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Corporate leadership

i Board structure and practices

Listed companies usually take the form of a limited company (NV/SA).3 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. The CCA allows the board of directors to delegate daily management of the company to another person, who may also be a director. This person is generally known as the chief executive officer (CEO), managing director or general manager. The board of directors keeps the authority to make decisions with respect to the delegated powers.

The CCA allows companies to adopt a two-tier governance model, consisting of a supervisory board and a management board. The supervisory board is responsible for general corporate policy, overall strategy and supervision of the management board. It holds the same powers as the board of directors under the one-tier model, provided the powers are reserved to it pursuant to the CCA. The management board exercises all management powers, provided these have not been reserved to the supervisory board in accordance with the CCA. The supervisory board is responsible for appointing and removing the members of the management board.

The aim of the two-tier model is to entrust exclusive powers to the aforementioned bodies through the articles of association and by law. In this regard, membership of both boards is prohibited. Very few listed companies have adopted a two-tier governance structure.

The CCA has also introduced the possibility of a having sole director. In this case, all powers are held by a single director, which can be either a natural person or a legal entity. For listed companies, however, only an NV/SA with a board is eligible to serve as a sole director.4

The 2020 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. A majority of the board should be made up of non-executive directors, at least three of whom are independent based on the criteria set out in Clause 3.5 of the 2020 Code. Article 7:87 of the CCA defines 'independent' as not having a relationship with the company and not being an 'important' shareholder.

The board's composition should ensure that decisions are made 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 drafted the 2020 Code, issued an additional recommendation stating that, within seven years, at least 30 per cent of board members should be women.

Article 7:86 of the CCA stipulates that at least one-third (rounded to the nearest whole number) of the directors of companies whose securities are listed on a regulated market should be of a different gender than 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 less-represented gender to drop below the statutory minimum. For companies whose securities are admitted to trading on a regulated market for the first time, this requirement should be met as from the first day of the sixth financial year following the admission to trading.5.

The CCA obliges companies6 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.7 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 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 Belgian Company Code and subsequently the CCA.

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 general meeting of shareholders determines the overall remuneration for the board of directors as a whole, while the board itself decides how to distribute this total amount between its members.

The CCA 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 for 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 pursuant to the CCA but does have the power to vote on the remuneration report in which the remuneration policy is described.8 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, if there is none, the employee representatives on the health and safety committee or, if there is no such committee, the trade union representatives.

The board must submit the remuneration policy to the general meeting of shareholders for approval. As long as no remuneration policy has been approved, directors and other high-level managers can continue to be paid in accordance with past remuneration practices. Approval of the remuneration policy is also required in the event of a material change, and in any event every four years. The approved remuneration policy should be published on the company's website. Special rules and conditions apply to variable remuneration, granting of shares and severance packages. These provisions of the CCA are supplemented by the principles and best practices of the 2020 Code with regard to the level and structure of executive remuneration.

ii Directors

The 2020 Code indicates that both executive and non-executive directors, regardless of whether the latter are independent, should exercise independence of judgement in their decision-making. Directors should make sure they receive detailed and accurate information and should study this information carefully 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.

Board members should place the company's interests above their own. They have a duty to look after the interests of all shareholders equally and should act in accordance with to the principles of reasonableness and fairness. Board members should inform the board of any conflict of interest that could, in their opinion, affect their judgement. In the event of a potential conflict of interest, the board should, under the leadership of its chair, decide which procedure it will follow to protect the interests of the company and all its shareholders. In the next annual report, the board should explain why it chose this procedure. However, if there is a substantial conflict of interest, the board should carefully consider communicating as soon as possible on the selected procedure, the most important considerations and the conclusions. This disclosure should be effected through two different documents: the Corporate Governance Charter, posted on the company's website, and the Corporate Governance Statement, a specific section of the annual report. The CCA indicates a specific procedure to be followed when directors have a pecuniary conflict of interest opposing the interest of the company. A director with a conflict of interest of a financial nature cannot participate in the deliberations or vote on the decision in question. Information on the pecuniary conflict of interest should be included in the board of directors' annual report and the statutory auditor's report.

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 (a 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.

Although the term of office of a director of an NV/SA cannot exceed six years by law, the 2020 Code advises setting the maximum term of directors at four years. This can be done by including a provision to this effect in the articles of association or by a decision of the general meeting of shareholders on the appointment of the director.