However, the USA and Belgium have a different starting point when it comes to corporate governance : where the board of directors in US companies tend to have too much power due to the fragmented shareholder structures, Belgium companies often have reference shareholders making it difficult for Belgian boards to govern with the necessary freedom.

Corporate governance quickly became one of the talking points for corporate lawyers, directors, investors, academics & regulators across the globe. Even in 2018, corporate governance is still hot, also in Belgium. Finding a careful balance between shareholder rights and sufficient freedom for directors & executives is however not an exact science. Every jurisdiction has its own flavour to add to the mix, influenced by its own priorities, case law and influencing legislation. Let’s find out if Belgium has got its own recipe right.

Code Daems is dead. Long live the Code!

After the approval of the the Code Buysse III (NL/FR) for non-listed companies in May 2017, the Corporate Governance Commission now turns its gaze to listed companies. This surge in activity on the corporate governance front fits into a global tendency towards self-regulation of and by companies.

The revised Code of Corporate Governance (hereinafter : CGC) is the latest chapter in a series of Codes introduced since the beginning of the 21st century. The Corporate Governance Commission launched their first version of the Corporate Governance Code for listed companies on 9 December 2004 (better known as ‘the Code Lippens’). Five years later, this Corporate Governance Code was thoroughly revised and was introduced as ‘the Code Daems’. As of its publication in 2009, the Code has been recognized by Royal Decree as the reference code for diligent governance by Belgian listed companies. The Belgian 2009 Code has not been amended since 2009.

Nine years later however, a significant change is needed. Both at European and national level, there is an ever increasing focus on corporate transparency & shareholder engagement. In light thereof, the Corporate Governance Commission launched a draft proposal of the new Belgian CGC to ensure that the provisions of the Code remain relevant to the listed companies and are regularly updated in line with international governance standards and legislation.

The success of the Code will be largely determined by its capacity to hold a company to its given word. Although the Code is not binding by itself, the Code offers the most value when it is seen as a reference point - a benchmark as you will - for issues surrounding corporate governance provisions in hard law, e.g. director liability provisions.

Why a revised Corporate Governance Code?

There are three key reasons for the adoption of a new Code. Firstly, both the international and European framework have influenced countries to adapt their corporate governance codes to the most recent standards. Notably, various European Regulations, Directives and Recommendations on corporate governance have been introduced since the publication of the Code Daems. Belgium has implemented or transposed nearly all of these European Regulations and Directives and adheres to most of the Recommendations. Since 2009, these European corporate governance initiatives have not yet been incorporated into the Belgian Corporate Governance Code, making the Code Daems in that respect partly incomplete.

Secondly, developers of corporate governance codes are increasingly looking to other countries and their best practices and societal expectations when developing new national corporate governance codes. Such comparison ensures the development of a code which is up-to-date and in line with best practice. It is such thorough comparison that leads us to identify the 3 major corporate governance trends: the enhancement of transparency, the engagement of shareholders and the link between remuneration and performance.

In this context, the code developers can also rely on their practical experience to modify the national corporate governance codes. The reasoning behind this is that each principle of a code must be supported by the business community to be complied with.

Lastly, there is a tendency to migrate certain corporate governance topics from soft law to hard law (e.g. director independence, audit committee and shareholders’ rights). Although good corporate governance is first and foremost a responsibility of the company itself, both at national and European level, rules were established to ensure certain standards on corporate governance are observed. Hence, the migration from soft law to hard law happens under the influence of European legislation and in response to societal pressure. In order to offer listed companies a coherent reference framework of soft law and hard law, the CGC takes into account the changes to be implemented by the new Belgian Companies Code (hereinafter: BCC), as the BCC will have an impact on the structure and governance of listed companies as well.

10 principles - one rule to bind them all

The revised Corporate Governance Code 2020 is structured around 10 principles of good governance, taking into account the anticipated changes in Belgian company law (NL/FR). It would not be useful to go over each principle in detail, as most principles are straightforward. There is however one rule that binds all 10 principles together : comply or explain. The rule is simple : when a company deviates from the prescribed standards, the company has to explain the reasons for such deviation. This principle is recognised by a European Directive of 2006 and Recommendation of 2014, which state that listed companies shall publish a corporate governance statement and which provide provisions on the quality of corporate governance reporting. It is a rule introduced to counter the ‘one size fits all’-approach and allows for account to be taken of company’s specificities. After all, no two companies are the same, and companies should have the freedom to deviate from the norm if it is in the company’s best interest. With the public statement, there is however a failguard in place. The idea behind the comply or explain approach is that market investors, who do not accept the company’s explanation for deviation, will sell their shares, hence creating a market sanction for the company, rather than a legal one. To ensure the company provides the public with qualitative explanations, principle 10 (‘The company shall publicly report on the application of the Code’) introduces criteria (what, how, why) which companies need to comply with when deviating from the standards.

From a legal point of view however, the real challenge lies in determining the boundaries of the enforceability of the CGC, and to discover the nuances that have disappeared, yet have resurfaced in hard law, especially in the new Belgian Companies Code to be entered into force on 1st of January 2019. In that respect, reference can be made to the area of remuneration, in which the shift from soft to hard law is hard to ignore (cfr. article 96, §3 Company Law – the obligation for listed companies to introduce a remuneration report into the corporate governance statement). Also, it is expected that principle 8 (‘The company shall treat all shareholders equally and respect their rights’) will trickle down into hard law as well, under pressure of the implementation of the Shareholders’ Rights Directive.

All in all, the Revised Corporate Governance Code 2020 writes a new chapter in an already significantly developed story. Each new Code adapts to the ever-changing circumstances in our legal and business environment, in the hope of lifting corporate governance to the next level. Time will tell if this new Code will indeed provide the right benchmark for listed companies in Belgium.