged from such liability in the case of a violation to which they were not a party provided no misconduct is attributable to them and they have reported such violation, as regards members of the board of directors, to the first general meeting and, as regards members of the management committee, during the first meeting of the board of directors after they had acquired knowledge thereof.
The foregoing rules do not restrict the ability of the company’s individual shareholders and third parties to sue on the basis of general tort rules when the directors have engaged in tortious conduct (as opposed to a mere management fault).Care and prudence
Do the board’s duties include a care or prudence element?
The directors or the members of the management board must exercise their duties with as much care, diligence and skill as would be displayed by a reasonable person in the same circumstances. If the directors or the members of the management board are professionals, one might expect a higher standard, namely that which would be displayed by a reasonably competent member of the same profession.Board member duties
To what extent do the duties of individual members of the board differ?
The standard of care is that of a reasonable person acting in the same circumstances. Hence, if the director or the member of the management board is a professional, a higher standard of care (customary for such profession) can be expected.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 of directors or the management board may delegate the day-to-day management of the company and the power to represent the company to one or more directors, members of the management board as the case may be, managers, officers, or other agents acting either alone or jointly, except such persons who are members of the supervisory board (two-tier system). If authorised by the articles of association of the company, the board of directors may also delegate its management powers to a management committee or to a managing executive officer. However, such delegation may not comprise the general policy of the company or the whole of the actions reserved to the board of directors pursuant to the law.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?
The Companies Act does not contain any provisions on independent directors. It merely states that directors are obliged to report any conflict of interest to the board of directors and subsequently to the next general meeting.
The LSE Principles recommend having an appropriate number of independent directors depending on the nature of the company’s business activities and on the structure of its shareholder base. The guideline recommends having at least two independent directors. To be considered independent, a director must not have any significant business relationship with the company, close family relationship with any executive manager, or any other relationship with the company, its controlling shareholders or executive managers that is liable to impair the independence of the director’s judgement.Board size and composition
How is the size of the board determined? Are there minimum and maximum numbers of seats on the board? Who is authorised to make appointments to fill vacancies on the board or newly created directorships? Are there criteria that individual directors or the board as a whole must fulfil? Are there any disclosure requirements relating to board composition?
The Companies Act does not contain any provisions on the criteria that an individual director or the board as a whole must fulfil or related disclosure requirements. Depending on the corporate form, the board of directors submits to different rules relating to the minimum number of seats. For example:
- an SA may be managed by one director as long as it has a single shareholder. In the case of plurality of shareholders, the SA shall be managed by a board of directors comprising at least three directors, irrespective of whether they are shareholders; and
- an SARL shall be managed by one or several managers appointed by the shareholders’ general meeting. If several managers are appointed, they may constitute a board of managers, irrespective of whether they are shareholders.
The size of the board is determined by the shareholders’ general meeting in accordance with the Companies Act and the articles of association. The Companies Act does not define a maximum number of seats.
The shareholders’ general meeting has the power to appoint directors on newly created directorships. Besides the general meeting in case of a vacancy, the board of directors of an SA has the power to co-opt a temporary director whose mandate shall be confirmed at the next general meeting.
The LSE Principles recommend that the board is composed of competent, honest and qualified persons. In their backgrounds and diversity, the members of the board represent a contrast of experiences and knowledge and, as far as possible, the board should have an appropriate representation of both genders, as well as geographical origin. In order to ensure effective deliberation and decision-making, a maximum of 16 directors may be considered as a reasonable limit. A list of the board members should be disclosed in the corporate governance chapter of the company’s annual report, which shall contain information regarding each board member’s level of independence. Every director shall undertake to dedicate the time and attention required to his or her duties and to limit the number of his or her other professional commitments to the extent required to be able to fulfil his or her duties properly.Board leadership
Is there any law, regulation, listing requirement or practice that requires the separation of the functions of board chair and CEO? If flexibility on board leadership is allowed, what is generally recognised as best practice and what is the common practice?
The combination of the function of board chair and CEO is not regulated by the Companies Act. The LSE Principles recommend that the board shall make a clear distinction between the duties and responsibilities of its chair and the CEO and set this out in writing.Board committees
What board committees are mandatory? What board committees are allowed? Are there mandatory requirements for committee composition?
The board of directors may decide to create committees. The composition and the duties of such committees shall be determined by the board of directors and they shall exercise their activities under the responsibility of the board of directors. Companies that constitute ‘public interest entities’ in the sense of the Law of 23 July 2016, such as listed companies, credit institutions, insurance undertakings and pension funds, shall have an audit committee.
The LSE Principles provide in general terms that the board of directors shall ensure the setting up of special committees necessary in order to review specific issues determined and to advise the board of directors on these issues. Special committees shall be composed of at least three members. In addition, the LSE Principles recommend that the board shall establish an audit committee to assist in the areas of financial reporting, internal control and risk management; a nomination committee to assist in the selection of directors; and a remuneration committee to assist, among others, in drawing up of a remuneration policy, assess the performance of the executive management and submit proposals regarding their remuneration.Board meetings
Is a minimum or set number of board meetings per year required by law, regulation or listing requirement?
There must be at least one board meeting a year to approve the annual accounts and to convene the annual general meeting of shareholders. The Companies Act does not set a minimum number of board meetings a year, except for European companies where the board of directors or the management board shall meet at least once every three months at intervals laid down by the articles of association of the company to discuss the progress and foreseeable development of the business of the company.Board practices
Is disclosure of board practices required by law, regulation or listing requirement?
For listed companies, Appendix B of the LSE Principles sets out transparency requirements regarding the main aspects of the company’s corporate governance policy, such as a description of the company’s governance structure; the essential features of the corporate governance framework; the policy established by the board regarding transactions in the company’s securities and other contractual relationships; and a description of the risk management system.Remuneration of directors
How is remuneration of directors determined? Is there any law, regulation, listing requirement or practice that affects the remuneration of directors, the length of directors’ service contracts, loans to directors or other transactions or compensatory arrangements between the company and any director?
Directors, as such, are not employees of the company and so general rules on mandates and corporate law will apply. In the event that directors should receive remuneration, this can be determined either by the articles of the company, by the directors themselves or by the general meeting. If the articles are silent on this topic, the general meeting has the right to decide on remuneration and to determine the modalities. The LSE Principles recommend the setting up of a remuneration committee to deal with these issues. Directors may not be appointed for a period exceeding six years but are eligible for reappointment after this period.Remuneration of senior management
How is the remuneration of the most senior management determined? Is there any law, regulation, listing requirement or practice that affects the remuneration of senior managers, loans to senior managers or other transactions or compensatory arrangements between the company and senior managers?
Senior management will normally be employees of the company. As such, the relationship is governed by Luxembourg labour law. The LSE Principles on remuneration policies will also apply if the company is listed.D&O liability insurance
Is directors’ and officers’ liability insurance permitted or common practice? Can the company pay the premiums?
Directors can have their potential liability insured with an insurance company. Such insurance contract is, in practice, often concluded by the company itself and covers the company’s regularly appointed directors. The insurance will cover the liability of the directors towards the company and third parties as well as the liability resulting from a management fault, a violation of the Companies Act or of the articles of association and from torts.
However, as a general matter, insurance law disallows claims if the damage was caused by a serious mistake, such as gross negligence or a wilful act of the insured.Indemnification of directors and officers
Are there any constraints on the company indemnifying directors and officers in respect of liabilities incurred in their professional capacity? If not, are such indemnities common?
Luxembourg law does not allow contractual limitations on directors’ liability or an arrangement between the company and its directors that, without actually limiting the liability of the directors, would have the same effect. Such indemnification arrangement would have the effect of excluding the company from the group of persons who by law are given the right to bring an action against the directors, which is illegal.
The situation is different if the company only agrees to indemnify the directors in the case of a third-party action against the directors. Third parties include the shareholders if, and to the extent, they have personally suffered from damage caused to the company. Far from affecting the composition of the group of persons entitled by law to bring an action against the directors, such an indemnification arrangement merely shifts some risk from the directors to the company.Exculpation of directors and officers
To what extent may companies or shareholders preclude or limit the liability of directors and officers?
Shareholders may not preclude or limit the liability of directors and officers towards the company or other shareholders but may agree that directors and officers are not liable towards themselves (see also question 31).Employees
What role do employees have in corporate governance?
The board of directors of an SA employing at least 1,000 employees over a three-year period must be composed of a minimum of nine directors, one-third of whom shall represent personnel. Also, undertakings employing at least 150 employees over a three-year period must have a joint-works council, which has the right to be informed and consulted in certain defined cases, for example, in decisions that have a significant influence on the company’s structure or level of employment. Nonetheless, such provisions related to the joint-works council should be abrogated in the coming months.Board and director evaluations
Is there any law, regulation, listing requirement or practice that requires evaluation of the board, its committees or individual directors? How regularly are such evaluations conducted and by whom? What do companies disclose in relation to such evaluations?
In accordance with the LSE Principles (which are applicable to listed companies only), the board of directors is required to discuss its operation, the effective fulfilment of its remit and compliance with good governance rules at least once every two years.
Disclosure and transparencyCorporate charter and by-laws
Are the corporate charter and by-laws of companies publicly available? If so, where?
The articles of association and all amendments thereto are filed with the Register of Commerce and Companies and are published in the Official Gazette (Recueil Electronique des Sociétés et Associations).
However, only extracts of the instruments or the deeds establishing SNCs, SCSs and special limited partnerships (SCSps) shall be published. The extract must contain, on pain of being declared inadmissible, some particulars such as:
- a precise designation of the members who are jointly and severally liable;
- the firm name or the denomination of the company, its object and the place where its registered office is located;
- the designation of the managers, their signatory powers and, as regards SNC, the nature and the limits of their powers; and
- the date on which the company commences and the date on which it ends.
The extract of company instruments shall be signed, in the case of notarial deeds, by the notary who retains the complete deed or in the case of private instruments, by all members who are jointly and severally liable.Company information
What information must companies publicly disclose? How often must disclosure be made?
Luxembourg companies must file their annual accounts and appendices with the Register of Commerce and Companies. This must be done within one month of their approval by the shareholders’ general meeting. In addition, any amendments of the articles of association must be filed. The same applies to resignations and appointments of directors and statutory or agreed independent auditors, as the case may be. Further publication, filing and storage requirements apply to periodic and ongoing information of issuers whose securities are admitted to trading on a regulated market pursuant to the Law of 11 January 2008 on transparency requirements for issuers of securities, as amended. Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse also requires that under certain conditions, inside information may be disclosed to the public.
Do shareholders have an advisory or other vote regarding remuneration of directors and senior management? How frequently may they vote?
The general meeting of shareholders, to be held at least yearly, may resolve on the remuneration of directors. Further, the delegation of the day-to-day management within the one-tier system in favour of a member of the board of directors shall entail the obligation for the board to report each year the delegate’s salary, fees and any advantages granted to the general meeting of shareholders. In addition, the LSE Principles provide for the establishment of a remuneration committee from among the members of the board formulating a remuneration policy for directors and managers. The Law of 19 December 2002 regarding the Register of Commerce and Companies as well as accounting and annual accounts of companies, as amended, provides that the compensation of members of the supervisory board, and members of the board of management or of the board of directors are written on the annex of the annual accounts and only given on a global basis for each category of members.Shareholder-nominated directors
Do shareholders have the ability to nominate directors and have them included in shareholder meeting materials that are prepared and distributed at the company’s expense?
The directors are appointed by the shareholders’ general meeting. One or more shareholders who together hold at least 10 per cent of the capital may request that items such as the nomination of a director be put on the agenda. Such a request needs to be sent to the company at least five days before the general meeting.
The Law of 24 May 2011 on the exercise of certain rights of shareholders in listed companies, as amended, reduces the aforementioned threshold to a minimum of 5 per cent of the capital in the case of listed companies. The request must reach the listed company at the latest on the 22nd day preceding the date of the meeting and the company must make a revised agenda available at the latest on the 15th day preceding the meeting. As a result, shareholders who are allowed to nominate directors may have their appointment included in the relevant convening notices and powers of attorney at the company’s expense.Shareholder engagement
Do companies engage with shareholders? If so, who typically participates in the company’s engagement efforts and when does engagement typically occur?
Shareholders are invited to play an active role in the life of the company. Shareholders’ meetings shall have the broadest powers to adopt or ratify any action relating to the company. Even if an annual general meeting must be held at least every year in Luxembourg, the shareholders of the company representing one-tenth of the corporate capital may request, at any time, the management board, the board of directors, as the case may be, and the supervisory board and the statutory auditors to convene a general meeting within one month. As already mentioned in question 38, one or more shareholders representing together at least 10 per cent of the corporate capital may request that one or more additional items be put on the agenda of any general meeting.Sustainability disclosure
Are companies required to provide disclosure with respect to corporate social responsibility matters?
In accordance with the LSE Principles, the company shall integrate corporate social responsibility (CSR) aspects in its strategy for the creation of long-term value, and shall describe how the CSR measures are contributing thereto. The company shall present the CSR information in a dedicated report, in a specific section or in an appendix relating to sustainable development. It shall analyse the sustainability of its activities and shall provide clear and transparent non-financial information in support. The board of directors shall regularly consider the company’s non-financial risks, including in particular the social and environmental risks. The company shall publish a methodological memorandum, either in its CSR report or on its website, relating to the way in which significant factors have been identified and data have been established.CEO pay ratio disclosure
Are companies required to disclose the ‘pay ratio’ between the CEO’s annual total compensation and the annual total compensation of other workers?
The articles of association may authorise the board of directors to delegate its management powers to a managing executive officer. The remuneration of the managing executive officer shall be determined by the articles of association or, in the absence of provisions in the articles of association, by the board of directors.
The company is managed by directors who may receive a salary or not. The articles of association may indicate which corporate organ is competent to grant the directors’ remuneration. In the absence of provision in the articles, the general meeting of shareholders may be competent to determine the amount of the remuneration.
The LSE Principles provide that the overall direct and indirect remuneration amounts received due to their position for all non-executive directors and for all executive directors and members of the executive management shall be disclosed in the remuneration report. A distinction shall be drawn between the fixed and variable portions of that remuneration. The company shall disclose the number of shares and options and the conditions of their exercise granted to those same groups of persons. It shall also disclose any other benefits granted, such as benefits in kind, contributions to pension schemes and severance payments.Gender pay gap disclosure
Are companies required to disclose ‘gender pay gap’ information? If so, how is the gender pay gap measured?
In the appointment of directors, the company will pay attention to the appropriate representation of both genders. Except the disclosure of the remuneration report as recommended by the LSE Principles, the company has no legal obligation to disclose specific gender pay gap information.
Update and trendsRecent developments
Please identify any new developments in corporate governance over the past year (including any significant proposals for new legislation or regulation, even if not yet adopted). Please identify any significant trends in the issues that have been the focus of shareholder interest or activism over the past year (without reference to specific initiatives aimed at specific companies).
There is a bill of law which has as its purpose the transposition into Luxembourg law of Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement.
The principal objective of this directive is to improve the long-term viability of European enterprises and to create a more attractive environment for shareholders through the following measures:
- the establishment of a legal framework enabling listed companies to identify their shareholders and the obligation for intermediaries to quickly transmit information related to shareholders and to facilitate the exercise of their rights;
- the mandatory transparency of voting enabling shareholders to verify if their vote has been validly recorded, and the mandatory transparency on costs charged by intermediaries and other aspects of asset management agreements;
- the obligation for proxy advisers to provide information on their methods and to disclose their conflicts of interest;
- disclosure of the remuneration policy and individual remunerations, combined with the vote of shareholders thereon; and
- increased transparency and independent advice on the most important transactions with related parties, as well as the submission of the most important transactions for the approval of shareholders;
The Directive will have to be transposed into Luxembourg law by 10 June 2019.