Sources of corporate governance rules and practices

Primary 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?

The Spanish corporate governance rules are structured around a double system based on hard and soft law rules. The Spanish regulator has been very active in this matter and both hard and soft law rules have enjoyed constant development during recent years, owing to new EU regulations and the entrance of international private funds with high influence and demands.

Listed companies, as joint-stock companies, are primarily governed by the Royal Legislative Decree 1/2010, of 2 July, approving the consolidated text of the Corporate Companies Act (the Corporate Companies Act), which includes the general corporate framework for listed companies. In addition to this act, specific additional regulations govern different corporate issues (eg, accounting audit, annual reports, corporate reorganisations, transparency and disclosure, related-party transactions, non-financial information).

In addition, special regulations containing several rules on corporate governance apply: the Spanish Securities Market Act (recast by Legislative Royal Decree 4/2015 of 23 October and amended by Royal Decree-law 14/2018 of 28 September for the transposition of Directive 2014/65/EU of 15 May) defining the powers of the Spanish National Securities Market Commission (CNMV) in this matter and for listed financial institutions Law 10/2014, of 26 June, for the monitoring, supervision and solvency of credit institutions.

Besides these regulations, companies in Spain are subject to several corporate governance soft law rules. The most important regulation in this regard is the Good Governance Code of Listed Companies (GGC) approved in February 2015 by the CNMV. The GGC sets out recommendations under the principle of ‘comply or explain’. Therefore, although it is not mandatory for listed companies to comply with the recommendations (ie, whether to follow the GGC’s recommendations) companies must give a reasoned explanation in their annual report on corporate governance (ARCG) for any deviations from those recommendations. Some other important soft law rules in this regard are the technical guides of the CNMV on good practices for the application of the ‘comply or explain’ principle, on audit committees at public-interest entities and the recent one on appointments and remuneration committees.

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?

The primary government public bodies responsible for making such rules are the Spanish regulator, the CNMV and the Spanish Central Bank (the latter regarding financial institutions and other supervised financial entities). The CNMV is the Spanish regulator endowed with the power to enforce the corporate governance rules. The Spanish Central Bank is also endowed with some enforcement powers regarding some own supervisory matters.

Among other associations, the Spanish Bank Association and the Spanish Association of Minority Shareholders of Listed Companies are well-known Spanish shareholder groups. Also, INVERCO, as an association of collective investment schemes and pension funds, often pushes for governance reforms.

Proxy advisory firms have gained a high level of importance in Spain during recent years, largely owing to the entrance of overseas private funds. ISS and Glass Lewis & Co can be considered the most relevant proxy advisory firms.

Rights and equitable treatment of shareholders

Shareholder 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?

Shareholders have the right to remove any director at any moment even if it is not included on the agenda of the shareholders’ meeting. Directors with opposite interests to the company shall also be dismissed at the behest of any shareholder.

For the appointment of any director, the same right concurs but with the particularity that it must be included on the agenda in advance of the annual general meeting (AGM) at the time of the call or at a later moment if some legal requirements are met (ie, requested by shareholders representing at least 5 per cent of the share capital and within a specified period of time and in compliance with some specific formalities).

Appointments or removals of directors shall be voted on separately and adopted by simple majority of the votes of the shareholders present or represented by proxy in the general meeting. Accordingly, an agreement is understood to be adopted once more votes are obtained in favour of the present or represented share capital than against.

Any other request to the board to pursue a particular course of action in this regard, but not included as an item of the AGM’s agenda, may be included through a supplementary call by shareholders fulfilling the same above-mentioned requirements.

Shareholder decisions

What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?

It is under the jurisdiction of the general meeting to deliberate and decide on the following matters:

  • approval of annual financial statements, distribution of earnings and the approval of corporate governance;
  • appointment and dismissal of directors, liquidators and, when necessary, account auditors and the institution of liability action against any of these persons;
  • amendments to by-laws;
  • capital increase and reduction;
  • removal or limitation of pre-emptive or preferential subscription rights;
  • acquisition, disposal or transfer to another company, of any essential assets;
  • conversion, merger, spin-off or global assignment of assets and liabilities and transfer of registered office abroad;
  • dissolving the company;
  • approval of the final liquidation balance sheet;
  • any other matters stipulated by the law or the by-laws;
  • transfer to subsidiaries, of essential activities that until that moment have been performed by the company itself, although said company shall maintain full control over them;
  • operations whose effect be equivalent to that of liquidating the company;
  • the directors’ remuneration policy under the terms established in accordance with the Corporate Companies Act; and
  • the exemption of a director in some individual cases from the duty to avoid conflict-of-interest situations.

For the purposes outlined above, assets and activities shall be considered of an essential nature when the volume of the transaction exceeds 25 per cent of the total assets or the share value shown in the latest approved balance sheet. This has been a very controversial matter and a remarkable doctrinal debate around the valuation criteria has been generated, particularly regarding corporate groups.

The annual directors’ remuneration report and amendments to the regulations of the board shall be submitted to a non-binding shareholder vote, as a separate agenda item, at the shareholders’ AGM. On the contrary, the directors’ remuneration policy is subject to a binding vote from the shareholders.

In addition, unless otherwise provided in the by-laws, the general meeting may issue instructions to the board or submit for their authorisation the adoption by the aforementioned body of decisions and agreements about certain management issues, without prejudice to some legal stipulations.

Disproportionate voting rights

To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?

Although it is recommended that no disproportionate voting rights are allowed in listed companies, there is no legal prohibition.

For all or some items, by-laws may require a higher percentage of ‘aye’ votes than established by regulations, but never a unanimity. In addition to the proportion of votes established by law or by-laws, the latter may demand that aye votes be cast by a certain number of shareholders.

In order to attend general meetings, by-laws may not require the possession of more than 1,000 shares but may include clauses that establish a general ceiling on the number of votes that may be cast by the same shareholder, companies belonging to the same group or anyone acting in conjunction therewith. Nevertheless, those clauses shall be null and void when, after a takeover bid, the bidder holds 70 per cent or more of the voting share capital, unless such bidder is not bound by an equivalent breakthrough rule or fails to invoke it.

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?

By-laws may subject eligibility to attend the general meeting to the ownership of a minimum number of shares, irrespective of class or series, but under no circumstances may the number required be greater than one-thousandth of the share capital (see question 5). By-laws may also subject the shareholders’ right to attend the general meeting to advance proof of their eligibility, but no restriction in this regard shall be made for holders of registered shares or shares represented by book entries that comply with legal requirements.

Shareholders are entitled to vote in person or by proxy (by any person, even non-shareholders) within the limitations that may be set forth in the by-laws. Proxy appointments shall be in writing or provided by remote means of communication, that guarantee the shareholder’s identity and must be issued specifically for each general meeting.

Shareholders may also exercise their attendance and voting rights remotely if by-laws allow it and if those rights are exercised by electronic methods that guarantee the shareholder’s identity. Directors may require shareholders attending the meeting by electronic means to send the opinions and proposals they plan to raise to the company prior to the meeting date. Votes on motions under items included on the agenda of any type of general meeting may be cast by the shareholder by post, electronic correspondence or any other means of distance communication, provided that the identity of the persons exercising their right to vote is properly substantiated.

However, shareholders cannot act by written consent without a meeting as decisions shall be adopted by shareholders assembled in a general meeting.

Although it is not expressly provided by regulations, virtual meetings are permitted if by-laws allow shareholders to exercise their attendance right remotely.

Listed companies should disclose and permanently display in their website the requirements and processes accepted for admitting share ownership, the right to attend general meetings and the exercise or delegation of voting rights. It is also recommended that companies broadcast their general meetings live on their corporate website.

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?

The board is obliged to convene a general meeting when so requested by one or several shareholders representing at least 3 per cent of the capital, who must specify the matters to be addressed in the request. If directors fail to attend in time to the minority application to convene a general meeting, the meeting may be convened by the clerk of the commercial court or the registrar of companies, prior to the hearing of directors. In the event of the death or dismissal of the majority of the members of the board, any shareholder may issue a request as indicated above for the appointment of new directors.

If the AGM or general meetings provided for in the by-laws are not convened within the period stipulated in the laws or by-laws, they may be convened at the application of any shareholder through the same procedure mentioned above.

Items not included in the AGM’s agenda by the board may be included through a supplementary notice of meeting within five days of the date of publication of the initial notice by shareholders representing at least 3 per cent of the share capital, if proposed items are accompanied by a justification and, when relevant, justified proposed agreements. This right shall be exercised by means of reliable notification.

Shareholders representing a minimum of 3 per cent of the corporate capital may present proposals for agreement on matters already included or that should be included in the agenda items for the general meeting, within the same deadline detailed above. Proposals for agreement submitted by shareholders must be published on the company’s website, uninterrupted, until the general meeting is held.

See question 38 for more information.

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?

All shareholders of the same status shall at all times be guaranteed equal treatment in respect of information, participation and exercise of voting rights at the general meeting.

Shareholders shall not exercise their voting rights when the issue at hand regards an agreement that triggers a conflict of interest as set forth in the regulations (eg, related-party company or shareholders transactions). Neither shall shareholders exercise their voting rights when an indirect conflict of interest arises regarding related-party transactions involving shareholder-nominated directors.

Also, shareholders shall disclose significant shareholdings percentages through the appropriate means as set forth in the regulations.

Shareholder responsibility

Can shareholders ever be held responsible for the acts or omissions of the company?

Shareholders, in their capacity as such, are not responsible for the acts or omissions of the company, unless they are directors. Yet shareholders are responsible before the CNMV regarding some disclosure obligations (eg, significant shareholdings or inside information).

Corporate control

Anti-takeover devices

Are anti-takeover devices permitted?

Under Spanish regulations, companies are allowed to adopt anti-takeover devices before and after a takeover bid, in compliance with the rules laid down in the regulations.

Pre-adopted anti-takeover devices (preventive devices) by listed companies in order to strengthen the position of the company in the event of a takeover bid are permitted through by-law clauses (restricting the right to vote, limiting access to the status of members of its management or administrative bodies or of its executive or delegated committees, or, in general, hindering the exercise of the voting rights of the securities in proportion to their respective holdings) or through non-by-law clauses (extraordinary dividends, early maturity clauses in financing agreements, new and complementary share delivery plans or acquisition of controlling interests in listed third parties).

During the takeover bid, according to the legal limits (duty of passivity that must be by the board except in certain cases appraised) the competence to agree on transactions that may affect the success of the takeover bid is transferred to the general meeting (except for the search for competing offers). These devices may be capital increases, extraordinary dividends, convertible bond issue, sale of significant assets, etc. The CNMV has direct monitoring powers towards any conduct of the offeree company.

No clear and consistent approach concerning this matter by the Spanish regulator has yet been established.

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 issuance of new shares shall be adopted by the general meeting complying with the requirements established by the regulations for the amendment of by-laws as a result of a capital increase. The board may only adopt execution decisions that the general meeting could delegate in this regard (the power to indicate the date on which the agreement already adopted shall be executed and to set the terms and conditions not determined by the general meeting or the power to agree on one or more times to increase the share capital up to the sum specified, when and for the amounts deemed appropriate, without consulting the general meeting). All delegations shall be made in compliance with the specifications established by the regulations.

Shareholders do have pre-emptive rights to subscribe newly issued shares within the time limit set by the board. This right may, however, be removed or limited by a general meeting agreement in cases where the interests of the company so require and if some conditions are met.

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?

Pursuant to Spanish regulations, restrictions or conditions on the transfer of shares shall only be valid when they fall on registered shares, so no restrictions or conditions on the transfer of shares are permitted in listed companies because shares are represented by book entries.

Compulsory repurchase rules

Are compulsory share repurchases allowed? Can they be made mandatory in certain circumstances?

If, as a result of a takeover bid for all securities, the offeror meets some legal premises (ownership of a number of securities representing at least 90 per cent of the share capital conferring voting rights and acceptance of the bid by holders of securities representing at least 90 per cent of the rights other than those already held by the offeror), the offeror may require the other holders of the securities to sell him or her such securities at an equitable price. In addition, the holders of the offeree company’s securities may require the offeror to purchase its values at an equitable price.

Dissenters’ rights

Do shareholders have appraisal rights?

Apart from the legal causes for exit (eg, change in corporate purpose, company term extension or reactivation, change in ancillary commitments, company conversions and relocations of the registered office abroad) shareholders may have the allowed causes for exit that may be set forth by the by-laws. Also, shareholders have the right to exit in the event of failure to distribute dividends if some requirements are met and unless otherwise provided by the by-laws. Under these assumptions, shareholders shall have appraisal rights and may sell their stock to the company at the average listed price for the last quarter.

Aside from the aforementioned causes, under Spanish regulations shareholders who would not have voted in favour of a merger or other stock transaction agreement may only have an exit right in case of an EU-wide cross-border merger. However, a minority part of the doctrine understands that there could also be an exit right in a national merger because this operation implies a substantial substitution or modification of the corporate purpose and therefore a legal exit cause.

Responsibilities of the board (supervisory)

Board structure

Is the predominant board structure for listed companies best categorised as one-tier or two-tier?

Spanish regulations require joint-stock companies two basic organs for their existence: the general meeting (property body) and the directing body (responsible for supervisory, managing the company’s business and its resources).

Board structure for corporate companies is categorised under Spanish regulations in a one-tier corporate governance system so the company must be governed by a unified board performing both management and supervisory functions (except for European companies with registered offices in Spain that may opt for one- or two-tier governance, as defined in their by-laws).

The foregoing is without prejudice to the fact that, if by-laws do not state otherwise, the board may delegate some of its functions (except for those functions whose delegation is not permitted by regulations) to one or several CEO or executive committees and may also grant proxies.

Board’s legal responsibilities

What are the board’s primary legal responsibilities?

The primary legal responsibility of the board is to conduct the business and affairs of the company. In particular, directors have the duty to convene and attend all necessary general meetings according to the regulations or by-laws and avoid conflict of interest situations in their performance.

In general, members of the board are subject to the duty of diligence and the duty of loyalty that translate into the duty to act as orderly businessmen, for example, be properly dedicated to having to attend general meetings (duty of diligence) and to put the interests of the company before their own (duty of loyalty). Failure to comply with these duties allows the company to hold directors accountable (see question 19).

Regulations provide a number of non-delegable powers for which the board must remain responsible (see question 21).

The board also has the duty to ensure that the procedures for selecting its directors favour diversity of age and gender, experience and knowledge and do not suffer from implicit biases that may imply any discrimination and, in particular, facilitate the selection of female directors.

Board obligees

Whom does the board represent and to whom does it owe legal duties?

Broadly speaking, the board represent the company’s object. In addition to being a body for the deliberation of the company’s interests and the execution of resolutions in accordance with those interests, the board is the representative body of the company and members respond coactively to the company on trial or off trial. That is, although directors are elected by shareholders gathered in a general meeting, they cannot represent any particular set of shareholding constituents. Furthermore, directors who are appointed by a group or category of shareholders have the same duties towards the company and the rest of the shareholders as the remaining directors, not being able to infringe their duties under the pretext of defending the interest of those who have appointed them.

The board is required to report back to the general meeting, which will evaluate and approve them. Also, the board must complete an annual performance evaluation on itself and its committees and, based on the results, propose a plan of actions to correct any issues detected.

Enforcement action against directors

Can an enforcement action against directors be brought by, or on behalf of, those to whom duties are owed?

Directors are liable for damages caused by acts or omissions contrary to the regulations or to the by-laws or for those carried out in breach of the duties inherent in holding office with the company, shareholders and creditors.

Upon breach of loyalty duty, the director shall be bound to compensate any damage caused to the company’s assets, as well as to return to the company any unjust gains obtained. Shareholders individually or jointly representing a share that permits them to request a general meeting (see question 7) may exercise the action for liability directly, without the need to submit the decision to the general meeting.

The liability can be enforced through a corporate action (to reimburse the damage caused by the director to the company’s assets) or an individual action for damages or debts (to reimburse the third party, eg, shareholders, creditors, etc, for the damages caused by the director to his or her assets). Any person who considers that the actions or omissions of the director have caused him or her damage or injury is entitled to bring an individual action.

A corporate action may be carried out by:

  • the general meeting, even if the adoption of the resolution is not on the agenda of the meeting;
  • shareholders holding 3 per cent of the share capital when the directors do not call a general meeting, when the company does not bring the action within one month or when the company unreasonably decides not to bring the action; or
  • the creditors of the company, when it has not been exercised by the company or its shareholders and provided that the company’s assets are insufficient to satisfy its claims.

Finally, it is possible to claim from the company’s directors any corporate debts that may arise after the company has been dissolved if they do not call a general meeting to dissolve the company.

In addition to the above, there are also other actions envisaged in the CNMV and, where appropriate, the Spanish Central Bank sanctioning regime, which has been tightened and in which the supervisor has been given more independence from the Ministry of the Economy.

Care and prudence

Do the board’s duties include a care or prudence element?

Yes, directors are subject to the duty of diligence and the duty of loyalty.

The duty of diligence obliges directors to exercise their duties with the diligence of an orderly businessman by adopting the necessary measures for the good management and control of the company and by devoting adequate or sufficient time to this purpose.

The duty of loyalty obliges directors to not put their personal interests before the company’s interests, to operate in good faith and to act in the best interests of the company. For example, the duty of loyalty binds directors to not exercise their powers for any end purpose other than that for which they were granted, to maintain the confidentiality of any information, data or records to which they may have access in the course of fulfilling their role, or to refrain from participating in discussions and votes on agreements and decisions in which the director or a related person may have a direct or indirect conflict of interest.

The system with regard to loyalty and responsibility for breaching the same is imperative, so no limitations by by-laws shall be valid. Notwithstanding the above, the company may exempt prohibitions regarding the duty of loyalty in exceptional circumstances, by authorising a director or related person to complete a particular transaction with the company, use certain company assets, take advantage of a specific business opportunity or obtain an advantage or remuneration from a third party.

In addition, under Spanish regulations, directors must avoid any conflict of competence in their performance (understood as the performance of activities on their own or others’ behalf that entails a current or potential effective competition with the company, that would otherwise place them in permanent conflict of interest with the company’s interests). In such cases, the board may, in the interests of more legal certainty, adopt an agreement to waive the conflict on a one-off basis, at the request of the director concerned or by its own decision.

Board member duties

To what extent do the duties of individual members of the board differ?

Directors have the individual duty to attend general meetings (although they may request representation at such meetings for themselves or for another person, provided that the request is made publicly and in accordance with the terms set out in the regulations).

With regard to strategic and business decisions subject to business judgement rule, the diligence duty is understood to have been fulfilled when the director acts in good faith, without personal interest in the matter being decided, with sufficient information and organisation to be able to proceed to an appropriate decision.

Bearing in mind that the functions of the board are exercised jointly through meetings, an act carried out by one of them individually or independently does not bind the company, except if powers are conferred or if the board has delegated powers to a specific director (CEO). In these two situations, the acts performed by the proxy or CEO will bind the company. In consequence, all the members of the board are jointly and severally liable for the damages caused to the shareholders or the company by their negligent and fraudulent actions unless they prove that, having not intervened in its adoption and execution, they were unaware of its existence or, knowing of it, did everything necessary to avoid the damage or, at least, expressly oppose it. However, to the extent that it is understood that the director has acted as a de facto director, it may be understood that the company can hold this director accountable for such events.

The foregoing is without prejudice to directors performing executive functions (who shall comply with the duties proper to that function) and members of any board committee set up by the board (eg, the appointments and remuneration committee (ARC) or the audit committee (AC)), which requires relevant expertise and knowledge as well as experience in specific matters that shall be delivered (eg, finance, auditing, risk management, etc).

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 the functions attributed by regulations, by-laws or resolution of the general meeting, except for those non-delegable powers (eg, approval of the strategic or business plan, annual budget, determination of risk control and management or corporate governance policies), to one or more of its members (CEO) or to commissions (executive commissions), without prejudice to any powers of attorney they may grant to persons outside the company to act on their behalf. Nevertheless, delegations are subject to a high qualified majority of votes.

The board under any circumstances shall not delegate the powers set out by regulations as non-delegable powers.

The board may then delegate not only the execution and adoption of the delegable matters that are proper to this body by regulations, by-laws or resolution of the general meeting, but also the execution (non-adoption) of those matters that are considered non-delegable.

In addition, boards of listed companies must have an AC and an ARC (the latter should be separated into two different committees in large companies), which shall have the corresponding functions.

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?

As provided for in the GGC, it is recommended that boards should have a balanced composition in which the majority of the directors are non-executive directors and independent directors should represent at least half of the non-executive members. However, when companies do not have a large market capitalisation, or when a large company has shareholders individually or concertedly controlling over 30 per cent, independent directors should occupy, at least, one-third of board places. The independence of independent directors shall be present at the time of their appointment but shall also be maintained throughout the term of office.

In relation to the composition of the AC, regulations require that all of its members are non-executive directors, with the majority (at least two) being independent.

The ARC must be composed of non-executive directors with the majority (at least two) being independent. Depending on the size and shareholding structure of the company, it may be appropriate for ARC to include among its members certain proprietary directors who meet some conditions to be considered ‘micro-proprietary’ directors. The chair of this committee must be appointed from among the independent members of this committee. Executive directors are those directors who perform management duties in the company or its group, whatever their legal connection to the same. In addition, when a director performs their management duties and, at the same time, is or represents a significant shareholder or is represented on the board, they are considered an executive director.

Notwithstanding the foregoing, directors who are senior management or directors of companies belonging to the group of the dominant entity of the company shall also be considered proprietary directors.

Non-executive directors are all directors who are not executive directors and may be proprietary, independent or other external directors.

Independent directors are those who, appointed in recognition of their personal and professional status, may perform their duties without appearing biased owing to relationships with the company or its group, its significant shareholders or its management team unless in the cases set out in the regulations.

No responsibilities for non-executive directors differ from those of executive directors, apart from the fact that directors must carry out their role and fulfil their tasks in accordance with the regulations and by-laws, with the due diligence, taking into account the nature of the role and the duties inherent in each one.

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?

By-laws must establish the exact or a minimum and maximum number of members for the board. The general meeting is responsible for determining the specific number of members.

The Corporate Companies Act stipulates that boards must have at least three members without specifying the maximum number of members for this purpose. Following the recommendation of the GGC, the composition of the board of directors should be between three and 15 directors.

In the event of an early vacancy, the board shall appoint a director to fill the vacancy (on the proposal of the ARC in the case of an independent director), in accordance with the procedure established in the regulations. This appointment is temporary until the first general meeting is held, which must ratify the appointment of the board or appoint another director.

Each year the company must submit a corporate governance report to the CNMV, which will be published on its website. This report (ARCG) contains, among other matters, information on the composition, rules of organisation and functioning of the board and its committees. In addition, the GGC recommends that companies publish some specific information of their directors on their website and keep it updated (eg, professional and biographical profile, other boards of directors to which they belong, whether or not they are listed companies, as well as other paid activities of any kind, their category of director, shares in the company and options on shares held by them).

For individual or joint criteria of directors, see question 22.

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?

In general, it is permitted that the position of chair of the board may be held by an executive director. In cases in which the chair is an executive director, the board, with the abstention of the executive directors, must necessarily appoint a coordinating director from among the independent directors. This coordinating director shall be empowered to request the calling of a meeting of the board or the inclusion of new items on the agenda of a board that has already been convened, to coordinate and meet non-executive directors and to direct, where appropriate, the periodic evaluation of the chair of the board.

Although it is permitted to bring together in one person the position of chair and CEO, a distinction is recommended between these positions.

Notwithstanding the foregoing, regulations establish that, for financial institutions (whether listed or non-listed), the position of chair and CEO cannot be exercised simultaneously by the same person unless the company so justifies and obtains the prior authorisation of the CNMV (or the Spanish Central Bank as appropriate).

In any case, the usual practice is that the chair is not the CEO as well.

Board committees

What board committees are mandatory? What board committees are allowed? Are there mandatory requirements for committee composition?

The board may set up specific committees, drawn from its members, determining their composition, appointing members and establishing the day-to-day duties of each.

Notwithstanding the previous point, the board must set up at least one AC and one or two separate committees for appointments and remuneration, with the minimum composition, duties and exceptions stipulated by regulations.

The AC shall be composed exclusively of non-executive directors, appointed by the board, of whom at least the majority must be independent directors and one of whom shall be nominated by virtue of their knowledge and experience in matters of finance, auditing or both. As a whole, members of this committee shall have technical knowledge of the industry to which the audited company belongs. Without prejudice to the foregoing, it is recommended that all members of the AC, and in particular its chair, be appointed on the basis of their knowledge and experience in accounting, auditing or risk management matters.

The ARC shall be entirely composed of non-executive directors, appointed by the board, at least two of whom must be independent directors. The committee chair shall be nominated from among the independent directors that form said committee. The GGC recommends that members of this committee should be appointed because of their knowledge, skills and experience appropriate to the functions they are called upon to perform.

In both cases, the company by-laws or the board’s regulations, in accordance with the provisions therein, shall establish the number of members in these committees and regulate their performance. Members shall remain independent in the performance of their duties.

With regard to the functions of the aforementioned committees, regulations list their minimum functions (without prejudice to those attributed by the by-laws, board regulations or committee regulations, if any) and the GGC recommends additional and complementary functions. In addition, the CNMV through its technical guides recommends a minimum annual periodicity for the meetings of these committees (four for the AC and three for the ARC).

Board meetings

Is a minimum or set number of board meetings per year required by law, regulation or listing requirement?

While the regulations require the board to meet at least once a quarter, the GGC recommends that the board should meet with the necessary frequency to properly perform its functions eight times a year at least (every month and a half) in accordance with a calendar and agenda set at the start of the year, to which each director may propose the addition of initially unscheduled items.

Board practices

Is disclosure of board practices required by law, regulation or listing requirement?

Companies must publish and communicate to the CNMV an ARCG. This report, which will be published on the website of the CNMV and on the company’s website, must provide a detailed explanation of the structure of the company’s system of governance and its functioning, particularly among other information, that relating to the composition, rules of organisation and functioning of the board and its committees.

In this report, they must also indicate whether or not they comply with the recommendations set out in the GGC and, if they do not, they must explain the reason for not doing so (‘comply or explain’ principle).

Companies must also publish on their website, together with other information (eg, company by-laws, board regulations and committee regulations, if any, resolutions adopted at general meetings, financial and economic information of the company and non-financial information, as well as CSR information), information about the members of the board’s committees (the AC and the ARC in particular), their status and, where applicable, their rules of procedure.

This duty is without prejudice to the internal rules agreed by the company (for example through internal codes or regulations) on the information to be published on its website.

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?

The appointment term for directors is legally capped at six years for non-listed companies and at four years for listed companies (both renewable), but the shareholders may retain a shorter term of duties.

Unless by-laws establish otherwise, the position of director is remunerated. In this regard, regulations distinguish between the remuneration they receive for their position as such and, as the case may be, the one received for the performance of their executive duties.

In accordance with the regulations, the remuneration received by directors for the performance of their duties shall be the one established in the remuneration policy. This policy must be in accordance with the system of remuneration provided for in the by-laws and must include the maximum amount of the annual remuneration to be paid to all directors. For this determination, regulations oblige the board to consider the functions and responsibilities attributed to each director, membership of board committees and the other circumstances that are objectively relevant for these purposes.

All remuneration items must be included in the above-indicated remuneration system and the remuneration policy must be approved by the general meeting (which is also responsible for any changes to it) at least every three years, on the proposal of the board. The proposed remuneration policy must be reasoned and accompanied by a specific report from the ARC. In accordance with the latest CNMV recommendations for the design of this policy, the ARC should consider the GGC’s recommendations, in particular those relating to malus and clawback clauses and limits on compensation and other payments related to the termination of the contract. The proposed policy should be consistent with the particular circumstances of the entity and its strategy and take into account its impact on the long-term sustainable performance of the company and in terms of risk-taking.

Executive directors’ remuneration shall be regulated in the contract established between the director and the board and shall respect the company’s remuneration policy.

The GGC makes several recommendations on directors’ remuneration. For example, the remuneration should be sufficient to attract and retain the desired directors and to reward their dedication, qualifications and responsibility and moderation, to prevent independent directors from losing this character or to link a relevant percentage of the variable remuneration of executive directors to the delivery of shares or financial instruments linked to their value.

Loans to directors are restricted and transactions between the company and directors (or relatives) are submitted for prior approval by the board and subsequent review by the auditors and vote by the shareholders.

The foregoing is without prejudice to the specificities established in the regulations for financial institutions. In this regard, GGC recommendations regarding variable remunerations linked to the company’s performance is mandatory for financial institutions and part of it must be deferred. For other listed companies this deferment is only a recommendation.

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?

Subjects who are considered senior management members according to regulations and who are not executive directors shall be remunerated according to the remuneration items established in their employment contracts. Their special employment relationship is regulated by a special regulation.

The senior management remuneration policy shall be proposed by the ARC and should be consistent with the particular circumstances of the entity and its strategy in the same terms as mentioned above for the determination of the directors’ remuneration policy.

However, for financial institutions the remuneration of some mana­gers and employees shall be subject to the same variable components as in the case of directors and, as indicated in question 28, it must be deferred.

D&O liability insurance

Is directors’ and officers’ liability insurance permitted or common practice? Can the company pay the premiums?

Yes, it is allowed by regulations as one of the possible items to include in the remuneration system and is a trend that did not exist until recently. Companies provide for it on a regular basis as a payment in kind and companies may pay the premiums, although it is not set forth or recommended by regulations. Systems of remuneration should not only promote the long-term profitability and sustainability of the company but also avoid excessive risk-taking and the reward of unfavourable results (see question 28).

This concept of remuneration must be provided for in the contract that the company signs with the director and must, in any case, respect the remuneration policy approved by the general meeting, proposed by the board in a reasoned and justified manner with a specific report from the ARC, and the remuneration system provided for in the company’s by-laws. This concept shall include both the amount of the premium and the maximum coverage and the main contingencies covered.

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?

In general, regulations allow companies to compensate their directors for early termination of their duties, provided that this is not owing to a breach of their duties. There are no legal limitations to this effect and these indemnities are common in practice. The GGC recommends that the termination payments should not exceed a fixed amount equivalent to two years of the director’s total annual remuneration and should not be paid until the company confirms that he or she has met the predetermined performance criteria.

On the contrary, a company generally may not exempt a director from liability for any negligence, default, breach of duty or breach of trust in relation to the company, nor indemnify him or her in respect of such behaviour, notwithstanding any liability insurances that directors may have (see question 30).

Although the above indemnities are optional in listed companies, financial institutions are required to provide for such indemnities.

Exculpation of directors and officers

To what extent may companies or shareholders preclude or limit the liability of directors and officers?

It is not possible to limit the joint and several liabilities of directors for intentional or culpable breach of their duties, even in those cases in which the harmful act or resolution of the directors is adopted, authorised or ratified by the general meeting. In this sense, regulations presume the wilful or negligent character in the actions of the directors in those cases in which they fail to comply with the legal provisions or the company’s by-laws.

The only way for directors to avoid liability is to prove that they were unaware of its existence by not intervening, consequently, in its adoption and execution, to do everything possible to avoid the damage, or to expressly oppose the harmful act or decision.


What role do employees have in corporate governance?

Companies should establish the mechanisms, systems and procedures that enable their employees to be aware of the corporate governance rules applicable to them (as the internal rules of conduct) and to ensure that they comply with them. In particular, the corporate social responsibility policy approved by the board, insofar as it is recommended that this policy should include the principles or commitments that the company assumes with the different stakeholders and, in particular, specific practices on issues related to shareholders, employees, customers, suppliers, social issues, the environment, diversity, fiscal responsibility, respect for human rights and the prevention of illegal conduct.

In addition, companies must ensure that their employees are aware of and apply the conflicts of interest policies established by the entity and normally set out in the internal rules of conduct, as well as all internal control systems regarding corporate compliance.

Finally, because this is such a sensitive matter and has such important legal consequences, employees must also abstain, and the company must ensure that they do so, from engaging in practices or conduct that could be considered market manipulation (for example, by making use of privileged information or without transmitting it).

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?

Boards must carry out an evaluation of their performance (and that of their committees) on an annual basis. Following the GGC, every three years, the board should engage an external facilitator to aid in the evaluation process. This facilitator’s independence should be verified by the nomination committee.

In this regard, the GGC recommends boards to assess:

  • the quality and efficiency of the board’s operation;
  • the performance and membership of its committees;
  • the diversity of board membership and competences;
  • the performance of the chair of the board and the CEO; and
  • the performance and contribution of individual directors, with particular attention to the chairmen of board committees.

As a result of this evaluation the board shall adopt, where necessary, an action plan to correct any weakness detected.

When evaluating the committees, the boards should consider the content of the report that the committees are required to submit to the board on an annual basis and, for their own evaluation they should consider the content of the report that is submitted to them by the ARC. However, in those cases in which there is a coordinating director (see question 24 above), the regulations stipulate that he or she should carry out the evaluation of the executive chair of the board.

The GGC recommends that listed companies publish on their websites (well in advance of the AGM) the performance reports of the AC and the ARC.

Disclosure and transparency

Corporate charter and by-laws

Are the corporate charter and by-laws of companies publicly available? If so, where?

Listed companies must publish the by-laws in their company’s website to make them available not only to shareholders, directors and employees, but also the general public.

Company information

What information must companies publicly disclose? How often must disclosure be made?

The CNMV requires listed companies to disclose on their websites general information regarding the company (such as channels of communication available for shareholders, the share and its share capital, dividends, public offers for the sale and admission of securities, take-over bids, shareholders agreements) as well as economic and financial, non-financial and corporate governance information.

Corporate governance information shall include internal governing rules (general meeting and board regulations, internal code of conduct), calls to general meetings and their agenda, full texts of the proposed resolutions to be taken and of the documentation available to shareholders for general meetings and proxies and remote voting, requests for information or clarifications requested by shareholders, information regarding the development of general meetings, composition and other information with regard to internal governing bodies, ARCG and the remuneration to directors. Companies shall also make all information available for shareholders through a forum.

All information considered to be price sensitive shall be immediately disclosed by companies through the publication of significant events. However, a delay in the disclosure of this information is possible pursuant to EU regulations.

Hot topics


Do shareholders have an advisory or other vote regarding remuneration of directors and senior management? How frequently may they vote?

Executive remuneration shall be specified in the contracts that directors must conclude with the company for the performance of those executive functions. Nevertheless, the remuneration that executive directors receive for performing executive duties shall be adjusted to the remuneration policy that shall be approved by shareholders through the general meeting. Consequently, shareholders have the faculty to vote on the remuneration policy and to approve the sum of fixed annual remuneration and variations thereof, during the period to which the policy refers, as well as the different parameters for fixing variable components and the main terms and conditions of their contracts, compensation for early severance or termination of the contractual relationship and exclusivity, post-contractual non-competence, permanence and loyalty pacts.

Shareholders shall approve the remuneration policy of directors proposed by the board at least every three years.

See questions 28 and 29.

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?

This is possible through the category of proprietary directors (those who are significant shareholders or appointed by their status as shareholders and those who directly represent the aforementioned shareholders).

The Spanish legal system, without prejudice to the above questions concerning the size of the board and its composition, establishes a system of proportional representation of shareholders on the board (ie, all shareholders who exceed a certain percentage of the shareholding will have the right to appoint a director ‘to represent their interests’; see question 17).

Given the dispersion of shareholdings characteristic of listed companies, the regulations allow shareholders to jointly reach the percentage indicated and to appoint the number of directors corresponding proportionally to them. This joint action is done through shareholders agreements (by regulating the exercise of voting rights at general meetings or restricting or conditioning the free transferability of shares). For these shareholders’ agreements to be effective, they must be published on the CNMV website as a relevant event.

Shareholder engagement

Do companies engage with shareholders? If so, who typically participates in the company’s engagement efforts and when does engagement typically occur?

In general, the companies relate to their shareholders through the board. In this respect, regulations provide for information rights in favour of the shareholder and, consequently, obligations for the directors to this effect. The relationship between shareholders and the company intensifies during periods of general meetings.

In any case, the regulations oblige companies to make sections or systems that allow shareholders to exercise their rights to information and publish relevant information on the stock market available on their website. Particularly, companies should have an electronic shareholders’ forum that allows and facilitates communication between shareholders and the company.

As a result of new regulations, shareholders’ information rights have been considerably expanded through the use of online forums as well as through the appointment of a person responsible for shareholder relations. The final goal has been to encourage the relationship between the companies and all stakeholders.

Information on the company published on the CNMV’s website (eg, significant events) must also be considered.

Sustainability disclosure

Are companies required to provide disclosure with respect to corporate social responsibility matters?

The regulations do not require publication of the corporate social responsibility (CSR) policies adopted by the company; however, it is possible to find this information in different documents required by regulations. Although it is not mandatory, it is common for companies to publish the policies they adopt in this regard.

For example, the ARGC contains information relating to diversity policy (eg, in relation to the number of women on the board). In addition, following the recommendations of the GGC, companies should prepare and publish on their website a report on the social responsibility policy implemented and report on their corporate social responsibility either in the management report or in another document.

In the management report to be issued by companies, within a maximum period of three months from the close of the financial year, in addition to reporting on the corporate governance report, they must also report on matters relating to the environment and the company’s personnel.

This is without prejudice to the increasingly frequent creation of special committees on this matter by companies that know the importance that corporate governance matters have acquired.

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 regulations do not oblige companies to make a comparison between the remuneration of directors or executive directors and that received by other employees of the company. However, the annual report on the remuneration of directors that companies must publish on their websites provides information on the implementation of the remuneration policy. From the information included in this report, the differences in the remuneration of directors from one year to the next can be observed. Also, the CNMV provides annual reports with information collected in this regard, along with some statistics.

Gender pay gap disclosure

Are companies required to disclose ‘gender pay gap’ information? If so, how is the gender pay gap measured?

Regulations do not oblige companies to publish gender pay gap information. Nevertheless, this gender pay gap can be determined by analysing the directors’ remuneration reports (see question 40).

Regarding gender equality, director selection policy in listed companies should pursue the goal of having at least 30 per cent of total board places occupied by women directors by 2020.

Update and trends

Recent 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).

As a result of the transposition into the Spanish legal system of Directive 2014/95/EU, Royal Decree-law 18/2017 introduced for the first time non-financial disclosure requirements for public interest entities (entities such as issuers of securities admitted to trading on any official secondary stock market and credit institutions). At the end of 2018, Law 11/2018 on non-financial information and diversity introduced this obligation for other companies that meet certain requirements, and provisions of the Commercial Code, the Corporate Companies Act and the Audit Act have been amended. One of the pillars of good corporate governance is transparency through corporate reporting based, until now, on information of a financial nature. This new regulation reinforces the obligation for companies to include in their management reports details of important data on the management of the company in five areas such as environmental and social issues, as well as relating to personnel, respect for human rights and the fight against corruption and bribery. The objective of these regulations is to identify risks in order to improve sustainability and increase the confidence of investors, consumers and society in general.

During the second half of 2018 the CNMV published two important rules: a proposal for a technical guide for ARC (that was approved in February 2019) and new models of annual corporate reports (the annual corporate governance report and the annual remuneration of directors report). The guide, of a non-binding character, includes the basic principles of action and recommendations for good practice that ARC should apply in the development of its functions. The criteria and good practice refer to aspects such as composition and operation, the evaluation and selection or appointment, re-election and separation of directors and senior executives, the succession of the chair of the board, of the CEO and of the senior executives, the evaluation of the board and its specialised committees or the remuneration of directors and senior executives. A previous section on prior clarifications includes the cases in which it is advisable to separate the ARC into two different committees and the convenience of the ARC to perform functions with respect to senior management.

Among the goals included in the CNMV Activity Plan for 2019, the new automatic publication of notifications of voting rights and financial instruments should be highlighted, as well as the review of some specific recommendations of the GGC to clarify their scope or adapt them to legal changes, three years after the approval of such code.

Overall, there was a high level of compliance with the GGC recommendations by Spanish listed companies during 2018. Board renewals and the increasing importance of stakeholders are among the most important issues that received attention during the 2018. The professionalisation of boards through the renewal of their members through the incorporation of new profiles and improvements in terms of diversity has been one of the most remarkable points. The presence of women on boards increased by 2.3 per cent compared with the previous year, with a greater presence in Ibex 35 companies, according to CNMV sources. On the other hand, the relationship between the board and stakeholders has become a key issue in a context in which the importance of transparency and accountability has increased, especially the influence of proxy advisers and institutional investors.

The transformation of the corporate governance systems of Spanish companies that began four years ago is set to continue. Bearing in mind that 2019 will be a decisive year for the European Union, some of the most important upcoming Spanish trends in corporate governance are the following:

  • strategic vision: evolution from eminently financial decision-making approaches to broader approaches focused on strategic issues and issues that affect the medium and long term such as ESG issues (environment, talent, diversity, CSR and good governance);
  • climate risk: once again, the risks associated with climate change lead the Global Risk Report of the World Economic Forum. The implementation of proven technologies and business models that will help companies to comply with the Paris Agreement will be an important focal point, although it will be slow and will last for several years;
  • sustainability: the demand for transparency by the regulator and investors is growing, especially the pressure from the investment community on how companies integrate sustainability aspects into management and oversight of decision-making. In Spain, Law 11/2018 has included extra financial aspects such as ESG competencies as a non-delegable part of the boards as preventive measures to avoid destructive shocks to the value of companies. Therefore, it is foreseeable that companies will modify internal rules to reflect new purpose in these matters;
  • digital strategy: companies must ensure a responsible technological transformation ensuring a positive social and environmental impact of the incorporation of technological advances (AI, cybersecurity, big data, blockchain, etc);
  • board renewal and evaluation: although most boards were renewed during 2018, the progressive incorporation of new profiles and improvements in terms of diversity across the board will continue in 2019. In addition to a greater incorporation of different profiles, including professionals with international experience, with the aim of professionalising the management of the highest governing body of companies, including the use of specialist head-hunters. The most foreseeable desired profiles will be those with knowledge in strategic matters, corporate governance and other legal matters. At this point the role of proxy advisers will continue to be decisive. According to recently published studies, shareholders have a growing concern to understand the actions carried out by boards, in particular the existence of a matrix of profiles and competencies (current and future), the role assumed by the ARC regarding the appointment and selection of directors, the significant growth in the collaboration of third-party experts in governance body assessments and the existence of a public board selection policy.