In Belgium, the main principles of corporate governance are enshrined in the Belgian Companies and Associations Code (“CAC”).
Applying to listed companies, the Belgian Corporate Governance Code (“CGC”) complements the principles provided by the CAC. The application of this Code is compulsory, as under the “comply or explain” principle, listed companies’ boards of directors have to explain in the corporate governance statement why they have not complied with the CGC. For unlisted companies, on the other hand, the Code Buysse contains a series of corporate governance principles, but contrary to the CGC, it is not mandatory.
In the following developments, different ESG considerations which are part of the broader principles of corporate governance, will be highlighted.
This guide focuses on the rules relating to companies limited by shares (société anonyme/SA or naamloze vennootschap/NV) only.
The legislator introduced different kinds of principles and obligations to ensure socially responsible governance regarding, among others, the notion of corporate interest, the remuneration of directors and managers, related party transactions and diversity among board members. The goal behind such obligations is to improve the long-term active engagement of the board with the company stakeholders, including its shareholders.
The notion of corporate interest
According to a general principle, the board of directors of a Belgian company must act and decide according to the “corporate interest” (vennootschapsbelang/intérêt de la société). While the legislator often refers to the corporate interest of companies, the concept has never been defined. In legal doctrine, dissenting opinions have been expressed and controversy remains.
However, since 2013, the Belgian Supreme Court has brought some clarity to the debate, making it clear that the concept of corporate interest in Belgium must be considered beyond the financial interest of the company’s shareholders. Indeed, the Supreme Court established a collective perspective of the concept, the social interest being, among others, determined by the financial interests of both the current and the future shareholders of the company. This extensive vision implies a perspective of going concern, the board of directors being obliged to adopt a decision-making process which is socially responsible. Therefore, not only the shareholders’ interests and the profitability of the company, but also the interests of other stakeholders such as employees, consumers, creditors and suppliers, must be taken into account within the company policies and strategies.
Remuneration of the board of directors
In listed companies, mandatory disclosure requirements on remuneration and “say on pay” provisions are provided by the Belgian legislator in accordance with the revised EU Directive on Shareholder Rights (SRD II).
The remuneration granted to directors is disclosed through both the remuneration policy and the remuneration report (see infra for content).
The remuneration policy, part of the remuneration report, aims to allow shareholders to keep a view on directors’ remuneration. It must be submitted separately for approval of the shareholders by the general meeting (in case of material change, and in any case, every four years). Following the Law of 28 April 2020, the “say on pay” principle submits additional provisions for shareholders’ approval in listed companies, among which: (i) any agreement that awards variable remuneration to a non-executive or non-independent director; (ii) any contractual provision regarding an executive director or another person entrusted with the management or daily management of the company which provides a severance pay for an amount exceeding 12 months of salary.
In the remuneration report, listed companies have to explain clearly how total remuneration complies with the remuneration policy and is favourable to long-term performance.
Related party transactions
Here again in accordance with the EU Directive on Shareholder Rights (SRD II), the Belgian legislator set forth further obligations regarding transactions with related parties, i.e. between a company and its directors.
The notion of related party not only refers to the notion of control but now also refers to persons who have significant influence. Therefore, transactions with any related party within the meaning of the International Accounting Standard 24 (IAS 24) are subject to the conflict of interest procedure.
Both decisions and transactions with related parties within the powers of the administrative body, as well as some proposals by the administrative body (such as proposals of contributions in kind), require a prior written report by a committee consisting of three independent directors and immediate announcement of the transaction by the company. The announcement must contain at the least information on the nature of the related party relationship, the name of the related party, the date and the value of the transaction, as well as any information necessary to assess whether or not the transaction is good value for money from the perspective of the company and of the shareholders who are not related parties.
The announcement must be published on the company’s website. An overview of the decisions and transactions, including related third parties which have occurred over a given financial year, must be restated in the company’s management report.
Gender diversity among board members (in public interest entities)
In public interest companies (i.e. listed company, credit institution, insurance and reinsurance institution, clearing institution or similar), at least one third of the members of the board of directors must be of a different gender than the other members, the required minimum being rounded upwards to the next whole number. In a two-tier NV/SA company (see infra), the gender quota applies to the supervisory board, but not to the management board. If the director is a legal person, gender is determined on the basis of the permanent representative.
Any director’s (re)appointment leading to a breach of the gender quota is automatically null and void. If gender equality within the board fails at any given moment, the next general meeting of shareholders must ensure that the board’s composition complies with this rule. As long as the board’s composition fails to meet the gender equality requirements, all benefits (financial and others) in connection with a director’s mandate will be suspended.
Eventually, the CGC recommends that the composition of the board should be determined in a way which gathers sufficient expertise in the company’s areas of activities as well as diversity of skills, background, age and gender.
For unlisted companies, there are no mandatory legal requirements regarding gender equality.
When focusing on social matters, both the CGC and CAC provide obligations regarding a perspective of sustainable long-term value creation. More specifically, a legal framework constrains the board of directors to engage in a mandatory dialogue with two kinds of stakeholders in particular: employees and debt-holders.
Sustainable long-term value creation
For listed companies, the CGC sets forth the explicit obligation for the board to pursue a sustainable long-term value creation while adopting the company’s strategy. Such value implies the implementation of a responsible and ethical leadership as well as the elaboration of an inclusive approach, balancing the interests and legitimate expectations of shareholders with those of other stakeholders.
The Belgian legislator provides that every company which employs an average of at least 100 employees must establish a works council. In companies where a works council already exists, this body must continue to exist as long as the company employs at least 50 employees.
The works council is an entity whose purpose is to improve communication and the relationship between the company’s workers and its management. The CAC and the law set forth a series of rights in favour of the works council.
Among other matters, the board of directors has to communicate the remuneration report to the works council, as well as any executive member’s severance payment in excess of 12 months’ remuneration submitted for the approval of the general meeting. On various occasions the works council will be allowed to access information regarding the company’s financial results and give its opinion to the board regarding different decisions.
Following EU directive requirements, the CAC requires public interest entities to disclose, either in their management report or in a separate statement, a “non-financial statement” when they have more than 500 employees and exceed at least one of the two following financial criteria: (i) balance sheet total of EUR 17 million; (ii) annual turnover of EUR 34 million.
A non-financial statement must include aspects regarding, among other matters, the environment (see infra for content of the report). The management has to describe the policies set up by the company to cope with the environmental impact of its activities and the results of such policies, as well as the main risks linked to environmental questions regarding the company’s activities and key performance indicators used by the management to assess such activities.
Regarding specific regulations relating to the environment, the different Belgian legislators (federal and regional) provide environmental, waste and soil legislative acts, infractions of which are sanctioned through a variety of administrative and criminal sanctions.