On 27 September 2011, the FSMA (the Belgian Financial Services and Markets Authority) recently published a new study (1) on the application of the 2009 Belgian Corporate Governance Code by Belgian listed companies (i.e. 117 companies).
The study provides useful statistics on the application by listed companies of four specific items included in the 2009 Corporate Governance Code:
The existence and the location of the corporate governance statement;
The description of the internal control and risk management systems;
The description of the main features of the self-assessment process of the board of directors, its committees and its individual directors;
The remuneration report.
The FSMA states that “an improved application of the Code, combined with increased explanations when not complying with the Code, leads to substantial improvements in the compliance level of most provisions.”
Nonetheless, the study also provides recommendations and clarifications on certain legal provisions or expectations of the FSMA. The most important ones are:
The FSMA requests companies to explicitly entitle information on corporate governance “Corporate Governance Statement”;
The FSMA clarifies the fact that the Corporate Governance Statement must be included in the annual report of the board of directors, in accordance with the Law of 6 April 2010, and explicitly requests companies to do so. The FSMA recommends that companies who wish to mention in the annual report of the board of directors that corporate governance information will be provided in another part of the annual financial report, explicitly stress the fact that this information is also part of the annual report of the board of directors (e.g. by pointing this out in the outline);
The FSMA reiterates its recommendation to include any information on the internal control and risk management systems in the Corporate Governance Statement itself and not to use references instead;
The information on the self-assessment of the board of directors, its committees and its individual directors must also include the main features of the self-assessment process;
The FSMA states that a mere reference to the Corporate Governance Charter is not sufficient to describe the internal procedure for developing a remuneration policy and to set the level of remuneration of board members;
Any “tantième” received by a board member is considered to be variable remuneration;
Attendance fees (remuneration based on the attendance at board meetings) are considered not to be variable remuneration;
The FSMA recommends to clearly and explicitly identify in the remuneration report those persons whose remuneration details are being disclosed;
Referring to the legislation applicable to the 2011 annual report, the FSMA requests companies to provide a clear description of the criteria used for the evaluation of performance against targets as well as of the period covered by the evaluation. The analysis of 2010 annual reports showed shortcomings in this regard;
Furthermore, it is advisable to include information on the relative importance of the different evaluation criteria, as well as on the minimum performance criteria for receiving a bonus and on the maximum bonus amounts;
Information regarding shares and stock options as part of the remuneration package, provided in the 2010 annual reports, will not be sufficient to fully comply with the legal provisions applying to 2011 annual reports ;
The FSMA reiterates its recommendation to verify in any case whether any provision of the Corporate Governance Code is applicable or not, and to explicitly mention the provisions from which it is being deviated.
The recommendations and statistics on the application of the 2009 Corporate Governance Code are a useful tool in view of drafting the 2011 annual report, in which listed companies will have to include the required remuneration report for the first time and to which they will have to apply the “comply or explain” rule for the second time.
