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Corporate leadership

i Board structure and practices

In Belgium, listed companies usually take the form of a limited company (NV/SA). Companies with other corporate forms can be listed if their shares are freely transferable.

The basic governance structure of an NV/SA is a one-tier model, whereby the board of directors holds all powers except those specifically reserved by law or the articles of association to the general meeting of shareholders. Limitations on the powers of the board of directors set out in the articles of association are not enforceable against third parties and have internal effect only. The board of directors should be composed of at least three directors (or two if there are only two shareholders in the company and the articles of association so provide).

The BCC allows the board of directors to delegate the daily management of the company, and the external representation of the company in that respect, to another person, who may also be a director. Limitations on the powers of the daily manager, either set out in the articles of association or adopted by the board of directors, are not enforceable against third parties and have internal effect only. This person is generally known as the CEO, managing director or general manager. The board of directors still has authority to take decisions with respect to the delegated powers.

The BCC allows companies to adopt a two-tier governance model if their articles of association provide for this possibility. In this model, the board of directors delegates (some of) its powers to a management committee, except those reserved to it by law and general corporate policy. Limitations on the powers to be delegated can either be set out in the articles of association or adopted by the board of directors. Again, such limitations are not enforceable against third parties and have internal effect only. If the board of directors thus delegates all of its powers except those reserved to it by law and general policy, it becomes in fact a supervisory board and can no longer take management decisions. Very few listed companies have adopted a two-tier governance model.

The most common governance model in listed companies, and the basis for the 2009 Code, is the one-tier model, whereby the board of directors delegates daily management to the CEO, who is assisted by a number of executive managers (who may or may not be directors), for example, the chief operating officer, the chief financial officer or the chief legal officer. Together, they constitute the company's executive management. The powers of the executive managers, other than the CEO, to represent the company for the purposes of certain acts, derive from a special authorisation granted by the board of directors or the CEO.

In addition to representation by the CEO (for matters of daily management) and other executive managers (within the limits of their specific powers), the company can also be represented externally by a majority of its directors acting jointly, or by a person appointed to this end in the articles of association (often two directors acting jointly, the chair, the CEO, etc.). The company will be bound by any acts taken or obligations incurred by these individuals, even if the internal decision was not taken by the correct corporate organ (unless the counterparty acted in bad faith). Quantitative limitations (e.g., representation for transactions with a value of up to €100,000) on the external representation powers of the CEO or the persons appointed in the articles of association to represent the company are not enforceable against third parties and have internal effect only.

In the above model, the board of directors still has all powers to manage the company, but daily management is mostly handled by executive management. The board of directors, in actuality, mainly supervises the management of the company. The 2009 Code indicates that the board of directors is responsible for determining the company's values and strategy, its risk appetite and key policies. As a guideline, the board of directors should ensure that the necessary leadership and human and financial resources are available for the company to meet its objectives. In translating values and strategies into key policies, the board should pay attention to corporate social responsibility, gender diversity and diversity in general. In addition to general corporate policy, the board of directors should at least, in the context of its supervisory role:

  1. review the performance of executive management and the realisation of the company's strategy;
  2. monitor and review the effectiveness of the board's committees;
  3. take all necessary measures to ensure the integrity and timely disclosure of the company's financial statements and other material financial and non-financial information disclosed to shareholders and potential shareholders;
  4. approve the internal control and risk management mechanisms proposed by executive management;
  5. review the implementation of these mechanisms, taking into account the review made by the audit committee;
  6. supervise the performance of the statutory auditor;
  7. supervise the internal audit function, taking into account the review made by the audit committee; and
  8. describe the main features of the company's internal control and risk management systems (disclosed in the corporate governance statement).

The 2009 Code states that the board of directors should take decisions in close consultation with the CEO regarding the structure of executive management and should determine the powers and duties of the executive managers. A mention to this effect should be included in the terms of reference of the board and of executive management. The board should ensure that executive management is able to perform its responsibilities and duties. In view of the company's values, risk appetite and key policies, executive management should have sufficient latitude to propose and implement corporate strategy. Executive management should at least:

  1. be entrusted with the running of the company;
  2. put internal controls in place (i.e., systems to identify, assess, manage and monitor financial and other risks) without prejudice to the board's supervisory role that are based on a framework approved by the board;
  3. present to the board complete, timely, reliable and accurate financial statements, in accordance with the applicable accounting standards and company policies;
  4. prepare the company's disclosure of financial statements and other material financial and non-financial information;
  5. present the board with a balanced and comprehensible assessment of the company's financial situation;
  6. provide the board in due time with all information necessary for the latter to carry out its duties; and
  7. be responsible and accountable to the board for the discharge of its responsibilities.

The 2009 Code states that the board of directors should be composed of both non-executive directors, who do not participate in the company's daily activities, and executive directors, who belong to executive management and thus participate in the company's daily activities. At least half the board should be made up of non-executive directors, at least three of whom are independent based on the criteria set out in Article 526 ter BCC. The board's composition should ensure that decisions are taken in the company's interest and should reflect gender diversity and diversity in general, as well as complementary skills, experience and knowledge. No individual or group of directors should dominate the board's decision-making process, and no individual should wield excessive decision-making powers. In January 2011, the Corporate Governance Committee, which issued the 2009 Code, issued an additional recommendation providing that within seven years, at least 30 per cent of board members should be women.

The Act of 28 July 2011 introduced Article 518 bis into the BCC, which stipulates that at least one-third (rounded to the nearest whole number) of the board of directors of companies whose securities are listed on a regulated market should be of a different gender to the other members. If the required number of directors of the less-represented gender is not met, the next appointed director should be of that gender. If not, the appointment shall be deemed null and void. The same holds true if an appointment would cause the number of directors of the other gender to drop below the required minimum. This requirement and sanction are applicable as from the first day of the sixth financial year that starts to run after 14 September 2011. For listed companies whose free float amounts to less than 50 per cent and for small listed companies, this requirement and sanction are applicable as from the first day of the eighth financial year beginning after 14 September 2011.

For companies whose securities are admitted to trading on a regulated market for the first time, the requirement should be met as from the first day of the sixth financial year after the admission.

If the required quota is not met, a board that meets the quota should be composed at the next general meeting. Otherwise, any financial or other benefit to which the directors are entitled by virtue of their office shall be suspended. These benefits will be reintroduced once the board meets the gender diversity requirement.

The 2009 Code assigns a clear role to the chairperson of the board of directors. The chair and the CEO should not be the same person, and there should be a clear division between duties related to the running of the board (chair) and the management of the company's business (CEO). This division of responsibilities should be clearly established, set out in writing and ratified by the board. The chair should cultivate a close relationship with the CEO, providing support and advice while fully respecting the CEO's executive responsibilities. As a guideline, the chair should stimulate effective interaction between the board and executive management. The chair is responsible for leading the board of directors and can be entrusted by the board with specific responsibilities. The chair should take the necessary measures to foster a climate of trust within the board, contribute to open discussion, allow constructive dissent and ensure support for the board's decisions. The chair determines the agenda for board meetings, after consultation with the CEO, and ensures that procedures relating to preparations for board meetings, deliberations, the adoption of resolutions and the implementation of decisions are properly followed. The chair is responsible for ensuring that the directors receive accurate, timely and clear information before the meetings and, where necessary, between meetings. All directors should receive the same information.

The BCC obliges companies whose shares are listed on a regulated market to set up a remuneration committee composed of non-executive directors, a majority of whom should be independent. The members of the remuneration committee must possess the requisite level of expertise in the area of remuneration policy. The chair of the board of directors or another non-executive director should head the remuneration committee. The remuneration committee should meet at least twice a year and whenever it deems necessary to carry out its duties. The remuneration committee should report regularly to the board of directors on the exercise of its duties. The CEO should attend meetings of the remuneration committee when the committee is discussing the remuneration of executive management. The remuneration committee should submit proposals to the board of directors on the company's remuneration policy and on the individual remuneration of directors and executive managers and, where appropriate, on proposals to be submitted by the board of directors to the general meeting of shareholders (i.e., proposals on the remuneration of directors). The remuneration committee also prepares the remuneration report that forms part of the annual report and provides explanations on this report at the annual general meeting of shareholders.

The 2009 Code provides for practically the same requirements with respect to the remuneration committee. The 2009 Code further specifies, however, that the remuneration committee should have at least three members and should submit proposals to the general meeting of shareholders on the remuneration of directors and executive managers, including proposals on variable remuneration and long-term incentives, such as the grant of stock options or other financial instruments and arrangements for premature termination. The remuneration committee should review (at least every two to three years) its terms of reference and its own effectiveness and recommend necessary changes, if any, to the board.

In addition to a remuneration committee, the BCC obliges companies whose securities are listed on a regulated market to set up an audit committee composed of non-executive directors. At least one member should be independent, and must possess the requisite level of expertise in the area of accountancy and audits. The audit committee should report regularly to the board of directors on the exercise of its duties and in any case when the board draws up the annual accounts, consolidated annual accounts and short-form financial statement (intended for publication). The audit committee should:

  1. monitor the financial reporting process;
  2. monitor the effectiveness of the company's internal control and risk management systems;
  3. monitor the internal audit (if any) and its effectiveness;
  4. monitor the audit of the annual and consolidated accounts, including the follow-up of any questions and recommendations by the statutory auditor; and
  5. review and monitor the independence of the statutory auditor, in particular with respect to the provision of additional services to the company.

The statutory auditor should report to the audit committee on key matters arising from the audit of the annual accounts, in particular on material deficiencies in the internal control of the financial reporting process. The statutory auditor shall confirm to the audit committee annually, in writing, its independence from the company, inform the audit committee on an annual basis of any additional services provided to the company, and examine, together with the audit committee, the risks to its independence and the safeguards to be implemented to minimise these risks. The audit committee should make a proposal on the appointment or reappointment of the statutory auditor or external auditor, which should be placed on the agenda of the general meeting.

The requirements of the 2009 Code with respect to the tasks and duties of the audit committee are much more detailed and give further guidance as to what should be done to fulfil the mandatory tasks set out above. The 2009 Code also indicates, inter alia, that the audit committee should have at least three members; at least half of the audit committee's members (versus one in the BCC) should be independent; and the chairperson of the board of directors cannot also chair the audit committee.

The audit committee should meet at least four times a year and review (at least every two to three years) its terms of reference and its own effectiveness and recommend any necessary changes to the board. The committee should meet with the external and internal auditors at least twice a year to discuss the audit process. An independent internal audit function should be established, or at least once a year it should be considered whether this is necessary. In June 2012, the Corporate Governance Committee issued additional advice in relation to the audit committee's proposal regarding the appointment or reappointment of the statutory auditor or external auditor. The Committee advised that when appointing an auditor, the audit committee should solicit offers on the basis of predetermined selection criteria (e.g., technical skill, price, financial and economic expertise). The audit committee should also review the work of the statutory or external auditor every three years with a view to the submission of a proposal to the board of directors on the reappointment of the auditor. The board in turn will forward the proposal to shareholders and, if applicable, the works council.

The 2009 Code introduced a third committee, namely the nomination committee, whose duties may also be exercised by the remuneration committee, in which case it shall be known as the remuneration and nomination committee. The nomination committee should have at least three members, a majority of whom should be independent non-executive directors. The chair of the board of directors or another non-executive director shall chair the nomination committee. The chair cannot preside over meetings of the nomination committee when the committee is discussing the appointment of the chair's successor. The nomination committee should make recommendations to the board with regard to the appointment of directors, the CEO and other executive managers, and should consider proposals made by relevant parties, including management and shareholders. It should meet at least twice a year and review (at least every two to three years) its terms of reference and its own effectiveness and recommend any necessary changes to the board.

The 2008 financial crisis led to an animated debate on the (at times excessive) remuneration of directors and executive managers of Belgian companies. In an attempt to rein in the remuneration of directors and executive managers, several new provisions were adopted in 2010 and codified in the BCC.

As a general rule, the general meeting of shareholders has exclusive power to determine the remuneration of directors. The board of directors, in turn, determines the remuneration of executive management, unless the company's articles of association provide otherwise. In listed companies, the articles of association sometimes provide that the shareholders' general meeting determines the overall remuneration for the board of directors as a whole, while the board itself decides how to distribute this total amount among its members.

The BCC stipulates that the remuneration of individual directors and executive managers shall be determined further to a proposal by the remuneration committee. The remuneration committee should also submit proposals on the company's remuneration policy, which must be explained in the remuneration report that forms part of the board's annual report. The general meeting of shareholders need not approve the remuneration policy per se, but does have the power to vote on the remuneration report in which the remuneration policy is described. There are no consequences, however, if the general meeting rejects the remuneration report. The remuneration report should also be provided to the works council or, in the absence thereof, the employee representatives on the committee for prevention and protection at work or, if there is no such committee, the trade union representatives.

If an executive manager receives variable remuneration (i.e., remuneration linked to performance), the criteria used to determine the remuneration should be set out in the contractual or other provisions governing the company's relationship with the manager, and payment can only take place if these criteria have been met within the specified time period. If this is not the case, the executive's variable remuneration cannot be taken into account to determine his or her severance package.

If the variable remuneration of an executive manager of a listed company makes up more than one-quarter of his or her annual remuneration, at least 25 per cent of the variable remuneration should be based on previously established and objectively verifiable performance criteria measured over a period of at least two years, and at least another 25 per cent should be based on previously established and objectively verifiable performance criteria measured over a period of at least three years, unless the articles of association provide otherwise or the general meeting of shareholders expressly consents to deviate from this rule.

Unless the articles of association provide otherwise or the general meeting of shareholders expressly agrees, shares shall only be finally acquired, and share options or any other rights to acquire shares shall only be exercisable, by a director or executive manager of a listed company after a holding period of at least three years is satisfied.

The general meeting of shareholders should also approve in advance any severance package agreed by the company with an executive manager if the severance pay amounts to more than 12 months' remuneration, as well as any variable remuneration granted to an independent or non-executive director. If the severance package represents more than 18 months' remuneration, a reasoned opinion from the remuneration committee is also required. Any such contractual provision that has not been approved by the general meeting shall be deemed null and void. The proposal should also be notified to the works council or, if there is none, the employee representatives on the committee for prevention and protection at work or, in the absence thereof, the union representatives.

The aforementioned provisions of the BCC are supplemented by the 2009 Code principles and best practices with regard to the level and structure of executive remuneration, including the following:

  1. the level of remuneration should be sufficient to attract, retain and motivate executive managers who meet the profile determined by the board;
  2. the level and structure of the remuneration of executive managers should be such that qualified and expert professionals can be recruited, retained and motivated, taking into account the nature and scope of their individual responsibilities;
  3. an appropriate percentage of an executive manager's remuneration should be linked to the company's and the individual's performance; and
  4. severance pay should not exceed 12 months' fixed and variable remuneration.

Further to a special recommendation of the remuneration committee, the severance package can amount to 18 months' fixed and variable remuneration. In any case, the severance package should not take into account variable remuneration or exceed 12 months' fixed remuneration if the departing CEO or executive manager did not meet the agreed performance criteria. The 2009 Code also adds that the prior approval of the general meeting of shareholders is required for schemes that provide for the remuneration of executive managers with shares, options or any other right to acquire shares.

The 2009 Code further provides that the remuneration of non-executive directors should take into account not only their role as ordinary board members but also any specific positions they may hold, such as chair of the board, or chair or member of a board committee, as well as their resulting responsibilities and commitments in terms of time, and that non-executive directors should not be entitled to performance-based remuneration such as bonuses, long-term stock-based incentive schemes, or fringe or pension benefits.

ii Directors

The 2009 Code indicates that both executive and non-executive directors, regardless of whether the latter are independent or not, should exercise independence of judgement in their decisions. Directors should make sure they receive detailed and accurate information and should study this information carefully so as to acquire and maintain a clear understanding of the key issues relevant to the company's business. They should seek clarification whenever they deem it necessary to do so.

While executive and non-executive directors are part of the same body (namely, the board of directors), they play complementary roles on the board. The 2009 Code stipulates, as a guideline, that executive directors should provide all relevant business and financial information needed for the board to function effectively. Non-executive directors should constructively challenge and help develop strategy and key policies proposed by executive management. They should also scrutinise the performance of executive management in meeting agreed goals.

Non-executive directors should be made aware of the extent of their duties at the time of their appointment, in particular the time commitment involved. They should not consider taking on more than five directorships in listed companies. Changes to commitments and the assumption of new commitments outside the company should be reported to the chairperson of the board as they arise.

Pursuant to the BCC, a director can be either a natural person or a legal entity. In the latter case, a permanent representative should be appointed from among the entity's shareholders, directors, members of executive management or personnel who is solely responsible for performing this office in the name and on behalf of the legal entity. The representative shall be liable for the performance of this office as if he or she had been appointed in his or her own name, notwithstanding the joint liability of the legal entity that is represented. The directors of autonomous governmental companies, public institutions and any legal entities over which the state exerts direct or indirect influence must be natural persons if they are remunerated for the directorship. Any payment to a legal entity, acting as director, in this case will be deemed null and void. A listed company that falls into any of the aforementioned categories (e.g., Proximus Group NV) must ensure that its remunerated directors are natural persons.

Directors cannot use the information obtained in their capacity as directors for purposes other than the exercise of their functions. They have an obligation to treat confidential information received in their capacity as directors with care.

Each member of the board should arrange his or her personal and business affairs so as to avoid direct and indirect conflicts of interest with the company. Transactions between the company and its board members should take place at arm's length. The board should establish a policy for transactions or other contractual relationships between the company, including its related companies, and its board members, which are not covered by the statutory provisions on conflicts of interest. This policy should be disclosed in the company's corporate governance charter. Comments on the application of this policy should be included in the corporate governance statement (which forms part of the annual report). The BCC indicates a specific procedure to be followed when directors have a pecuniary conflict of interest with the company. In listed companies, a director with a conflict of interest of a financial nature cannot participate in the deliberations or vote on the decision in question.

The board should also take all necessary and useful measures to ensure effective and efficient execution of the Belgian rules on market abuse. It should draw up a set of rules (the dealing code) regulating transactions (and the disclosure thereof) in shares of the company or in derivatives or other financial instruments linked to shares carried out for their own account by directors or other persons with managerial authority.

Directors can be held liable for shortcomings in the performance of their official duties in accordance with the applicable statutory provisions. For a violation of the law or the company's articles of association, directors can be held jointly and severally liable (unless they were not personally involved in the violation and brought it to the attention of the company's shareholders at the first general meeting after becoming aware of it). In addition, directors can be held liable in a number of specific circumstances (e.g., in the event of bankruptcy, a conflict of interest or tax liability).

Although the term of office of a director in an NV/SA cannot exceed six years by law, the 2009 Code advises setting the maximum term of directors at four years. The 2009 Code indicates that the board of directors should establish nomination procedures and selection criteria for its members, including specific rules for executive and non-executive directors where appropriate. The chair of the board (or another non-executive director) leads the procedure, while the nomination committee makes proposals regarding the candidates. For any new appointment to the board, the skills, knowledge and experience of existing board members and those needed on the board should be evaluated and, in the light of that assessment, a description of the role and skills, experience and knowledge should be prepared. For a director to qualify as independent, a number of criteria should be met.