Approval of the New Good Governance Code of Listed Companies completes recent Spanish corporate governance reform initiated under Act 31/2014


In May 2013, the Spanish government appointed a committee of experts to analyse the situation of good corporate governance in Spain and propose the measures necessary to improve efficacy and responsibility in the management of Spanish companies. The committee of experts proposed:

  • A set of improvements to corporate regulation, eventually enshrined in Act 31/2014, of 3 December, amending the Spanish Companies Act (“Act 31/2014”)1 .
  • An update of the Unified Code of Good Governance of Listed Companies approved on 22 March 2006 (the “Unified Code”), together with the Spanish Securities and Exchange Commission (“CNMV”), which led to the approval of the New Good Governance Code of Listed Companies (“New Code”) on 18 February 2015.

Act 31/2014 incorporated several basic corporate governance precepts into the Spanish Companies Act, sometimes extending their scope to non-listed companies. As the New Code points out, “the terms considered basic and indispensible have been incorporated into legislation” and, thus,recommendations in the New Code are “strictly voluntary in nature”. In accordance with the principle of “comply or explain,” Spanish listed companies must publish an annual corporate governance report disclosing to the market the degree of compliance with the New Code’s recommendations. Companies are free to decide whether to follow these recommendations, but must give a reasoned explanation regarding any deviation, so that shareholders, investors and the markets in general can reach an informed judgment.

The New Code, which for the first time includes principles informing each set of specific recommendations, is targeted at all listed companies. However, it acknowledges that some recommendations “may be unsuitable or excessively burdensome for smaller-sized companies.” In such cases, these companies only need to state their reasons and the alternatives chosen. The quality of their explanations will serve as reference for shareholders, investors and the market to evaluate the company’s behaviour.


General matters

1. Communication policy. The company is advised to (i) draw up and implement a policy of communication and contacts with shareholders, institutional investors and proxy advisors that fully complies with market abuse regulations and provides equitable treatment to shareholders in the same position, and (ii) disclose this policy on its website (Recommendation 4).

2. Limited use of the delegated right to issue shares or convertible securities without preemptive subscription rights. The board is advised not to make a proposal to the general meeting for the delegation of powers to the board to issue shares or convertible securities without pre-emptive subscription rights for an amount exceeding 20% of capital at the time of delegation (Recommendation 5).

General meeting

3. Preventive measures. To avoid the risk of the board acting strategically or selectively in situations of shareholder conflict, or when the company is targeted with an unsolicited takeover bid, the New Code advises that:

  • The conditions and procedures to prove share ownership, the right to attend general meetings and the exercise or delegation of voting rights, and to encourage shareholders to attend the meetings and exercise their rights, should be applied in a non-discriminatory manner and displayed permanently on the company’s website (Recommendation 9).
  • If the company plans to pay for attendance at the general meeting to encourage shareholders to participate and minimise absenteeism, it should first establish a general, long-term policy to this regard (Recommendation 11).

4. Minority proposals. The Spanish Companies Act allows shareholders representing at least 3% of share capital to request new items to be placed on the agenda of the annual general meeting and to submit alternative proposals on items already on or to be added to the agenda attached to the meeting notice. The New Code includes several recommendations to ensure that these new items and proposals and the board’s proposals are discussed and voted in equal terms and conditions (Recommendations 10).

Board of directors

5. Corporate social responsibility. Unlike the Unified Code, the New Code includes a set of recommendations on corporate social responsibility (“CSR”). It advises that the board should strive to reconcile the company’s interest with stakeholders’ interests, and takes into account the impact of the company’s activities on the broader community and the environment (Recommendation 12). It recommends CSR’s minimum content (Recommendation 54) and that the company reports annually on its CSR (Recommendation 55). Finally, it advises that the task of supervising compliance with corporate governance rules, internal codes of conduct and CSR be granted to an existing board committee (e.g., audit committee or nomination committee) or a committee established ad hoc by the board (Recommendation 53).

6. Diversity of the board. The board’s selection policy should favour diversity of knowledge, experience and gender. It is recommended that the number of women directors should represent at least 30% of total board members before 2020 (Recommendation 14).

7. Independent directors. Independent directors should make up at least half of all board members. However, the New Code reduces the recommendation on the number of independent directors to at least one-third of the board members in two scenarios: (i) when the company is not included in the IBEX-35 index; and, (ii) when listed in IBEX- 35, it has shareholders that, individually or in concert with other shareholders, control more than 30% of the company’s share capital (Recommendation 17).

8. Meeting frequency. The board should meet at least eight times a year (Recommendation 26).

9. Chairman and lead independent director. The New Code recommends increasing the powers granted by the Spanish Companies Act to the chairman and the lead independent director (Recommendations 33 and 34).

10. Board evaluation. The New Code details how it recommends carrying out the annual board evaluation (required under the Spanish Companies Act after approval of Act 31/2014) and advises that, every three years, the board should hire an external consultant to assist in the evaluation process (Recommendation 36).

11. Audit committee. The New Code recommends enlarging the legal powers granted to this audit committee and establishes additional membership criteria that enhance its independence and expertise (Recommendations 39 to 44).

12. Risk control and management. The New Code sets out the recommended minimum contents of the risk control and management policy (Recommendation 45) and recommends that listed companies establish an internal unit in charge of the risk control and management function (Recommendation 46).

13. Nomination and remuneration committee. The New Code fulfils the legal functions of these committees and advises that companies in the IBEX-35 index have two separate committees: a nomination committee and a remuneration committee.

14. Directors’ remuneration. Act 31/2014 significantly modified the rules on directors’ remuneration. As a supplement to that reform, the New Code includes a set of recommendations on the structure, composition and form of directors’ remuneration, informed by EU guidelines, of which we highlight the following:

  • Remuneration of non-executive directors should not include variable components linked to the director or the company’s performance, the delivery of shares, options and other financial instruments or membership of the company’s pension scheme, with some exceptions. The aim is to prevent external directors from facing a conflict of interest when they have to make judgments or decisions affecting their own remuneration (Recommendation 57).
  • Variable remunerations should be linked to predetermined and measurable performance criteria, including criteria of a non-financial nature, which promote the company’s long-term success (Recommendation 58).
  • The award conditions of variable remunerations should specify an element of deferment allowing the delivery of objectives to be confirmed (Recommendation 59), and include claw-back provisions (Recommendation 63).
  • Following the award of shares, share options and other rights over shares derived from the remuneration system, it is recommended that directors are not allowed to transfer a number of shares equivalent to twice their annual fixed remuneration, or to exercise the share options or other rights on shares for at least three years after their award (except shares that the director must dispose of to defray costs related to their acquisition) (Recommendation 62).
  • It is advisable that termination payments do not exceed a fixed amount equivalent to two years of the director’s total annual remuneration, and that payment is deferred until the company confirms that the director meets the predetermined performance criteria (Recommendation 64).