Comparative Matrix Of Corporate Governance Codes Relevant To...

Comparative Matrix Of Corporate GovernanceCodes Relevant To The European Union AndIts Member States

ANNEX V

By Holly J. Gregory©2002, Weil, Gotshal & Manges LLP

Holly J. GregoryPartner

Weil, Gotshal & Manges LLPemail: [email protected]

Ms. Gregory specializes incorporate governance as a

field of legal practice.

©2002 Weil, Gotshal & Manges LLP

Corporate Governance Defined

Corporate Governance refers to that blend of law, regulation, and appropriate voluntary private-sector practiceswhich enables the corporation to attract financial and human capital, perform efficiently, and thereby perpetuateitself by generating long-term economic value for its shareholders, while respecting the interests of stakeholders andsociety as a whole.

Ira M. MillsteinSenior Partner, Weil, Gotshal & Manges LLPand noted authority on corporate governance

Weil, Gotshal & Manges LLP: Founded in 1931, Weil, Gotshal & Manges LLP is one of the world’slargest and most highly regarded full-service law firms, with over 875 attorneys in 12 offices worldwide.The Firm’s Corporate Governance Practice spans virtually all offices and departments -- including Corpo-rate, Trade Practices & Regulatory Law, Business & Securities Litigation, Business Finance &Restructuring and Tax. The Practice encompasses ongoing representation and counseling of boards, di-rectors, trustees, board committees, management, institutional investors and investment funds.Frequently, WG&M is called on to counsel on issues of board transition, CEO succession, crisis man-agement, and strategic decision-making; oversight of financial management and financial controls;investigations and employee-related matters; board composition, structure, process, and evaluation; boardindependence and accountability mechanisms; audit committee functions; board/CEO and investor rela-tions; director and trustee responsibilities and business judgment requirements, including use of specialcommittees; stock option-based incentive compensation plans; proxy rule compliance; and, tax and SECdisclosure requirements. In addition to corporate governance counseling, WG&M provides a full range oflegal services, including representation in the various forms of litigation involving shareholders.

EUROPEAN OFFICES: Brussels: 81 Avenue Louise, Box 9-10, B-1050, Belgium * Budapest: Bank Center, Granite Tower, H-1944, Hungary *Frankfurt: Main Tower, Box 19, 31st. Floor, Neue Mainzer Strasse 52-58, 60311, Germany * London: One South Place, EC2M 2WG, United Kingdom *Paris (affiliation): Derains & Assocíes, 167 Bis, Avenue, Victor-Hugo 75116, France * Prague: Charles Bridge Center, Krizovnicke Nam. 1, 110 00, CzechRepublic * Warsaw: Warsaw Financial Center, ul. Emilii Plater 53, 00-113, Poland

COMPARISON OF CORPORATE GOVERNANCE CODES

EUROPEAN UNION

TABLE OF CONTENTS

Page Page

i

OVERVIEW............................................................................................................................1

1. Definition of Corporate Governance...................................................................................11

2. The Mission of the Board of Directors................................................................................21

3. The Role of Stakeholders...................................................................................................31

4. Board Job Description .......................................................................................................41

5. Board Membership Criteria................................................................................................51

6. Selecting, Inviting and Orienting New Directors.................................................................61

7. Separation of Chairman and CEO ......................................................................................71

8. Lead Director ....................................................................................................................81

9. Board Size.........................................................................................................................91

10. Mix of Inside and Outside Directors ...............................................................................101

11. Definition of “Independence”.........................................................................................111

12. Conflicts of Interest .......................................................................................................121

13. Commitment / Changes in Job Responsibility.................................................................131

14. Election Term / Term Limits / Mandatory Retirement .....................................................141

15. Evaluating Board Performance.......................................................................................151

16. Board Compensation Review.........................................................................................161

17. Executive Sessions of Outside Directors.........................................................................171

18. Board’s Interaction with Institutional Investors, Press, Customers, etc. ............................ 181

19. Attendance of Non-Directors at Board Meetings / Board Access to SeniorManagement .........................................................................................................191

20. Board Meetings and Agenda .......................................................................................... 201

21. Board Information Flow, Materials and Presentations..................................................... 211

22. Number, Structure and Independence of Committees...................................................... 221

23. Committee Meeting Frequency, Length and Agenda ...................................................... 231

24. Assignment and Rotation of Committee Members .......................................................... 241

25. Formal Evaluation of the Chief Executive Officer .......................................................... 251

26. Executive Compensation ............................................................................................... 261

27. Succession Planning / Management Development .......................................................... 271

28. Outside Advice ............................................................................................................. 281

29. Content and Character of Disclosure .............................................................................. 291

30. Disclosure Regarding Compensation and Director Assessment ....................................... 301

31. Disclosure Regarding Corporate Governance ................................................................. 311

32. Accuracy of Disclosure / Internal Control Systems / Liability ......................................... 321

33. Shareholder Voting Practices (Cumulative & Confidential Voting, Broker Non-Votes,One Share/One Vote)............................................................................................ 331

34. Shareholder Voting Powers ........................................................................................... 341

35. Shareholder Meetings / Proxy Proposals ........................................................................ 351

36. Anti-Takeover Devices.................................................................................................. 361

APPENDIX Partial Listing of Corporate Governance Guidelines and Codes of BestPractice Throughout the World........................................................................... APP-1

1

COMPARISON OF CORPORATE GOVERNANCE CODESEUROPEAN UNION1

HOLLY J. GREGORY2

January 2002

OECD Principles/Millstein Report(International)

ICGN Statement/Global Voting Principles(International)

Euroshareholders Guidelines(Pan-European)

EASD Principles and Recommendations(Pan-European)

OVERVIEW

Code: OECD PRINCIPLES OF CORPORATEGOVERNANCE (May 1999)

Related Document: CORPORATE GOVERNANCE:IMPROVING COMPETITIVENESS AND ACCESS TOCAPITAL IN GLOBAL MARKETS – A REPORT TOTHE OECD (“Millstein Report”) (April 1998)

Issuing Body: Organisation for Economic Coop-eration & Development (“OECD”), anintergovernmental organisation

Legal Basis and Compliance: Voluntary

Objective: Improve companies’ performance,competitiveness and/or access to capital

Scope: Listed companies; encouraged to allcompanies

Code: STATEMENT ON GLOBAL CORPORATEGOVERNANCE PRINCIPLES (July 1999)

Related Document: ICGN GLOBAL SHAREVOTING PRINCIPLES (July 1998)

Issuing Body: International Corporate Govern-ance Network (“ICGN”), an association ofinvestors and others (including business/industry) interested in corporate governance

Legal Basis and Compliance: Voluntary (in-vestors recommended to apply to portfoliocompanies; companies recommended to dis-close compliance or explain)


Scope: Listed companies

Code: EUROSHAREHOLDERS CORPORATEGOVERNANCE GUIDELINES (February 2000)

Issuing Body: European Shareholders Group(“Euroshareholders”), an investors association(members from eight EU Member States:Belgium, Denmark, France, Germany,the Netherlands, Spain, Sweden and theUnited Kingdom)

Legal Basis and Compliance: Voluntary (asso-ciation members (investors) recommended toapply to portfolio companies)

Objective: Improve accountability to share-holders and/or maximise shareholder value


Code: CORPORATE GOVERNANCE PRINCIPLESAND RECOMMENDATIONS (May 2000)

Issuing Body: European Association of Secu-rities Dealers (“EASD”), a committee relatedto pan-European association of securities pro-fessionals

Legal Basis and Compliance: Voluntary (dis-closure encouraged)

Objective: Improve companies’ performance,competitiveness and/or access to capital;Improve quality of governance-related infor-mation available to equity markets


1 In this COMPARISON, standard text, also when bolded, underlined or capitalized, replicates the verbatim text of the codes cited. Italic text format indicates comments or interpretations provided by theauthor. The full citation for each of the codes analyzed herein can be found in the APPENDIX.2 Holly J. Gregory, a partner in the law firm of Weil, Gotshal & Manges LLP, practices in the Firm’s corporate governance group, which is led by Ira M. Millstein. She was assisted in this COMPARISON bylegal assistants Frederick W. Philippi and Sarah A. Lehner.

2

Recommendations of Federation of Companies(Belgium)

Dual Code of the BXS/CBF(Belgium)

The Director’s Charter (FDA)(Belgium) (Reserved)

OVERVIEW

Code: CORPORATE GOVERNANCE:RECOMMENDATIONS FROM THE FEDERATION OFBELGIAN COMPANIES (January 1998)

Issuing Body: Federation of Belgian Companies(“VBO/FEB”), a business, industry and/or aca-demic association or committee.

Legal Basis and Compliance: Voluntary (disclo-sure encouraged)


Scope: All companies

Predominant Board Structure(listed companies): Unitary

Code: DUAL CODE OF THE BRUSSELS STOCKEXCHANGE (“BXS”) AND THE BELGIANBANKING AND FINANCE COMMISSION (“CBF”)(a/k/a CORPORATE GOVERNANCE FOR BELGIANLISTED COMPANIES) (December 1998)Note: Part I is the “Cardon Report” Part II is the “CBF Recommendations”

Issuing Bodies:Part I: Belgian Commission on CorporateGovernance, a committee related to a stockexchangePart II: Banking & Finance Commission, agovernmental/quasi-governmental entityLegal Basis and Compliance: Voluntary (dis-closure encouraged)

Objective:Part I: Improve companies’ performance,competitiveness and/or access to capitalPart II: Improve quality of governance-relatedinformation available to capital markets

Scope:Part I: Listed companies; encouraged to allcompaniesPart II: Listed companies


Code: THE DIRECTOR’S CHARTER (LA CHARTEDE L’ADMINISTRATEUR) (January 2000)

Issuing Body: La Fondation des Administra-teurs (“FDA”), a directors association

Legal Basis and Compliance: Voluntary (asso-ciation members encouraged to comply)

Objective: Improve quality of board (supervi-sory) governance

Scope: All companies


3

Danish Shareholders Ass’n Guidelines(Denmark)

Nørby Report & Recommendations(Denmark)

Chamber of Commerce/Confederation Code(Finland)

Ministry of Trade & Industry Guidelines(Finland)

OVERVIEW

Code: GUIDELINES ON GOOD MANAGEMENT OF ALISTED COMPANY (February 2000)

Issuing Body: The Danish Shareholders Asso-ciation, an investors association


Objective: Improve accountability to sharehold-ers and/or maximise shareholder value


Predominant Board Structure(listed companies): Two-tier

Code: RECOMMENDATIONS FOR GOODCORPORATE GOVERNANCE IN DENMARK(December 2001)

Issuing Body: The Nørby Commission, acommittee (commission) organized by govern-ment





Code: CORPORATE GOVERNANCE CODE FORPUBLIC LIMITED COMPANIES (February 1997).Note: This Code is available in English only insummary form.

Issuing Bodies: The Central Chamber ofCommerce and the Confederation of FinnishIndustry and Employers, a business, industryand/or academic association or committee


Objective: Improve the quality of board (su-pervisory) governance



Code: HANDLING CORPORATE GOVERNANCEISSUES IN STATE-OWNED COMPANIES ANDASSOCIATED COMPANIES (November 2000)

Issuing Body: Finland Ministry of Trade andIndustry, a governmental/quasi-governmentalentity



Scope: Listed companies and other privatisedcompanies


4

Viénot I Report(France)

Hellebuyck Commission Recommendations(France)

Viénot II Report(France) (Reserved)

OVERVIEW

Code: THE BOARD OF DIRECTORS IN LISTEDCOMPANIES (LE CONSEIL D’ADMINISTRATION DESSOCIÉTÉS COTÉES) (“Viénot I Report”) (July1995)

Issuing Bodies: Conseil National du PatronatFrançais (“CNPF”), which in 1998 became Mou-vement des Enterprises de France (MEDEF), andAssociation Française des Entreprises Privées(“AFEP”), a business, industry and/or academicassociation or committee





Code: RECOMMENDATIONS ON CORPORATEGOVERNANCE (“Hellebuyck Commission Rec-ommendations”) (June 1998; revised October2001)

Issuing Body: Association Française de laGestion Financière – Association des Sociétéset Fonds Français d’Investissement (“AFG-ASFFI”), an investors association

Legal Basis and Compliance: Voluntary (asso-ciation members recommended to apply toportfolio companies)




Code: REPORT OF THE COMMITTEE ONCORPORATE GOVERNANCE (“Viénot II Report”)(July 1999)

Issuing Body: Association Française des En-treprises Privées (“AFEP”) & Mouvement desEntreprises de France (“MEDEF”), a business,industry and/or academic association or com-mittee





5

Berlin Initiative Code(Germany)

German Panel Rules(Germany)

Cromme Commission Code(Germany) (Reserved)

OVERVIEW

Code: GERMAN CODE OF CORPORATEGOVERNANCE (June 2000)

Issuing Body: Berliner Initiativkreis (BerlinInitiative Group), a business, industry and/oracademic association or committee





Code: CORPORATE GOVERNANCE RULES FORQUOTED GERMAN COMPANIES (July 2000)

Issuing Body: German Panel on CorporateGovernance, a business, industry and/or aca-demic association or committee


Objective: Improve accountability to share-holders and/or maximise shareholder value;Improve quality of board (supervisory) govern-ance



Code: DEUTSCHER CORPORATE GOVERNANCEKODEX / GERMAN CORPORATE GOVERNANCECODE (draft, December 2001)

Issuing Body: RegierungskommissionDeutscher Corporate Governance Kodex /Government Commission German CorporateGovernance Code (“Cromme Commission”), acommittee organized by government.

Legal Basis and Compliance: Disclosure(comply or explain)




6

Mertzanis Report(Greece)

Federation of Greek Industries Principles(Greece)

IAIM Guidelines(Ireland)

Preda Report(Italy)

OVERVIEW

Code: PRINCIPLES ON CORPORATE GOVERNANCEIN GREECE: RECOMMENDATIONS FOR ITSCOMPETITIVE TRANSFORMATION(“Mertzanis Report”) (October 1999)

Issuing Body: Committee on Corporate Govern-ance in Greece, a committee organised bygovernment

Legal Basis and Compliance: Voluntary (mayserve as basis for legal reform)




Code: PRINCIPLES OF CORPORATE GOV-ERNANCE (August 2001)

Issuing Body: Federation of Greek Industries,a business, industry and/or academic associa-tion or committee





Code: CORPORATE GOVERNANCE, SHAREOPTION AND OTHER INCENTIVE SCHEMEGUIDELINES (March 1999)

Issuing Body: Irish Association of InvestmentManagers (“IAIM”), an investors association

Legal Basis and Compliance: Voluntary(now disclosure in line with the CombinedCode’s provisions)

Objective: Improve quality of board(supervisory) governance



Code: CODE OF CONDUCT FOR LISTEDCOMPANIES (“Preda Report”) (October 1999)

Issuing Body: Comitato per la Corporate Gov-ernance delle Società Quotate (Committee forthe Corporate Governance of Listed Compa-nies), a committee related to a stock exchange


Objective: Improve companies’ performance,competitiveness and/or access to capital;Improve quality of governance-related infor-mation available to equity markets



7

Peters Report(The Netherlands)

VEB Recommendations(The Netherlands)

SCGOP Handbook and Guidelines(The Netherlands)

Securities Market Comm’n Recommendations(Portugal)

OVERVIEW

Code: FORTY RECOMMENDATIONS ON COR-PORATE GOVERNANCE IN THE NETHERLANDS(“Peters Report”) (June 1997)

Issuing Body: Secretariat Committee on Corpo-rate Governance, a committee related to a stockexchange and a business, industry and/or aca-demic association


Objective: Improve quality of board(supervisory) governance



Code: TEN RECOMMENDATIONS ON CORPORATEGOVERNANCE IN THE NETHERLANDS (1997)

Issuing Body: Vereniging van Effectenbezit-ters (“VEB”), an investors association





Code: CORPORATE GOVERNANCE HANDBOOKOF THE SCGOP (August 2001)

Issuing Body: Stichting Corporate GovernanceOnderzoek voor Pensioenfondsen (“SCGOP”)(Foundation for Corporate Governance Re-search for Pension Funds), an investorsassociation





Code: RECOMMENDATIONS ON CORPORATEGOVERNANCE (November 1999)

Issuing Body: Comissão do Mercado deValores Mobiliáros (“CMVM”) (PortugueseSecurities Market Commission), agovernmental/quasi-governmental entity





8

Olivencia Report(Spain)

Swedish Shareholders Ass’n Policy(Sweden)

ICSA Code(United Kingdom)

ISC Statement of Best Practice(United Kingdom)

OVERVIEW

Code: THE GOVERNANCE OF SPANISH COM-PANIES (“Olivencia Report”) (February 1998)

Issuing Body: Special Committee for the Studyof a Code of Corporate Governance for Boardsof Directors of Listed Companies, a committee(commission) organised by government



Scope: Listed companies and other privatizedcompanies


Code: CORPORATE GOVERNANCE POLICY(November 1999)

Issuing Body: Swedish Shareholders Associa-tion, an investors association





Code: GOOD BOARDROOM PRACTICE – A CODEFOR DIRECTORS (February 1991, reissued 1995)

Issuing Body: Institute of Chartered Secretar-ies and Administrators (“ICSA”), a business,industry and/or academic association or com-mittee





Code: THE ROLE AND DUTIES OF DIRECTORS –A STATEMENT OF BEST PRACTICE (April 1991)

Issuing Body: Institutional ShareholdersCommittee (“ISC”), an investors association





9

Cadbury Report(United Kingdom)

Greenbury Report(United Kingdom)

Hampel Report(United Kingdom)

The Combined Code/Turnbull Report(United Kingdom)

OVERVIEW

Code: REPORT OF THE COMMITTEE ON THEFINANCIAL ASPECTS OF CORPORATE GOV-ERNANCE (“Cadbury Report”) (December 1992,reissued 1996)

Issuing Body: Committee established by theFinancial Reporting Council and the LondonStock Exchange, a committee related to a stockexchange and a business, industry and/or aca-demic association

Legal Basis and Compliance: Disclosure (com-ply or explain)

Objective: Improve quality of board (supervi-sory) governance; Improve governance-relatedinformation available to equity markets



Code: DIRECTORS’ REMUNERATION (July1995)

Issuing Body: Committee established in Janu-ary 1995 on the initiative of the Confederationof British Industry, a business, industry and/oracademic association or committee.


Objective: Improve quality of board (supervi-sory) governance; improve quality ofgovernance-related information available toequity markets



Code: FINAL REPORT (“Hampel Report”)(January 1998)

Issuing Body: Committee sponsored by theLondon Stock Exchange, the Confederation ofBritish Industry, the Institute of Directors, theConsultative Committee of Accountancy Bod-ies, the National Association of Pension Fundsand the Association of British Insurers –committee related to a stock exchange and abusiness, industry and/or academic association

Legal Basis and Compliance: Disclosure (inline with the Combined Code’s provisions)

Objective: Improve quality of board (supervi-sory) governance; Improve quality ofgovernance-related information available toequity markets



Codes:A) THE COMBINED CODE: PRINCIPLES OF GOODGOVERNANCE AND CODE OF BEST PRACTICE(July 1998)B) INTERNAL CONTROL: GUIDANCE FORDIRECTORS ON THE COMBINED CODE(“Turnbull Report”) (September 1999)

Issuing Bodies:A) Committee on Corporate Governance, acommittee related to a stock exchange and abusiness, industry and/or academic associationB) Institute of Chartered Accountants inEngland and Wales (“ICAEW”), a committeerelated to a stock exchange and business, in-dustry and/or academic associationLegal Basis and Compliance:A) Disclosure (comply or explain)B) Voluntary (advice on compliance withCombined Code)Objective:A) Improve quality of board (supervisory)governance; Improve quality of governance-related information available to equity marketsB) Improve quality of governance-related in-formation available to equity markets



10

NAPF Corporate Governance Code(United Kingdom)

AUTIF Code(United Kingdom)

Hermes Statement(United Kingdom)

PIRC Shareholder Voting Guidelines(United Kingdom)

OVERVIEW

Code: TOWARDS BETTER CORPORATEGOVERNANCE – NAPF CORPORATE GOVERNANCEPOLICY (June 2000)

Issuing Body: National Association of PensionFunds (“NAPF”), an investors association


Objective: Improve accountability to sharehold-ers and/or maximise shareholder value



Code: CODE OF GOOD PRACTICE: INSTI-TUTIONAL INVESTORS AND CORPORATEGOVERNANCE. (January 2001)

Issuing Body: Association of Unit Trusts andInvestment Funds (“AUTIF”), an investorsassociation





Code: STATEMENT ON UK CORPORATEGOVERNANCE & VOTING POLICY (March 1997;revised January 2001)

Issuing Bodies: Hermes Investment Manage-ment Limited (“Hermes”), investor inassociation with other investor groups

Legal Basis and Compliance: Voluntary(issuer states shares will be voted accordingly)




Code: PIRC SHAREHOLDER VOTINGGUIDELINES (1994; revised March 2001)

Issuing Body: Pensions Investment ResearchConsultants Limited (“PIRC”), an investoradvisor

Legal Basis and Compliance: Voluntary (in-stitutional investors recommended to apply toportfolio companies)




11





1. Definition of Corporate Governance

Corporate governance relates to the internalmeans by which corporations are operated andcontrolled. While governments play a centralrole in shaping the legal, institutional and regu-latory climate within which individual corporategovernance systems are developed, the mainresponsibility lies with the private sector. (Pref-ace)

See Preamble at 9 ([C]orporate governance ...involves a set of relationships between a com-pany’s management, its board, its shareholdersand other stakeholders. Corporate governancealso provides the structure through which theobjectives of the company are set, and the meansof attaining those objectives and monitoringperformance are determined. Good corporategovernance should provide proper incentives forthe board and management to pursue objectivesthat are in the interests of the company andshareholders, and should facilitate effectivemonitoring, thereby encouraging firms to useresources more efficiently.Corporate governance is only part of the largereconomic context in which firms operate, whichincludes, for example, macroeconomic policiesand the degree of competition in product andfactor markets. The corporate governanceframework also depends on the legal, regulatoryand institutional environment. In addition, fac-tors such as business ethics and corporateawareness of the environmental and societalinterests of the communities in which it operatescan also have an impact on the reputation and thelong-term success of a company.).

Not covered directly, but the ICGN Statementadopts the OECD Principles. See OECD, left.

Not covered directly, but the EuroshareholdersGuidelines are based on the OECD Principles.See OECD, left.

Not covered.

12





The organisation of the administration and man-agement of companies, which is better knownunder the term “corporate governance,” has tomeet the expectations of the shareholders and therequirements of the economic process. (Fore-word)

“Corporate governance” refers to the set ofrules applicable to the management and controlof a company. It is the duty of the board ofdirectors to manage the company’s affairs ex-clusively in the interests of the company and allits shareholders, within the framework of thelaws, regulations and contentions under whichthe company operates. (Part I: A.2)

The organisation of the administration andmanagement of limited companies (commonlycalled “corporate governance”) .... (Part II: A,Introduction)

Not covered.

13






Not covered. [T]he concept [of corporate governance] can bedefined as:The goals, according to which a company ismanaged, and the major principles and frame-works which regulate the interaction betweenthe company’s managerial bodies, the ownersas well as other parties, who are directly influ-enced by the company’s dispositions andbusiness (in this context jointly referred to asthe company’s stakeholders). (Introduction)

See Introduction (The debate [regarding goodcorporate governance] has more recentlymoved from primarily being driven by a wishto stimulate “owner activism” and increase thesupervision of the management, to having abroader view of the company and its relation-ship with its other stakeholders. In line withthis, the Danish debate about the relationshipbetween the board and the management hasalso changed its focus from a narrow controland supervision perspective to a broader andmore forward-looking strategic perspective.).

See also I (Good corporate governance impliesthat the board and the management understandthat interaction between the management andthe shareholders is of vital importance to thecompany.)

See also Executive Summary (corporate gov-ernance as a worthwhile endeavor).

Not covered. Not covered directly, but see Cover Letter toCivil Servants on Boards of Directors of state-owned companies from the Ministry of Tradeand Industry, 7 November 2000 (These Guide-lines include a set of tools for development ofownership steering and of control of share-holders.).

See also 1 (The objective of the followingguidelines is development of the corporategovernance schemes of companies. The guide-lines deal mainly with cases in whichdetermining the “best practice” is not alwaysunequivocal, because making the choice de-pends on company-specific factors. Thereforethese guidelines are a recommendation by na-ture. The Ministry stresses that it is essential tobecome aware of corporate governance issuesand to handle them in an appropriate manner atthe Board of Directors of the company – thenthe choices relating to them are conscious.).

14





Not covered directly, but see p. 8 (The boardcannot divest itself of the powers attributed to itby law, and must carry out its duties to the full,notably as regards supervision of management,provision of information to the market and stra-tegic planning.).

Not covered directly, but see Introduction([T]he concept of corporate governance aroseout of the investment managers’ concern tobuild the value of their clients’ investments byexercising all their rights as shareholders, in-cluding active participation in the generalmeetings of listed companies.).

Not covered.

15



Cromme Commission Code(Germany)

(Reserved)


Corporate governance describes the legal andfactual regulatory framework for managing andsupervising a company. (Preamble)

Basic Order of Corporate GovernanceThe basic order determines the company’s sys-tem of objectives and therefore the upperguideline for the company’s management. Fur-ther, it stipulates the principal organisationalframework for managing and supervising thecompany. (Code, I.1)

Not covered directly, but see Code, I (Thepurpose of Corporate Governance is to achievea responsible, value-oriented management andcontrol of companies. Corporate GovernanceRules promote and reinforce the confidence ofcurrent and future shareholders, lenders,employees, business partners and the generalpublic in national and international markets.).

Not covered directly, but see §I (This GermanCorporate Governance Code … presentsessential statutory regulations for themanagement and supervision of Germanexchange-listed companies and includesinternationally and nationally recognizedstandards for good and responsible corporategovernance.).

16




Preda Report(Italy)


Not covered directly, but see Introduction ([A]competitive corporate governance frameworkmust guarantee a reasonable balance among therights and responsibilities both within the Boardof Directors and among all the agents in thecorporation’s governance. The corporategovernance framework should moreover ensurethe conditions for best corporate performanceand long-term sustainability. All functions of theBoard of Directors and the General ShareholderMeetings should aim at the enhancement of theentire performance of the corporation within anadequately supervised and informedenvironment.).

See also Principle 5 (The corporate governanceframework should ensure the strategic leadershipof the corporation, the efficient monitoring ofmanagement by the Board of Directors and theaccountability of the Board to the corporationand its shareholders.).

Corporate governance is a system of principlesproviding a basis for the organization, opera-tion and management of a public limitedliability company ( or“A.E.”), in a manner that ensures the protectionand satisfaction of the legitimate interests of allpersons linked to the company in the frame-work of the company’s interests. (§1.1)

See §1.4 (Corporate governance principles andthe procedures adopted for their implementa-tion and supervision are voluntary engagementsof the company, whose basis and starting pointare found in the legislation in force on publiclimited liability companies, the legislation onstock exchanges, and the regulatory provisionsadopted by the Athens Stock Exchange and itssupervisory authorities, but whose scope ex-tends beyond existing legislation, and includesvoluntary commitments that contribute to themaintenance and improvement of the com-pany’s credibility.).

See also §1.5 (The principles and procedures ofcorporate governance are reflected in the over-all structure and operation of the company, andapply to its administrative bodies (the board ofdirectors and the shareholders’ assembly), aswell as the manner in which these are struc-tured and operate, but also the more generallines of communication between the company’sdifferent stakeholders.).

See also §1.6 (Corporate governance is of in-terest to any company, not limited to publiclimited liability companies. It is particularlyrecommended for public limited liability com-panies that are listed on the Athens StockExchange.).

Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode, Preamble, ¶ 7 (We have retained thesubstance of the [Cadbury and Greenbury]codes except in those few cases where we takea different view.).

The Cadbury Report, 2.5 provides: Corporategovernance is the system by which businessesare directed and controlled.

Corporate Governance, in the sense of the setof rules according to which firms are managedand controlled, is the result of norms, traditionsand patterns of behaviour developed by eacheconomic and legal system and is certainly notbased on a single model that can be exportedand imitated everywhere. (Report, 2)

17






[T]he concept of Corporate Governance has beenunderstood to mean a code of conduct for thoseassociated with the company – in particular [ex-ecutives]*, Supervisory Board members andinvestors – consisting of a set of rules for soundmanagement and proper supervision and for adivision of duties and responsibilities and powerseffecting the satisfactory balance of influence ofall the stakeholders. The basic principle here isthat members of the [Management Board]* andSupervisory Board members should – also inpublic – be accountable for their conduct. (In-troduction, 1.2)

See Recommendation 6.3 (The annual accountsaudit is one of the cornerstones for sound Corpo-rate Governance.).

*Note:The Peters Report regularly uses the term “di-rectors” to mean the executives, and the term“Board of Directors” to mean the ManagementBoard. For purposes of consistency and clarity,this COMPARISON will regularly substitute “[ex-ecutive]” for “director” and “[ManagementBoard]” for “Board of Directors” in the texts ofthe Peters Report.

Not covered. Corporate governance concerns the waycompanies are managed and how managementis supervised. The various parties involvedplay their own specific role. (Handbook, p. 8)

A corporation is accountable in different waysto the various interested parties. Corporategovernance controls the way in which thisresponsibility is accounted for to the ultimateproviders of risk-bearing capital: theshareholders. (Handbook, p. 9)

See Handbook, p. 9 (There are great differencesof opinion on what form of corporategovernance is best for a company. In the lastfew years, however, the importance of goodcorporate governance has been widelyrecognized….The Netherlands has a “two-tier” system. Inthe Netherlands, investors are forced to puttheir trust first and foremost in the supervisoryboard to keep good watch over the managementboard of a company.).

See also Handbook, p. 14 (Pension funds striveto achieve optimal returns within pre-set riskparameters. Each corporate governance policymust satisfy this primary goal. Since theexecution of a corporate governance policyentails costs, clearly it must also generateadequate compensatory income….Scientific research in the Netherlands has …shown a positive correlation between goodcorporate governance and performance.).

Corporate Governance is used to describe thesystem of rules and procedures employed in theconduct and control of listed companies.Corporate Governance has ... an internal aspectand an external aspect: the first meaning isunderstood as the set of organisational ruleswithin each listed company; external control, inturn, relates to the assessment of the perform-ance of the company which is conductedthrough the normal function of market mecha-nisms, a domain in which the proceedings ofinstitutional investors are of capital importance.(Introduction)

18






Not covered directly, but see Introduction, 2 (Thegreat demand ... for better governance of compa-nies calling on financial markets serves to definea movement of reform arising in recent years andamong wide sectors of the public....The reforming movement advocates changes inhow corporate governance is to be conducted,particularly in listed companies. The quest forchange denotes non-satisfaction with formerpractices, which are to be improved. But thisdemand is not addressed to public authorities –via legislative reforms – to the same extent as tocompanies themselves, so that within the scopeof their independent determination and the self-regulating powers of their bodies they may passdecisions ensuring better governance.).

Not covered directly, but see Introduction at 6(Corporate Governance or owner control is animportant international issue.... The CadburyReport underlines the importance of institu-tional investors showing interest in, andresponsibility for, the company and their influ-ence over it.).

Not covered. Not covered.

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Corporate governance is the system by whichbusinesses are directed and controlled. (Report,2.5)

See Report, 1.1 ([B]oards ... must be free to drivetheir companies forward, but exercise thatfreedom within a framework of effectiveaccountability. This is the essence of any systemof good corporate governance.).

Not covered directly, but see Report, 4.3 (It is awell-established principle of corporategovernance in the UK that Boards of Directorsare responsible and accountable to shareholdersfor all aspects of a company’s affairs.).

We can accept the Cadbury committee’sdefinition of corporate governance as “thesystem by which companies are directed andcontrolled” (Cadbury Report 2.5). It puts thedirectors of a company at the centre of anydiscussion on corporate governance, linked tothe role of the shareholders, since they appointthe directors. This definition is of course arestrictive one. It excludes many activitiesinvolved in managing a company which maynevertheless be vital to the success of thebusiness. (1.15)

Not covered directly, but see Preamble, ¶7 (Wehave retained the substance of the [Cadburyand Greenbury] codes except in those few caseswhere we take a different view.).

See the Cadbury Report, 2.5 (Corporate gov-ernance is the system by which businesses aredirected and controlled.).

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Not covered directly, but see Introduction (Thisdocument sets out the NAPF’s corporategovernance policy for UK listed companies.Good corporate governance is not just for boardsof directors. It is essential to ensure a closerelationship between companies and investors.….Boards of directors are subject both to statutoryobligations under the Companies Act and to theCombined Code appended to the Listing Rules.These require them to get approval for certaindecisions. Following the recommendations of anumber of committees of inquiry into corporategovernance, the range of issues on which boardsmust seek shareholder approval has expanded.The NAPF, for its part, considers that there arefurther areas where companies have aresponsibility to put matters before shareholdersand these are also included in this document.).

Not covered. Directors of public companies are responsiblefor running companies in the long-term inter-ests of shareholders. Shareholders and theiragents have responsibilities as owners to exer-cise stewardship of companies. Corporategovernance should provide a framework whereboth parties can fulfil these responsibilities.(1.1)

See 1.5 (Hermes supports a standard approachto corporate governance. Hermes welcomesthe publication of the Combined Code on Cor-porate Governance and will normally apply itsrecommendations. Consideration will also begiven to the fuller discussions in the Cadbury,Greenbury and Hampel reports that underlie theCombined Code.).

Not covered directly, but see Part 1: Introduc-tion, p. 3 (Whilst these Guidelines areconcerned to provide a statement of PIRC’sapproach to corporate governance best practice,we recognize that the definition of the scope ofcorporate governance is subject to debate....[W]e consider that social and environmentalreporting, and particularly the disclosure ofinformation on the management of stakeholderrelationships, is part of good corporate govern-ance. An essential element of governance isaccountability, which itself is dependent on fulldisclosure.).

See also draft Executive Summary of the prin-cipal recommendations of the Committee(March 31, 1999) at 1 (Corporate Governanceis the process and structure used to direct andmanage the business and affairs of the com-pany towards enhancing business prosperityand corporate accountability, with the ultimateobjective of realizing long-term shareholdervalue, whilst taking into account the interestsof other stakeholders.).

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2. The Mission of the Board of Directors

The corporate governance framework shouldensure the strategic guidance of the company,the effective monitoring of management bythe board, and the board’s accountability tothe company and the shareholders.A. Board members should act on a fully in-

formed basis, in good faith, with duediligence and care, and in the best interestof the company and the shareholders.

B. Where board decisions may affect differentshareholder groups differently, the boardshould treat all shareholders fairly.

C. The board should ensure compliance withapplicable law and take into account the in-terests of stakeholders.

(OECD Principle V)

Together with guiding corporate strategy, theboard is chiefly responsible for monitoringmanagerial performance and achieving an ade-quate return for shareholders, while preventingconflicts of interest and balancing competingdemands.... [It also] implement[s] systems de-signed to ensure that the corporation obeysapplicable laws, including tax, competition, la-bour, environmental, equal opportunity, healthand safety laws. In addition, boards are expectedto take due regard of, and deal fairly with, otherstakeholder interests including those of employ-ees, creditors, customers, suppliers and localcommunities. Observance of environmental andsocial standards is relevant in this context.(OECD Principle V Annotation at 40)

The ICGN Statement adopts OECD Principle V(The corporate governance frameworkshould ensure the strategic guidance of thecompany, the effective monitoring of man-agement by the board, and the board’saccountability to the company and theshareholders.).

Corporate Governance practices should focusboard attention on optimizing over time thereturns to shareholders. In particular, the com-pany should strive to excel in comparison withthe specific equity sector peer group bench-mark. (ICGN Statement 8 at 4-5; Preamble toICGN Amplified OECD Principles at 6)

[T]he board is expected to manage successfullyits relationships with other stakeholders, i.e.,those with a legitimate interest in the operationof the business, such as employees, customers,suppliers, creditors, and the communities inwhich the company operates. (Preamble toICGN Amplified OECD Principles at 6)

The ICGN is of the view that the board shouldbe accountable to shareholders and responsiblefor managing successful and productive rela-tionships with the corporation’s stakeholders.(ICGN Amplified OECD Principle III at 7)

A company should aim primarily at maximiz-ing shareholder value in the long-term.(Recommendation 1)

The special relationship which shareholdershave with any company in which they partici-pate – that they provide risk-bearing capital –justifies special attention to their interests andtheir position in general. The return for share-holders consists of dividends and theperformance of the share price. The company’smanagement should aim at maximizing share-holder value in the long-term, in order to ensurean adequate return for shareholders. The focusshould therefore be upon long-term growth inthe earnings per share, given a certain risklevel. (Commentary on Recommendation 1)

Pursuing the long-term interest of the company,boards are agents who perform orientation andmonitoring functions for which they are ac-countable to all shareholders. The board’sworking and procedures should facilitate theachievement of these functions. (Principle V)

Responsibilitiesa) Boards are fiduciaries who must act in the

interest of the company and its sharehold-ers as a whole, in good faith, with duediligence, care and loyalty, and on an ap-propriately informed basis.

b) Boards are responsible for ensuring thatthe company’s stakeholders’ rights are re-spected and their concerns addressed, andthat policies in this respect are developed.

c) Boards must be capable of exercisingobjective judgement on the company’s af-fairs, independently of management andparticular interest groups.

(Recommendation V.1)

Note:In the EASD Principles and Recommendations,“the term ‘board’ equally refers to a board ofdirectors or a supervisory board; it does notinclude management boards such as theVorstand in Germany.” (Preamble at 8.n.3)

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The Board of Directors, which is a collegiatebody, must ... exercise effective control over thecompany and the activities of its Executive Di-rectors. (1.1)

A number of decisions must belong to the exclu-sive competence of the Board of Directors, sothat the administration and control of the com-pany remain clearly in the hands of that Board.(1.4)

Apart from its legal powers and powers providedfor by the Articles, and apart from the powers ofthe General Meeting, the Board of Directorsdecides on what is covered by its powers.It is the task of the Board of Directors, on a pro-posal from the Executive Directors, to determinethe strategic objectives of the company and thegeneral policy plan, to appoint the managementand to develop structures which will make itpossible to achieve these objectives, to supervisethe execution of the policy plan and the controlof the company, and to give the necessary infor-mation to the partners.The Board of Directors also defines the proce-dures which have to be followed for transactionswhich are binding on the company, and it definesthe cases when the signature of directors is re-quired. It also defines the procedures whichhave to be followed if decisions have to be takenbetween two meetings of the Board of directors.(Note to 1.4)

The Board of Directors must ensure that an effi-cient system of internal control is established.(4.5)

It is the duty of the board of directors tomanage the company’s affairs exclusively inthe interests of the company and all its share-holders, within the framework of the laws,regulations and conventions under which thecompany operates.... The board of directors isresponsible for all strategic decisions, forensuring that the necessary resources areavailable to achieve the objectives, forappointing and supervising the executivemanagement and, lastly, for reporting to theshareholders on the performance of its duties.(Part I: A.2)

In addition to its function of taking thenecessary action at strategic level andimplementing strategy, the responsibility of theboard of directors chiefly relates to the qualityof the information it provides to shareholders.(Part I: A.7)

The board of directors is the highest authoritywithin the company. In addition to itsdecisionmaking duties, the board must exercisefull and effective control over the company. Tothat end, it must meet regularly and must becapable of monitoring the executivemanagement. (Part I: B.1.1)

Without prejudice to its statutory duties, theboard of directors is responsible for definingthe strategic objectives and establishing generalpolicy on the basis of proposals submitted bythe executive management, appointing the ex-ecutive management and approving thestructures designed to facilitate the achieve-ment of these objectives. It is also the board ofdirectors’ task to supervise the implementationof policy and the control of the company and toreport to the shareholders. (Part I: B.1.2)

The Director recognizes that it is the role of theBoard, upon proposals by the Management, todefine the company’s missions and values, tolay down its strategic objectives, to appoint theManagement, to implement permanent struc-tures allowing for the attainment of itsobjectives, to ensure the implementation of anoperational plan and control of the company,and to furnish the necessary explanations toshareholders.The Director undertakes to verify that theBoard effectively controls the company and theactivity of the Management. In particular, theDirector will be attentive ... [t]hat the Manage-ment cooperates fully and without reticence inregards to the Board’s goal of control. (p. 4)

See p. 4 (The Director undertakes to employ hisor her influence, means of action, and capaci-ties of judgement to lead the company tooptimize its value in a sustainable, responsibleand fair manner.).

See also p. 6 (The Director undertakes to see toit that the interests of the company and theentirety of its shareholders prevail, in all cir-cumstances, over his or her direct or indirectpersonal interests.).

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Not covered directly, but see II. Governance,including the following: [M]anagement shouldtry to maximize the company’s long-term profit-ability and share price development.

The board is responsible for carefully safe-guarding the shareholders’ interests, with dueconsideration of the other stakeholders. Asconcerns the managerial division of tasks be-tween the board and the management, the boardis assigned with, and responsible for, handlingthe overall management of the company, aswell as supervising and establishing the guide-lines for the management’s work. Oneimportant management task is to develop andestablish appropriate strategies for the com-pany. It is important that the board ensures thatthere is continuous development and follow-upon the necessary strategies in collaborationwith the management. (IV)

Not covered directly, but see English Summary,3 (The company shall explain the main dutiesof the Supervisory Board in the Annual Reportand in the Listing Particulars.).

The attractiveness of state-owned companiesand associated companies as investment ob-jects, as well as the efficiency of the State’sownership steering and control of shareholders,require that the corporate governance schemesof companies are up-to-date. In view of thisobjective, the Ministry of Trade and Industryrecommends that the civil servants that aremembers of the Boards of Directors of state-owned companies and associated companiespay attention to corporate governance issues soas to solve them in as appropriate a manner aspossible in terms of the companies’ size andother special conditions. (1)

The Board of Directors shall discuss the waysof measuring the profitability of the company’sactions. It is essential to make sure that theactivities produce economic value-added meas-ured by the economic profit meter or by othercorresponding methods. (2.1.2)

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[W]hatever a board’s membership and proce-dures may be, its members collectivelyrepresent all shareholders and it must at alltimes put the company’s interest first. (p. 2)

[T]he board of directors ... determines thecompany’s strategy, appoints the corporateofficers charged with implementing that strat-egy, supervises management, and ensures thatproper information is made available toshareholders and markets concerning thecompany’s financial position and perform-ance, as well as any major transactions towhich it is a party. (p. 2)

[I]n continental Europe, and particularly inFrance, [emphasis regarding the duties of theboard of directors] tends to be on the company’sinterest....The interest of the company may be understoodas the overriding claim of the company consid-ered as a separate economic agent, pursuing itsown objectives which are distinct from those ofshareholders, employees, creditors including theinternal revenue authorities, suppliers and cus-tomers. It nonetheless represents the commoninterest of all these persons, which is for thecompany to remain in business and prosper.The Committee thus believes that directorsshould at all times be concerned solely topromote the interests of the company. (p. 5)

The Committee believes that while it is theChairman’s role to draw up and propose astrategy, this must be adopted by the board.By virtue of the same principle, it must con-sider and decide on all strategically importantdecisions. (p. 8)

The Board of Directors is a strategic decision-making body whose choices affect the future ofthe company and involve the responsibility ofits members. Its actions must be governed byopenness, accountability and effectiveness.(§ II)

The Commission takes the view that, to thedegree the Board of Directors is responsible toall shareholders, it must act over time in theinterest and on behalf of all. It is recommendedthat its strategy and action fall within theframework of the company’s sustainable devel-opment. (§ II.A.1)

Not covered.

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Supervisory BoardThe Supervisory Board plays an importantrole ... with its selection and supervision of theManagement Board. It does not, however,have any managerial function. (Thesis 6)

The Supervisory Board serves as supervisoryauthority which controls and advises the Man-agement Board in the sense of “checks andbalances.” In this, it is not on an equal footingnext to, or even above, the Management Board.The Supervisory Board serves rather as a coun-terweight to the Management Board which canand should limit, but normally neither counter-balances nor outweighs, the influence of theorgan of management on the destiny of the com-pany.” (Commentary on Thesis 6; see Code, I.6)

See Code, I.7([A] supporting significance at-taches to the standards for supervision.).

Management BoardThe Management Board ... forms the company’sclear locus of decision-making. (Code, I.6)

The Management Board leads the public corpo-ration. (Code, III.1.1)

Decisions of fundamental importance for thecompany (basic decisions) are the responsibilityof the Management Board as a whole. (Code,III.3.4)

See Code, I.2 (The target of company manage-ment is the sustained increase in the value of thecompany.).

See also Code, III (Governance Standards for theManagement Board).

See also Thesis 5 (The Management Boardstands at the centre of the ... guidelines.).

Supervisory BoardThe Supervisory Board advises the Manage-ment Board on a regular basis regarding themanagement of the Company and the Group,and monitors the achievement of long-termcorporate goals (monitoring: § 111 GermanStock Corporation Act). (Code, III.2.a)

Management BoardThe Management Board develops the strategyfor the Group in consultation with the Supervi-sory Board and is responsible for itsimplementation. (Code, II.1.b)

The Management Board shall inform the Su-pervisory Board on a regular basis, in goodtime and comprehensively, about all relevantmatters regarding business development, riskexposure and risk management of the companyand major group subsidiaries. (Code, II.2.e)

Supervisory BoardThe Supervisory Board appoints, supervisesand advises the members of the ManagementBoard and is involved in decisions which are offundamental importance to the enterprise….Both the representatives elected by the share-holders and representatives of the employeesare equally obligated to act in the enterprise’sinterests. (§I)

Management BoardThe Management Board is responsible for in-dependently managing the enterprise. Themembers of the Management Board jointly areaccountable for management of the enterprise.(§I)

The Management Board coordinates the enter-prise’s strategic approach with the SupervisoryBoard and discusses the current state of thestrategy implementation with the SupervisoryBoard in regular intervals. (§III.2)

The Management Board is responsible for in-dependently managing the enterprise. In doingso, it is required to act in the enterprise’s inter-ests and undertakes to increase the sustainablevalue of the enterprise. (§IV.1.1)

The Management Board develops the enter-prise’s strategy, coordinates it with theSupervisory Board and ensures its implementa-tion. (§IV.1.2)

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Preda Report(Italy)


The Board of Directors is the authority that gov-erns the corporation. Its duties involve decision-making and the responsibility for exercising fulland efficient monitoring of all activities of thecorporation. (Recommendation 5.1)

See Introduction (The Board has the responsibil-ity to deal with the corporation’s affairsexclusively in the interests of the corporation andits shareholders within the existing regulatoryframework. The Board has the main responsi-bility for ensuring the establishment of efficientgovernance rules and must be accountable to thegeneral shareholders meetings for its activitiesand performance. The Board has the main re-sponsibility for setting the corporation’s long-term goals and making all strategic decisions,making available all required sources for theachievement of strategic goals as well as theappointment and supervision of management.).

See also Recommendation 5.2 (In the case wherethe decisions of the Board of Directors may af-fect the different classes of shares in a differentmanner, the Board of Directors should treat allshareholders without discrimination.).

The primary task of the board of directors is theprotection and promotion of the company’sinterests and the continuous returns reflected ina long-term improvement of the company’sshare value. (§2.4)

See §2.2 (The company’s decisions are, as astarting point, decisions of the board of direc-tors acting collectively. This provides all boardmembers with the opportunity to exercise anactive role in the company’s management, withthe further possibility, through powers grantedin particular to executive members, to imple-ment the objectives and guidelines of theboard.).

Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode, Principle A.1 (Every listed companyshould be headed by an effective boardwhich should lead and control the com-pany.).

Listed companies are governed by a board ofdirectors ... that adopts an organization andmodus operandi enabling it to guaranteeeffective and efficient performance of itsfunctions. (Code 1.1)

The Committee believes that the primary re-sponsibility of the board of directors of a listedcompany is to set the company’s strategic ojec-tives and to ensure they are achieved.(Commentary on Code, 1.1)

See Commentary on Code, 5 ([T]he board ofdirectors is required by law to inform the boardof auditors.).

See also Report, 5.1 ([T]he fundamental feature[of the Code] is the central position of theboard of directors, charged with providingstrategic and organisational guidance and veri-fying the existence of the controls needed tomonitor companies’ performance.).

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Supervisory BoardIn accordance with the law, the SupervisoryBoard, in performing its duties, is bound by theinterests of the company and the enterprise con-nected therewith. It is responsible for thesupervision of management policy and the gen-eral course of affairs in the company. Under thefull ‘structure regime,’ the Supervisory Board isresponsible for appointments to the Board ofDirectors. (Recommendation 2.1)

Management BoardThe [Management Board] is responsible for themanagement of the company, which implies,inter alia, that [it] is responsible for realizing thecompany’s objectives, the strategy and policy,and the ensuing development of results. (Rec-ommendation 4.1)

The [Management Board] should report in writ-ing to the Supervisory Board on the company’sobjectives, strategy and the associated risks of afinancial nature. (Recommendation 4.2)

There are no conceivable circumstances whichcan justify any relaxation of the principle that themanagement should be fully accountable to theproviders of risk capital. (Recommendation 5.1)

Not covered directly, but see Recommendation1 (Companies should maximize shareholdersvalue in the long run, on the condition thatother stakeholders are treated in a reasonableand responsible way.).

See also Commentary on Recommendation 1(More and more companies put ‘creatingshareholders value’ first and focus on growth ofearnings per share, also concerning acquisitionsand dividend policy. With cyclical business inparticular, creating value is underexposed, andcontinuance of existing – often unsatisfactoryyielding – activities prevails.).

Supervisory BoardThe supervisory board is the body that, inkeeping with the interests of shareholders, mustwatch over the actions of the executive boardand general developments at the company andits holding company. (Guideline 13)

The supervisory – or non-executive – boardregulates the management board. (Handbook,p. 8)

For the Netherlands, the difference between theso-called one- and two-tier systems is impor-tant. “Two-tier” means that a separate organ –the supervisory board – supervises the man-agement or executive board….The Netherlands has a “two-tier” system. Inthe Netherlands, investors are forced to puttheir trust first and foremost in the supervisoryboard to keep good watch over the managementboard of a company. (Handbook, p. 9)

Management BoardThe management – or executive – board isresponsible for management of the company.(Handbook, p. 8)

[T]he board exercise[s] effective control in itsguidance of the company, reserving decisionson important matters. To pursue this objective,it should ... ensure the supervision of the man-agement of the company. (Commentary onRecommendation 14)

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The Board of Directors should take charge of thegeneral function of supervision as its core mis-sion, directly carrying out – not delegating – theresponsibilities it entails and drawing up a formalschedule of matters specifically reserved for itsknowledge. (Code, Recommendation 1)

[The] Committee considers that the generalfunction of supervision is the most genuinefunction of the Boards of Directors of listedcompanies. Within this function, the Committeeseparates three basic responsibilities: guidingthe company’s policies and strategies, control-ling management, and liaising with shareholders.(Report, 1.1)

[W]e recommend establishing, as an ultimatecorporate goal, and consequently as a criterionthat must rule the performance of the Board ofDirectors, the maximisation of corporate valueor, to use an expression that has taken root in themarket, the creation of shareholder value.... (Report, 1.3)

The administration of the company’s businessaffairs is entrusted to the board by the generalmeeting. The board in turn appoints the com-pany’s managing director, who is responsiblefor the day-to-day administration of the com-pany. (Guideline 2)

The members of the board shall act with greatthoroughness and care in the best interests ofthe company and all the shareholders. (Guide-line 2.2)

The owners should ensure that the board takesresponsibility for:§ the shaping and development of the strate-

gic leadership of the company;§ the business idea, goals, risk policy, budg-

ets and business plans, as well as decidingon major investments, acquisitions, anddivestitures;

§ the appointment and, if necessary, re-placement, of management andsupervision, as well as compensation andreward of the company’s leadership, in thefirst place the managing director and thatperson’s deputy;

§ ensuring that the company’s internal andexternal accounting and auditing fulfils thehighest demands in regard to, among otherthings, audit, control and risk manage-ment;

§ ensuring that communication between thecompany’s owners and other stakeholdersis characterized by openness and correct-ness;

§ ensuring that an annual evaluation is car-ried out of the board’s and the individualboard members’ contribution to the board.

(Guideline 2.2)

Not covered directly, but see Topic Heading 4,below.

All directors have an equal responsibility inhelping to provide their company with effectiveguidance and leadership and it is recognizedthat they must … act at all times entirely in thebest interests of the company. (p. 1)

See Topic Heading 4, below.

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The board should ... retain full and effectivecontrol over the company and monitor theexecutive management. (Code, 1.1)

[B]oards ... must be free to drive their companiesforward, but exercise that freedom within aframework of effective accountability. (Report,1.1)

It is a well-established principle of corporategovernance in the UK that Boards of Directorsare responsible and accountable to shareholdersfor all aspects of a company’s affairs. (Com-mentary on Remuneration Committees, 4.3)

Every listed company should be headed byan effective board which should lead andcontrol the company. (Principle A.I)

The board should maintain a sound systemof internal control to safeguardshareholders’ investment and the company’sassets. (Principle D.II)

The single overriding objective shared by alllisted companies, whatever their size or type ofbusiness, is the preservation and the greatestpracticable enhancement over time of theirshareholders’ investment. All boards have thisresponsibility and their policies, structure,composition and governing processes shouldreflect this. (Guideline 1.16)

The prime responsibility of the board of direc-tors is to determine the broad strategy of thecompany and to ensure its implementation. Todo this successfully requires high-quality lead-ership. It also requires that the directors havesufficient freedom of action to exercise theirleadership. (Guideline 3.11)

Every listed company should be headed byan effective board which should lead andcontrol the company. (Principle A.1)

The board should maintain a sound systemof internal control to safeguard sharehold-ers’ investment and the company’s assets.(Principle D.2)

The directors should, at least annually, conducta review of the effectiveness of the group’ssystem of internal control and should report toshareholders that they have done so. The re-view should cover all controls, includingfinancial, operational and compliance controls,and risk management. (Code §1, D.2.1)

30






Not covered directly, but see §1 (An effectiveboard is essential to lead and control each listedcompany.One of the major duties of the board is to agree[on] corporate strategy … as well as monitoringperformance and risk.).

See also §2 (An effective board is essential todeliver shareholder value.).

See also Topic Heading 4, below.

Principle D.2 [of the Combined Code] statesthat the board should maintain a sound systemof internal control to safeguard shareholders’investment and the company’s assets. CodeProvision D.2.1 recommends an annual reviewby the directors of the company’s effectivenessof internal controls, with a report to sharehold-ers. This review should cover financial,operational and compliance controls, and riskmanagement. (Guidance Note on Key Princi-ple 6)

Directors of public companies are responsiblefor running companies in the long-term inter-ests of shareholders. (1.1)

The role of the board is to lead and control thebusiness. It should establish corporate strategy,set appropriate policies for its implementation,ensure reporting and decision-making proce-dures are effective, select and monitor keyexecutives, manage potential conflicts of inter-est for the executives, manage relations withstakeholders, determine risk management sys-tems and hold the executives accountable fortheir actions. (Part 2: Directors, p. 4)

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3. The Role of Stakeholders

The corporate governance framework shouldrecognize the rights of stakeholders as estab-lished by law and encourage active cooperationbetween corporations and stakeholders in cre-ating wealth, jobs, and the sustainability offinancially sound enterprises.A. The corporate governance framework should

assure that the rights of stakeholders that areprotected by law are respected....

B. Where stakeholder interests are protected bylaw, stakeholders should have the opportu-nity to obtain effective redress for violationof their rights....

C. The corporate governance framework shouldpermit performance-enhancing mechanismsfor stakeholder participation....

D. Where stakeholders participate in the corpo-rate governance process, they should haveaccess to relevant information....

(OECD Principle III)

The board should ... take into account the in-terests of stakeholders. (OECD Principle V.C)

Boards are expected to take due regard of, anddeal fairly with ... stakeholder interests includingthose of employees, creditors, customers, suppli-ers and local communities. (OECD Principle VAnnotation at 40)

See OECD Preface at 6 (business ethics, corpo-rate awareness of environmental and societalinterests).

See Millstein Report, 1.2.16 (Corporate successis linked to the ability to align the interests ofdirectors, managers and employees with the inter-ests of shareholders.... [C]orporate actions mustbe compatible with societal objectives.... At-tending to legitimate social concerns should, inthe long run, benefit all parties, including inves-tors.)

The overriding objective of the corporationshould be to optimize over time the returns to itsshareholders. Where other considerations affectthis objective, they should be disclosed. Toachieve this objective, the corporation should ...manage effectively its relationships withstakeholders. (ICGN Statement 1 at 3)

Boards that strive for active cooperation be-tween corporations and stakeholders will bemost likely to create wealth, employment andsustainable economies. They should disclosetheir policies on issues involving stakeholders,for example, workplace and environmentalmatters. (ICGN Statement 9 at 5)

[T]he board is expected to manage successfullyits relationships with other stakeholders, i.e.,those with a legitimate interest in the operationof the business such as employees, customers,suppliers, creditors, and the communities inwhich the company operates. (ICGN AmplifiedOECD Principles, Preamble at 6)

The ICGN is of the view that the board shouldbe accountable to shareholders and responsiblefor managing successful and productive rela-tionships with the corporation’s stakeholders.The ICGN concurs with the OECD Principlethat “active cooperation between corporationsand stakeholders” is essential in creating wealth,employment and financially sound enterprisesover time.The ICGN affirms that performance-enhancingmechanisms promote employee participationand align shareholder and stakeholder interests.These include broad-based employee shareownership plans or other profit-sharing pro-grams. (ICGN Amplified OECD Principle IIIat 7)

Not covered. [C]orporate governing organs should be ac-countable to the shareholders, the more so sincethey are the residual bearers of risk of the com-pany as owners of its equity. However,company organs should also be responsible forproperly addressing the concerns of other le-gitimate stakeholders. Such attention evidentlypromotes the best interests of the company itselfin the long term. (Preamble at 2)

[I]n certain instances, founders and controllingblockholders may and do consider other objec-tives to override shareholder returnmaximisation, such as social, economic andenvironmental contributions in general or to thearea where the company is located.... [T]hesemust be properly disclosed and explained.(Preamble at 5)

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Not covered. Transparency is the basis on which trust be-tween the company and its stakeholders is built,notwithstanding the constraints imposed on thecompany by its competitive environment.Transparency is conducive to the company’seffectiveness, because it allows the board ofdirectors to act promptly when necessary.(Part I: A.7)

The Company Director, in the Exercise of HisFunctions, Undertakes to ... [t]ake into accountthe legitimate expectations of all the company’spartners (the community, clients, executives,employees, suppliers and creditors). (p. 2)

The Director recognizes that the company andits various partners have, beyond their con-tractual engagements, formed relationships oftrust and contracted reciprocal moral obliga-tions, and that, if the Director must first andforemost protect the interests of the companyand its shareholders, the Director cannot ignorethat it is in the company’s interests to maintainthese relationships and reciprocal moral obli-gations.The Director undertakes to see to it that thecompany’s management is aware of the inter-ests, views, and expectations of its partners;that procedures are implemented to managethese relationships, and that proper and periodiccommunication is exchanged with these part-ners.The Director undertakes to encourage theBoard to take into account in its decisions, inview of the long-term interests of the company,the impact of these decisions on the environ-ment, on social relations, on rules ofcompetition, and on consumer protection. (p.5)

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Given a reasonable treatment of other stake-holders, management should try to maximise thecompany’s long-term profitability and share pricedevelopment – excess capital should be paid backto the shareholders. (II. Governance)

See III. Motivating Programmes (At emissions[sic] proposed to the employees:§ motivating programmes should in total not

[dilute] share capital by more than 5%;§ only employees presently working in the

company should profit;§ the shareholders should be well informed

about such projects prior to the shareholdermeeting deciding upon it;

§ the auditors should carefully evaluate suchprogrammes and answer all questions at theshareholders meeting;

§ other motivating programmes may also be ofa nature to be voted upon at a shareholdermeeting.).

It is decisive for a company’s prosperity andfuture possibilities that the company has a goodrelationship with its stakeholders. Stakeholdersare everyone who are directly affected by thecompany’s decisions and business. Thus, it isdesirable that the company’s management runsand develops the company with due considera-tion of its stakeholders, and that themanagement provides an incentive for a dia-logue with these.A successful interaction between the companyand its stakeholders implies openness and mu-tual respect. (II)

It is recommended that the board adopts a pol-icy regarding the company’s relationship withits stakeholders which, for instance, could in-clude the company’s business concept and itsbasic values and objectives. One element ofsuch a policy could be the guidelines for thecompany’s information about environmentaland social issues, for example. (II.1)

It is recommended that the board ensures thatthe interests and roles of the stakeholders arerespected in accordance with the company’spolicy regarding this. As part of performingthis, it is natural that the board ensures that thereis an ongoing dialogue between the manage-ment and the company’s stakeholders, in orderto develop and strengthen the company. (II.2)

Openness and transparency are essential condi-tions for ensuring that the company’sshareholders and other stakeholders are able tocontinuously evaluate and relate to the companyand its prospects, and through this, opennessand transparency can contribute to a construc-tive interaction with the company. (III)

Not covered. In the annual report or the relating environ-mental audit, an account of the measuresimplemented should be given in order to takeaccount of environmental values in the businessof the company. (2.1.2)

See 2.3.2 (In order to define the owner role ofthe State, the annual report shall mention thepossible commitment of the State to the respon-sibilities of the company concerned in additionto the share capital investment. As the FinnishGovernment has not assumed such responsibili-ties, it is justified to mention this separately,especially in view of foreign investors.).

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French law provides for the attendance of workscouncil (comité d’entreprise) representatives atboard meetings, where they have a consultativevote, and allows for full board membership ofrepresentatives of employees (by ministerialorder of 1986) or of employee shareholders (un-der legislation dated 1994). (p. 12)

See p. 5 (The interest of the company may beunderstood as ... distinct from those of share-holders, employees, creditors ..., suppliers andcustomers. It nonetheless represents the com-mon interest of all of these persons, which is forthe company to remain in business and prosper.).

Not covered directly, but see § II.D.5 (It isrecommended that a charter consisting of akind of director’s code of professional conduct… include … the obligation … to abide byethical standards applying to company employ-ees regarding transactions in companyshares….).

Not covered.

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Company management must sensibly balance theinterests of the various stakeholders of the com-pany. (Thesis 8)

Among those with an interest in the public cor-poration are principally the owners(stockholders), but also employees, customers,loan creditors and suppliers, as well as the publicat large.... [P]articular significance attaches tostockholders as the providers of risk capital.(Commentary on Thesis 8; see Code, I.3)

[D]istinctive of the constitution of German com-panies is ... inclusion of employees by means ofvarious forms of participation (co-determination). (Code, I.4)

The Management Board should be aware of so-cial responsibility to a reasonable extent....(Code, III.1.4)

The Supervisory Board should ... be aware ofsocial responsibility to a reasonable extent....(Code, IV.1.4)

Co-determination at plant level, according to theLabour-Management Relations Act, is carriedout in individual company plants.... Employeeselect a works council in every plant with at leastfive employees. (Code, V.2.2)

[E]mployees elect either one-third or one-half ofthe members of the Supervisory Board, depend-ing on the size of the corporation. They thusparticipate in all responsibilities of this organ.The one-third equal footing co-determinationapplies according to Labour-Management Rela-tions Act 1952 to all corporations with at least500 but fewer than 2,000 employees, and parityco-determination according to the Co-determination Act 1976 in companies with aworkforce exceeding 2,000. (Code, V.2.3)

See generally Code, V.2 (employeeco-determination).

Not covered directly, but see Code, I([M]andatory law [covers] election of membersof the Supervisory Board (§ 101). SupervisoryBoard members representing employees aresometimes legally mandated in the processknown as co-determination.)

See also Code, I (Corporate Governance Rulespromote and reinforce the confidence of currentand future shareholders, lenders, employees,business partners and the general public innational and international markets.).

For enterprises with more than 500 or 2000employees respectively in Germany, employeesare represented in the Supervisory Board,which then is composed of employee repre-sentatives to one-third or to one-half. (§I)

See §I ([The Code’s] purpose is to promote thetrust of international and national investors,customers, employees and the public in themanagement and supervision of exchange-listed German stock corporations.).

36




Preda Report(Italy)


The corporate governance framework shouldrecognize the rights of stakeholders in the corpo-ration, as established by law, and encourageactive participation between corporations andstakeholders in creating wealth, jobs and thesustainability of financially sound enterprises.(Principle 3)

The corporate governance framework shouldensure that the rights of stakeholders that areprotected by law are respected. (Recommenda-tion 3.1)

Where law protects stakeholder interests,stakeholders should have the opportunity to seekeffective redress for violation of their rights.(Recommendation 3.2)

The corporate governance framework shouldencourage the role of stakeholders in the corpo-ration in a manner that enhances the performanceof the corporation and the market. There shouldbe provision for the disclosure of informationwhich is relevant to the interests of stakeholders.(Recommendation 3.3)

Where stakeholders participate in the corporategovernance processes, they should have access torelevant information. (Recommendation 3.4)

See Recommendation 1.7 (The solution of prob-lems and the settlement of differences among thecorporation’s agents [i.e., parties-in-interest in-cluding stakeholders] is encouraged to be doneby consensus, taking into account the long-terminterests of the corporation.).

Not covered directly, but see §1.1 (Corporategovernance is a system of principles providinga basis for the organization, operation andmanagement of a public limited liability com-pany ( or “A.E.”), in amanner that ensures the protection and satis-faction of the legitimate interests of all personslinked to the company in the framework of thecompany’s interests.).

See also §1.2 (Corporate governance aims atserving, on a continuous basis, the company’sinterests, which are a combination of the inter-ests of the company as a distinct legal entityand the legitimate interests of all stakeholderslinked to that company.).

See also §1.5 (The principles and procedures ofcorporate governance are reflected in the over-all structure and operation of the company, andapply to its administrative bodies (the board ofdirectors and the shareholders’ assembly), aswell as the manner in which these are struc-tured and operate, but also the more generallines of communication between the company’sdifferent stakeholders.).

Not covered directly, but see:§ Guidelines 11 & 13 (employee participa-

tion in Long Term Incentive Schemes(LTISs));

§ Guideline 19 (Profit Sharing Schemes(PSSs));

§ Guideline 20 (Save As You Earn (SAYE)schemes); and

Guideline 21 (Employee Share OwnershipPlans (ESOPs)).

The Committee has identified the maximisationof shareholder value as the primary objective ofgood Corporate Governance, considering that,in the longer term, the pursuit of this goal cangive rise to a virtuous circle in terms of effi-ciency and company integrity, with beneficialeffects for other stakeholders – such as custom-ers, creditors, consumers, suppliers, employees,local communities and the environment –whose interests are already protected in theItalian legal system. (Report, 4)

37






[Companies] must seek a good balance betweenthe interests of the providers of risk capital (in-vestors) and the other stakeholders. In the long-term, this should not mean a conflict of interests.(Recommendation 1.1)

The company is accountable to its variousstakeholders.... (Recommendation 1.1)

Supervisory Board members [should ensure] … adivision of duties and responsibilities and powerseffecting the satisfactory balance of influence ofall the stakeholders. The basic principle here isthat members of the [Management Board] andSupervisory Board members should – also inpublic – be accountable for their conduct. (Rec-ommendation 1.2)

See Recommendation 4.6 (employee stock optionplan).

Companies should maximise shareholders valuein the long run, on the condition that otherstakeholders are treated in a reasonable andresponsible way. (Recommendation 1)

The works council can advise management.(Handbook, p. 8)

See Handbook, p. 27 (Corporate governance andsocially responsible investing are subjects thatare not directly linked. But since both conceptsare often intertwined, it’s important to point outthe differences clearly. The corporate govern-ance policy of pension funds is focused onimproving the risk/reward relationship of shareinvestments. The term socially responsibleinvesting is applied to investments that followcriteria other than just financial return.In early 2001, the Social Economic Council(SER) published advice on socially responsiblebusiness entitled “The profit of values”. In aparagraph on the investment policy of pensionfunds, the SER does not link socially responsi-ble investing to corporate governance. The SERsays it assumes that employers organisationsand labor unions, “given their direct or indirectinvolvement in the policy of pension funds, arewell placed to promote socially responsibleinvestment policy at pension funds – of courseall within the framework of the pension andsavings fund law”. It has been agreed to discussthis matter in the context of the ‘Stichting vande Arbeid’, the forum where these representa-tive organisations meet.SCGOP does not consider socially responsibleinvesting one of its subject areas either. Corpo-rate governance policy is of course aimed atpaying closer attention to the wishes of share-holders. If a majority of shareholders wantedcompanies to be more socially responsible, acompany with a good corporate governancestructure would be more receptive than onewithout.In this way, the attention pension funds give tocorporate governance will contribute to thecreation of a climate in which the case for so-cially responsible investing – like that to beformulated by the ‘Stichting van de Arbeid’, hasa greater chance of succeeding.).

Not covered.

38






Not covered. For personnel not covered by existing legisla-tion concerning security of employment, itwould appear that there is generally a need forspecial employment contracts. These agree-ments should regulate, among other things, theconditions that apply if the company wishes torapidly remove people from employment. Ex-amples of other similar situations are caseswhen the corporate leadership has the right toterminate employment contracts on account of achanged ownership relationship. (Guideline2.4.1)

All stakeholders need information so they canform an opinion of the company’s financialstanding and development, thereby giving thema basis for a true evaluation of the company’sstock. This information must therefore be open,correct, relevant and current, and its contentsmust be clear, true and fair. (Guideline 4)

See Guideline 2.2 (The owners should ensurethat the board takes responsibility for ... ensur-ing that communication between the company’sowners and other stakeholders is characterizedby openness and correctness.).

See also Guideline 3, Incentive Programmes,including 3.7 (The purpose ... is that the em-ployees become shareholders in the company.).

Not covered. The Companies Act 1985 states inter alia that“the matters to which the directors of a com-pany are to have regard in the performance oftheir functions include the interests of the com-pany’s employees in general, as well as theinterests of its members.”The ISC considers it important that this onusplaced on directors by the Companies Actshould not be overlooked. Directors shouldappreciate the significance of the role played ina company’s progress by its workforce andshould always consider the interests of all thoseinvolved in working together to improve theircompany’s performance. (p. 5)

39






Not covered directly, but see Report, 2.7(Although the reports of the directors areaddressed to the shareholders, they areimportant to a wider audience, not least toemployees whose interests boards have astatutory duty to take into account.).

See also Report, 3.2 (Openness on the part ofcompanies, within the limits set by theircompetitive position, is the basis for theconfidence which needs to exist betweenbusiness and all those who have a stake in itssuccess.).

See also Report, 4.29 (It is important that allemployees should know what standards ofconduct are expected of them. We regard it asgood practice for boards of directors to draw upcodes of ethics or statements of businesspractice and to publish them both internally andexternally.).

See also Report, 4.50 (What shareholders (andothers) need from the report and accounts is acoherent narrative, supported by the figures, ofthe company’s performance and prospects. Werecommend that boards should pay particularattention to their duty to present a balanced andunderstandable assessment of their company’sposition.).

Not covered. Good governance ensures that constituencies(stakeholders) with a relevant interest in thecompany’s business are fairly taken intoaccount (Guideline 1.3)

[T]he directors’ relationship with shareholdersis different in kind from their relationship withother stakeholder interests. The shareholderselect the directors.... [D]irectors as a board areresponsible for relations with stakeholders, butthey are accountable to the shareholders. Thisis not simply a technical point. From apractical point of view, to redefine directors’responsibilities in terms of stakeholders wouldmean identifying all the various stakeholdersgroups and deciding the nature and extent ofthe directors’ responsibility to each. The resultwould be that the directors were not effectivelyaccountable to anyone since there would be noclear yardstick for judging their performance.This is a recipe neither for good governancenor for corporate success. (Guideline 1.17)

As regards stakeholders, different types ofcompany will have different relationships, anddirectors can meet their legal duties to share-holders, and can pursue the objective of long-term shareholder value successfully, only bydeveloping and sustaining these stakeholderrelationships. We believe that shareholdersrecognize that it is in their interests for compa-nies to do this and – increasingly – to haveregard to the broader public acceptability oftheir conduct. (Guideline 1.18)

Not covered directly by the Combined Code,but see the Turnbull Report, APPENDIX, 2,Control environment and control activities(Does the company communicate to its em-ployees what is expected of them, and thescope of their freedom to act? This may applyto areas such as customer relations; servicelevels for both internal and outsourced activi-ties; [and] health, safety and environmentalprotection.).

See also the Turnbull Report, APPENDIX, 4,Monitoring (Are there ongoing processes em-bedded within the company’s overall businessoperations, and addressed by senior manage-ment, which monitor the effective applicationof the policies, processes and activities relatedto internal control and risk management?(Such processes may include ... confirmationby personnel of compliance with policies andcodes of conduct.)).

See also Turnbull Report, APPENDIX, 1 (Arethe significant internal and externaloperational, financial, compliance and otherrisks indentified and assessed on an ongoingbasis? (Significant risks may, for example,include those related to market, credit,liquidity, technological, legal, health, safetyand environmental, reputation, and businessprobity issues).

40






The NAPF supports all-employee shareschemes because they serve to align theinterests of both employees and companies.Any such schemes should be assessed by theinvestor, particularly those affecting thedilution of existing shareholdings and the grantof options at a discount to market price.(§20(i))

See §24 ([P]ension fund trustees are nowrequired, under Pensions Act regulation, tostate in the SIP [Statements of InvestmentPrinciples] the extent, if at all, that social,environmental and ethical considerations aretaken into account in connection with theirinvestment strategy.Over time, this requirement is likely to have asignificant impact on UK governance practicesas institutional investors seek to establish theextent and nature of corporate activity in theseareas in order that their impact on longtermshareholder value can be better assessed. Atthe same time, boards of directors willincreasingly incorporate these concepts intocorporate strategy and companies will strive torespond to investor concerns.Companies should now ensure that they reportto shareholders on these developments.).

See §20(ii) (All-employee share schemes anddilution limits).

Not covered directly, but see Key Principle 9(Where member firms have a policy on widerissues affecting the companies in which theyinvest, such as attitudes towards environmentalor social issues, or on donations to politicalparties, AUTIF encourages firms to disclosethis to investors.).

See also Guidance Note on Key Principle 6.D.3(Member firms may wish to take into accountthe policy of the companies in which they in-vest towards environmental and social issuesand on political donations.).

A company run in the long-term interests of itsshareholders will need to manage effectivelyrelationships with its employees, suppliers, andcustomers, to behave ethically and to haveregard for the environment and society as awhole. (1.2)

These guidelines are intended to assist thecompanies in which Hermes invests on behalfof its clients meet the concerns of those clientson social, environmental and ethical (SEE)matters. These guidelines reflect both the needfor pension fund trustees to take SEE mattersinto consideration in investing the funds en-trusted to them and the disclosurerecommendations of the Turnbull Report onfinancial and non-financial risks. They areintended to compliment existing standards....Underlying these guidelines is an assumptionthat the effective management of the risks as-sociated with SEE matters can lead to long-term financial benefits for the companies con-cerned. (APPENDIX 4, Introduction)

See generally APPENDIX 4: GUIDELINES FORREPORTING ON SOCIAL, ENVIRONMENTAL ANDETHICAL MATTERS.

Our pension fund clients in particular are ...developing socially responsible investmentstrategies.... The extent to which [such] con-siderations are taken into account by pensionfund investors, and whether such concernsshould be expressed through a voting policy, iscurrently under debate.... PIRC is an activeparticipant in this debate and has launched ourSocially Responsible Investment Service,which provides profiles and ratings of compa-nies’ policies and practices on stakeholderissues. (Part 1: Introduction, p. 3)

Remuneration structures should reward theefforts of all staff since a motivated and well-rewarded workforce is an important compo-nent of company performance.... Companiesshould have bonus and incentive structureswhich reward all employees for business suc-cess.... (Part 3: Directors’ Remuneration,p. 11)

Although the prime focus is on the board andaccountability to shareholders, directors shouldidentify their key stakeholders, and shouldreport on and be held accountable for the qual-ity of these relationships since they underpinlong-term business success.... [C]ompaniesshould identify their key stakeholder relation-ships and adopt an appropriate format to reporton each. Specifically in relation to stakeholderissues, companies should disclose policies formanaging relationships, lines of accountability,methods and scope of engagement, perform-ance targets and measurement systems, andany external independent verification proce-dures. (Part 4: Audit and Reporting, p. 12)

See Part 6: Other Voting Issues, p. 18 (em-ployee share option schemes).

See also Part 7: Environmental Reporting,pp. 20-21.

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4. Board Job DescriptionThe board should fulfill certain key functions,including:1. Reviewing and guiding corporate strategy,

major plans of action, risk policy, annualbudgets and business plans; setting per-formance objectives; monitoringimplementation and corporate perform-ance; and overseeing major capitalexpenditures, acquisitions and divestitures.

2. Selecting, compensating, monitoring and,when necessary, replacing key executivesand overseeing succession planning.

3. Reviewing key executive and board remu-neration, and ensuring a formal andtransparent board nomination process.

4. Monitoring and managing potential con-flicts of interest of management, boardmembers and shareholders, including mis-use of corporate assets and abuse inrelated party transactions.

5. Ensuring the integrity of the corporation’saccounting and financial reporting sys-tems, including the independent audit, andthat appropriate systems of control are inplace, in particular, systems for monitor-ing risk, financial control, and compliancewith the law.

6. Monitoring the effectiveness of the gov-ernance practices under which it operatesand making changes as needed.

7. Overseeing the process of disclosure andcommunications.

(OECD Principle V.D)

The ICGN Statement adopts OECD PrincipleV.D (The board should fulfill certain key func-tions, including:1. Reviewing and guiding corporate strategy,

major plans of action, risk policy, annualbudgets and business plans; setting per-formance objectives; monitoringimplementation and corporate perform-ance; overseeing major capitalexpenditures, acquisitions, divestitures.

2. Selecting, compensating, monitoring and... replacing key executives and overseeingsuccession planning.

3. Reviewing key executive and board remu-neration, and ensuring a formal andtransparent board nomination process.

4. Monitoring and managing potential con-flicts of interest of management, boardmembers and shareholders, including mis-use of corporate assets and abuse inrelated party transactions.

5. Ensuring the integrity of the corporation’saccounting and financial reporting sys-tems, including the independent audit, andthat appropriate systems of control are inplace, in particular, systems for monitor-ing risk, financial control, and compliancewith the law.

6. Monitoring the effectiveness of govern-ance practices under which it operates andmaking changes as needed.

7. Overseeing the process of disclosure andcommunications.).

The board of directors is responsible for themanagement of the company and therefore forsetting the company’s objectives, defining itsstrategy and policy and the ensuing develop-ment of results. The executive members shouldreport to the non-executive members or themembers of the supervisory board on the com-pany’s objectives and strategy, and theassociated risks. The members of the board arealso responsible for adequate disclosure toshareholders.The primary responsibility of the executives foreffective systems of internal control followsnaturally from their responsibility for the com-pany’s strategy and the achievement of itsbusiness objectives. (Commentary on Recom-mendations 10(a) & 10(b))

Non-executive members of the board, as wellas – in a two-tier structure – members of thesupervisory board, are concerned with the su-pervision of management policy and thegeneral state of affairs in the company. Theirmain tasks are (in order of importance):§ to control and supervise the executive

board members;§ to ensure the good quality of the executive

board;§ to advise the executive board.(Commentary on Recommendations 10(a) and10(b))

Key areas of concernThese should, at least, include: objectives,strategy, risks, major acquisitions and invest-ments, accounts and budgets, performance,corporate governance, stakeholder policies,senior executive nomination, remuneration andsuccession planning, conflicts of interest, cor-porate ethics and behaviour, audit and controlsystems, disclosure and communication ofinformation. (Recommendation V.2)

It is the function of management to run thebusiness of the company in accordance withthe strategies, policies and criteria defined [bythe board]. (Recommendation VII.1)

Management is accountable to the board, thecompany and its shareholders as a whole.(Recommendation VII.2)

The board should determine the powers dele-gated [to management] and the decision-making process. (Recommendation VII.4.a)

See Principle VII (Management should havesufficient latitude to propose and implementcorporate strategy.).

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4. Board Job Description

If there is a Secretary of the Board of Directors,the directors must be able to consult with himand call upon his services. The Secretary of theBoard must ensure that the procedures in rela-tion to the functioning of the Board and theregulations which apply to it are complied with.If there is no Secretary of the Board of Direc-tors, the Board shall take the necessary actionso that a person is given the task of monitoringcompliance with the procedures in connectionwith the functioning of the Board and the ap-plicable regulations.In both cases, he can only be replaced by adecision of the Board itself. (1.5)

The Board of Directors defines the appoint-ments which are within its powers. (Note to2.1)

See Topic Heading 2, above.

The board of directors is responsible forensuring that proper rules of corporategovernance are in place. The board of directorsis accountable for its administration to thegeneral meeting of shareholders. (Part I: A.2)

Non-executive directors should bring anindependent judgement to bear on issuesrelating to the company’s strategy, performanceand resources, including key appointments andstandards of conduct. (Part I: B.2.1)

The board shall see to it that executivemanagement develops and implements the toolsnecessary to allow appropriate and effectiveinternal control. (Part I: B.4.4)

THE COMPANY DIRECTOR, IN THE EXERCISE OFHIS FUNCTIONS, UNDERTAKES TO:1. Act independently in all circumstances.2. Actively protect the company’s interests.3. Ensure the effective functioning of the

Board of Directors.4. Protect the interests of all shareholders.5. Take into account the legitimate expecta-

tions of all the company’s partners (thecommunity, clients, executives, employ-ees, suppliers and creditors).

6. Ensure that the company respects its obli-gations and commitments, and the laws,regulations and codes of good practice.

7. Avoid any conflict between his or herdirect personal interests and those of thecompany.

8. Avoid any improper use of information orinsider trading.

9. Permanently develop his or her profes-sional capacities.

10. Adhere to the spirit of this Charter.(p. 2)

The Director undertakes to acquire a sufficientunderstanding of the company and of its eco-nomic, social and legal context.

[I]t is the role of the board, upon proposalsmade by the management, to define the com-pany’s mission and values, to lay down itsstrategic objectives, to appoint the manage-ment, to implement permanent structures forthe attainment of its objectives, and to ensurethe implementation of an operational plan andcontrol of the company to furnish the necessaryexplanations to the shareholders. (p. 4)

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Not covered directly, but see II. Governance. The board must handle the overall strategicmanagement and the financial and the manage-rial supervision of the company andcontinuously evaluate the management’s work.The board’s most essential tasks include:§ establishing the overall goals and strate-

gies and following up on these.§ ensuring clear guidelines for responsibil-

ity, distribution of responsibilities,planning and follow-up, as well as riskmanagement.

§ appointing a qualified management, es-tablish the managers’ conditions ofemployment, including preparing guide-lines for the appointment and compositionof the management, as well as ensuringthat the remuneration of the managers re-flects the results they achieve.

§ ensuring that relations to the company’sstakeholders are good and constructive.

(IV.1)

It is recommended that the company prepares awork and task description containing a descrip-tion of the tasks, duties and responsibilities ofthe chairman, and the deputy chairman, if re-quired. (IV.2)

See Topic Heading 32, below (risk manage-ment).

The Board of Directors of the company shalldefine the central terms of the employmentrelationship of the Managing Director in aManaging Director Agreement, which shall beapproved by the body appointing the ManagingDirector. (English Summary, 2)

See English summary, 1 (The areas of respon-sibility shall be defined in particular in the caseof a full-time Chairman of the Board of Direc-tors or another member of the Board ofDirectors employed by the company.).


The Board of Directors shall annually discussthe ways in which it aims to tend to its tasks.(2.1.1)

The Board of Directors shall discuss the waysof measuring the profitability of the company’sactions. It is essential to make sure that theactivities produce economic value-addedmeasured by the economic profit meter or byother corresponding methods. (2.1.2)

See generally 2.1 (Operations of the Board ofDirectors).

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With the exception of the powers which the lawexpressly reserves to the board as a whole, boththe board of directors and the chairman havethe widest powers to act in the company’sname in all circumstances. (p. 4)

While a company is instituted by privateagreement, in France the respective powers ofits governing bodies are determined by law andmay not be altered by the terms of thisagreement. (p. 5)

The only conflicts of authority which havegiven rise to some dispute have concerned thedivestment of major business operations andassets. The case law in this area is perfectlyclear, making the board or its chairman alonecompetent to effect such divestments, except inthe event that they prejudice the company’sobjects [sic], which the extraordinary generalmeeting of shareholders alone is competent tomodify.Clearly, then, the board must respect the rightsof the general meeting of shareholders when itenvisages a transaction which is of a nature toaffect, de jure or de facto, the company’sobjects, which represent the purposes for whichit was established. Even if this is not the case,it is the Committee’s opinion that the boardshould also ask the general meeting ofshareholders to consider any divestmentrepresenting a preponderant portion of thecompany’s assets or activities. (p. 6)

In addition to strict compliance with legalobligations to shareholders, the board ofdirectors of a listed company bears specialresponsibility to the market. (p. 6)

See pp. 20-21 (directors’ rights andobligations).See also Topic Heading 2, above.

The shareholders’ meeting is the occasionwhen the Board of Directors renders its ac-counts to the shareholders on the exercise of itsduties. The directors’ presence is thereforeessential. (§ I.B)


The French position ... offers the option be-tween a unitary system (Board of Directors)and a dual system (Supervisory Board andManagement Board) in all corporations, in-cluding listed corporations. (p. 5)

The Committee is favorable to the introductionin French law of an alternative allowing theBoard of Directors to opt for combination orseparation of the offices of chairman and chiefexecutive officer.... As a result of such astatutory reform:[T]he rules of operation of the Board will haveto specify the duties assigned to the chairmanof the Board of Directors, by delimitation inrelation to the powers of the chief executiveofficer and those of the Board itself (frequencyof meetings, agenda, presiding at the meetingof shareholders, monitoring of the corpora-tion’s operations, etc.).In that situation, the chief executive officer willneed to be a Director and be appointed by theBoard upon the chairman’s motion, will havefull powers to act in all circumstances in thecorporation’s name, and will have the title ofdirecteur général exécutif (chief executiveofficer).Regardless of the choice made, the rules ofoperation of the Board will have to specifyclearly the division of powers between theBoard of Directors on the one hand, and thechairman and chief executive officer (combi-nation), or the chief executive officer(separation), on the other hand.In particular, areas such as the group’s indebt-edness and its major acquisitions anddivestments will have to be subjected to reso-lutions passed in due time by the Board ofDirectors of the parent company, even if theyare not legally mandatory. (pp. 21-22)

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The Management Board operates as initiator ofmeasures, while the Supervisory Board takesup the role of informed discussion partner(sounding board). (Code, II.3.2)

Supervisory Board[C]o-operation between representatives of thestockholders and of the employees on the Su-pervisory Board is based on consent. It is thejoint discussions in Supervisory Board com-mittees which offer the chance of preventing orbreaking up dysfunctional formations of frac-tions between the two sides. (Code, V.2.5)

In the case of insurmountable divergences ofopinion between the representatives of thestockholders and of the employees in a Super-visory Board where the members have parity,the Chairman of the Supervisory Board, who isnormally appointed from the stockholder side,has a second vote for resolving the stalemate.(Code, V.2.6)

See Code, II.3 (decision-making when settingfundamental directions); II.4 (promotion of theculture of discussion).

See also Code, IV (governance standards forthe Supervisory Board).

Management Board[R]esponsibility for developing the value of thecompany lies primarily with ... the Manage-ment Board. (Code, I.7)

A member of the Management Board is re-sponsible for the core activity of work andsocial services within the ambit of the Co-determination Act 1976 (director for employeerelations). (Code, V.2.4)

See Code, III (governance standards for theManagement Board).

Supervisory BoardThe Supervisory Board can subject certaintransactions to its approval (§ 111 GermanStock Corporation Act). This refers in par-ticular to investment projects, loans, theestablishment of subsidiaries as well as theacquisition or disposal of shareholdings abovea certain size. (Code, III.2.b)

The Supervisory Board issues its own StandingRules and stipulates the information and re-porting duties of the Management Board.(Code, III.2.d)

(For a list of additional responsibilities, seeCode, III.2.a - h).

Management Board[A]ccording to § 77 German Stock CorporationAct, the Management Board is bound by Cor-porate interest, Company policy and theGroup’s guidelines, as well as the basic princi-ples of proper management. (Code, II.1.a)

The Management Board is responsible for en-suring compliance with legal requirementswithin the Group and to ensure their observa-tion by the Group companies. (Code, II.1.c)

(For a list of additional duties, see Code, II.2.a- j).

The Management Board and Supervisory Boardwork closely together for the benefit of theenterprise. (§III.1)

Supervisory BoardFor transactions of fundamental importance,the Articles of Association or the SupervisoryBoard specify approval provisions reserved tothe Supervisory Board. They include decisionsor measures which fundamentally change theasset, financial or profit situations of the enter-prise. (§III.3)

The task of the Supervisory Board is to adviseregularly and supervise the Management Boardin the management of the enterprise. It must beinvolved in decisions of fundamental impor-tance to the enterprise. (§V.1.1)The Supervisory Board appoints and dismissesthe members of the Management Board.(§V.1.1)The Supervisory Board shall issue Terms ofReference. (§V.1.3)

Management BoardThe shareholders’ General Meeting is to beconvened by the Management Board….(§II.3.1)The Management Board ensures that all provi-sions of law are abided by and works towardstheir compliance by group companies.(§IV.1.3)The Management Board ensures appropriaterisk management and risk controlling in theenterprise. (§IV.1.4)The Management Board shall establish princi-ples and guidelines for the enterprise.(§IV.1.5)Terms of Reference shall regulate the alloca-tion of business in the Management Board.(§IV.2.1)See Topic Heading 34, below.

46




Preda Report(Italy)


The Board of Directors has the responsibility,more specifically, for the following:§ The design of the general strategy and

planning of the corporation, the formationof the corporation’s annual budget andbusiness plan, the determination of thecorporation’s performance targets and themonitoring of the efficiency of governancepractices followed during the operation ofthe corporation and in large capital trans-actions.

§ The adoption and implementation of thecorporation’s general policy based on thesuggestions and recommendations by ex-ecutive management.

§ The selection, appointment and monitor-ing of executive management and thedetermination of their compensation bytaking account of the corporation’s inter-ests as well as the executivemanagement’s dismissal and replacement.

§ The consistency of disclosed accountingand financial statements, including the re-port of the (independent) certifiedaccountants, the existence of risk evalua-tion procedures, supervision, and thedegree of compliance of the corporation’sactivities to existing legislation.

§ The monitoring and resolution of conflictsamong executive management, the mem-bers of the Board of Directors and theshareholders, including the cases of mis-management of the corporation’s assetsand of privately beneficial transactions.

§ The reporting of the corporation’s activi-ties to its shareholders.

(Recommendation 5.3)

See also Footnote 4 to Recommendation 5.1(legally specified functions of the board).

The executive members [of the board] are topexecutives of the company responsible for itsmanagement. Non-executive members arepersons with particular professional experienceand social status, and with proven objectivejudgment. (§2.3)

The internal controller* is appointed by thecompany’s board of directors. A member ofthe board, an active director with other duties inthe company, or a person linked to these per-sons through a direct or indirect familyrelationship of up to the second degree may notbe appointed internal controller. The companymust inform the Capital Market Commission,within ten working days, of any changes to theperson or the organization of its internal con-trol. (§4.3)

* The internal controller is hierarchically inte-grated in the management of the company butremains independent in the exercise of his du-ties. (§4.2)

Not covered directly, but see Introduction, § 3(The fundamental responsibility for initiating,operating and controlling share option andother incentive schemes lies with companiesthemselves.).

Board of DirectorsThe board of directors shall:a) examine and approve the company’s

strategic, operational and financialplans, and the corporate structure.

b) delegate powers to managing directorsand the executive committee.

c) determine ... remuneration.d) supervise the general performance of

the company, with special reference tosituations of conflict of interest.

e) examine and approve transactionshaving a significant impact on thecompany’s profitability, assets and li-abilities or financial position.

f) check the adequacy of the general or-ganisational and administrativestructure.

g) report to the shareholders at share-holders’ meetings.

(Code, 1.2)

Managing directors shall endeavour to in-form the board of the main statutory andregulatory innovations.... (Code, 1.4)

Non-executive directors shall bring theirspecific expertise to board discussions andcontribute to the taking of decisions that areconsistent with the shareholders’ interests.(Code, 2.2)

The managing directors shall ensure theeffectiveness and adequacy of the internalcontrol system [and] define its procedures.(Code, 9.1)

Board of AuditorsThe members of the board of auditors arerequired to treat the documents and infor-mation they acquire in the performance oftheir duties as confidential and to complywith the procedure for the disclosure tothird parties of such documents and infor-mation. (Code, 13.3)

47






The Supervisory Board is responsible for thesupervision of management policy and thegeneral course of affairs in the company.(Recommendation 2.1)

The Supervisory Board advises the [Manage-ment Board]. It acts as a body with collectiveresponsibility, without a mandate and inde-pendently of subsidiary interests associatedwith the company. (Recommendation 2.1)

If the company, whether at its own request ornot, is subjected to a rating agency, the reportprepared by such an agency should be dis-cussed in the Supervisory Board.(Recommendation 6.5)


Not covered directly, but see Recommendation2 (Companies should clearly state in writing thefinancial objectives and strategy and shouldoutline them in the annual report.).

See also Commentary on Recommendation 2(Clear objectives and strategies give investors ahold to investment decisions and holding man-agers accountable for their actions andmanagement.).

Not covered directly, but see Topic Heading 2,above.


48






Internal regulations of the company must layout the obligations arising from the generalduties of diligence and loyalty, especially cov-ering situations of conflicting interests, theobligation of confidentiality, and the use ofbusiness opportunities and corporate assets.(Code, Recommendation 16)

[The] Committee recommends that the Boardof Directors explicitly assume the followingresponsibilities:(a) approval of the general corporate strategy;(b) appointment, remuneration and, as the

case may be, removal of top management;(c) control of management and evaluation of

performance;(d) identification of major corporate risks and

implementation and follow-up of internalcontrol and information systems;

(e) establishment of information and reportpolicies in respect of shareholders, mar-kets and the public opinion.

The Committee considers that the Board ofDirectors should take the above as functionsthat cannot be delegated. (Report, 1.2)

Directors as such have no specific functionwithin the Board structure. All of them have totake part in the deliberations and collectivedecisions and are accountable for them.... Di-rectors coming from the executive line areespecially expected to provide information,strategic assessment and decision proposals,whereas outside directors are basically ex-pected to provide an independent view,evaluation capacity and authority to solve con-flicting interests. (Report, 3.4)

The board should engage a permanent secre-tary, preferably a corporate lawyer. (Guideline2.1)

By law, the board is required to draw up a pro-gram of work, managing director directives,and reporting instructions, the contents ofwhich shall be adapted to the individual com-pany’s particular situation. (Guideline 2.3)

The board has the ultimate responsibility forthe company’s remuneration policy and thetotal costs for this. (Guideline 2.4.2)

The board should establish written proceduresfor the conduct of its business which shouldinclude the matters covered in this Code. Acopy of these written procedures should begiven to each director. Compliance should bemonitored, preferably by an audit committee ofthe board, and breaches of the proceduresshould be reported to the board. (Code, §1)

[A]ll material contracts, and especially thosenot in the ordinary course of business, shouldbe referred to the board for decision prior to thecommitment of the company. (Code, §5)

The company secretary should be responsibleto the chairman for the proper administration ofthe meetings of the company, the board andany committees thereof. To carry out this re-sponsibility the company secretary should beentitled to be present at (or represented at) andprepare (or arrange for the preparation of) min-utes of the proceedings of all such meetings.(Code, §9)

Where companies feel that they must providefor divisional or assistant directors or someother category whose title includes the worddirector, such persons must be clearly seen notto have any statutory authority or ability to acton behalf of the company in the capacity of adirector. (p. 2)

[Independent directors] have a primary func-tion to comment on corporate strategy wherethey can bring an objectivity and independenceof view borne by their outside experience.While it is recognized that in some instancesprofessional advisers bring their own particularexpertise to this role, the value of the inde-pendent non-executive director is theindependence, personality and experiencewhich he or she can contribute to the delibera-tions of the Board. (p. 3)

[T]asks of non-executive directors [include]: i. to contribute an independent view to the

Board’s deliberations; ii. to help the Board provide the company

with effective leadership; iii. to ensure the continuing effectiveness

of the executive directors and manage-ment;

iv. to ensure high standards of financialprobity on the part of the company.

(p. 3)

The Insolvency Act 1986 imposes obligationson a director once he knows that the companyis unlikely to avoid insolvent liquidation.(p. 5)

49






The board should have a formal schedule ofmatters specifically reserved to it for decisionto ensure that the direction and control of thecompany is firmly in its hands. (Code, 1.4)

All directors should have access to the adviceand services of the company secretary, who isresponsible to the board for ensuring that boardprocedures are followed and that applicablerules and regulations are complied with.(Code, 1.6; see Report, 4.25)

Non-executive directors should bring anindependent judgement to bear on issues ofstrategy, performance, resources, including keyappointments, and standards of conduct.(Code, 2.1)

It is the board’s duty to present a balanced andunderstandable assessment of the company’sposition. (Code, 4.1)

The directors should report on the effectivenessof the company’s system of internal control.(Code, 4.5)

Shareholders have delegated many of theirresponsibilities as owners to the directors whoact as their stewards. (Report, 6.6)

See also Topic Heading 2, above.

Boards should develop clear terms of referencefor their remuneration committees.(Commentary on Remuneration Committees,4.4)

Remuneration committees should beconstituted as sub-committees of the Board ofDirectors with a special responsibility todischarge, on behalf of the Board, certainfunctions which the Board itself should notdischarge. The Board should elect both theChairman and the members. (Commentary onRemuneration Committees, 4.7)

See Code, A3 (Where necessary, companies’Articles of Association should be amended toenable remuneration committees to discharge[their] functions on behalf of the Board.).

See also Commentary on RemunerationCommittees, Membership and Qualifications,4.10 (It is sometimes suggested thatremuneration committees should include one ormore independent members not associated withthe company’s Board or management. In ourview, this would be wrong. The Board must beresponsible for all aspects of a company’saffairs.).

See also Commentary on RemunerationCommittees, Membership and Qualifications,4.8 (The remuneration committee shouldconsist exclusively of Non-Executive Directorswith relevant experience who:§ have a good knowledge of the company

and its Executive Directors, a keen interestin its progress and a full understanding ofshareholders’ concerns; and

§ have a good understanding, enhanced asnecessary by appropriate training or accessto expert advice, of the areas ofremuneration committee business.).

Executive directors share with their non-executive colleagues overall responsibility forthe leadership and control of the company. Aswell as speaking for the business area orfunction for which he or she is directlyresponsible, an executive director shouldexercise individual judgement on every issuecoming before the board, in the overall interestsof the company. (Guideline 3.6)

Non-executive directors are normally appointedto the board primarily for their contribution tothe development of the company’s strategy.(Guideline 3.8)

The prime responsibility of the board ofdirectors is to determine the broad strategy ofthe company and to ensure its implementation.To do this successfully requires high qualityleadership. It also requires that the directorshave sufficient freedom of action to exercisetheir leadership. The board can only fulfil itsresponsibilities if it meets regularly andreasonably often. (Guideline 3.11)

All directors should have access to the adviceand services of the company secretary, who isresponsible to the board for ensuring thatboard procedures are followed and thatapplicable rules and regulations are compliedwith. Any question of removal of thecompany secretary should be a matter for theboard as a whole. (Code § 1, A.1.4)

All directors should bring an independentjudgement to bear on issues of strategy,performance, resources, including keyappointments, and standards of conduct.(Code § 1, A.1.5)

Companies which do not have an internal auditfunction should from time to time review theneed for one. (Code § 1, D.2.2)

The board of directors is responsible for thecompany’s system of internal control. Itshould set appropriate policies on internalcontrol and seek regular assurance that willenable it to satisfy itself that the system isfunctioning effectively [and] is effective inmanaging risks in the manner which it hasapproved. (Turnbull Report, ¶16)

Reviewing the effectiveness of internal controlis an essential part of the board’s responsibil-ities.... Management is accountable to theboard for monitoring the system of internalcontrol and providing assurance to the boardthat it has done so. (Turnbull Report, ¶25)

Should the board become aware at any time ofa significant failing or weakness in internalcontrol, it should determine how the failing orweakness arose and reassess the effectivenessof management’s ongoing processes for de-signing, operating and monitoring the systemof internal control. (Turnbull Report, ¶34)

See Turnbull Report, ¶¶17, 20-24 (policies andcomponents of internal control).

50






Non-executive directors have the capacity tolook at the interests of the company as a wholeover the longer term and should be capable,therefore, of exercising independent judgementwith an ability to influence board decision-making. (§2)

Independent directors play an essential role byusing their unfettered judgement on the issuesof strategy, performance, resources, keyappointments and standards of conduct. Suchindependent assessment of strategic direction isprobably the greatest value to be derived froman independent non-executive director. (§3)

Principle D.1 [of the Combined Code] statesthat the board should present a balanced andunderstandable assessment of the company’sposition and prospects....Guidance for directors on the implementationof these recommendations was set out in thereport of the Internal Control Working Party ofthe Institute of Chartered Accountants in Eng-land and Wales (the Turnbull Committee). TheStock Exchange considers that compliance withthe Turnbull guidance will constitute compli-ance with the relevant provisions of theCombined Code. (Guidance Note on Key Prin-ciple 6)

Non-executive directors (NEDs) should workco-operatively with their executive colleaguesand demonstrate objectivity and robust inde-pendence of judgement in their decision-making. (1.3)

The key role of NEDs is to ensure that the chiefexecutive and the board as a whole concentrateon maximizing long-term shareholder value.There are three aspects to this for which NEDsshould expect to be held accountable:§ Strategic function – Bringing their inde-

pendent judgement to strategic decision-making;

§ Expertise – Providing skills and experi-ence that may not otherwise be readilyavailable to the company;

§ Governance function – Ensuring compli-ance with best practice, participating inthe appointment of new directors andmonitoring the performance of NEDs.

(2.2)

The senior NED should [be] available for con-fidential discussions with other non-executivedirectors who may have concerns which theybelieve have not been properly considered bythe board as a whole. (APPENDIX 2.2)

PRINCIPLE: The directors ... should de-scribe their respective responsibilities forthe accounts. (p. 13)There are a variety of roles to be performedwithin a unitary board, notwithstanding thelegal position that all directors are equallyresponsible for the board’s actions and all areequally accountable to the shareholders. Di-rectors should act in the interests of thecompany as a whole, and not be beholden to aparticular shareholder.

Two-tier board structures can be a means ofovercoming some of the tensions within aunitary board between the executive functionand the monitoring function. (Part 2, Direc-tors,p. 4)

Non-executive directors are central to an ef-fective and accountable board structure. Theyfulfill two functions which may be broadlydescribed as supervisory and advisory. Theybring an independent perspective to bear onissues where the executive directors face aconflict of interest. They also strengthen theboard by expanding its range of experience.They have a crucial role to play in reviewingthe performance of the executives, upon whichcommercial success will be substantially reli-ant. (Part 2: Directors, p. 5)

[I]t is the board’s responsibility to set internalcontrol policies. (Part 4: Audit and Reporting,p. 12)

See Part 4: Audit and Reporting, p. 12 (list ofdirectors’ stewardship issues).

51





5. Board Membership Criteria

Not covered directly, but see OECD Principle IAnnotation at 25 (Shareholders’ rights to in-fluence the corporation centre on certainfundamental issues, such as ... influencing thecomposition of the board.).

Not covered directly, but see ICGN AmplifiedOECD Principle IV at 8 (The ICGN furtherasserts that corporations should disclose uponappointment to the board and thereafter in eachannual report or proxy statement sufficientinformation on the identities, core competen-cies, professional backgrounds, other boardmemberships, factors affecting independence,and overall qualifications of board membersand nominees so as to enable the assessment ofthe value they add to the company. Informa-tion on the appointment procedure should alsobe disclosed annually.).

Not covered directly, but see Recommendation10(b) (No more than one non-executive boardmember should have served as an executiveboard member of the company.).

Not covered.

52






Not covered directly, but see Part I: B.1.1([The board of directors] must be capable ofmonitoring the executive management.).

Not covered.

53







It is essential that the board is composed insuch a manner that it is capable of handling itsmanagerial tasks, including the strategic tasksof the company in an efficient and forwardlooking manner, and that it acts as a construc-tive and qualified sparring partner for themanagement at the same time. It is also essen-tial that the directors always act independentlyof special interests. The board must continu-ously ensure that its composition and itsprocedures reflect the demands posed by thecompany’s current situation and circumstances.(V)

[T]he board should state the recruitment criteriawhich the board has established, including therequirements of professional qualifications,international experience etc. which, in theopinion of the board, represent essential quali-ties with regard to the board. (V.1)

Not covered directly, but see English Sum-mary, 5 (The personal and interest-groupinformation of the persons nominated asmembers of the Board of Directors have to benotified, at the latest, at the General Meetingof Shareholders. . . . After the election, theinformation has to be mentioned in the An-nual Report and in the Listing Particulars.The same publication criteria that govern themembers of the Board of Directors shall beapplied to the members of the SupervisoryBoard and, after the election, to the ManagingDirector. . . . The Listing Particulars shall alsocontain the personal and interest-group infor-mation of the members of the SupervisoryBoard.The following items shall be disclosed as per-sonal and interest-group information:§ name and age;§ education and the most central work or

other experience;§ main job at the time of nomination; and§ the most central simultaneous tasks or

known future tasks.).

Not covered.

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Not covered directly but see p. 14 (Cross-shareholdings frequently, but not inevitably,result in reciprocal board membership, with onecompany holding a seat on the board of anothercompany, which in turn has a seat on the boardof the first company. This situation naturallyraises some questions on the market.The Committee thus believes that when aboard is considering how best to structure itsmembership, it should take care to avoidincluding an excessive number of such recip-rocal directorships.).


Not covered directly, but see § II.B.3 (TheCommission favors each Board having a nomi-nating committee responsible for proposingcandidates to Board membership…. This com-mittee should draw up a report, with supportinginformation, on the recommendations itmakes.).

Not covered directly but see p. 24 (When adirector’s appointment or the extension of hisor her term of office is referred to the meetingof shareholders, the annual report and noticecalling the shareholders should include, in ad-dition to the statutory statements, abiographical notice outlining his or her rés-umé.).


55





Supervisory BoardIn its proposals to the annual general meetingfor the election of new members as well as re-appointments to office, the Supervisory Boardallows itself to be guided by the considerationthat, as to suitability of the persons appointed,the decisive factor is ability. In order to ensurethe necessary quality in proposals for appoint-ment, the Supervisory Board discusses andmakes decisions based on transparent criteriafor the assessment of the candidates who comeup for election. (Code, IV.4.1)

In particular, the Supervisory Board makescertain with its proposals as to appointmentsthat the representatives of the stockholders pos-sess those various qualifications which arerequired for competent control of the Manage-ment Board according to the realities of thecompany. (Code, IV.4.2)

Management BoardNot covered directly, but see Code, II.1.1 ([A]balanced multiplicity of qualifications and theability of the individual Management Boardmembers to work together as a team has to beensured.).

See also Code, II.1.2 (Making certain of anoptimal qualification of Management Boardmembers belongs to [the Supervisory Board’s]tasks.).

Supervisory BoardNot covered directly, but see Code, III.1.a)(The proposals for elections of SupervisoryBoard members to the General Meeting shallensure that the proposed candidates have boththe required knowledge and skills as well as therelevant professional experience.).

See also Code, III.1.b) (The proposal for elec-tion to the Supervisory Board shall not include,as a matter of course, the election of retiringManagement Board members.).

Management BoardNot covered.

Supervisory BoardFor nominations for the election of members ofthe Supervisory Board, care shall taken that, atall times, there are members on the SupervisoryBoard who, as a whole, have the requiredknowledge, abilities and expert experience toproperly complete their tasks and are suffi-ciently independent. Furthermore, theinternational activities of the company, poten-tial conflicts of interest and an age limit to bespecified for the members of the SupervisoryBoard [should] be taken into account. (§V.4.1)

To ensure the Supervisory Board’s independentadvising and supervising of the ManagementBoard, the Supervisory Board shall have nomore than two former members of the Man-agement Board and Supervisory Boardmembers shall exercise no directorships orsimilar positions or advisory tasks for impor-tant competitors of the enterprise. (§V.4.2)

Management BoardNot covered directly, but see §V.1.1 (The Su-pervisory Board appoints and dismisses themembers of the Management Board.).

See also §V.1.2 (The Supervisory Board cantransfer preparations for the appointment ofmembers of the Management Board to a com-mittee, which also determines the conditions ofthe employment contracts….).

56

Metzanis Report(Greece)



Preda Report(Italy)


Not covered. The executive members [of the board] are topexecutives of the company responsible for itsmanagement. Non-executive members arepersons with particular professional experienceand social status, and with proven objectivejudgment. (§2.3)

Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode § 1, A.6.2 (The names of directors sub-mitted for election or reelection should beaccompanied by sufficient biographical detailsto enable shareholders to take an informeddecision on their election.).

[E]ach company should determine the ... expe-rience and personal traits of its non-executivedirectors in relation to its size, the complexityand specific nature of its sector of activity, andthe total membership of the board. (Commen-tary on Code, 2.2)

57






The basic principle is that the [ManagementBoard] and the Supervisory Board should havethe confidence of the shareholders’ meeting.The Committee therefore recommends that thisbe borne in mind when appointing board mem-bers. [Management Boards] and SupervisoryBoards cannot perform satisfactorily in the longrun without that confidence. (Recommendation5.3)

Supervisory BoardThe Supervisory Board of each company shoulddraw up a desired profile of itself in consultationwith the [Management Board]. The SupervisoryBoard should evaluate this profile periodicallyand draw conclusions regarding its own compo-sition, size, duties and procedures. Newdevelopments, for example technological andfinancial innovations, are also of importance....The profile should reflect, inter alia, the natureof activities, the degree of internalization [and]the size ... of the company. (Recommendation2.2)

No more than one former member of the Com-pany’s [Management Board] should serve on theSupervisory Board. (Recommendation 2.5)

The Committee advocates that the number ofSupervisory Board memberships which oneperson can hold in (listed) companies should belimited so as to guarantee a proper performanceof duties. (Recommendation 2.10)


Not covered. Supervisory BoardNot covered directly, but see Guideline 13(d)(Former members of the executive boardshould not be automatically appointed asmembers of the supervisory board. Should aformer executive board member be appointedto the supervisory board, he should not act aschairman.)

See also Guideline 17 (Profiles of thesupervisory board … should be made availableto shareholders.).


Not covered.

58






[T]here is no single independent director profile.Therefore, it is not advisable to select themexclusively from among the significant execu-tives of other companies, although thisprovenance might especially qualify them indirecting the strategy and efficiently performingthe supervision function. It is also convenient toincorporate individuals from other professionalextractions. (Report, 5.2)

The ownership structure of the companiesmaking up our stock market features ... a notice-able capital concentration and hence a strongpresence of significant shareholders (sharehold-ers able to influence, either individually orcollectively, the control of the company). Rec-ognition of this fact has led us to encourage theparticipation of these shareholders on the Boardof Directors (“proprietary directors”). (Report,8.6)

See Report, 5.1 (The Nomination Committee’smission is to ... define and review the criteria tobe followed in determining the composition ofthe Board of Directors and the selection of can-didates.).

The board should be composed of capablemembers representing all-round competence.

No employees apart from the managing direc-tor should be included on the board. (Guideline2.1)

See Guideline 1.2.1 (Representatives of thenomination committee should always be pres-ent at the general meeting and be prepared toexplain the reasons the committee’s proposalsare based on.).

Not covered. Brief biographical details of each directorshould be set out in the Annual Report showingthe director’s relevant experience and suitabil-ity. In particular, the Annual Report shoulddisclose the ages of all directors and in thecases of those aged over 70, on occasion whenthey stand for election or re-election, an expla-nation of why it is felt appropriate that suchdirectors be retained. (p. 2)

59






Not covered directly, but see Report, 4.15(Given the importance of their distinctive con-tribution, non-executive directors should beselected with the same impartiality and care assenior executives. We recommend that theirappointment should be a matter for the board asa whole and that there should be a formal selec-tion process, which will reinforce theindependence of non-executive directors andmake it evident that they have been appointedon merit and not through any form of patronage.We regard it as good practice for a nominationcommittee to carry out the selection process andto make proposals to the board.).

Not covered directly, but see Commentary onRemuneration Committees, Membership andQualifications, 4.8 (The remunerationcommittee should consist exclusively of Non-Executive Directors with relevant experience.).

Executive directors share with their non-executive colleagues overall responsibility forthe leadership and control of the company....Boards should only appoint as directorsexecutives whom they judge to be able tocontribute [by showing leadership, speaking forthe area for which he/she is directlyresponsible, and exercising independentjudgement]. Board appointment should not beregarded simply as a reward for goodperformance in an executive role.(Guideline 3.6)

Non-executive directors are normally appointedto the board primarily for their contribution tothe development of the company’s strategy....[T]he non-executive directors should commandthe respect of the executives and should be ableto work with them in a cohesive team to furtherthe company’s interests. (Guideline 3.8)

Most non-executive directors are executives orformer executives of other companies. Thisexperience qualifies them both in constructivepolicy making and in the monitoring role.Non-executive directors from otherbackgrounds are often appointed for theirtechnical knowledge, their knowledge ofoverseas markets or their political contacts....We do not favour diversity for its own sake, togive a politically correct appearance to the listof board members or to represent stakeholders.But we believe, given the diversity of businessand size of listed companies, that there arepeople from other fields who can make a realcontribution on the board. (Guideline 3.15)

Not covered directly, but see Code § 1, A.3.1(The board should include non-executivedirectors of sufficient calibre ... for their viewsto carry significant weight in the board’sdecisions.).

See also Code § 1, A.6.2 (The names ofdirectors submitted for election or reelectionshould be accompanied by sufficientbiographical details to enable shareholders totake an informed decision on their election.).

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Not covered directly, but see §8 (The names ofdirectors submitted for election or re-electionshould be accompanied by sufficientbiographical details to enable shareholders totake an informed decision on their election.).

Not covered directly, but see Guidance Note onPrinciple 5 (AUTIF encourages member firms,as part of their dialogue with the companies inwhich they invest and when scrutinizing theannual reports and accounts, to pay particularattention to the companies’ compliance withthe Combined Code in the area ... [of] boardbalance....).

The expression of fresh views and genuinedebate across the board table are of consider-able value and importance. For this reason atleast one new independent NED should join theboard every three years, and NEDs should notnormally serve for more than ten years. (2.6)

The composition and effectiveness of the boardis a crucial element in determining corporateperformance. (Part 2: Directors, p. 4)

In order to widen the basis of experience onboards and improve their accountability andrepresentativeness, [boards] should extend theirsearch for non-executives beyond the boards ofother listed companies to include individualswith a greater diversity of backgrounds. Inter-national candidates, those with relevantexperience in the public, academic or voluntarysectors, or at divisional level in other compa-nies, may well fulfill the task. (Part 2:Directors, p. 5)

61





6. Selecting, Inviting and Orienting New Directors

Basic shareholder rights include the right to ...elect members of the board. (OECD PrincipleI.A)

Shareholders’ rights to influence the corporationcentre on certain fundamental issues, such as theelection of board members, or other means ofinfluencing the composition of the board.(OECD Principle I Annotation at 25)

The board should fulfill certain key functions,including ... ensuring a formal and transparentboard nomination process. (OECD PrincipleV.D.3)

In order to improve board practices and theperformance of its members, some companieshave found it useful to engage in training andvoluntary self-evaluation that meet the needs ofthe individual company. This might include thatboard members acquire appropriate skills uponappointment, and thereafter remain abreast ofrelevant new laws, regulations, and changingcommercial risks. (OECD Principle V.E.2 An-notation at 42)

The ICGN Statement adopts OECD PrincipleI.A (Basic shareholder rights include the rightto ... elect members of the board.).

See also OECD Principle V.D.3 (The boardshould fulfil certain key functions, including ...ensuring a formal and transparent board nomi-nation process.).

See also ICGN Amplified OECD Principle IVat 8 (Information on the appointment procedureshould be disclosed annually.).

See also OECD Principle V.E.2 Annotation at42 (In order to improve board practices and theperformance of its members, some companieshave found it useful to engage in training andvoluntary self-evaluation that meets the needsof the individual company. This might includethat board members acquire appropriate skillsupon appointment, and thereafter remainabreast of relevant new laws, regulations, andchanging commercial risks.).


[P]rior to the election [of directors], sharehold-ers should be able to suggest candidatemembers to the board. (Recommendation 9)

Basic shareholder rights include ... electing andremoving members of the board. (Recommen-dation I.1.d)

Once elected, board members should be prop-erly inducted in the company’s affairs.(Recommendation VI.2.b)

62





According to Belgian law, the General Meetingappoints all directors, whether they are execu-tive or not.For non-executive directors, however, thisappointment must take place on a proposal fromthe Board of Directors.... The appointmentscommittee should make proposals to the Boardof Directors. (Note to 2.3)

[T]he General Meeting of Shareholders isresponsible for appointing the members of theboard of directors.... (Part I: A.2)

Non-executive directors should be selectedthrough a formal procedure, and both thisprocedure and proposals for the nomination ofnon-executive directors should be a matter forthe board as a whole.The Belgian Commission on Corporate Gov-ernance regards it as good practice for anomination committee, where such exists, tocarry out the selection process and to makerecommendations to the board for the nomina-tion of both executive and non-executivedirectors, singling out the non-executive direc-tors. (Part I: B.2.4)

Not covered directly, but see p. 6 (The Directorundertakes to develop his or her professionalcapacities so as to maintain a high level of ex-pertise within a context in constant change.).

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[C]andidates’ identity and profile should bepresented prior to the [AGM], and morecandidates than seats available should beproposed – elections should take place directlyat the AGM and for a period of one year only.(I. The Annual General Meeting)

It is recommended that the directors ensure thatthe candidates for the board, who are nomi-nated by the directors, have the relevant andnecessary knowledge and professional experi-ence in relation to the requirements of thecompany, including the necessary internationalbackground and experience if this is relevant.When nominating the individual candidates, thedirectors should ensure that a given board com-position as a whole will provide the board withthe skills that are necessary for the board to beable to perform its tasks in the best possibleway.It is recommended that the board enclose adescription of the nominated candidates’ back-ground in the notice of the AGM when theelection of the directors is on the agenda. Atthe same time, the board should state the re-cruitment criteria which the board hasestablished, including the requirements of pro-fessional qualifications, internationalexperience etc. which, in the opinion of theboard, represent essential qualities with regardto the board. (V.1)

When directors join the board it is recom-mended that they are given an introduction tothe company and that the chairman, in collabo-ration with the individual director, decides if itis necessary to offer the director in questionany relevant, supplementary training. Thetraining, which can also be offered continu-ously, should be adjusted to the individualdirector’s needs and should ensure that each ofthe directors are capable of:§ taking part in a qualified dialogue with the

management about the company’s strate-gic development and prospects.

§ acquiring and keeping an overview of thecompany’s core areas, activities and theconditions of the industry in question.

§ actively participating in the board work.(V.2)

Not covered directly, but see English Summary,4 (The company shall explain in the AnnualReport and in the Listing Particulars whichbody elects the Board of Directors and theManaging Director of the company and when.Proposals to the General Meeting of the Share-olders regarding the election of the members ofthe Board of Directors and the SupervisoryBoard that have come to the knowledge of theBoard of Directors of the company shall bemade public, at the latest, at the General Meet-ing of the Shareholders when the proposal issupported by at least 20% of all the votes in thecompany and the person nominated has givenhis consent for the task.).

Not covered.

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While the power to appoint and dismiss direc-tors belongs to the general meeting ofshareholders, the board has considerable powerover its own membership, since it can co-optmembers and propose their appointment byshareholders’ meetings.At present, the identification of potential boardmembers and corporate officers is a highly in-formal process, and there is thus little guaranteethat all the factors contributing to the desirablebalance in board membership have been consid-ered and taken into account.The absence of formal procedures also leadsmarkets to assume that chairmen have undueinfluence on the choice of board members.The Committee thus recommends thatboards should set up special committees toselect board members and corporate officersor, if this is not practicable, that the tasks ...be carried out by its remunerations commit-tee.Selection committee: Made up of 3 to 5 mem-bers, including the chairman and at least 1independent director, this committee would becharged with proposing candidates after dueexamination of all relevant factors. Such factorsinclude in particular the desirable balance inboard membership, considering the structureand development of shareholdings, the desirablenumber of independent directors, the possiblerepresentation of interest groups, the identifica-tion and assessment of possible candidates andthe desirability of renewing existing director-ships. (p. 14-15)

See p. 14 ([T]he existence of cross-shareholdings may be viewed as a transitionalphenomenon in French capitalism....The Committee thus believes that when aboard is considering how best to structure itsmembership, it should take care to avoidincluding an excessive number of such recip-rocal directorships.).

The Commission favors each Board having anominating committee responsible for propos-ing candidates to Board membership. (§ II.B.3)

In order to give full weight to the process forappointment of Directors by the shareholders, itis essential for the latter to have all the infor-mation relevant to their decision. The annualreport should therefore specify systematicallythe dates of the beginning and expiry of eachDirector’s term of office, and therefore thestaggering of terms, together with the followinginformation: age, main position held, director-ships in French or foreign listed corporationsother than group affiliates, and, if applicable,membership on a Board committee. When themeeting of shareholders is required to act uponthe appointment or extension of a Director’sterm, both the annual report and the noticecalling the meeting should present the candi-date for appointment through a biographicalnotice outlining his or her resumé, withoutprejudice to the existing statutory rules. (p. 14)

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Supervisory Board[The annual meeting of shareholders] elects themembers of the Supervisory Board insofar asthey may be appointed by the stockholders –depending on the co-determination situation –either completely, or as to two-thirds, or as toone half. (Code, I.5)

[E]mployees elect either one-third or one-halfof the members of the Supervisory Board, de-pending on the size of the corporation. Theythus participate in all responsibilities of thisorgan. The one-third equal footing co-determination applies according to Labour-Management Relations Act 1952 to all corpora-tions with at least 500 but fewer than 2,000employees, and parity co-determination ac-cording to the Co-determination Act 1976 incompanies with a workforce exceeding 2,000.(Code, V.2.3)

Management BoardThe Supervisory Board decides on the selectionof the members of the Management Board....The decision of the Supervisory Board is pre-pared by the personnel committee or a searchcommittee. (Code, II.1.2)

As soon as a vacancy in the Management Boardbecomes evident, the Management Board mem-bers, in conjunction with the personnelcommittee of the Supervisory Board, shouldpresent concrete appointment proposals....Notwithstanding such possible suggestions ofthe management organ, the Supervisory Boardremains master of the appointment procedure.(Code, II.1.7)

See generally Code, II.1 (composition of theManagement Board).

Supervisory Board[M]andatory law (§ 23 German Stock Corpora-tion Act) [covers] election of members of theSupervisory Board (§ 101). (Code, I)

The proposals [made] to the General Meeting[by the Nominations Committee] for electionsof Supervisory Board members shall ensurethat the proposed candidates have both therequired knowledge and skills as well as therelevant professional experience. (Code,III.1.a)

To enable regular adjustments to material de-velopments, the election or re-election ofSupervisory Board members can take place atdifferent dates. (Code, III.1.c)

The Nomination Committee is in charge of thecomposition, size and balance of the Supervi-sory Board and the proposals for election to theGeneral Meeting. (Code, III.3)

Management BoardThe Supervisory Board appoints the membersof the Management Board. (Code, III.2.a)

The Mediation Committee ... delivers proposalsfor the appointment of Management Boardmembers if the required two-thirds majority forthe appointment or termination of ManagementBoard members has not been achieved. (Code,III.3)

Supervisory BoardThe members of the Supervisory Board areelected by the shareholders at the GeneralMeeting. For enterprises with more than 500 or2000 employees respectively in Germany, em-ployees are represented in the SupervisoryBoard, which then is composed of employeerepresentatives to one-third or to one-half. (§I)

The General Meeting … elects the sharehold-ers’ representatives to the SupervisoryBoard…. (§II.2.1)

Management BoardThe Supervisory Board can transfer prepara-tions for the appointment of members of theManagement Board to a committee, which alsodetermines the conditions of the employmentcontracts including compensation. (§V.1.2)

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Preda Report(Italy)


Shareholders should have the right to participateequitably and efficiently in the general share-holder meetings and be sufficiently, timely andproperly informed on the decisions that need tobe made regarding fundamental changes in thecorporation. These changes include ... the ap-proval of the appointment and/or dismissal ofthe members of the Board of Directors. (Rec-ommendation 1.2.5)

Not covered. Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode:Principle A.5 (There should be a formal andtransparent procedure for the appointment ofnew directors to the board.);

Code § 1, A.1.6 (Every director should receiveappropriate training on the first occasion that heor she is appointed to the board of a listedcompany, and subsequently as necessary.);

Code, § 1, A.6.2 (The names of directors sub-mitted for election or re-election should beaccompanied by sufficient biographical detailsto enable shareholders to take an informeddecision on their election.).

Board of DirectorsProposals for appointments to the position ofdirector, accompanied by detailed informa-tion on the personal traits and professionalqualifications of the candidates, shall be de-posited at the company’s registered office atleast 10 days before the date fixed for theshareholders’ meeting or at the time theelection lists, if provided for, are deposited.(Code, 7.1; see Report, 4.5.1)

In general, proposals for the election of direc-tors are put forward by the majority orcontrolling shareholders, who obviously make apreliminary selection of the candidates.

In the case of companies with a broad share-holder base, instead, candidates are also putforward, sometimes by means of election listsprovided for in the by-laws, by minority or non-controlling shareholders. (Commentary onCode, 7)

Board of AuditorsProposals to be submitted to the sharehold-ers’ meeting for appointments to the positionof auditor, accompanied by detailed infor-mation on the personal traits andprofessional qualifications of the candidates,shall be deposited at the company’s regis-tered office at least 10 days before the datefixed for the shareholders’ meeting or at thetime the related lists are deposited. (Code,13.1)

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Supervisory BoardIt is important that Supervisory Board membersare selected from a wide circle. One means ofhelping to achieve this would be via a furtherinternationalization of the composition of theSupervisory Board. (Recommendation 2.10)

Preparation of the selection criteria and nomi-nation procedures for Supervisory Boardmembers, executive directors and higher man-agement posts [may be conducted by a selectionand nomination committee]. (Recommendation3.2)

Management BoardUnder the full “structure regime,” the Supervi-sory Board is responsible for appointments tothe [Management Board]. In companies notsubject to the full “structure regime,” nomina-tions for such appointments will be the duty ofthe Supervisory Board. (Recommendation 2.1)

Supervisory BoardNot covered directly, but see Commentary onRecommendation 7 (A significant objection tothe ‘structure regime’ (members of thesupervisory board elect their own colleagues orsuccessors) is uncontrolled co-optation whichenables the board of a company not to drawobvious conclusions from a lack of trust fromshareholders.).

Management BoardNot covered directly, but see Recommendation7 (Shareholders should be able to file aresolution for dismissal of a member of theexecutive board. Adoption of this resolutionrequires at least two-thirds support and aquorum of fifty percent.).

See also Commentary on Recommendation 7(The possibility of dismissal will be used rarelybut does offer sanctions when members of thesupervisory board fail to replace disfunctionalmanagement. This situation already exists incompanies where the structure regime does notapply.)

Supervisory and Management BoardsUnless the law or articles of associationdetermine otherwise, it is the task ofshareholders to appoint the members of thesupervisory board [and] management board….(Handbook, p. 8)

Not covered.

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The Board’s intervention in the selection and re-election of its members should adjust to a for-mal and transparent procedure and should issuefrom a reasonable proposal made by the Nomi-nation Committee. (Code, Recommendation11)

The Nomination Committee’s mission is towatch over the integrity of the process of ap-pointing directors; to this end, it seems wise toentrust it with ... submit[ing] appointment pro-posals to the Board of Directors, so that it caneither appoint them directly (co-optation) orrelay those proposals to the General Share-holders’ Meeting. (Report, 5.1)

[C]ompanies receiving this report should havean induction program for new directors to topthe appointment process. The purpose of thisprogram would be to provide them with adviceon their legal duties, inform them about corpo-rate governance rules and provide a briefing onthe company’s features, situation and environ-ment. (Report, 5.3)

The notice of a general meeting where theboard is to be elected should include the namesof people the committee intends to propose andinformation about them. Representatives of thenomination committee should always be pres-ent at the general meeting and be prepared toexplain the reasons the committee’s proposalsare based on. (Guideline 1.2.1)

The board should ensure that each director isgiven on appointment sufficient information toenable him/her to perform his/her duties. Inparticular, guidance for non-executive directorsshould cover the procedures:§ for obtaining information concerning the

company; and§ for requisitioning a meeting of the board.(Code, §2)

A director must be elected by the Company inGeneral Meeting unless provision is made oth-erwise. The directors may appoint additionaldirectors if the Articles so provide and anychange in the directorate must be notified to theInternational Stock Exchange immediately.Such an appointment terminates at the nextAnnual General Meeting when the directorwould normally be eligible for election at thatmeeting. (p.2)

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Non-executive directors should be selectedthrough a formal process, and both this processand their appointment should be a matter for theboard as a whole. (Code, 2.4)

We recommend that [a non-executive director’s]appointment should be a matter for the board asa whole and that there should be a formalselection process, which will reinforce theindependence of non-executive directors andmake it evident that they have been appointedon merit and not through any form of patronage.(Report, 4.15)

One approach to making board appointments,which makes clear how these appointments aremade and assists boards in making them, isthrough the setting up of a nominationcommittee, with the responsibility of proposingto the board, in the first instance, any newappointments, whether of executive or of non-executive directors. A nomination committeeshould have a majority of non-executivedirectors on it and be chaired either by thechairman or a non-executive director. (Report,4.30)

The formal relationship between theshareholders and the board of directors is thatthe shareholders elect the directors [and] thedirectors report on their stewardship to theshareholders.... Thus the shareholders, asowners of the company, elect the directors torun the business on their behalf and hold themaccountable for its progress. (Report, 6.1)

Not covered. There should be a formal and transparentprocedure for the appointment of newdirectors to the board. (Principle A.V)

We endorse the view that it is the board’sresponsibility to appoint new directors….(Guideline 2.8)

[O]n the first occasion that an individual isappointed to the board of a listed company, heor she should receive induction into theresponsibilities of a director. It is the board’sresponsibility to ensure that this help isavailable. It is equally important that directorsshould receive further training from time totime, particularly on relevant new laws andregulations and changing commercial risks.(Guideline 3.5)

Appointment to the board should be atransparent process. Decisions should be taken,in reality as well as in form, by the wholeboard. We support the Cadbury committee’sendorsement of the nomination committee(Cadbury Report, 4.30); indeed, we believe thatthe use of such a committee should be acceptedas best practice, with the proviso that smallerboards may prefer to fulfil the functionthemselves. (Guideline 3.19)

In general, we see appointment of directors torepresent outside interests as incompatible withboard cohesion, but there may be exceptionalcases where it is appropriate for a major credi-tor or a major shareholder to nominate adirector. (Guideline 3.20)

We recommend that all names submitted forelection or re-election as directors should beaccompanied by biographical details indicatingtheir relevant qualifications and experience.This will enable shareholders to make an in-formed decision whether to support thedirector’s re-election. (Guideline 3.21)

There should be a formal and transparentprocedure for the appointment of newdirectors to the board. (Principle A.5)

Every director should receive appropriatetraining on the first occasion that he or she isappointed to the board of a listed company, andsubsequently as necessary. (Code § 1, A.1.6)

Unless the board is small, a nominationcommittee should be established to makerecommendations to the board on all new boardappointments. (Code § 1, A.5.1)

The names of directors submitted for election orreelection should be accompanied by sufficientbiographical details to enable shareholders totake an informed decision on their election.(Code § 1, A.6.2)

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All directors, particularly when first appointedto the board of a listed company, should receiveappropriate training. (§1)

There should be a formal and transparentprocedure for the appointment of new directorsto the board.Boards should establish a sub-committee(normally called the nomination committee) todeal with director appointments. Thenomination committee’s role is to filterproposals and recommend candidates to theboard. Final appointments are the responsibilityof the whole board. Where boards are verysmall, say five or less, there is likely to be a casefor the entire process to be undertaken by theboard itself, dispensing with the need for anomination committee. (§7)

All directors must be put forward for election byshareholders at the first AGM after theirappointment. (§8)

Principle A.5 of the Combined Code recom-mends that there should be a formal andtransparent procedure for the appointment ofnew directors to the board. Code ProvisionA.5.1 recommends the establishment of anomination committee, chaired by the chairmanof the board or a non-executive director, andwith the chairman and members identified inthe annual report. The company should pro-vide an explanation if there is no nominationcommittee. (Guidance Note on Key Principle6)

AUTIF encourages all member firms to providetraining for relevant staff on corporate govern-ance issues.... (Key Principle 10)

See Guidance Note on Principle 5 (AUTIFencourages member firms, as part of their dia-logue with the companies in which they investand when scrutinizing the annual reports andaccounts, to pay particular attention to thecompanies’ compliance with the CombinedCode in the area ... [of] board balance....).

The expression of fresh views and genuinedebate across the board table are of consider-able value and importance. For this reason atleast one new independent non-executive di-rector should join the board every three years.(2.6)

The role of NED is becoming increasinglycomplex, and Hermes recommends that com-panies encourage NEDs to participate in therange of seminars and workshops ... whichencourage a participatory approach and includecase studies illustrating difficult situations.(2.8)

Hermes recommends that the nominationcommittee be responsible, after consultationwith other directors, for finalizing the candidatespecification for all board appointments and forapproving the process by which suitable candi-dates are identified and short-listed....Confirmation of the appointment should be theresponsibility of the board as a whole.(APPENDIX 3.5)

The nomination committee should ensure thatall board appointees undergo an appropriateinduction program. (APPENDIX 3.6)

PRINCIPLE: There should be an independ-ent and transparent appointments andreview process. (Part 2: Directors, p. 6)

Voting on the appointment of the directors isthe most important routine issue for sharehold-ers to consider at general meetings. (Part 2,Directors, p. 4)

[On two-tiered boards,] we consider that ...shareholders should have the right to elect [all]directors [on the supervisory board] and holdthem accountable through regular election....This applies [even] to stakeholder representa-tives. (Part 2, Directors, p. 4)

Directors should receive general training ontheir responsibilities and also company-specifictraining. Companies should have a formal in-duction policy for new directors, and specialisttraining on particular issues related to certaincommittees, such as remuneration and internalcontrols. There should be a continuing devel-opment program, and standards of competenceshould be established in core skills, knowledgeand expertise. (Part 2: Directors, p. 7)

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7. Separation of Chairman and CEO

The Chairman as the head of the board can playa central role in ensuring the effective govern-ance of the enterprise and is responsible for theboard’s effective function. The Chairman mayin some countries be supported by the companysecretary. In unitary board systems, the separa-tion of the roles of the Chief Executive andChairman is often proposed as a method of en-suring an appropriate balance of power,increasing accountability and increasing thecapacity of the board for independent decision-making. (OECD Principle V.E Annotationat 42)

The ICGN Statement adopts OECD PrincipleV.E Annotation at 42 (In unitary board sys-tems, the separation of the roles of the ChiefExecutive and Chairman is often proposed as amethod of ensuring an appropriate balance ofpower, increasing accountability and increasingthe capacity of the board for independent deci-sion-making.).

Not covered directly, but see Commentary onRecommendation 9 (In the “two-tier” system,the [management and supervisory] functionsare divided over two bodies.).

In one-tier board systems, the positions of chiefexecutive officer and chairman of the boardshould preferably be distinct, subject to legalconstraints; if not, the company should discloseand explain its decision. (RecommendationV.4)

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The Belgian Commission on Corporate govern-ance recommends that there should be a cleardivision of responsibilities at the head of acompany to ensure a sound balance of powerand authority. (Part I: B.1.3)

Not covered directly, but see p. 4 ([T]he Di-rector will be attentive [t]hat no one personexercises an unlimited discretionary powerwithin the company.).

See also p. 4 (The Director undertakes to verifythat the powers and responsibilities of theBoard of Directors and of the Management areclearly established, and specifically that thepowers of management accorded to the Man-agement are clearly defined.).

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Not covered. Not covered directly, but see V.12 (the “man-aging director” and the “chairman of theboard” are referenced as separate individuals).

Not covered directly, but see English Summary,1 (The areas of responsibility shall be definedin particular in the case of a full-time Chairmanof the Board of Directors or another member ofthe Board of Directors employed by the com-pany.).

Not covered.

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[T]he Committee noted that separation [ofChairman and CEO roles] was the rule in Franceprior to the Second World War, and that it wasprecisely because this led to difficulties that thepresent arrangement was adopted. Separationmay well have its advantages where directorsalso exercising a management role represent asignificant or even preponderant proportion ofboard membership. This is not the case inFrance, since not only does the law impose aceiling on the number of directeurs généreaux(executive directors) who are also board mem-bers, but this limit is rarely reached in practice.Moreover, under French law, companies wish-ing to create a strict distinction betweenmanagement and supervision may achieve thisby opting for organization based on a legal sys-tem providing for distinct supervisory andexecutive boards....Nonetheless, the fact that most French listedcompanies and sociétés anonymes (businesscorporations) in general have opted for a boardof directors rather than supervisory and execu-tive boards suggests, in the Committee’s view,that in most cases there is no clear need for astricter division of responsibilities, and suchdivision is not usually a guarantee of bettermanagement or supervision. (pp. 8-9)

AFG-ASFFI invites companies to deliberate on… the separation of the functions of the Chair-man of the Board and the Managing Director.AFG-AFSSI is in favor of this separation in theinterest of shareholders. (§ II.A.3)

The Committee considers that introduction intoFrench law of great flexibility in the unitarysystem with a Board of Directors is particularlydesirable, and that [when a unitary system ischosen] the Boards of corporations should beallowed an open choice between combinationor separation of the offices of Chairman andChief Executive Officer.At present, the law imposes a uniform require-ment of combination of duties [in theCEO/Chairman, or else a choice of the dualboard] structure ..., which is not without rigidand cumbersome features of its own.A change in the law would allow achievementof the desired flexibility since, in the systemusing a [unitary] Board of Directors, it wouldmake the option between combination andseparation of duties the general rule.... (p. 6)

The Committee recommends first that the com-pany statute provide for the following system:The statute would require listed corporationswith Boards of Directors to refer to the extraor-dinary meeting of their shareholders, within aperiod in the order of 18 months after its en-actment, the appropriate amendment of the by-laws to allow the option between combinationand separation of the offices of Chairman of theBoard of Directors and Chief Executive Offi-cer. (p. 7)

The statutory rules with respect to civil andcriminal liability would need to be amended soas to provide for the situation where the Boardof Directors elects to separate the positions ofChairman and Chief Executive Officer. (p. 8)

See p. 5 ([A]mong the leading listed corpora-tions, the proportion of those separating theoffices [by choosing a dual board system] is thesame as in the USA.).

See generally Part One: Separation of the of-fices of Chairman and Chief Executive Officer,pp. 5-9.

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Not covered directly, but the German systemassumes a two-tier board structure with sepa-rate Chairmen of each Board.

Not covered directly, but the German systemassumes a two-tier board structure, and candi-dates proposed for election to the SupervisoryBoard shall not include, as a matter of course,retiring Management Board members. SeeCode, III.1.b).

Not covered directly, but the German systemassumes a two-tier board structure with sepa-rate Chairmen of each Board.

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Preda Report(Italy)


The separation of duties and responsibilities inthe highest levels of the corporation’s govern-ance should be encouraged with the purpose ofachieving a balance between authority, func-tions and their control. The effectiveness of thechairman of the Board of Directors in monitor-ing the operation of the Board is obviouslyweakened when that person exercises simulta-neously the duties of the Chief ExecutiveOfficer (CEO) of the corporation. (Recommen-dation 5.5)

Not covered. Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode, Principle A.2 (There are two key tasks atthe top of every public company – the runningof the board and the executive responsibility forthe running of the company’s business. Thereshould be a clear division of responsibilities atthe head of the company which will ensure abalance of power and authority, such that noone individual has unfettered powers ofdecision.).

See also the Combined Code § 1, A.2.1 (Adecision to combine the posts of chairman andchief executive officer in one person should bepublicly justified.).

The Committee has found that it is not uncom-mon in Italy for management powers to bedelegated to the chairman, either alone or to-gether with other managing directors.Accordingly, it does not recommend the sepa-ration of the two roles as a matter of principle.It does, however, recommend that listed com-panies should make the division of tasks andresponsibilities among the various positionsabsolutely clear and disclose adequate informa-tion in this respect. (Report, 5.2)

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Not covered directly but, in the context of thetwo-tier board structure, the Peters Reportstates:The Supervisory Board has a chairman whoensures that the Supervisory Board functionsproperly. The chairman has specific duties re-garding discussions on relevant issues,communication between the Supervisory Boardmembers and the [Management Board], theaccountant and the external advisers appointedby the Supervisory Board. The chairman keepsin frequent contact with the chairman of the[Management Board]. The specific duties of theSupervisory Board and those of its chairman arelaid down in the regulations for the SupervisoryBoard. (Recommendation 3.1)

Not covered directly, but the VEB Recommen-dations assume a two-tier board structure inwhich the chairman of the supervisory boardand the chairman of the management board arenot the same person.

Not covered directly, but see Guideline 13(d)(Former members of the executive boardshould not be automatically appointed as mem-bers of the supervisory board. Should a formerexecutive board member be appointed to thesupervisory board, he should not act as chair-man.).

Not covered.

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[C]onsidering that holding both [Chairman andCEO] positions is the most widespread practicein Spain and in surrounding countries, theCommittee recognizes that at present it is notproper to offer a general guideline. Neverthe-less, the concern of maintaining optimalconditions for the proper fulfillment of the gen-eral function of supervision leads us torecommend that some cautionary measures beadopted whenever one individual is to hold thetwo positions. It is a question of creating coun-ter-weights allowing the Board of Directors tooperate independently from the managementteam and to keep its power to control it. (Re-port, 3.2)

The board should normally consist of 6-9members that do not have assignments for, orbusiness connections with, the company. Norshould the chairman of the board have any suchconnections.It is not suitable to appoint a so-called workingchairman, nor that the board chairman be ap-pointed group chief executive. (Guideline 2.1)

Not covered. The combination of the roles of Chairman andChief Executive constitutes a concentration ofpower and can give rise to conflicts. The Boardhas the power to appoint, monitor the perform-ance of and, if necessary, dismiss the ChiefExecutive. This may be difficult if the ChiefExecutive is also the chairman. The roles ofChairman and Chief Executive should not,therefore, normally be combined. (p. 2)

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Given the importance and particular nature ofthe chairman’s role, it should in principle beseparate from that of the chief executive. (Re-port, 4.9)

See Code, 1.2 (There should be clearly accepteddivision of responsibilities at the head of a com-pany, which will ensure a balance of power andauthority, such that no one individual has un-fettered powers of decision.).

Not covered directly, but see Commentary onRemuneration Committees, Membership andQualifications, 4.9 (The Non-Executive Chair-man of a company should not act as Chairmanof the remuneration committee if he or she isinvolved in the day-to-day running of the com-pany or his or her own remunerationarrangements would involve any conflict ofinterest.).

There are two key tasks at the top of everypublic company – the running of the boardand the executive responsibility for therunning of the company’s business. Adecision to combine these roles in oneindividual should be publicly explained.(Principle A.II)

Cadbury recommended that the roles of chair-man and chief executive officer should inprinciple be separate; if they were combined inone person, that represented a considerableconcentration of power. We agree with Cad-bury’s recommendation and reasoning, and wealso note that in the largest companies thesemay be two full-time jobs. But a number ofcompanies have combined the two roles suc-cessfully, either permanently or for a time. Ourview is that, other things being equal, the rolesof chairman and chief executive officer arebetter kept separate, in reality as well as inname. Where the roles are combined, the onusshould be on the board to explain and justifythe fact. (Guideline 3.17)

There are two key tasks at the top of everypublic company – the running of the boardand the executive responsibility for therunning of the company’s business. Thereshould be a clear division of responsibilitiesat the head of the company which will ensurea balance of power and authority, such thatno one individual has unfettered powers ofdecision. (Principle A.2)

A decision to combine the posts of chairmanand chief executive officer in one person shouldbe publicly justified. (Code § 1, A.2.1)

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There are two discrete roles which must beperformed by those leading a company. Firstly,the board requires a chairman to guide it and,secondly, a chief executive officer who willunderstand the business, formulate proposals onstrategy for the board and implement itsdecisions. There should be a clear division ofthese responsibilities at the head of the companyto ensure a balance of power and authority, suchthat no one individual has unfettered control.The different functions of chairman and chiefexecutive officer must not be confused.Therefore, it is generally preferable for differentpeople to perform the two functions. TheCombined Code (§ 1, A.2.1) allows one personto fulfil both roles, provided this is publiclyjustified. The NAPF rejects this as a validoption. (§4)

Principle A.2 of the Combined Code recom-mends that there should be a clear division ofresponsibilities at the head of a company. CodeProvision A.2.1 states that a decision to com-bine the roles of chairman and chief executiveshould be publicly justified. (Guidance Noteon Key Principle 6)

See Guidance Note on Key Principle 5 (AUTIFencourages member firms, as part of their dia-logue with the companies in which they investand when scrutinizing the annual reports andaccounts, to pay particular attention to thecompanies’ compliance with the CombinedCode in the area ... [of the] role of chairmanand chief executive....).

Hermes favours separation of the roles ofchairman and chief executive and is generallyopposed to a chief executive becoming chair-man in the same company. Hermes prefers todiscuss any departure from this guideline inadvance of decisions being taken. The over-riding consideration will be whether thecomposition and balance of the board will en-sure that no individual can wield undueinfluence on the board. (2.4)

PRINCIPLE: There should be a clear divisionof responsibilities at the head of the com-pany.A. There is a separate chairman and chief ex-ecutive. The roles of chairman and chiefexecutive should be separate. Combining thetwo roles in one person represents a concentra-tion of power which is potentially detrimentalto board balance. Equally, in terms of ensuringeffective functioning of the board, the chairmanshould have a key role in determining boardappraisal in which the performance of the chiefexecutive and their succession must be consid-ered objectively. This can only be done if theposts are separate. The combination of roles isonly justified on a temporary basis under ex-ceptional circumstances.B. There is a non-executive chairman. Chair-men should not be executive directors andshould not have any operational involvement inthe company’s affairs, as this will detract fromtheir ability to stand back from the companyand its executives and apply objective judg-ment.C. The chairman has not previously been chiefexecutive. Former chief executives should notbe appointed as chairmen (whether executive ornon-executive) as this may also inhibit an ob-jective assessment of the executivemanagement and their strategy. It may alsoobstruct the ability of the new chief executivein developing different policies. (Part 2: Di-rectors, p. 6)

Given the board’s role in holding the executivemanagement accountable, the board chairmanshould be seen as a separate role to that of anexecutive director with operational responsi-bilities. The role expected of the chairman maywell also affect his or her ability to perform thefunction of a fully independent director, withimplications for board structure. We considerthat the chairman’s position should be non-executive. (Part 2: Directors, p. 4)

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8. Lead Director




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8. Lead Director

The division of responsibilities between theBoard of Directors and the Executive Directorsmust be clearly defined. If the chairmanship ofthese governing bodies is entrusted to the sameperson, it is necessary to ensure that there areone or more prominent individuals on the Boardof Directors who can form a counter-balance tothe influence of the chairman.This is because it is necessary to ensure that noone can exercise discretionary powers withoutcontrol. (1.2)

Where the chairman is also the chief executive,it is essential that there should be strong andindependent persons on the board whoseauthority is acknowledged. (Part I: B.1.3)


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8. Lead Director

Not covered. It is recommended that the company appoints adeputy chairman. The deputy chairman mustbe able to act in the chairman’s absence and inaddition be an efficient sparring partner to thechairman. (IV.2)


Not covered.

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8. Lead Director




85




8. Lead Director




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Predia Report(Italy)

8. Lead Director


Not covered. Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode § 1, A.2.1 (Whether the posts [of chair-man and chief executive officer] are held bydifferent people or by the same person, thereshould be a strong and independent non-executive element on the board, with a recog-nized senior member other than the chairman towhom concerns can be conveyed. The chair-man, chief executive officer and seniorindependent director should be identified in theannual report.).

Not covered.

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8. Lead Director

Not covered. Not covered. Not covered directly, but see Topic Heading 7,above.

Not covered.

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8. Lead Director

Not covered directly but see Code, Recommen-dation 5 (In the event that the Board ofDirectors chooses to adjoin the position ofChairman and CEO in the same individual, thenecessary cautionary measures should be takento reduce the risks arising from concentratingpower in the hands of one individual.).

See also Code, Recommendation 6 (The Secre-tary of the Board should be granted moreprominence, reinforcing his/her independenceand stability and emphasizing his/her functionof watching over the material and formal law-fulness of Board proceedings.).

See also Report, 3.2 ([T]he concern of main-taining optimal conditions for the properfulfillment of the general function of supervi-sion leads us to recommend that somecautionary measures be adopted whenever oneindividual is to hold the two positions [of CEOand Chairman]. It is a question of creatingcounter-weights allowing the Board of Directorsto operate independently from the managementteam and to keep its power to control it. Saidmeasures can be issued in many ways, althoughthe most effective one could be to appoint,among the independent Directors, a Vice-President with co-ordination functions. Thisindividual could be empowered to call theBoard meeting, put down new points on theagenda, submit information to directors, andvoice their concerns.).

Not covered directly but see Guideline 2.1 (It isnot suitable to appoint a so-called workingchairman....).


Not covered. Not covered directly, but see p. 2 (In circum-stances where [the roles of Chairman and ChiefExecutive] are combined it is unlikely that in-stitutional shareholders will be satisfied unlessthere is a strong body of independent non-executive directors who are aware of their over-all responsibilities to shareholders.).

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8. Lead Director

Where the chairman is also the chief executive,it is essential that there should be a strong andindependent element on the board, with arecognized senior member. (Code, 1.2; seeReport, 4.9)

If the chairman is also the chief executive, boardmembers should look to a senior non-executivedirector, who might be the deputy chairman, asthe person to whom they should address anyconcerns about the combined office ofchairman/chief executive and its consequencesfor the effectiveness of the board. A number ofcompanies have recognized that role and somehave done so formally in their Articles. (Report,4.5)


Cadbury also recommended that where theroles of chairman and chief executive officerwere combined, there should be a strong andindependent element on the board, with a rec-ognized senior member (Cadbury Report, 1.2).But even where the roles of chairman and chiefexecutive officer are separated, we see a needfor vigorously independent non-executive di-rectors. There can, in particular, be occasionswhen there is a need to convey concerns to theboard other than through the chairman or chiefexecutive officer. To cover this eventuality, werecommend that a senior independent non-executive director – e.g., a deputy chairman orthe chairman of the remuneration committee –should have been identified in the annual re-port. We do not envisage that this individualwould for this purpose need special responsi-bilities or an independent leadership role, nordo we think that to identify him or her shouldbe divisive. (Guideline 3.18)

Whether the posts [of chairman and chief ex-ecutive officer] are held by different people orby the same person, there should be a strongand independent non-executive element on theboard, with a recognized senior member otherthan the chairman to whom concerns can beconveyed. The chairman, chief executive offi-cer and senior independent director should beidentified in the annual report. (Code § 1,A.2.1)

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8. Lead Director


Not covered directly, but see Guidance Note onKey Principle 6 (Principle A.2 of the CombinedCode recommends.... [t]he chairman, chiefexecutive and senior independent directorshould be identified in the annual report.).

Hermes supports the appointment of a seniorNED and sees the role as an extension of thatof deputy chairman. This is an important posi-tion. (2.5)

In many respects, Hermes sees the role [ofsenior NED] as an extension of that of deputychairman and supports combining the roles ofindependent deputy chairman and senior non-executive director. Hermes believes that themain responsibilities of the role are to ensurethat the views of each NED are given due con-sideration and to provide a communicationchannel between NEDs and shareholders. Thiscommunication channel should be in additionto, and not replace, existing channels. Formany companies, this new channel may haveonly occasional ... use. (APPENDIX 2, Introduc-tion)

Where the board chairman either combines therole of chairman and chief executive, or has atany time been an executive director of thecompany, then the senior NED might chairboth the nomination committee and the remu-neration committee. (APPENDIX 2.1)

See generally APPENDIX 2, THE ROLE OF THESENIOR NON-EXECUTIVE DIRECTOR.


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9. Board Size

Not covered. Not covered. Not covered. Not covered.

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9. Board Size

Not covered. The Commission takes the view that, in mostcases, the board of directors should not consistof more than twelve members.The board of directors should decide on thenumber of directors necessary to govern thecompany in the best possible manner, takinginto account all relevant data. Therefore, theboard must consist of enough members to allowa fruitful discussion; too high a number ofdirectors will not enhance the exchange ofideas. (Part I: B.1.8)

Not covered.

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9. Board Size


It is important that the board has a size whichallows for a constructive debate and an efficientdecision process, in which it is possible for allthe directors to play an active part. Against thisbackground it is recommended that the boardconsists of no more than six directors electedby the general meeting. The board must con-sider if the number of directors is appropriate inrelation to the requirements of the company onan on-going basis. (V.3)


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9. Board Size

Not covered directly, but see p. 10 ([T]he num-ber of members should not be increased to apoint where it would be difficult for each tocontribute to discussion....).

Under French law, the board must be composedof at least three and no more than eighteen.The Commission recommends that the numberof directors be kept at a reasonable number toensure the board’s proper functioning, with alimit of sixteen members. (§ II.D.1)

Not covered directly, but see Viénot I Report,at left.

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9. Board Size

Supervisory BoardThe Supervisory Board has – insofar as it ispermissible – six or nine members. If the num-ber required by law is higher, the SupervisoryBoard should ordinarily not exceed the mini-mum size stipulated by statute. (Code, IV.3.2)

Management BoardNormally, [the Management Board] has at leastthree and at most nine members. (Code, III.3.1)

Supervisory BoardNot covered directly, but see Code, III.3 (TheNomination Committee is in charge of the ...size ... of the Supervisory Board.).

See also Code, III.1.a) (To ensure efficiency,regard will be given to size and composition ofthe Supervisory Board.).


Supervisory BoardNot covered.

Management BoardThe Management Board shall be comprised ofseveral persons and have a Chairman orSpokesman. Terms of Reference shall regulatethe allocation of business in the ManagementBoard. (§IV.2.1)

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Preda Report(Italy)

9. Board Size

For reasons of flexibility in the decision-makingprocess, it is recommended that the maximumnumber of Board members be no higher thanthirteen. (Recommendation 5.11)

The Board of Directors should recommend tothe general shareholder meeting the number ofBoard members required for the corporation’sefficient and flexible governance in the bestpossible way and having available all relevantinformation. Therefore, the Board of Directorsshould consist of a sufficient number of mem-bers in order to secure conditions of efficientinteraction and exchange of ideas. (Footnote 8to Recommendation 5.11)

Not covered directly, but see §2.1 (The boardof directors of a company listed on the AthensStock Exchange must include a number ofmembers necessary to ensure the required dis-tinction between executive and non-executivemembers, and the allocation, to certain of thesemembers, of tasks resulting from the necessityto ensure proper corporate governance.).

Not covered. [E]ach company should determine the number... of its non-executive directors in relation to itssize, the complexity and specific nature of itssector of activity, and the total membership ofthe board. (Commentary on Code, 2.2)

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9. Board Size

Supervisory BoardAs regards the desired size ... of the SupervisoryBoard, the nature and the size of the companyshould be taken into account. (Recommenda-tion 2.2)


Not covered. Not covered. [E]ach board should balance the number ofmembers with due efficiency, taking into con-sideration that an excessive number of membersmay hamper the desired cohesion and contribu-tion of each member in discussion anddecision-taking. (Commentary on Recommen-dation 14)

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9. Board Size

The Board of Directors should adjust its size toachieve a most efficient and participative opera-tion. In principle, the appropriate size couldrange from five to fifteen members. (Code,Recommendation 4)

The board should normally consist of 6-9members…. (Guideline 2.1)

Not covered. The Articles should provide for a maximum aswell as a minimum number of directors. (p. 2)

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9. Board Size

Not covered. Not covered. Not covered. Not covered directly, but see Topic Heading 10,below.

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9. Board Size

Not covered. Not covered. The precise number of ... directors ... for anycompany is for its board to determine with theapproval of its shareholders. (2.1)

[B]oards with large numbers of directors maybecome unwieldy. Fifteen is probably themaximum upper limit if the board is able tofunction effectively. (Part 2: Directors, p. 4)

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10. Mix of Inside and Outside Directors

The corporate governance framework shouldensure the strategic guidance of the company,the effective monitoring of management bythe board, and the board’s accountability tothe company and the shareholders. (OECDPrinciple V)

The board should be able to exercise objectivejudgement on corporate affairs independent, inparticular, from management. (OECD PrincipleV.E)

Boards should consider assigning a sufficientnumber of non-executive board members capa-ble of exercising independent judgement totasks where there is a potential for conflict ofinterest. Examples of such key responsibilitiesare financial reporting, nomination and execu-tive and board remuneration. (OECD PrincipleV.E.1)

Policy makers and regulators should encouragesome degree of independence in the composi-tion of corporate boards. Stock exchange listingrequirements that address a minimal thresholdfor board independence ... have proved useful,while not unduly restrictive or burdensome.However, ... corporate governance – includingboard structure and practice – is not a “one-size-fits-all” proposition, and should be left, largely,to individual participants. (Millstein Report,Perspective 15)

Whether in a single-tier or two-tier board sys-tem, individual corporations should ensure thatan effective number of board of director mem-bers – or in certain nations, board of auditormembers – are persons who are capable of exer-cising judgement independent of managementviews. Generally, this will require that suchboard members are persons who are not em-ployed by the company. (Millstein Report,Perspective 24)

[E]ach board should include sufficient inde-pendent non-executive members withappropriate competencies. Responsibilitiesshould include monitoring and contributingeffectively to the strategy and performance ofmanagement, staff key committees of theboard, and influence the conduct of the boardas a whole. Accordingly, independent non-executives should comprise no fewer than 3members and as much as a substantial majority.(ICGN Amplified OECD Principle V at 9)

The ICGN Statement adopts OECD PrincipleV.E (The board should be able to exercise ob-jective judgement on corporate affairsindependent, in particular, from management.).

See OECD Principle V.E.I. (Boards shouldconsider assigning a sufficient number of non-executive board members capable of exercisingindependent judgment to tasks where there is apotential for conflict of interest. Examples ofsuch key responsibilities are financial report-ing, nomination and executive and boardremuneration.).

Not covered. There should be a sufficient number of boardmembers of character and skill who are inde-pendent of management, influentialshareholders and other conflicting interests,such as staff, the state or suppliers of goods andservices to the company and its group. (Rec-ommendation VI.1.b)

See Preamble at 5 (To overcome the coordina-tion and monitoring problems that can arisewhen ownership and voting rights are dis-persed, the committee has endorsed many viewswhich promote the role of independent direc-tors.).

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The Board of Directors must include non-executive directors, i.e., directors who do notexercise any leading role in the company. Theymust be sufficiently capable, influential andnumerous to assert their point of view and makeit count in decisions taken by the Board of Di-rectors. (1.3)

The non-executive directors must be sufficientlynumerous in comparison with the executivedirectors. Some of the non-executive directorsmay represent the dominant shareholders of thecompany.Certain non-executive directors must be inde-pendent of the dominant shareholders and alsoof the management. They are called independ-ent directors. (2.2)

The board should consist of a majority of non-executive directors of sufficient calibre for theirviews to carry significant weight in the board’sdecisions. (Part I: B.1.4; cf. B.2.2)

A number of non-executive directors should beindependent of the executive management andof the dominant shareholders, and free fromany business or other relationship with thecompany which could interfere with theirindependent judgement.... (Part I: B.2.2)

See Part I: B.1.5 (The board should operate onthe principal of collective responsibility, withno one category of directors exerting greaterinfluence than any other.).

Not covered directly, but see p. 4 (The Directorundertakes to verify that the powers and re-sponsibilities of the Board of Directors and ofthe Management are clearly established, andspecifically that the powers of managementaccorded to the Management are clearly de-fined.).

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The board should have four members independ-ent of day-to-day management.At the most, one present or past [executive] ofthe company should be a member of the board.(II. Governance)

[I]t is recommended that the majority of thedirectors elected by the general meeting areindependent. (V.4)

Not covered directly, but see English Summary,7 (assumes that there are some directors whoare not employees of the company.).

International guidelines stress the significanceof “external” members, i.e., members of theBoard of Directors who do not belong to thehired top management of the company, in en-suring the independence of the decision-makingby the Board of Directors.... The larger thecompany is, the more important is the role ofthe external members of the Board of Directors.(2.2.1)

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French law already imposes strict limits on theboard membership of management, setting aceiling on the number of directeurs généraux(executive directors) and on the number of di-rectors who may at the same time be employeesof the company.* (p. 2)

* Article L93 of the Code des Sociétés (codeof company law) limits the number of direc-tors holding a contract of employment withthe company to a third of board members,and article L115 limits the number of direc-teurs généraux to five. (Footnote, p. 2)

The appropriate balance between independentdirectors, shareholder directors and executivedirectors varies from one company to another,although in general the last should in any casenot be too numerous. The Committee thusconcludes that the boards of all listed compa-nies should have at least two independentmembers, although it is up to each board todetermine the most appropriate balance in itsmembership. (pp. 11-12)

Some have suggested that board membersshould include representatives of certain interestgroups, but the Committee believes that amove in this direction would not be desir-able.... [T]he presence of independent directorsshould suffice to ensure that all legitimate inter-ests are taken into account. (p. 12)

French law ... allows for full board membershipof representatives of employees (by ministerialorder of 1986) or of employee shareholders(under legislation dated 1994). (p. 12)

Where a company is controlled by a majorityshareholder or a group of shareholders acting inconcert, ... the Committee believes that thebest solution is to appoint several independ-ent directors ... rather than to provide forspecial representation of minority sharehold-ers. (pp. 12-13)

AFG-ASFFI recommends that at least one-thirdof the Board shall comprise independent di-rectors.These directors should be “free of any interest”in the company, which means they should haveno conflicts of interest. (§ II.B.1)

The Committee confirms that the presence ofgenuinely independent Directors in sufficientnumbers on Boards of Directors and Boardcommittees is an essential factor in guarantee-ing that the interests of all the shareholders willbe taken into account in the corporation’s deci-sions.

In order to establish the role recognized forindependent Directors, the Committee consid-ers that they should account for at least one-third of the Board of Directors. (p. 15)

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Supervisory BoardOn the independence of Supervisory Boardmembers, see Topic Heading 6, above.

See also Code, V.2.6 (In the case of insur-mountable divergences of opinion between therepresentatives of the stockholders and of theemployees in a Supervisory Board where themembers have parity, the Chairman of the Su-pervisory Board, who is normally appointedfrom the stockholder side, has a second vote forresolving the stalemate.).

Management BoardMembers of the Management Board are, bydefinition, insiders.

Supervisory BoardThe Supervisory Board shall ensure independ-ent advice and monitoring of the ManagementBoard through a sufficient number of inde-pendent persons who have no current or formerbusiness association with the Group. (Code,III.1.b)


Supervisory BoardOn the independence of Supervisory Boardmembers, see Topic Heading 6, above, andTopic Heading 11, below.

See also §I (For enterprises with more than2000 employees the Chairman of the Supervi-sory Board, who is practically always arepresentative of the shareholders, has a decid-ing second vote for resolutions.).


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Preda Report(Italy)


It is considered a good practice to have the ma-jority of the members of the Board of Directorsconsisting of non-executive members so thatindependent judgement is ensured. (Recom-mendation 5.6)

The number of independent Board membersshould be sufficient for their views to carryadequate weight in the decision-making process.(Footnote 9 to Recommendation 6.2)

See Introduction (It is important to establish thespecification and distribution of tasks betweenexecutive and non-executive Board membersand management.).

The board of directors of a company listed onthe Athens Stock Exchange must include anumber of members necessary to ensure therequired distinction between executive andnon-executive members, and the allocation, tocertain of these members, of tasks resultingfrom the necessity to ensure proper corporategovernance. (§2.1)

Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode § 1, A.3.1 (The board should includenon-executive directors of sufficient calibre andnumber for their views to carry significantweight in the board’s decisions.).

The board of directors shall be made up ofexecutive directors (i.e., the managing direc-tors, including the chairman where he or shehas delegated powers, and those directorswho perform management functions withinthe company) and non-executive directors.The number and standing of the non-executive directors shall be such that theirviews can carry significant weight in takingboard decisions. (Code, 2.1; see Commentaryon Code, 3 and Report, 5.1)

In Italy, non-executive directors normally out-number executive directors. The Committeerecommends that, in practice, each companyshould determine the number, experience andpersonal traits of its non-executive directors inrelation to its size, the complexity and specificnature of its sector of activity, and the totalmembership of the board. (Commentary onCode, 2.2)

See Commentary on Code, 3 and Report, 5.1([T]he Committee believes that the presence onthe board of directors of members who can beconsidered “independent” is the best way toguarantee the consideration of the interests ofall the shareholders, majority and minorityalike.).

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Supervisory BoardThe Supervisory Board should be composed insuch a way that its members operate independ-ently and critically in relation to each other andthe [Management Board]. (Recommendation2.3)

Supervisory Board members who have beenappointed on the basis of a nomination shouldperform their duties without a mandate fromthose who nominated them and independently ofthe subsidiary interests associated with the com-pany. (Recommendation 2.6)

Management BoardManagement Board directors are, by definition,insiders.

Not covered. Not covered directly, but The Netherlands hasa two-tier board system in which some supervi-sory board members are expected to beoutsiders (i.e., not former management boardmembers). See Topic Headings 7, above, and11, below.

The board should be composed of a numberof members who provide effective guidancefor the management of the company to itsmanagers. (Recommendation 14)

See Commentary on Recommendation 14([T]he efficiency of board meetings dependssignificantly on the diversity of opinions andthe vitality of the deliberation process.).

108






The Board of Directors should incorporate areasonable number of independent directorswho have a good reputation in their professionand are detached from the management teamand from the significant shareholders.(Code, Recommendation 2)

Outside directors (proprietary and independentdirectors) should widely outnumber executivedirectors on the Board of Directors, and theproportion between proprietary and independentdirectors should be established bearing in mindthe relationship between share capital made upby significant packages and the rest. (Code,Recommendation 3)

Among outside directors we must distinguish,on the one hand, the above-mentioned inde-pendent directors and, on the other hand, thosewho could be called proprietary directors. Theformer, as has already been stated, are thosecalled to the Board of Directors because of theirhigh professional qualifications, regardless ofwhether they are shareholders. The latter arethose who are members of the Board becausethey are shareholders or represent importantpackages of shareholdings.... [T]he compositionof the group of outside directors should be sub-ject to certain regulations that ensure a duebalance between independent and proprietarydirectors.).* (Report, 2.2)

* Independent outside directors are viewed asrepresenting the interests of a large number ofsmaller shareholders (“free-floating capital”),while the proprietary outside directors areviewed as linked to the controlling shareholderor controlling group (“steady capital”). SeeReport, II.2.2.

The board should normally consist of six tonine members that do not have assignments for,or business connections with, the company.(Guideline 2.1)

No employees, apart from the managing direc-tor, should be included on the board.(Guideline 2.1)

Not covered. Institutional shareholders strongly support thepresence of independent directors on Boards ofcompanies. There has been a growing aware-ness of the value of audit committees and theimportance of non-executive directors has be-come evident, particularly in mattersconcerning top management succession, remu-neration of the senior management and incircumstances where there is potential for con-flict of interest such as management buy-outs.(p. 2)

The non-executive directors should be suffi-cient in number and calibre for their views tocarry significant weight on the Board. This isparticularly necessary if the roles of Chairmanand Chief Executive are combined. (p. 3)

109






The board should include non-executivedirectors of sufficient calibre and number fortheir views to carry significant weight in theboard’s decisions. (Code, 1.3)

Non-executive directors should bring anindependent judgement to bear on issues ofstrategy, performance, resources, including keyappointments, and standards of conduct. (Code,2.1)

Every public company should be headed by aneffective board which can both lead and controlthe business.... [T]his means a board made upof a combination of executive directors, withtheir intimate knowledge of the business, and ofoutside, non-executive directors, who can bringa broader view to the company’s activities, un-der a chairman who accepts the duties andresponsibilities which the post entails. (Report,4.1)

Not covered directly, but the Code requires thatthe members of the remuneration committeeshould consist exclusively of Non-ExecutiveDirectors.


The board should include a balance ofexecutive directors and non-executivedirectors (including independent non-executives) such that no individual or smallgroup of individuals can dominate theboard’s decision taking. (Principle A.III)

[I]t is important that there should be a sufficientnumber of non-executive directors, a majorityof them independent and seen to beindependent; and that these individuals shouldbe able both to work co-operatively with theirexecutive colleagues and to demonstrateobjectivity and robust independence ofjudgement when necessary. (Guideline 2.5)

Non-executive directors have an important partto play in corporate governance. We believethat it is difficult for them to be effective if theymake up less than one-third of the board.(Guideline 3.14)

The board should include a balance ofexecutive and non-executive directors(including independent non-executives) suchthat no individual or small group ofindividuals can dominate the board’sdecision-taking. (Principle A.3)

The board should include non-executivedirectors of sufficient calibre and number fortheir views to carry significant weight in theboard’s decisions. Non-executive directorsshould comprise not less than one-third of theboard. (Code § 1, A.3.1)

The majority of non-executive directors shouldbe independent of management and free fromany business or other relationship which couldmaterially interfere with the exercise of theirindependent judgement. Non-executivedirectors considered by the board to beindependent in this sense should be identified inthe annual report. (Code § 1, A.3.2)

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The board should be composed of bothexecutive and non-executive directors(including independent non-executives) suchthat no individual or small group of individualscan dominate the board’s decision-making.Non-executive directors should comprise notless than one-third of the board with a minimumof three. (§2)

The majority of non-executive directors shouldbe independent of management and identified assuch in the annual report. (§3)

Principle A.3 of the Combined Code recom-mends that a company board should include abalance of executive and non-executive direc-tors (including independent non-executives)such that no individual or small group of indi-viduals can dominate the board’s decisiontaking. (Guidance Note to Key Principle 6)

The precise number of executive directors andnon-executive directors for any company is forits board to determine with the approval of itsshareholders. It is the overall balance of theboard that is important. Not all non-executivedirectors need to be independent but thereshould be a strong core of NEDs that are bothindependent and seen to be independent. (2.1)

Hermes accepts that not all NEDs need to beindependent ... and that there can be a role forother NEDS, provided that a majority of NEDssatisfy the ... test of independence. (2.3)

At least three, and a majority, of the directorsof an investment trust should be clearly inde-pendent.... The chairman [of an investmenttrust] should always be fully independent andthere should be no more than one representativeof the trust’s fund manager on the board. (8.1)

PRINCIPLE: The board should contain suffi-cient numbers of independent non-executives.D. Non-executives comprise more than 50% ofthe board....E. There are at least three non-executives onthe board....F. A clear majority of the [non-executive di-rectors] are independent by PIRC Guidelines.(Part 2: Directors, p. 6)

The ratio of different types of director is im-portant as is the overall size of the board.Independent directors may find themselvesoutnumbered and outvoted on large boardswhere there are many executive directors.(Part 2: Directors, p. 4)

[On unitary boards,] there should be a balanceof executive directors and non-executive direc-tors with broader experience who are in aposition to act independently.... Two-tier boardstructures can be a means of overcoming someof the tensions within a unitary board betweenthe executive function and the monitoringfunction.... [On two-tiered boards,] appropriatedivisions of responsibility and checks and bal-ances should be in place. (Part 2, Directors,p. 4)

In order that non-executives can properly fulfilltheir role, we consider that a majority of theboard should be non-executive. (Part 2: Di-rectors, p. 5)

PIRC does not consider that each non-executivedirector can be expected to fulfill both an advi-sory and a supervisory function. For example,it may benefit the company to retain a formeremployee in a non-executive capacity, althoughthe individual will not have an outsider’s inde-pendent perspective. However, in order toensure that there is a strong independent voiceon the board, a majority of the non-executivesshould be independent. (Part 2: Directors, p. 5)

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11. Definition of “Independence”

The board should be able to exercise objectivejudgement on corporate affairs independent, inparticular, from management. (OECD PrincipleV.E)

The variety of board structures and practices indifferent countries will require different ap-proaches to the issue of independent boardmembers. Board independence usually requiresthat a sufficient number of board members notbe employed by the company and not be closelyrelated to the company or its managementthrough significant economic, family or otherties. This does not prevent shareholders frombeing board members. (OECD Principle V.EAnnotation at 41)

See Millstein Report, 1.4.34 (For the board toplay [its] role in a meaningful way, it needs tobe capable of acting independently of manage-ment. This requires board members (or in somenations, board of auditor members) capable ofexercising business judgement independently ofmanagement – whether in a single-tier or two-tier board.).

[The ICGN] endorses the [OECD] assertionthat “the board should be able to exercise ob-jective judgment on corporate affairsindependent, in particular, from management.”To meet this challenge, the ICGN holds thateach company should ... acknowledge that theboard of directors, or supervisory board, as anentity, and each of its members, as an individ-ual, is a fiduciary for all shareholders, andshould be accountable to the shareholder bodyas a whole. (ICGN Amplified OECD PrincipleV at 8-9)

The ICGN Statement adopts OECD PrincipleV.E (The board should be able to exercise ob-jective judgement on corporate affairsindependent, in particular, from management.).

See also OECD Principle V.E Annotation at 41(The variety of board structures and practices indifferent countries will require different ap-proaches to the issue of independent boardmembers. Board independence usually re-quires that a sufficient number of boardmembers not be employed by the company andnot be closely related to the company or itsmanagement through significant economic,family or other ties. This does not preventshareholders from being board members.).

Not covered directly, but see Commentary onRecommendation 9 (In the “two-tier” system,the [management and supervisory] functionsare divided into two bodies. In order to be ableto effectively fulfill the respective responsibili-ties, members of a one-tier board shouldnevertheless have a significant degree of inde-pendence between the executive members andthe non-executive members.).

See also Commentary on Recommendations10(a) and 10(b) (Non-executive members of theboard, as well as – in a two-tier structure –members of the supervisory board, are con-cerned with the supervision of managementpolicy and the general state of affairs in thecompany. Their main tasks are (in order ofimportance):§ to control and supervise the executive

board members;§ to ensure the good quality of the executive

board;§ to advise the executive board.).

[Independent directors are those who are] inde-pendent of management, influentialshareholders and other conflicting interests suchas staff, the state, or suppliers of goods andservices to the company and its group. (Rec-ommendation VI.1.b)

See Preamble at 4 (“[I]ndependent” directorsare a sub-group of “non-executive” directors:not all non-executive directors are independent– such as appointees of major blockholders orstaff, or directors who have material ongoingservice contracts with the company.).

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[D]irectors ... independent of the dominantshareholders and also of the management ... arecalled independent directors. (2.2)

See 1.2 (The division of responsibilities betweenthe Board of Directors and the Executive Di-rectors must be clearly defined.... This isbecause it is necessary to ensure that no one canexercise discretionary powers without control.).

See also 1.3 (The Board of Directors must in-clude non-executive directors, i.e., directorswho do not exercise any leading role in thecompany.).

See also 2.1 (The non-executive directors mustbe able to make an independent judegment onthe company’s strategy, performance and re-sources.).

See also Note to 2.2 (It is desirable that non-executive directors should not take part in plansin relation to the granting of share options andshould not receive pensions by virtue of theirmandate. The reason for this is to ensure theirindependence.).

Non-executive directors are directors who donot perform a management function within thecompany or its subsidiaries. (Part I: B.1.4)

[A] director may be considered independent if:§ he/she is not a member of the executive

management or of the board of associatedcompanies (subsidiaries etc.) ... ;

§ he/she has no family ties with any of theexecutive directors which might interferewith the exercise of his/her independentjudgement;

§ he/she is not a member of the executivemanagement or board of directors of one ofthe dominant shareholders and has ... nobusiness, financial or other relationshipwith the latter;

§ he/she is not a supplier of goods or serv-ices of a nature which might interfere withthe exercise of his/her independent judge-ment, nor is he/she a member of the firm ofwhich the company’s adviser or consultantis part;

§ he/she has no other relationship with thecompany which ... might interfere with theexercise of his/her judgement....

(Part I: B.2.2)

See Part I: B.1.9 ([A]ll directors, includingthose related to the dominant shareholders, areto exercise their duty in an independent man-ner, in the sole interest of the company.).

See also Part I: B.2.2 (It is for the board todecide whether an independent director satis-fies the definition of independence.).


The Director undertakes to maintain, in allcircumstances, his or her independence ofanalysis, of decision, and of action; and to re-ject any pressure, direct or indirect, whichcould be exercised upon him or her....The Director undertakes not to seek or accept ...any unreasonable advantages that could beconsidered as compromising his or her inde-pendence.In the event that the Director finds that a deci-sion of the Board may harm the company, theDirector undertakes to clearly express his or heropposition and to employ all methods to con-vince the Board of the pertinence of theDirector’s position. (p. 3)

See p. 2 (THE COMPANY DIRECTOR, IN THEEXERCISE OF HIS FUNCTIONS, UNDERTAKES TO:1. Act independently in all circumstances.2. Actively protect the company’s interests. .…7. Avoid any conflict between his or her directpersonal interests and those of the company.8. Avoid any improper use of information orinsider trading.)

See generally p. 3 (acting independently in allcircumstances).

See also p. 5 (The Director undertakes to verifythat the company’s decisions are taken solely inits interests ... that the company’s decisions donot favour one party or class of shareholders tothe detriment of another.).

The Director undertakes to see to it that theinterests of the company and the entirety of itsshareholders prevail, in all circumstances, overhis or her direct or indirect personal interests.(p. 6)

See Topic Heading 12 and Topic Heading 13below.

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It is … essential that the directors always actindependently of special interests. (V)

It is important that the board is composed insuch a way that its directors can act independ-ently of special interests…. In this context, anindependent director elected by the generalmeeting cannot:§ be an employee in the company or be

someone who has been employed in thecompany in the past five years.

§ have been a member of the managementof the company.

§ be a professional consultant to the com-pany or be employed by, or have afinancial interest in, a company which is aprofessional consultant to the company.

§ have some other essential strategic interestin the company other than that of a share-holder.

We cannot recommend that managers of acompany are also directors of the company.This also applies to situations in which majorshareholders are managers of a company aswell as directors at the same time. In compa-nies with one major shareholder, the boardshould pay special attention to the safeguardingof the other shareholders’ interests on equalterms with the major shareholder’s interests atall times. (V.4)

Not covered directly, but see English Summary,7 (assumes that there are some directors whoare not employees of the company and, by im-plication, exercise independence frommanagement.).

“[E]xternal” members ... of the Board of Di-rectors ... do not belong to the hired topmanagement of the company. [They ensure]the independence of the decision-making by theBoard of Directors.§ In smaller companies, this can be arranged

by handling certain issues without thepresence of the members of the Board ofDirectors that belong to the hired top man-agement of the company....

§ The larger the company is, the more im-portant is the role of the external membersof the Board of Directors. Thus, theforming of working groups (“committees”)from the external members should be dis-cussed, at least by the Boards of Directorsof listed companies.

(2.2.1)

See 2 (The Ministry of Trade and Industrydraws the attention of civil servants on theBoard of Directors especially to ... ensuring theindependence of the Board of Directors.).

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The notion of independent director is opposednot only to that of executive directors, it is alsoopposed to that of any director with any sort ofspecial interest in the company, whether as ashareholder, a supplier or a customer. (p. 11).

See p. 10 (Debate concerning board membershiphas concerned in particular the representation ofinterest groups and expertise, reflecting publicdoubts as to the independence and impartialityof current members.Having examined such criticism and relatedsuggestions, the Committee can only affirmits attachment to the traditional principles ofFrench law and practice. However it is madeup, and whoever its members may be, theboard of directors collectively represents allcompany shareholders, and is not the sum ofconflicting interests. It must carry out its dutiesin the interests of the company and, if it fails todo so, its members are jointly and severallyliable.).

[A] director free of any interest is one withoutany direct or indirect tie to the company orcompanies of the group, and therefore may bereputed to participate with objectivity in boarddiscussions. He must neither be now, nor everhave been, an employee, nor chairman, norchief executive of the company or of any com-pany of the group. He must neither be a leadshareholder of the company nor of a companyof the group, nor be related in any way to sucha shareholder. Finally, he must not in any waywhatsoever be related to a significant or regularcommercial or financial partner of the group orof any group company. (§ II.B.1)

See § II.A.2 (In the Commission’s view, theBoard’s accountability to all shareholders re-quires that it be independent in relation tocompany management.).

See also § II (The portfolio manager’s advisoryrole requires that his activity, and that of hisemployees, be governed by the principle ofindependence. He may therefore not serve as amember of the Board of Directors or any com-pany whose shares are held in the portfolios hemanages.).

An independent Director is to be understoodnot only as a “non-executive Director,” i.e., onenot performing management duties in the cor-poration or its group, but also one devoid ofparticular bonds of interest (significant share-holder, employee, other) with them. For thesake of simplicity, an independent Director canbe defined as follows: “A Director is inde-pendent of the corporation’s management whenhe or she has no relationship of any kind what-soever with the corporation or its group that issuch as to jeopardize exercise of his or her freejudgment.” (p. 15)

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Not covered directly, but see Code, IV.4 (ap-pointments to the Supervisory Board ofdirectors who represent the stockholders).

See also Topic Headings 6 & 10, above, andTopic Heading 34, below.

Not covered directly, but see Code, III.1.b)(The Supervisory Board shall ensure independ-ent advice and monitoring of the ManagementBoard through a sufficient number of inde-pendent persons who have no current or formerbusiness association with the Group.... Theproposal for election to the Supervisory Boardshall not include, as a matter of course, theelection of retiring Management Board mem-bers.).

Not covered directly, but see §V.4.2 (To ensurethe Supervisory Board’s independent advisingand supervising of the Management Board, theSupervisory Board shall have no more than twoformer members of the Management Board andSupervisory Board members shall exercise nodirectorships or similar positions or advisorytasks for important competitors of the enter-prise.).

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Preda Report(Italy)


Certain non-executive members of the Boardshould be independent from executive membersand the majority shareholders in the corporation,and have no business relation with the corpora-tion. (Recommendation 6.2)

Director independence requires that:§ s/he is not a member of executive man-

agement or of a Board of Directors of acorporation directly or indirectly connectedwith the corporation....

§ s/he is not related to other executive mem-bers of the Board.

§ s/he is not simultaneously a member of thegroup forming the majority of shareholdersof the corporation [nor] involved in anytransactions with the group.

§ s/he has no other relationship with the cor-poration which, by its nature, may affecthis/her independent judgement.


See Recommendation 5.12 (All members of theBoard of Directors should exercise their dutiesin an independent manner.).

See also Recommendation 6.1 (Non-executivemembers of the Board should form independentjudgements especially with respect to the corpo-ration’s strategy, performance, assetmanagement and the appointment of manage-ment.).

See also Footnote 4 to Recommendation 5.1(current legislation is inadequate as regardsboard independence).

See also Footnote 9 to Recommendation 6.2(board judgement is ultimate arbiter of inde-pendence).

See also Footnote 10 to Recommendation 6.3(restrictions as to spouses/relatives).

Independent non-executive members are thosethat do not have a family link up to the seconddegree with the shareholder controlling themajority of the company’s capital or do notown shares of more than five percent in thecompany or any of its subsidiaries, and are notexecutive managers of a subsidiary. (§2.3)

See §§4.2 & 4.3 (The internal controller is hier-archically integrated in the management of thecompany but remains independent in the exer-cise of his duties.The internal controller is appointed by thecompany’s board of directors. A member ofthe board, an active director with other duties inthe company, or a person linked to these per-sons through a direct or indirect familyrelationship of up to the second degree may notbe appointed internal controller.).

Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode § 1, A.3.2 (The majority of non-executivedirectors should be independent of managementand free from any business or other relationshipwhich could materially interfere with the exer-cise of their independent judgement.).

Board of DirectorsDirectors are independent who:a) do not entertain business relationships

with the company, its subsidiaries, theexecutive directors or the shareholderor group of shareholders who controlsthe company of a significance able to in-fluence their autonomous judgement;

b) do not own, directly or indirectly, aquantity of shares such that they maycontrol the company, nor participate inshareholders’ agreements to control thecompany.

(Code, 3; see Code, 1.3; Report, 5.1)

Directors shall act and decide autonomously... and pursue the objective of creating valuefor the shareholders.The decisions of each director are autonomousto the extent that they are taken in the light ofhis or her unbiased assessment of the facts inthe interest of the generality of shareholders.Accordingly, even when operational choiceshave already been assessed by the controllingshareholders ..., each director is required to casthis or her vote autonomously, making choicesthat can reasonably be expected to maximiseshareholder value. (Code, 1.3, Commentary onCode, 1.3)

Board of AuditorsThe members of the board of auditors shallact autonomously with respect to sharehold-ers, including those that elected them. (Code,13.2)

[M]embers of the board of auditors proposed orelected by the majority or the minority [ofshareholders] are not their “representatives”[nor are they] authorized to communicate in-formation [to them]. (Commentary on Code,13)

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A point for consideration ... should be [t]heinfluence that a person’s former membership onthe [Management board] may have on that indi-vidual’s functioning on the Supervisory Board,as well as on the functioning of the SupervisoryBoard itself and the [Management Board].This applies especially in cases where a formerchairman of the [Management Board] is theintended chairman of the Supervisory Board.(Recommendation 2.5)

Neither hierarchic subordination within an in-terest group, cross bonds nor any other relationswith persons under their supervision shouldprevent members of the Supervisory Board fromperforming their duties independently. (Rec-ommendation 2.11)

Not covered. Under the Dutch system, supervisory boarddirectors are expected to be independent. Thatmeans that they must not be allied to any par-ticular shareholder, to the management board orto other interested parties. (Handbook, p. 9)

See Guideline 13(a) (The supervisory board isexpected to provide independent expertise incarrying out its responsibility.).

Not covered directly, but see Recommendation15 (The inclusion on the board of one ormore members who are independent in rela-tion to the dominant shareholders isencouraged, so as to maximise the pursuit ofcorporate interests.).

See also Commentary on Recommendation 15(Independent [board] members should exercisea significant influence on collective decision-making and should contribute to the develop-ment of the company strategy, therebyfavouring the interests of the company.).

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[T]he name [independent director] applies tothose directors who are neither linked to themanagement team nor to the core of shareholdergroups that control and exert a great influenceupon management. (Report, 2.1)

[T]he first thing to be checked [regarding nomi-nees to the Board of Directors] is thecandidate’s independence with respect to themanagement team, examining whether he/shehas any significant bond – whether it be a fam-ily, professional, business or any otherconnection – with anyone in management posi-tions. (Report, 5.2)


[B]oard members should be self-governed andindependent in respect of the company’s lead-ership. The board should normally consist ofsix to nine members that do not have assign-ments for, or business connections with, thecompany. (Guideline 2.1)

The members of the board shall act with greatthoroughness and care in the best interests ofthe company and all the shareholders. Themembers of the board should have the capacityto make independent and objective judgementsof the company’s operations, especially in rela-tion to corporate leadership. (Guideline 2.2)


Not covered. Non-executive directors should be independent,i.e., free from bias, involvement or partiality….Independence is more likely to be assured, interalia, when the director:

i. Has not been employed in any executivecapacity by the company concernedwithin the last few years;

ii. Is not retained as a professional adviserby the company (either personally orthrough his or her firm) and

iii. Is not a significant supplier or customerof the company.

(p. 3)

See p. 3 (In order not to impair their impartial-ity, non-executive directors should not, undernormal circumstances, be offered participationin share option schemes, nor in performancerelated or other incentivized remunerationschemes, nor in any company pension schemes.They should not be entitled to any compensa-tion for loss of office.).

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The majority [of non-executive directors]should be independent of management and freefrom any business or other relationship whichcould materially interfere with the exercise oftheir independent judgement, apart from theirfees and shareholding. Their fees should reflectthe time which they commit to the company.(Code, 2.2)

We recommend that the majority of non-executives on a board should be independent ofthe company. This means that apart from theirdirectors’ fees and shareholdings, they shouldbe independent of management and free fromany business or other relationship which couldmaterially interfere with exercise of theirindependent judgement. It is for the board todecide in particular cases whether this definitionis met. Information about the relevant interestsof directors should be disclosed in the Directors’Report. (Report, 4.12)

Not covered directly, but see Introduction, 1.14(Boards of Directors need to delegate responsi-bility for determining executive remunerationto a group of people ... with no personal finan-cial interest in the remuneration decisions theyare taking.).

See also Commentary on RemunerationCommittees, Membership and Qualifications,4.8 (The remuneration committee shouldconsist exclusively of Non-Executive Directorswith relevant experience who:§ have no personal financial interest, other

than as shareholders, in the committee’sdecisions;

§ have no “cross-directorships” with theExecutive Directors which could bethought to offer scope for mutualagreements to bid up each others’remuneration;

§ have a good knowledge of the companyand its Executive Directors, a keen interestin its progress and a full understanding ofshareholders’ concerns; and

§ have a good understanding, enhanced asnecessary by appropriate training or accessto expert advice, of the areas ofremuneration committee business.).

See also Commentary on Remuneration Com-mittees, Membership and Qualifications, 4.13(To ensure that remuneration committee mem-bers have no personal financial interest in theremuneration arrangements they decide for theExecutive Directors, their own remunerationshould normally take the form of fixed fees setby the Board as a whole within the limits set inthe Articles of Association.).

The Cadbury committee recommended that amajority of non-executive directors should beindependent, and defined this as ‘independentof management and free from any business orother relationship which could materially inter-fere with the exercise of their independentjudgement.’ (Cadbury Report 4.12) We agreewith this definition, and after careful consid-eration we do not consider that it is practicableto lay down more precise criteria for independ-ence. We agree with Cadbury that it should befor the board to take a view on whether an in-dividual director is independent in the abovesense.... We recognize, however, that non-executive directors who are not in this sense“independent” may nonetheless make a usefulcontribution to the board. (Guideline 3.9)

The majority of non-executive directors shouldbe independent of management and free fromany business or other relationship which couldmaterially interfere with the exercise of theirindependent judgement. (Code § 1, A.3.2)

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Independence can be determined by thefollowing criteria:An individual director’s integrity is highlyrelevant and the level of a director’sindependence can vary, depending on theparticular issue under discussion. In assessingthe independence of a non-executive director theassumption is that the individual is independentunless, in relation to the company, the director:§ was formerly an executive§ is, or has been, paid by the company in any

capacity other than as a non-executive di-rector

§ represents a trading partner or is connectedto a company or partnership (or was priorto retirement) which does business with thecompany

§ has been a non-executive director for nineyears – i.e. three 3-year terms

§ is closely related to an executive director§ has been awarded share options, perform-

ance-related pay or is a member of thecompany’s pension fund

§ represents a controlling or significantshareholder

§ is a new appointee selected other than by aformal process

§ has cross-directorships with any executivedirector

§ is deemed by the company, for whateverreason(s), not to be independent.

(§3)

Where the company identifies a non-executivedirector as independent, the independence testshould be applied to those seeking re-electionon each and every occasion. (§8)

See §9(i) (Independent non-executive directorsshould not take “significant” holdings in thecompanies in which they are directors becausethis reduces their independence.)

Not covered directly, but see Guidance Note onKey Principle 6 (Companies listed on the Lon-don Stock Exchange are required, as acontinuing obligation of listing, to make twodisclosure statements. Firstly, they must reporton how they apply the principles [including theprinciples on director independence] in theCombined Code on Corporate Governance....Secondly, listed companies are also required toconfirm that they comply with the Code provi-sions or – where they do not – to provide anexplanation.).

The board should have a core of at least threevigorously independent directors on whomshareholders can rely for the independence oftheir judgement and who can act as agents forchange should the need arise. Hermes endorsesthe Cadbury committee’s definition of inde-pendence: that NEDs “should be independentof management and free from any business orother relationship that could materially interferewith the exercise of their independent judg-ment.”Hermes will interpret this to mean that, to beconsidered independent, a NED must not:§ be or have been an employee of the com-

pany;§ serve as a director for more than ten years

or be over seventy years of age;§ represent significant shareholders or other

single interest groups (e.g., supplier,creditor);

§ receive an income from the company otherthan NED fees;

§ participate in the company’s share optionor performance-related remunerationschemes;

§ have conflicting or cross directorships;§ have any other significant financial or

personal tie to the company or its man-agement which could interfere with thedirector’s loyalty to shareholders.

.... We believe that the final decision onwhether NEDs are independent lies with theshareholders who elect them. (2.3)

The tests of independence in paragraph 2.3above apply to investment trusts. In addition,directors who are not considered independentinclude employees or former employees of thetrust’s fund manager or of related group orassociated companies and directors of morethan one investment trust managed by the samefund management company. The chairmanshould always be fully independent and thereshould be no more than one representative ofthe trust’s fund manager on the board. (8.1)

In order to be viewed as independent, PIRCconsiders that directors should not:§ have held an executive position within the

company group;§ have had an association with the company

of more than nine years;§ be related ... to other directors or advisors

to the company;§ have been appointed other than through an

appropriately constituted nominationcommittee or equivalent ... ;

§ be [employed with] a professional adviserto the company;

§ have a service contract, hold share optionsor other conditional share awards, receiveremuneration other than fees, receive con-sultancy payments or be eligible forpensions benefits or participate in bonusschemes;

§ receive fees ... indicative of significantinvolvement in the company’s affairs ... ;

§ receive remuneration from a third party inrelation to the directorship;

§ benefit from related party transactions;§ have cross directorships ... ;§ hold ... a senior position with a political or

charitable body to which the companymakes contributions ...;

§ hold a notifiable holding ... or serve as adirector or employee of a another companywhich has a notifiable holding in the com-pany [or] in which the company has anotifiable holding;

§ be ... on the board of a significant cus-tomer or supplier to the company;

§ act as the appointee or representative of astakeholder group other than the share-holders as a whole;

§ serve as a director or employee of a sig-nificant competitor of the company.

§ Other criteria are relevant for investmenttrusts (see Section 6).

(Part 2: Directors, p. 5)

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12. Conflicts of Interest

The board should fulfill certain key functionsincluding ... [m]onitoring and managing poten-tial conflicts of interest of management, boardmembers and shareholders, including misuse ofcorporate assets and abuse in related partytransactions. (OECD Principle V.D)

Boards should consider assigning a sufficientnumber of non-executive board members capa-ble of exercising independent judgement totasks where there is a potential for conflict ofinterest. Examples of such key responsibilitiesare financial reporting, nomination and execu-tive and board remuneration. (OECD PrincipleV.E)

Investors require information on individualboard members and key executives in order toevaluate their experience and qualifications andassess any potential conflicts of interest thatmight affect their judgement. (OECD PrincipleIV Annotation at 37)

Together with guiding corporate strategy, theboard is chiefly responsible for monitoringmanagerial performance and achieving an ade-quate return for shareholders, while preventingconflicts of interest and balancing competingdemands on the corporation. (OECD PrincipleV Annotation at 40)

While the responsibility for financial reporting,remuneration and nomination are those of theboard as a whole, independent non-executiveboard members can provide additional assur-ance to market participants that their interestsare defended. Boards may also consider estab-lishing specific committees to considerquestions where there is a potential for conflictof interest. These committees may require aminimum number, or be composed entirely of,non-executive members. (OECD PrincipleV.E.1 and Annotation at 42)

See Topic Headings 10 and 11, above.

The ICGN Statement adopts OECD PincipleV.D (The board should fulfill certain key func-tions including ... [m]onitoring and managingpotential conflicts of interest of management,board members and shareholders, includingmisuse of corporate assets and abuse in relatedparty transactions.).

The ICGN Statement adopts OECD PrincipleV.E (Boards should consider assigning a suffi-cient number of non-executive board memberscapable of exercising independent judgement totasks where there is a potential for conflict ofinterest. Examples of such key responsibilitiesare financial reporting, nomination and execu-tive and board remuneration.).

The ICGN also backs active, independent boardaudit committees and, to limit the risks of pos-sible conflicts of interest, disclosure of the feespaid to auditors for non-audit activities. (ICGNAmplified OECD Principle IV at 8)

To further strengthen the professionalism ofboards, the ICGN endorses earlier languageconsidered by the OECD. “Certain key respon-sibilities of the board such as audit, nominationand executive remuneration, require the atten-tion of independent, non-executive members ofthe board. Boards should consider establishingcommittees containing a sufficient number ofindependent non-executive board members inthese areas where there is a potential for con-flict of interest or where independent businessjudgment is advisable.” The ICGN considersthat to meet this challenge, audit, remunerationand nomination board committees should becomposed wholly or predominantly of inde-pendent non-executives. (ICGN AmplifiedOECD Principle V at 9; cf. ICGN Statement 4)

Not covered. Conflicts of interest should be avoided andwhere they are not, must be properly man-aged and disclosed. (Principle IX)1. Self dealing contrary to the company’s

interest is prohibited.2. Insider trading is prohibited ....3. Where material conflicts of interest occur,

they should be disclosed (a) at least to theboard; (b) where significant to the share-holders.

4. Transactions with related parties shouldtake place ‘at arms length’... (a) the partiesthat have a conflict of interest should ab-stain from voting; (b) the transactionshould, where sufficiently material, besubject to the approval of the board or ...by the shareholders.

5. Board members: (a) A distinction shouldbe made between ongoing and incidentalconflicts of interest. (b) In both cases, theboard member concerned should be ex-cluded from voting and, as appropriate, notpresent during the decision making proc-ess on the relevant item....

6. Executives: (a) Ongoing conflicts of inter-est must be avoided. (b) Outside businessactivities of executives should be reportedto and, if significant, approved by theboard.

(Recommendation IX)

[The board’s] [k]ey areas of concern ... should,at least, include ... conflicts of interest. (Rec-ommendation V.2)

There should be a majority of independentboard members on all board committees wherethere is a potential for conflicts of interest.(Recommendation VI.4.a)

The external auditors should be independentand free from conflicts of interests which, ifthey exist, must be disclosed. (Recommenda-tion VIII.7)


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Not covered directly, but see Note to 2.2 (It isdesirable that non-executive directors should nottake part in plans in relation to the granting ofshare options and should not receive pensionsby virtue of their mandate. The reason for thisis to ensure their independence.).

See also 4.2 (The Board of Directors must en-sure that objective relationships are developedwith company auditors, based on the highestdegree of professionalism.).

Information about the relevant interests of di-rectors should be disclosed in the annual report.(Part I: B.2.2)

A number of non-executive directors should beindependent of the executive management andof the dominant shareholders and free from anybusiness or other relationship with the companywhich would interfere with their independentjudgement.... It is for the board to decidewhether independence is preserved in the caseof contractual relationships on an arm’s lengthbasis. Information about the relevant interestsof directors should be disclosed in the annualreport. (Recommendation I.A.2.2)

See Recommendation I.A.1.9 (All transactionsor relations between the company and its domi-nant shareholder(s) are to be on an arms’ lengthbasis and on a normal commercial basis.).

See also Recommendation I.A.2.1 ([I]t is rec-ommended that the remuneration of non-executive directors should not take the form ofstock options, nor of a participation in the pen-sion scheme of the company.).

See also Recommendation I.A.4.2 (The boardshould ensure that the auditors have no rela-tionship with the company, whether directly orindirectly, which could influence their judge-ment.).

See also Topic Headings 10 and 11, above.

THE COMPANY DIRECTOR, IN THE EXERCISE OFHIS FUNCTIONS, UNDERTAKES TO ... [a]void anyconflict between his or her direct personal in-terests and those of the company. (p. 2)

The Director undertakes to completely informthe Board of any conflict of interest in whichthe Director could directly or indirectly be im-plicated, and this prior to any such potentialconflict. The Director undertakes to abstainfrom participating in any discussions or deci-sion-making on the matters involved.In the event that a Director, who in fact repre-sents a third party within the Board, would finda possible conflict between the interests of thisthird party and those of the company, he or shewill inform the Board, who will decide if theDirector may participate in the discussion anddecision-making on the matters involved.The Director undertakes to neither buy nor sell,directly or indirectly, shares of the company orany related company ... on the basis of anyconfidential information ... acquired as a resultof his/her function, when public revelation ofthis information may or may not have had asignificant influence on the shares. (p. 6)


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Not covered. Performance-related pay may result in con-flicting interests between the shareholders andthe managers, and may lead to the managersfocusing on increasing the value creation of thecompany. It is important that there is opennessabout all important issues regarding incentiveschemes. (VI)

Not covered directly, but see English Summary,5 (disclosure of personal and interest-groupinformation on members of the Board of Di-rectors, the Supervisory Board and, after theelection, the Managing Director).

Not covered directly, but see Guideline 2.2.2(To allow for the shareholders to be assured ofthe fact that the company management does nothave any conditions that are more advantageousthan those depending on the markets in theirpossible business activity with the company,the annual report should also state that mem-bers of the company management and theirimmediate circles do not have any related partytransactions with the company.).

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[Where a company is controlled by a majorityshareholder or a group of shareholders acting inconcert] the board must be particularly attentiveto avoid any conflict of interest, take all inter-ests into due account and ensure transparency ofinformation provided to the market. (p. 13)

See p. 12 (Some have suggested that boardmembers should include representatives of cer-tain interest groups, but the committee believesthat a move in this direction would not bedesirable. The result could well be to make theboard a focus for conflicts between such groupsinstead of collectively representing the interestsof all shareholders as it is supposed to.[T]here may still be cases where it can be usefulto include representatives of such interestgroups.... However, once directors are ap-pointed it is their duty to represent allshareholders and act in the sole interest of thecompany.).

See also p. 14 ([T]he committee advises boardsagainst appointing directors to their remu-neration or audit committees when thesedirectors represent another company whereits own representatives are members ofequivalent committees.).


The Commission believes that at least one-thirdof the Board shall comprise independent di-rectors. These directors should be “free of anyinterest” in the company, which means theyshould have no conflicts of interest. (§ II.B.1)


Not covered directly, but see RecommendationIII, p. 17 (The independence of a corporation’sauditors should not be jeopardized by the awardto entities belonging to their networks of assis-tance or consulting assignments (technical,legal, tax organisation, etc.) by the corporationitself or by other affiliates of its group, whichare of material importance either in terms ofstakes for the corporation and its group or interms of related fees. [I]t is up to the audit committee to ascertainthis, and to report on this matter to the Board ofDirectors every year.).

See p. 15 (An independent Director is to beunderstood not only as a “non-executive Di-rector,” i.e., one not performing managementduties in the corporation or its group, but alsoone devoid of particular bonds of interest (sig-nificant shareholder, employee, other) withthem. For the sake of simplicity, an independ-ent Director can be defined as follows: “ADirector is independent of the corporation’smanagement when he or she has no relationshipof any kind whatsoever with the corporation orits group that is such as to jeopardize exerciseof his or her free judgment.”).

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Supervisory BoardMembers of the Supervisory Board always per-sonally remain loyal to the company. Theymust not pursue their own interests which con-flict with the interests of the company. Eventhe suspicion of conflict must be avoided.(Code, IV.6.1)

Management BoardMembers of the Management Board alwayspersonally remain loyal to their company. Theymust not pursue their own interests which con-flict with the interests of the company. Eventhe suspicion of conflict must be avoided.(Code, III.5.1)

Participation by members of the ManagementBoard in other companies must be revealed tothe chairman of the Supervisory Board and hasto be examined for any possible conflicts ofinterest. (Code, III.5.3)

Depositary BanksDepositary banks have a particular responsibil-ity for safeguarding the interests ofstockholders. They must keep clear of possibleconflicts of interest which, for example, canresult from simultaneous customer relations tothe company or its own holdings of capital.Proper representation of the rights of the stock-holders is also a duty of the protectionassociations. (Code, V.1.3)

Supervisory BoardSupervisory Board members must disclose anyconflict of interest to the Chairman of the Su-pervisory Board or his deputy unless they donot participate for cause in a specific meetingor retire for cause due to a continuing conflict.In the event of serious conflict of interests, theChairman of the Supervisory Board or his dep-uty shall decide to whom the informationshould be forwarded and whether the memberof the Supervisory Board in question shall par-ticipate in a specific meeting.In their decisions Supervisory Board membersmust not pursue their own interests or those ofassociated persons or companies, which are inconflict with the interests of the company orany Group Company.... In the event of possi-ble conflicts of interest, … the SupervisoryBoard members concerned must abstain fromvoting. (Code, III.4.a - b)

Management BoardManagement Board members must not pursueany own interest that could be in conflict withthe interest of the company. (Code, II.4.a)

Members of the Management Board must dis-close to the Supervisory Board materialpersonal interests in transactions of the Com-pany and Group companies as well as otherconflicts of interest. They must also informtheir Management Board colleagues. (Code,II.4.b)

Management Board members and Senior Groupexecutives are also prohibited from conductingtransactions, conflicting with the interests ofthe company or any Group company, for them-selves or for associated persons. (Code, II.4.e)

Auditor[P]articular regard shall be given ... that noconflicts of interest exist for the auditor.(Code, III.2.e)

Supervisory BoardEach member of the Supervisory Board shallinform the Chairman of the Supervisory Boardof any conflicts of interest which may resultfrom a consultant or directorship function withclients, suppliers, lenders or other businesspartners. The Chairman of the SupervisoryBoard shall inform the Supervisory Board or acommittee commissioned for this purpose ofany personal conflicts of interest. (§V.5.2)

In its report, the Supervisory Board shall in-form the General Meeting of any conflicts ofinterest which have occurred together with theirtreatment. (§V.5.3)

See generally §V.5 (Supervisory Board con-flicts of interest).

Management BoardDuring their employment for the enterprise,members of the Management Board are subjectto a comprehensive non-competition obligation.(§IV.3.1)

Members of the Management Board are boundby the enterprise’s interests. No member of theManagement Board may pursue personal inter-ests in his decisions or use business opportuni-ties intended for the enterprise for himself.(§IV.3.3)

All members of the Management Board shalldisclose conflicts of interest to the Chairman ofthe Supervisory Board without delay and in-form the other members of the ManagementBoard thereof. All transactions between theenterprise and the members of the ManagementBoard as well as persons they are close to orcompanies they have a personal associationwith must comply with standards customary inthe sector. Important transactions shall requirethe approval of the Supervisory Board.(§IV.3.4)

See generally §IV.3 (Management Board con-flicts of interest).

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Preda Report(Italy)


Not covered directly, but see Recommendation5.12 (All members of the Board of Directorsshould exercise their duties in an independentmanner, taking into account exclusively theinterest of the corporation and its shareholders.).

See also Recommendation 6.2 (Certain non-executive members of the Board should ... haveno business relation with the corporation orother commercial involvement that may affecttheir independent judgement.).


Board members may not pursue interests thatare contrary to those of the company or its af-filiates. They must disclose to the board anypotential conflicts of interest that may resultfrom major transactions of the company, aswell as any other conflicts between their owninterests and those of the company. (§2.5)

[The internal controller] reports to the com-pany’s board of directors any cases of conflictsbetween the board members’ or the directors’private interests and those of the company thathe may come across in the exercise of his du-ties. (§4.5(b))

See §2.6 (Board members must communicate tothe board of directors their intentions regardingany important transactions and financial activi-ties relating to the company, as well as to anyof the company’s important clients or suppli-ers.).

See also §3.2(c) (The Internal OperationRegulation must cover … procedures for themonitoring of transactions by the members ofthe board of directors, executives and personswho, by virtue of their relationship with thecompany, possess inside information on themovable assets of the company or its affiliatesin the sense described in … para. 5 of Law2190/20 as amended, if such assets are tradedon an organized stock exchange, as well asthrough other activities linked to the com-pany.).

Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode § 1, A.3.2 (The majority of non-executivedirectors should be independent of managementand free from any business or other relationshipwhich could materially interfere with the exer-cise of their independent judgement.).

The Committee notes that the most delicateaspect in companies with a broad shareholderbase consist in aligning the interests of themanaging directors with those of the sharehold-ers. In such companies, therefore, thepredominant aspect is their independence fromthe managing directors.By contrast, where ownership is concentrated,or a controlling group of shareholders can beidentified, the problem of aligning the interestsof the managing directors with those of theshareholders continues to exist, but thereemerges the need for some directors to be inde-pendent from the controlling shareholders too,so as to allow the board to verify that potentialconflicts of interests between the interests of thecompany and those of the controlling share-holders are assessed with adequateindependence of judgement. (Code, 3)

[A] proposal for remuneration is usually dele-gated to directors who are non-executive or inany case able to formulate proposals withoutincurring conflicts of interest.

The committee therefore recommends the es-tablishment of a remuneration committeeconsisting prevalently of non-executive direct-ors.... (Code, 8.1)

The committee is convinced that the interests ofthe majority and those of the minority mustconfront each other in the election of the gov-erning bodies; subsequently, the governingbodies, and hence also the members of theboard of auditors must work exclusively in theinterest of the company and to create value forthe generality of shareholders. (Code, 13.3)

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A Supervisory Board member’s premature res-ignation can be expedient in cases of ... conflictsof interest, or if his integrity is at issue....Thechairman of the Supervisory Board in particularshould, where necessary, play an active anddecisive role in situations of this nature. (Rec-ommendation 2.8)

A Supervisory Board member with a conflict ofinterests will report this to the Chairman imme-diately. If it concerns a random incident, non-participation in the deliberations and the deci-sion-making in that area will be sufficient.(Recommendation 2.9)

A member of the Supervisory Board perma-nently delegated to the [Management Board]gives rise to a conflict in the form of a mixtureof supervisory and management functions of thecompany. (Recommendation 3.7)

Not covered. Not covered directly, but see Topic Heading 11,above.

It is recommended that, within the internalorganisation of the Company, specific regu-lations be established aimed at regulatingsituations of conflict of interest betweenmembers of the board and the company, aswell as the main obligations resulting fromduties of diligence, loyalty and confidential-ity of members of the board, particularlyregarding the prevention of improper use ofbusiness opportunities and company assets.(Recommendation 12)

The board is encouraged to create internalcontrol committees with powers conferredfor matters in which there are potentialsituations of conflicts of interest, such as thenomination of directors and managers, theanalysis of the remuneration policy and as-sessment of the corporate structure andgovernance. (Recommendation 17)

See Recommendation 15 (The inclusion of oneor more members who are independent inrelation to the dominate shareholders in theboard is encouraged, so as to maximise thepursuit of corporate interests.

The composition of the board of directorsshould be planned so that during the manage-ment of the company not only the interests ofthe group of shareholders with a majority ofshares are considered.

Independent members should exercise a signifi-cant influence on collective decision taking andcontribute to the development of the companystrategy, thereby favoring the interests of thecompany.).

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Internal regulations of the company must lay outthe obligations arising from the general duties ofdiligence and loyalty, especially covering situa-tions of conflicting interests, the obligation ofconfidentiality, and the use of business opportu-nities and corporate assets. (Recommendation16)

One of the most neglected features of our corpo-rate practice ... is the definition of clear rules toface situations of conflicting interests, namelysituations where the interests of the companyand the direct or indirect personal interest of adirector clash…. [T]o properly deal with thismatter, at least two essential rules must beclearly established: [1] directors should refrainfrom attending and taking part in deliberationsaffecting issues concerning them, particularlyany deliberations in connection with their re-election or dismissal; [2] the need [to be] ex-tremely cautious in the execution of professionalor commercial transactions – whether by director indirect means – between the director and thecompany, because such operations may be dan-gerous for corporate interests…. [T]heCompany’s internal regulations should formallyinclude the director’s duty of reporting in ad-vance situations and conflicting interests andestablish a control system, which – according tobest practice – could consist of foreseeing thatany such transactions should be approved by theBoard of Directors once they have been sub-mitted to its consideration via a report preparedby the corresponding delegated Committee.These transactions should be consistently pub-lished. (Report, 8.2)

[A] rule of abstention ... would oblige signifi-cant shareholders not to vote in board decisionsregarding which they have a direct or indirectinterest (for instance, defensive measuresagainst hostile takeover bids). (Report, 8.6)

Not covered directly, but see Topic Headings10 and 11, above.

Not covered. [T]he importance of non-executive directors hasbecome evident, particularly … in circum-stances where there is potential for conflict ofinterest such as management buy-outs. (pp. 2-3)

The advent of a takeover or a management buy-out imposes obligations on management tomake all relevant information available and theTakeover Code imposes quite stringent obliga-tions in bid situations. Given the potential forconflicts of interest, however, where the buy-out consortium comprises or includes manage-ment, the need for full disclosure andindependent advice becomes more acute.It is suggested that, as a matter of good practice…. [t]he consortium should not have access tothe company’s usual professional advisers,since that would aggrevate the conflict of inter-est. (p. 6)

See p. 3 (Non-executive directors should holdother directorships in the same industry onlywith the approval of the board.)

See also p. 4 (Service contracts should not per-mit the executive directors to engage in, or havean interest in, any business similar to that car-ried on by any group company except with theapproval of the Board (though the ability tohold shares in listed companies carrying onsuch business is accepted).)

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Not covered directly, but see Code, 2.2. (Themajority [of non-executive directors] should beindependent of management and free from anybusiness or other relationship which couldmaterially interfere with the exercise of theirindependent judgement, apart from their feesand shareholding.).

See also Report, 4.13 (In order to safeguard[non-executive directors’] independent position,we regard it as good practice for non-executivedirectors not to participate in share optionschemes and for their service as non-executivedirectors not to be pensionable by thecompany.).

See also Report 5.3.c (Audit firms are incompetition with each other for business.... Tothe extent however that audit firms compete onprice and on meeting the needs of their clients(the companies they audit), this may be at theexpense of meeting the needs of shareholders.).


To avoid potential conflicts of interest, Boardsof Directors should set up remunerationcommittees of Non-Executive Directors todetermine on their behalf, and on the behalf ofthe Shareholders, within agreed terms ofreference, the company’s policy on executiveremuneration and specific remunerationpackages for each of the Executive Directorsincluding pension rights and any compensationpayments. (Code, A1)

Remuneration committees should consistexclusively of Non-Executive Directors with nopersonal financial interest other than asshareholders in the matters to be decided, nopotential conflicts of interest arising fromcross-directorships and no day-to-dayinvolvement in running the business. (Code,A4)


Not covered directly, but see Guideline 3.2(The basic legal duties of directors are to act ingood faith in the interests of the company andfor a proper purpose; and to exercise care andskill. These are derived from common law andare common to all directors. The duties areowed to the company, meaning generally theshareholders collectively, both present andfuture, not the shareholders at a given point intime.).

See also Guideline 6.8 ([A]udit firms have verystrong commercial reasons for preserving anunblemished reputation for independence. Butthere may be a temptation to compromise onindependence where an audit firm depends fora significant proportion of its income on a sin-gle audit client. We suggest that the bodiesconcerned should examine whether, in the ex-isting professional guidance, the 10% limit oftotal income from one listed or other publicinterest client should be reduced.).

See also Guideline 3.9 (The Cadbury commit-tee recommended that a majority of non-executive directors should be independent, anddefined this as ‘independent of managementand free from any business or other relationshipwhich could materially interfere with the exer-cise of their independent judgement.’ (CadburyReport 4.12) ... [W]e agree with Cadbury that itshould be for the board to take a view onwhether an individual director is independent inthe above sense. The corollary is that theboards should disclose in the annual reportwhich of the directors are considered to beindependent and be prepared to justify theirview if challenged.).


The majority of non-executive directors shouldbe independent of management and free fromany business or other relationship which couldmaterially interfere with the exercise of theirindependent judgement. (Code § 1, A.3.2)

To avoid potential conflicts of interest, boardsof directors should set up remunerationcommittees of independent non-executivedirectors to make recommendations to theboard, within agreed terms of reference, on thecompany’s framework of executiveremuneration and its cost; and to determine ontheir behalf specific remuneration packages foreach of the executive directors, includingpension rights and any compensation payments.(Code § 1, B.2.1)

Remuneration committees should consistexclusively of non-executive directors who areindependent of management and free from anybusiness or other relationship which couldmaterially interfere with the exercise of theirindependent judgement. (Code § 1, B.2.2)

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Not covered. Not covered directly, but see Topic Headings10 and 11, above.

Not covered directly, but see Recommendation2.3 ([A] NED must not ... represent significantshareholders or other single interest groups (egsupplier, creditor); receive a income from thecompany other than NED fees; participate inthe company’s share option or performance-related remuneration schemes; have conflictingor cross directorships; have any other signifi-cant financial or personal tie to the company orits management which could interfere with thedirector’s loyalty to shareholders.

Hermes accepts that not all NEDs need to beindependent in accordance with this defini-tion.).

Board committees of independent non-executives should be established to deal withmatters where executive directors face a con-flict of interest….Non-executive directors ... bring an independ-ent perspective to bear on issues where theexecutive directors face a conflict of interest.(Part 2: Directors, p. 5)

Directors face a clear conflict of interest whensetting their own remuneration in terms of theirduty to the company, their accountability toshareholders and their own self-interest. Theperceived failure to balance these interests isresponsible for the recurrent controversies overdirector remuneration.

Owing to the inherent conflict of interest fordirectors, shareholders have a legitimate inter-est in remuneration and should have the finalsay in approving overall policy ... [T]he wide-spread use of remuneration committees has notreduced concerns over conflicts of interest ...[R]emuneration committees are often not ableto act with sufficient independence. (Part 3:Directors’ remuneration, p. 8)

The independence of the auditor is of para-mount importance to the shareholders. Ingeneral, we are not persuaded that audit firmscan be employed simultaneously to providesubstantial consultancy services to a companyand to undertake an audit on behalf of theshareholders without compromising their ob-jectivity... In terms of translating these generalconcerns into practical guidance, the level ofnon-audit fees should not be such that it maycause a conflict of interest for the auditors...[A]s a general principle, we consider that non-audit work should be limited to work whichrequires detailed knowledge derived from thestatutory audit. (Part 4: Audit and reportingpp.12-13)


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13. Commitment / Changes in Job Responsibility

Board members should devote sufficient time totheir responsibilities. (OECD Principle V.E.2)

It is widely held that service on too many boardscan interfere with the performance of boardmembers. Companies may wish to considerwhether excessive board service interferes withboard performance. Some countries have lim-ited the number of board positions that can beheld. Specific limitations may be less importantthan ensuring that members of the board enjoylegitimacy and confidence in the eyes of share-holders. (OECD Principle V.E.2 Annotation at42)

The ICGN Statement adopts OECD PrincipleV.E.2 (Board members should devote sufficienttime to their responsibilities.).

See also OECD Annotation to Principle V.E.2at 42 (It is widely held that service on toomany boards can interfere with the perform-ance of board members. Companies may wishto consider whether excessive board serviceinterferes with board performance. Somecountries have limited the number of boardpositions that can be held. Specific limitationsmay be less important than ensuring that mem-bers of the board enjoy legitimacy andconfidence in the eyes of shareholders.).


[T]he number of executive board members whocan serve later as non-executive should be lim-ited to one [and] the number of his boardmemberships as a non-executive should belimited. (Commentary on Recommendations10(a) and 10(b))

Board members should be able to devote suffi-cient time to the proper exercise of theirresponsibilities. (Recommendation V.1.d)

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Not covered. Not covered. The Director undertakes to regularly attend theBoard meetings. (p. 4)

See p. 3 (In the event of resignation, the Direc-tor will inform the other Directors, the auditor,the controlling public authority if there is one,and the Shareholders General Assembly of thereasons for his or her resignation, while avoid-ing rendering public any confidentialinformation.).

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No one should become a board member in morethan six listed companies, and a CEO or achairman should not hold more than two seats.(I. The Annual General Meeting)

It is important that the individual director un-derstands what time requirements the boardwork places on him in advance and that heallocates sufficient time for his tasks on theboard. It is recommended that a director who isalso a member of the management team of anactive company does not fill more than threeordinary directorships or one chairmanship andone ordinary directorship in companies whichare not part of the group, except in exceptionalcircumstances. (V.6)

If a director’s conditions of employmentchange during an election period he shouldinform the other directors of this and be pre-pared to make his mandate available at the nextAGM. (V.8)


Not covered.

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[B]oards should consider ... how many directorswith seats on other boards it is prepared to ac-cept. (p. 10)

[T]he existence of cross-shareholdings may beviewed as a transitional phenomenon in Frenchcapitalism, and one whose elimination asquickly as possible would appear highly desir-able.Cross-shareholdings frequently, but not inevita-bly, result in reciprocal board membership, withone company holding a seat on the board ofanother company, which in turn has a seat onthe board of the first company. This situationnaturally raises some questions on the market.The Committee thus believes that when aboard is considering how best to structure itsmembership, it should take care to avoidincluding an excessive number of such recip-rocal directorships. (p. 14)

Directors must devote the necessary time andattention to their duties. If they are chairmanor directeur général (executive director) of acompany, they should in principle not acceptmore than five directorships with French orforeign listed companies outside their group. (p.20)

Directors must be assiduous and attend allmeetings of the board and any of its advisorycommittees of which they are members. (p. 21)

Not covered directly, but see § II.D.2 (TheCommission recommends ... that board mem-berships be limited to three, includingrepresentation of legal entities as well as thedirector personally, except for directorshipsheld within one’s own group. The recom-mended directorship limit for outside directorsis five.).

Not covered directly, but see pp. 14, 24 ([T]heCommittee considers it essential to issue a re-minder of the rule laid down by the 1995report: a Director holding an executive posi-tion in a listed corporation should restrict thenumber of directorships held in French or for-eign listed corporations not affiliated to thegroup, and in any event abstain from holdingmore than five.).

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Supervisory BoardMembers of the Supervisory Board may notexercise any mandates in other undertakingswhich are competitors of the company. Further,they must not sit on the Management Board of acompany or be employed by it where a Man-agement Board member of the companybelongs to its Supervisory Board. The move tothe Supervisory Board of the company by retir-ing Management Board members is normallyrestricted to one member. (Code, IV.4.4)

Management BoardParticipation by members of the ManagementBoard in other companies must be revealed tothe chairman of the Supervisory Board and hasto be examined for any possible conflicts ofinterest. (Code, III.5.3)

The Chairman of the Supervisory Board mustapprove acceptance of a seat on the SupervisoryBoard of another company, as well as engagingin significant ancilliary activities. (Code,III.5.4)

Supervisory BoardBoard members must make sufficient timeavailable to exercise their activity in a diligentmanner. (Code, III.1.a)

Management Board[O]ther activities of Management Board mem-bers, in particular the acceptance ofSupervisory Board appointments, require theapproval of the Supervisory Board. Any otheractivities of senior Group executives requirethe approval of the Management Board. (Code,II.4.g)

[The Personnel] Committee is responsible forthe approval of pay for outside company workby members of the Management Board. (Code,III.3)

Supervisory BoardEvery member of the Supervisory Board musttake care that he has sufficient time to performhis mandate. (§V.4.3)

If a member of the Supervisory Board did notpersonally take part in more than half of themeetings of the Supervisory Board in a finan-cial year, this shall be noted in the Report of theSupervisory Board. (§V.4.6)

Management BoardMembers of the Management Board shall takeon sideline activities, especially SupervisoryBoard mandates outside the enterprise, onlywith the approval of the Supervisory Board.Sideline activities of executive employees re-quire the approval of the Management Board.(§IV.3.5)

Whoever is a member of the ManagementBoard of a listed company shall perform nomore than a total of five Supervisory Boardmandates in group-external exchange-listedcompanies. (§V.4.3)

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Preda Report(Italy)


The members of the Board of directors shoulddevote adequate time to their duties. (Recom-mendation 5.14)

See Recommendation 5.7 (The Board of direc-tors should operate on the basis of collectiveresponsibility, and no class of members shouldbe any different with respect to authority orresponsibility.).

Not covered. Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode § 1, B.1.9 (Remuneration committeesshould consider what compensationcommitments (including pension contributions)their directors’ contracts of service, if any,would entail in the event of early termination.They should in particular consider theadvantages of providing explicitly in the initialcontract for such compensation commitmentsexcept in the case of removal for misconduct.).

See also the Combined Code § 1, B.1.10(Where the initial contract does not explicitlyprovide for compensation commitments, remu-neration committees should, within legalconstraints, tailor their approach in individualearly termination cases to the wide variety ofcircumstances. The broad aim should be toavoid rewarding poor performance while deal-ing fairly with cases where departure is not dueto poor performance and to take a robust lineon reducing compensation to reflect departingdirectors’ obligations to mitigate loss.).

Directors shall accept their appointment tothe board when they deem they can devotethe necessary time to the diligent perform-ance of their duties. (Code, 1.3)

The reference to the time to be devoted to thediligent performance of the duties of directorsconfirms the principle that all directors are in-dividually required to make an appropriatecommitment to the position, so that companiescan benefit from their expertise. Each directoris therefore responsible for assessing in advancehis or her ability to play the role diligently andeffectively. (Commentary on Code, 1.3)

The Committee did not deem it desirable to laydown quantitative guidelines in terms of num-ber of directorships [held simultaneously by adirector]. (Report, 5.1)

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Supervisory BoardThe number of Supervisory Board membershipsshould be determined by the time available for aproper performance of duties. (Recommenda-tion 2.10)

Individual [Supervisory Board] members areasked to explain frequent non-attendance.(Recommendation 3.3)


Not covered. Not covered. Not covered.

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[T]he general duty of loyalty by which directorsare bound obliges them to resign whenever theirpresence on the Board might jeopardize theinterests of the company or when the reasonsbehind his/her appointment disappear (for in-stance, when a proprietary director sells his/hershare in the company or an independent directorjoins the management team). (Report, 5.5)

A managing director who is leaving that posi-tion should not be appointed as chairman norremain on the board. (Guideline 2.1)

Board members should devote sufficient timeto their board assignment. This means, amongother things, that members should not sit onmore than 5-6 boards. The managing directorof a stock market company should not havemore than two board positions in other compa-nies. (Guideline 2.2)

Not covered. The Articles should provide that a director maybe dismissed from office by his or her fellowdirectors for failure to attend a specified num-ber of meetings of the Board “or BoardMeetings held in a specific period.” (p. 2)

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Not covered. Within legal constraints, remunerationcommittees should tailor their approach inindividual early termination cases to the widevariety of circumstances. The broad aimshould be to avoid rewarding poor performancewhile dealing fairly with cases where departureis not due to poor performance. (Code, D4)

Remuneration committees should take a robustline on payment of compensation whereperformance has been unsatisfactory and onreducing compensation to reflect a departingDirectors’ obligations to mitigate damages byearning money elsewhere. (Code, D5)

Where appropriate, and in particular wherenotice or contract periods exceed one year,companies should consider paying all or part ofcompensation in installments rather than onelump sum, and reducing or stopping paymentwhen a former Director takes on newemployment. (Code, D6)

See Code, C11 (Remuneration committeesshould consider the pension consequences andassociated costs to the company of basic salaryincreases, especially for Directors close toretirement.).

See also Code, D1 (Remuneration committeesshould consider what compensationcommitments their Directors’ contracts ofservice, if any, would entail in the event ofearly termination, particularly forunsatisfactory performance.).

[O]nce a director has been elected to serve, heowes it to the shareholders to complete histerm, or to give an explanation if he is unable todo so. There are many reasons for a director’sresignation which need not concern sharehold-ers – health, family commitments, increasedwork commitments elsewhere; in these cases,the privacy of the individual should be re-spected. (Guideline 3.23)

Not covered directly, but see Code § 1, B.1.9,B.1.10 (remuneration in the event of early ter-mination).

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Not covered. Not covered. The number of NED positions held by anyindividual should reflect the need to ensure thatadequate attention can be given to every office,particularly at times of corporate turbulance.(2.2)

It is important that directors have sufficienttime to devote to the company’s affairs. Fulldisclosure of directors’ other commitmentsshould be provided.... The full record of eachdirector’s attendance at board meetings andcommittee meetings should be provided in theannual report.To assist smaller companies to improve theirquotient of experienced directors, we considermore companies should make their senior ex-ecutives available for non-executiveappointments, though executive directorsshould not have more than one other outsideappointment. (Part 2: Directors, p. 5)

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14. Election Term / Term Limits / Mandatory Retirement

Not covered. Each elected member [of the unitary board ofdirectors or of the supervisory board in a two-tier system] should stand for election on aregular basis. (ICGN Amplified OECD Princi-ple V at 9)

The membership of non-executives on theboard, whether in a one-tier or a two-tier sys-tem, should be limited to a maximum period oftwelve years. (Recommendation 10(a))

In order for the non-executive board membersto be effective, the period they should serve onthe board without being (re-)elected by theAGM should be limited to twelve years.(Commentary on Recommendations 10(a) and10(b))

Board members should stand for individual re-election on a regular basis. (RecommendationVI.2.c)

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The mandate of the directors is for a limitedperiod and is not automatically extended. (1.6)

The law stipulates, on the one hand, that theduration of the directors’ mandate must notexceed six years and, on the other hand, thatthey may be re-elected, unless stipulated to thecontrary in the Articles of Association.The obligations, the duration of the mandate andthe means of remuneration of directors must beannounced at the time of their appointment.(Note to 1.6)

In accordance with the law on commercialcompanies, directors must be appointed forspecified terms, which must not exceed sixyears, and reappointment is not automatic.(Part I: B.2.3)

Information on the composition of the board ofdirectors [that should be disclosed includes]dates on which the mandates of the directorsexpire [and] age limit, if any, to serve on theBoard of Directors. (Part II: B.1)


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[E]lections should ... [be] for a period of oneyear only. (I. The Annual General Meeting)

[N]o board member should be re-elected for atotal period of more than twelve years.(II. Governance)

It is recommended that directors retire from theboard in the year they turn 70 at the latest.(V.7)

It is recommended that directors are elected tothe board for a period of no more than threeyears at a time and that the board organises theelection periods for the individual directorselected by general meeting in such a way thatcontinuity is maintained through the replace-ment of the board…. Reelection of thechairman and the other directors for a period ofmore than nine years cannot be recommended.(V.8)

Not covered directly, but see English Summary,4 (The Annual Report shall contain a mentionof the dates when the members of the Board ofDirectors and the Supervisory Board are due toresign. Requests to resign as well as refusalsfor new candidacy known to the company shallbe [disclosed], at the latest, at the GeneralMeeting of the Shareholders.).

Not covered.

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Not covered directly, but note that French lawimposes certain restrictions. See HellebuyckCommission Recommendations, right.

In accordance with French law, a director’smandate may not exceed six years unless theGeneral Meeting decides to renew this man-date, and directors older than seventy yearsmay not exceed one-third of board member-ship.The Commission recommends that directors’mandates not exceed four years and the numberof directors over 65 years not exceed one-thirdof the board membership. (§ II.D.4)

Under French law, the duration of Directors’terms of office is set by the by-laws, but maynot exceed six years. While it is possible,therefore, for the by-laws to provide for a termof office of less than six years, this seems inpractice to remain the most common.Determination of the duration of a Director’sterm of office must combine two different re-quirements: to allow the shareholders to ruleupon appointment of their agents on the Boardof Directors with sufficient frequency, and totake account of the need for reasonable conti-nuity in a corporation’s administration. In thisrespect, a term of four years seems most appro-priate.Combining these two objectives also leads tofavoring a staggering of terms of office so as toavoid replacement of all the Directors togetherand to organize regular replacement of theBoard, for instance by classes of approximatelyequal numbers of Directors. (p. 14)

The Committee considers that without affectingthe duration of current terms of office, the du-ration of the Directors’ term of office, set bythe by-laws, should not exceed a maximum of 4years, in order to enable to shareholders to ruleupon their appointment with sufficient fre-quency.The terms of office should be staggered so as toavoid renewal as a whole and to make the re-placement of Directors smoother. (p. 23)

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Supervisory BoardMembers of the Supervisory Board should be ina position in the long run, both in terms of timeand personal health, to fulfil with proper dili-gence the requirements made by supervisorytasks. They should normally not exhaust thelegally permissible maximum number of theirSupervisory Board mandates, and not exceedthe retirement age of 70 years. (Code, IV.4.5)

Management Board[T]he initial appointment [of ManagementBoard members] should at first normally belimited in duration to three years at most. Anappropriate statutory regulation is to be recom-mended in order to ease the practical applicationof this limitation. (Code, II.1.9)

Supervisory BoardNot covered directly, but see Code, III.1.c) (Toenable regular adjustments to material devel-opments, the election or re-election ofSupervisory Board members can take place atdifferent dates.).


Supervisory BoardThe election or re-election of members of theSupervisory Board at different dates and fordifferent periods of office enables changingrequirements to be taken into account. (§V.4.4)

Material conflicts of interest and those whichare not merely temporary in respect of theperson of a Supervisory Board member shallresult in the termination of his mandate.(§V.5.3)

Management BoardFor first time appointments [to the Manage-ment Board] the maximum possible appoint-ment period of five years should not be therule. A re-appointment earlier than one yearbefore the end of the appointment period [shall]only take place under special circumstances.An age limit for members of the ManagementBoard shall be specified. (§V.1.2)

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Preda Report(Italy)


It is good practice that the non-executive mem-bers of the Board are not elected for manyterms. (Recommendation 6.4)

Not covered. Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode, Principle A.6 (All directors should berequired to submit themselves for re-election atregular intervals and at least every three years.).

See also the Combined Code § 1, A.6.1 (Non-executive directors should be appointed forspecified terms subject to reelection and toCompanies Act provisions relating to theremoval of a director, and reappointmentshould not be automatic.).

See also the Combined Code § 1, A.6.2 (Alldirectors should be subject to election byshareholders at the first opportunity after theirappointment, and to re-election thereafter atintervals of no more than three years.).

See also the Combined Code § 1, B.1.7 (Thereis a strong case for setting notice or contractperiods at, or reducing them to, one year orless. Boards should set this as an objective; butthey should recognize that it may not bepossible to achieve it immediately.).

See also the Combined Code § 1, B.1.8 (If it isnecessary to offer longer notice or contractperiods to new directors recruited from outside,such periods should reduce after the initialperiod.).

The Committee did not deem it desirable to laydown quantitative guidelines in terms of ... theduration of appointments. (Report, 5.1)

[There is a] legal requirement for appointmentsto the board of directors not to last more thanthree years. (Report, 5.4.1)

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Supervisory BoardMembers of the Supervisory Board in compa-nies not subject to the ‘structure regime’ shouldbe appointed for a certain period of time. (Rec-ommendation 2.7)

The Supervisory Board should draw up a rotafor resignation to prevent an unnecessarily highnumber of re-appointments having to be dis-cussed at once. A four-year term of office couldserve as a basis. (Recommendation 2.7)


Supervisory BoardThe membership of a supervisory board shouldbe limited to a maximum period of 12 years,taking into account that reappointment after 8years requires approval by 75% of the votes.(Recommendation 8)

Limitation of the period persons serve on thesupervisory board stimulates circulation. Ap-proval for a second reappointment byshareholders prevents automatic reappoint-ments or appointments of underperformingmembers. (Commentary on Recommendation8)

See also Commentary on Recommendation 7(The possibility of dismissal will be used rarelybut does offer sanctions when members of thesupvisory board fail to replace disfunctionalmanagement. This situation already exists incompanies where the structure regime does notapply.).

Management BoardNot covered directly, but see Recommendation7 (Shareholders should be able to file a resolu-tion for dismissal of a member of the executiveboard. Adoption of this resolution requires atleast two-thirds support and a quorum of fiftypercent.).

Supervisory BoardThe tenure of supervisory board membersshould generally be limited to two terms of fouryears. (Guideline 13(c))


Not covered.

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Company regulations must include directors’obligation to resign whenever they may harmthe operation of the Board or the credit andreputation of the Company. (Code, Recommen-dation 12)

An age limit must be set for the performance ofdirector duties, which could be between 65 and70 years for executive directors and the Chair-man of the Board, and a more flexible bracketfor the rest of the directors. (Code, Recommen-dation 13)

The re-election of executive and proprietarydirectors should have no restrictions other thanthose arising from the evaluation and lastingconfidence of support groups. (Report, 5.4)

[T]here are proposals to restrict the possibilityof re-election [of independent directors] to justone term. Nevertheless, this Committee doesnot consider that such a dramatic recommenda-tion is appropriate. The scarce empirical dataavailable show that the possible costs associatedwith less independence do not justify renounc-ing the benefits of accumulated experience.Moreover, the presence of a time limit for di-rectors may reduce the incentives for them todedicate efforts to their Board-related tasks and,in general terms, to be involved in and commit-ted to the company’s future. (Report, 5.4)

[T]he establishment of an age limit for the per-formance of director functions must beconsidered. Our criterion here is that somemeasures must be passed in order to make iteasier to replace the eldest Board members,though granting companies some leeway so thatthey may take advantage of the wide experienceof certain directors. (Report, 5.5)

Not covered. Not covered. One-third of the directors should be subject toretirement by rotation each year. They canstand for re-election if they so chose. (p. 2)

The Articles should provide that a director maybe dismissed from his or her office by writtenresolution of all co-directors (or at the veryleast a majority of 75% of co-directors) whoshould obtain shareholder approval at the nextgeneral meeting for their course of action.(p. 2)

The Articles should provide that a director maybe dismissed from office by his or her fellowdirectors for failure to attend a specified num-ber of meetings of the Board “or BoardMeetings held in a specific period.” (p. 2)

See p. 2 ([T]he Annual Report should disclosethe ages of all directors and in the cases ofthose aged over 70, on occasion when theystand for election or re-election, an explanationof why it is felt appropriate that such directorsbe retained.).

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Non-executive directors should be appointed forspecified terms and reappointment should not beautomatic. (Code, 2.3)

[Executive] directors’ service contracts shouldnot exceed three years without shareholders’approval. (Code, 3.1)

Companies have to be able to bring aboutchanges in the composition of their boards tomaintain their vitality. Non-executive directorsmay lose something of their independent edge ifthey remain on a board too long. Furthermore,the make-up of a board needs to change in linewith new challenges. We recommend, there-fore, that non-executive directors should beappointed for specified terms. Their Letter ofAppointment should set out their duties, term ofoffice, remuneration and its review.Reappointment should not be automatic, but aconscious decision by the board and the directorconcerned. (Report, 4.16)

There is a strong case for setting [Directors’]notice or contract periods at, or reducing themto, one year or less. Remuneration committeesshould, however, be sensitive and flexible,especially over timing. In some cases notice orcontract periods of up to two years may beacceptable. Longer periods should be avoidedwherever possible. (Code, D2)

If it is necessary to offer longer notice orcontract periods, such as three years, to newDirectors recruited from outside, such periodsshould reduce after the initial period. (Code,D3)

See Commentary on RemunerationCommittees, Membership and Qualifications,4.12 (Since knowledge and experience areimportant, remuneration committee membersshould preferably serve for a period of at leastthree years, subject to the normal periodic re-election of Directors. Where Directors standfor re-election, the proxy cards should indicatetheir specific duties, including membership onthe remuneration or other committee.).

All directors should be required to submitthemselves for re-election at regularintervals and at least every three years.(Principle A.VI; see Guideline 3.21)

[A retirement requirement based on age andlength of service] assumes that theeffectiveness and objectivity of the director willdecline with increasing age and length ofservice. There is a risk that this could happen,and boards, and the individuals themselves,should be vigilant against it. But a reasonablylong period on the board can give directors adeeper understanding of the company’sbusiness and enable them to make a moreeffective contribution. Individuals’ capacities,and their enthusiasm for the task, vary widely,and a recommendation would be inappropriate.(Guideline 3.22)

[I]t has been suggested to us that shareholdersare entitled to know if a resignation resultsfrom a policy disagreement or a personalityclash. This may be helpful in appropriatecases; there are likely to be rumours, and opendisclosure may be in shareholders’ interests.(Guideline 3.23)

We endorse the view that it is the board’sresponsibility to appoint new directors and theshareholders’ responsibility to re-elect them.(Guideline 2.8)

All directors should be required to submitthemselves for re-election at regularintervals and at least every three years.(Principle A.6)

Non-executive directors should be appointedfor specified terms subject to reelection and toCompanies Act provisions relating to theremoval of a director, and reappointment shouldnot be automatic. (Code § 1, A.6.1)

All directors should be subject to election byshareholders at the first opportunity after theirappointment, and to re-election thereafter atintervals of no more than three years. (Code§ 1, A.6.2)

There is a strong case for setting notice orcontract periods at, or reducing them to, oneyear or less. Boards should set this as anobjective; but they should recognize that it maynot be possible to achieve it immediately.(Code § 1, B.1.7)

If it is necessary to offer longer notice or con-tract periods to new directors recruited fromoutside, such periods should reduce after theinitial period. (Code § 1, B.1.8)

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All directors should be subject to re-election atintervals of no more than three years….The Annual Report should disclose the ages ofall directors and, in the cases of those aged over70 on the occasion when they stand for electionor re-election, provide an explanation of why itis felt appropriate that such directors beretained. (§8)

See §9(iii) (There should be no advanceagreement for special compensationarrangements (including enhanced pensionarrangements, deferred options etc) for thosecases where executive directors’ contracts areterminated early. If a director’s contract has tobe terminated and an element of compensationis agreed, staged payments should be made tomitigate loss. These should cease on asubsequent new appointment.).

Principle A.6 [of the Combined Code] recom-mends that all directors should be required tosubmit themselves for re-election at regularintervals and at least every three years. (Guid-ance Note on Key Principle 6))

[T]o be considered independent, a NED mustnot ... serve as a director for more than tenyears or be over seventy years of age. (2.3; see2.6)

PRINCIPLE: All directors should be account-able to shareholders by facing regular re-election.G. Non-executives are appointed for specifiedterms. There should be a formal opportunity toassess the contribution made by non-executives.They should therefore have a fixed period ofappointment rather than an open-ended ap-pointment….H. All directors are required to seek election inthe articles. It is fundamental to good corporategovernance that all directors are required toseek regular re-election by shareholders. Ifexemption from election provisions exist incompany articles, ... they should be removed.I. All directors face election every year. Underthe current system, it is merely coincidental ifdirectors retire in a year when shareholders maywish to vote on an issue of concern which hasemerged during the period.... In the absence ofopportunities for shareholders to vote on policyissues ..., and given the difficulties involved inputting forward a shareholder resolution onspecific issues of concern, in order tostrengthen accountability, we consider that alldirectors should retire for re-election each year.J. Directors over 70 face annual re-election.Whilst recognizing that such directors may stillhave much to contribute to a company, in theabsence of annual election for all directors,PIRC considers that companies ensure thatdirectors over the age of seventy stand down forelection each year. (Part 2: Directors, p. 6)

[In the case of two-tiered boards,] [s]harehold-ers ... should have the power to remove [anysupervisory board directors] exercising thepowers of the company or charged with over-seeing executive management. This applies tostakeholder representatives and also to alternatedirectors who are not elected. (Part 2: Direc-tors, p. 4)

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15. Evaluating Board Performance

Boards should consider assigning a sufficientnumber of non-executive board members capa-ble of exercising independent judgement totasks where there is a potential for conflict ofinterest. Examples of such key responsibilitiesare: financial reporting, nomination and execu-tive and board remuneration. (OECD PrincipleV.E.1)

[Independent board members] can bring an ob-jective view to the evaluation of theperformance of the board.... (OECD PrincipleV.E Annotation at 41)

In order to improve board practices and theperformance of its members, some companieshave found it useful to engage in training andvoluntary self-evaluation that meet the needs ofthe individual company. (OECD PrincipleV.E.2 Annotation at 42)

The ICGN Statement adopts OECD PrincipleV.E.1 (Boards should consider assigning asufficient number of non-executive boardmembers capable of exercising independentjudgment to tasks where there is a potential forconflict of interest. Examples of such key re-sponsibilities are: financial reporting,nomination and executive and board remunera-tion.).

See OECD Principle V.E Annotation at 41(Independent board members ... can bring anobjective view to the evaluation of the per-formance of the board.).

See also OECD Principle V.E.2 Annotation at42 (In order to improve board practices and theperformance of its members, some companieshave found it useful to engage in training andvoluntary self-evaluation that meets the needsof the individual company.).

Not covered. Evaluation and review procedures on the effec-tiveness of the board and its members should beestablished, and their existence disclosed.(Recommendation V.6)

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Not covered. Not covered. Not covered directly, but see p. 4 (The Directorundertakes to verify that the powers and re-sponsibilities of the Board of Directors ... areclearly established.The Director undertakes to verify that theBoard effectively controls the company and theactivity of the Management.).

See generally p. 4 (ensuring the effective func-tioning of the Board of Directors).

See also p. 5 (The Director undertakes to en-courage the Board to adopt a code of goodpractice.).

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We recommend that the board establishes anassessment process which continuously andsystematically evaluates the work, results andcomposition of the board and the individualdirectors, including the chairman, in order toimprove the board’s work. In this connection,the criteria of the evaluation should be clearlyspecified.When assessing the board as a whole, there is aclear need to evaluate to what extent previouslyestablished strategic goals and plans have beenrealised. It will be appropriate to carry out theassessment once a year and the chairman willbe responsible for this, and if necessary, withexternal help. The result will be discussed bythe entire board. (V.10)

See also V.12 (It is recommended that the man-agement and the board establish a procedure bywhich the collaboration between the board andthe management is assessed in an annualmeeting between the managing director and thechairman of the board. The result of the as-sessment should be presented to the entireboard.).

Not covered. Not covered directly, but see Topic Heading 16,below.

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The Committee considers ... that each boardshould periodically review its membership,organization and operations and keep share-holders informed of conclusions and actiontaken. (p. 3)

The Committee suggests that the boardshould collectively consider the status of itsmembers and their capacity to fulfill theirduties, notably in that they have thenecessary information, and should nothesitate to impose requirements ... if itbelieves the company’s circumstances makethis necessary. These tasks could be carriedout by the board’s selection committee.(p. 21)

[A]bsenteeism is rare among directors. Where itdoes arise, it is the board’s duty to take the nec-essary measures to ensure members’ attendanceat its meetings and those of its advisory com-mittees. Such measures may include, forexample, making fees proportional to atten-dance, publication of attendance lists oradoption of rules requiring directors to resign orface dismissal by the shareholders’ meetingonce they have been absent a certain number oftimes. (p. 22)

See p. 3: (The board’s prime responsibility is toensure that its organization and operation enableit to fullfil its duties as efficiently as possible.).

The Commission recommends that the boardregularly evaluate its own degree of opennessin terms of its membership, its organisation,and its mode of functioning. It should informshareholders of any measures taken as a result.It also recommends that the board examine thestatus and situation of its members with regardto their functions and obligations.The Commission further recommends that eachyear, in the annual report, the board publish thenumber of its meetings during the year, plus anattendance record, an evaluation of board or-ganisation and functioning, and a detailedresumé and list of directorships of each boardmember and of candidates to director posts.(§ II.D.3)

It is recommended that a charter consisting of akind of director’s code of professional conductbe established. At a minimum, it should in-clude certain principles: the obligation to owncompany shares in one’s personal capacity, toattend board meetings and shareholders’ meet-ings, to respect the confidentiality of mattersrelating to company business, to abide by ethi-cal standards applying to company employeesregarding transactions in company shares, andto declare all transactions in company shares.(§ II.D.5)

Among the measures recommended by the1995 report, the Committee wishes to stress theduty for each Board to consider “the desirableequilibrium in its membership or those of itscommittees” and “to review periodically theadequacy of its organization and operation toits tasks.”It is ... fundamental for the proper practice ofcorporate governance that the Board shouldevaluate its ability to meet the expectations ofthe shareholders having appointed it to managethe corporation, by reviewing periodically itsmembership, its organization, and its operation(implying an identical review of the Boardcommittees).The Committee considers that this reviewshould be reported to the shareholders in theannual report. (pp. 14-15)

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Regular evaluation promotes continuousimprovement in the corporate governance ofa company. (Thesis 10)

Supervisory BoardThe Supervisory Board subjects its activities tosystematic evaluation at regular intervals inorder to continually improve them. (Code,IV.2.6)

If the work of a member of the SupervisoryBoard displays serious flaws, it is the Supervi-sory Board that causes him to be removed.(Code, IV.4.3)

Management BoardThe individual performance of each Manage-ment Board member ... is ... to be systematicallyevaluated annually by the personnel committee.In this, the target-orientated development of thecompany and individual contributions made byManagement Board members provide the scalefor making the assessment. (Code, II.1.10)

Appointments of Management Board memberswhose performance falls short of the level ofperformance which may reasonably be expectedare not renewed. Serious deficiencies in per-formance and mistakes lead as compellinggrounds to premature dismissal. (Code, II.1.11)

The Management Board systematically super-vises the success of its own decisions(preparatory to, and in addition to, the Supervi-sory Board). (Code, III.2.6)

[T]he Supervisory Board ... checks in particularwhether the dealings of the Management Boardincrease the value of the company on a sus-tained basis and correspond with generallyaccepted principles of proper company man-agement. (Code, IV.2.3)

Supervisory BoardThe Supervisory Board shall subject its activityto a regular (i.e., annual) evaluation to checkopportunities for improvements on a continu-ous basis. (Code, III.2.h)

Management BoardNot covered directly, but see Code, III.3([C]ompensation elements shall be determinedby systematic performance evaluation of theindividual Management Board members [by thePersonnel Committee of the SupervisoryBoard].).

Supervisory BoardThe Supervisory Board shall examine the effi-ciency of its activities on a regular basis.(§V.6)

Management BoardNot covered directly, but see §IV.2.2 (Compen-sation of the members of the ManagementBoard is determined by the Supervisory Board… on the basis of a performance assessment.).

See also §V.1.1 (The task of the SupervisoryBoard is to … supervise the ManagementBoard….The Supervisory Board appoints and dismissesthe members of the Management Board.).

See also §V.1.3 (The Supervisory Board shallissue Terms of Reference.).


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Preda Report(Italy)


The Board of Directors has the responsibility ...for ... monitoring the efficacy of the governancepractices that characterize the operation of theBoard of Directors and the decision-makingprocedures. (Recommendation 5.4)

See Recommendation 5.13 (The structure andoperational procedures of the Board of Directorsshould ensure the establishment of best per-formance conditions for the corporation.).

Not covered directly, but see §5.2 (The internalcontrol committee … evaluates and exploits thefindings of the control carried out by the super-visory authorities, and of the internal andexternal control, by Report to the full board ofdirectors of the company.).

Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode, Schedule A: Provisions on the Design ofPerformance-Related Remuneration, 1-7.

The importance of the responsibilities and tasksof directors led the Committee to call on themto make a conscientious self-assessment of theirability to devote sufficient care and attention tothe duties of the office. (Report, 5.1)


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Supervisory BoardDeliberation regarding [reappointment of a Su-pervisory Board member] should be conductedin the absence of the person concerned andshould be held on the basis of a report drawn upby the chairman on the interview with the re-signing Supervisory Board member.The proposal for reappointment should state themotives for reappointment and should explicitlymention why it is felt that the performance ofthe member in question was satisfactory. (Rec-ommendation 2.7)

A Supervisory Board member’s premature res-ignation can be expedient in cases ofunsatisfactory performance, fundamental differ-ences of opinion, conflicts of interest, or if hisintegrity is at issue. (Recommendation 2.8)


Supervisory BoardNot covered directly, but see Commentary onRecommendation 7 (A significant objection tothe ‘structure regime’ (members of thesupervisory board elect their own colleagues orsuccessors) is uncontrolled co-optation whichenables the board of a company not to drawobvious conclusions from a lack of trust fromshareholders. The possibility of dismissal willbe used rarely but does offer sanctions whenmembers of the supervisory board fail toreplace disfunctional management. Thissituation already exists in companies where thestructure regime does not apply.).

Management BoardNot covered directly, but see Recommendation7 (Shareholders should be able to file a resolu-tion for dismissal of a member of the executiveboard. Adoption of this resolution requires atleast two-thirds support and a quorum of fiftypercent.).

Supervisory BoardThe supervisory board director’s performanceshould be evaluated at the end of the term ofappointment. This evaluation should be takeninto account in deciding whether the supervi-sory board member should be considered for asecond consecutive term. (Guideline 13(e))

Management BoardNot covered directly, but see Topic Heading 16,below.

Not covered directly, but see Introduction (Cor-porate governance has ... an internal aspect andan external aspect.... [E]xternal control ... re-lates to the assessment of the performance ofthe company, which is conducted through thenormal function of market mechanisms....It is, indeed, the market itself that constitutesthe main assessor of the excellence of the lead-ership and control options adopted by listedcompanies.).

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In order to ensure the proper operation of theBoard of Directors, its meetings should be heldwith the necessary frequency to fulfill its mis-sion. The Chairman of the Board shouldencourage all the directors to participate andfreely state their views. The wording of theMinutes should be especially watched and thequality and efficiency of directors’ work shouldbe evaluated at least once a year. (Code, Rec-ommendation 10)

[I]t is advisable that the Board of Directors re-flect at least once a year on its ownperformance, if possible, in a meeting devotedto this subject alone. It is a matter of evaluatingthe quality of its work, the efficiency of its rulesand, as the case may be, of correcting whateverhas proven to be non-functional. In this task,which has the final purpose of ensuring the effi-ciency of the Board and its ability to supervisebusiness management, it will have to pay specialattention to the reports of the ComplianceCommittee. (Report, 4.5)

[The Committee] recommends that companies,as a major part of the re-election process, pro-vide for the Nomination Committee to evaluatethe candidate’s work and effective dedicationduring the last term, issuing a report to that ef-fect. We expect this could reduce the risk ofBoards deciding automatically to re-elect di-rectors regardless of their performance.(Report, 5.4)

The owners should ensure that the board takesresponsibility for ... ensuring that an annualevaluation is carried out of the board and theindividual board members’ contributions to theboard. (Guideline 2.2)

The board should evaluate its work on an an-nual basis and check that the program of work,managing director directives and reportingdirectives are being followed. Also, the nomi-nation committee should be given anopportunity prior to the annual general meetingto check that the board’s work has proceeded inaccordance with previously determined guide-lines. The nomination committee shouldevaluate both the work of the entire board aswell as the contribution of the individual boardmembers. This gives the nomination commit-tee basic material from which to work out aproposal for a well-composed and competentboard. The nomination committee can then,prior to the general meeting, explain why theyfeel the board members should either remain intheir positions or be changed for another per-son. (Guideline 2.3)

Not covered directly, but see Code, §1 (Theboard should establish written procedures forthe conduct of its business which should in-clude the matters covered in this Code. A copyof these written procedures should be given toeach director. Compliance should be moni-tored, preferably by an audit committee of theboard, and breaches of the procedures shouldbe reported to the board.).

While all directors have a duty to monitor theperformance of a company, the non-executivedirectors should acknowledge a particular dutyto monitor the performance of the Board as awhole, and to report to the shareholders if theyare not satisfied after reasonable efforts havebeen made by them to remedy the causes oftheir dissatisfaction. (p. 3)

See p. 2 (The Articles should provide that adirector may be dismissed from office by his orher fellow directors for failure to attend a speci-fied number of meetings of the Board “or BoardMeetings held in a specific period.”).

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Not covered. Not covered directly, but see Commentary onRemuneration Committees, 4.14 ([T]he com-pany’s Chairman and/or Chief Executiveshould normally be invited to attend meetings[of the remuneration committee] to discuss theperformance of the other Executive Direc-tors....).


A recent report of the US National Associationof Corporate Directors recommended the intro-duction of formal procedures by which boardswould assess both their own collective per-formance and that of individual directors.Some UK boards already operate such proce-dures. We believe that this is an interestingdevelopment which boards might usefully con-sider in the interest of continuous improvement,though we do not feel able at this stage to makea firm recommendation on the subject.(Guideline 3.13)

Not covered directly, but see Principle E.3(When evaluating companies’ governancearrangements, particularly those relating toboard structure and composition, institu-tional investors should give due weight to allrelevant factors drawn to their attention.).

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[B]oards would be well advised to determine themost appropriate and challenging performancecriteria for themselves. (§9(ii))

See §3 (Independent directors play an essentialrole by using their unfettered judgement on theissues of … performance, resources, keyappointments and standards of conduct. Suchindependent assessment of strategic direction isprobably the greatest value to be derived froman independent non-executive director.

See also §9(ii) (Executive directors’remuneration should be related to theperformance of the company.….An executive director’s remuneration should bestructured so that a proportion links reward tocorporate and individual performance.).

Not covered directly, but see Key Principle 1(AUTIF recommends that member firms shouldtake steps to satisfy themselves about the extentto which the firms in which they invest complywith the recommendations of the CombinedCode issued by the Committee on CorporateGovernance.).

See also Key Principle 6 (AUTIF welcomesPrinciple E.3 of the Combined Code whichstates that, when evaluating companies’ gov-ernance arrangements, particularly thoserelating to board structure and composition,shareholders should give due weight to all rele-vant factors drawn to their attention.).

See also Key Principle 7 (AUTIF recommendsthat member firms should include in their an-nual reports to investors, as a minimum, astatement as to whether the firm is followingthe AUTIF code of good practice or anothersimilar code.).

See also Key Principle 10 (AUTIF encouragesall member firms to provide training for rele-vant staff on ... communicating the firm’spolicy on corporate governance to its inves-tors.).

It is good practice for all boards to conduct anannual review of the performance of NEDs andthe chairman and to consider the effectivenessof the board as a whole. (2.8)

Where the company chairman combines therole of chairman and chief executive, or has atany time been an executive director of thecompany, then the senior NED should take amajor part in the performance appraisal of theboard as a whole and of individual directors.(APPENDIX 2.5)

There should be an annual appraisal of thefunctioning of the board as a whole and thecontribution made by all directors individually,including non-executives. The directors shoulddisclose the process used, the timescale, thecriteria applied and the overall outcome. It maybe helpful to use an independent agency toperform this appraisal. (Part 2: Directors, p. 7)

PIRC considers that a notice period [regarding adirector’s contract] of no longer than one yearis a reasonable period which balances the inter-ests of shareholders and the company withthose of the director. (7.16)


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16. Board Compensation Review

The board should fulfil certain key functions,including [review of] board remuneration.(OECD Principle V.D.3)

The ICGN Statement adopts OECD PrincipleV.D.3 (The board should fulfil certain keyfunctions, including [review of] board remu-neration.).

See also ICGN Statement 5 at 4 (Remunerationof corporate directors or supervisory boardmembers and key executives should be alignedwith the interests of shareholders.).

Not covered. Board remunerationa) Board remuneration should be sufficient to

attract and retain members of the qualityneeded for the successful accomplishmentof their tasks.

b) Non-executive board members’ remunera-tion should be determined according toprinciples and policies of the board and itsrelevant committee, which should be dis-closed.

c) Material elements of non-executive boardmembers’ remuneration, including theirparticipation in pension arrangements,stock-option plans or incentive schemes ofwhatever nature, should be meaningfullydisclosed at least in the aggregate.

d) It is not improper for independent boardmembers to own some shares of the com-pany, but they should not participate instock option or pension plans. Neverthe-less, stock options may be acceptable inearly-stage companies, before they arelisted.

(Recommendation VI.3.a-d)

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Not covered directly, but see Note to 2.2 (It isdesirable that non-executive directors should nottake part in plans in relation to the granting ofshare options and should not receive pensionsby virtue of their mandate. The reason for thisis to ensure their independence.).

The remuneration received by non-executivedirectors should reflect the amount of timewhich they commit to the company. Theirremuneration should not be performance-related, buy may be related to the evolution ofthe value of the company. Therefore,remuneration can take the form of companyshares. However, it is recommended that theremuneration of non-executive directors shouldnot take the form of stock options, nor of aparticipation in the pension scheme of thecompany. (Part 1: B.2.1)

Not covered.

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The remuneration of ... board members should,to a reasonable extent, depend on the company’sprofitability and shareprice development. (II.Governance)

A competitive remuneration is a prerequisitefor attracting and keeping competent directors.… The remuneration to the directors … shouldbe reasonable in connection with the assignedtasks and the responsibilities which are con-nected with solving these tasks. (VI)

The board establishes the principles and theguidelines for the preparation of any incentiveschemes for the company’s … directors, and …their acceptance at the AGM. It is recom-mended that the total remuneration iscompetitive and reasonable and that it reflectshow … the directors have performed independ-ently, as well as how much value they havecreated for the company. Likewise, incentiveschemes should reflect the interests of theshareholders and the company, be adjusted tothe company’s specific circumstances and bereasonable in relation to the tasks and the re-sponsibilities of the managers and the directors.The remuneration for the directors may consistof incentive schemes, including bonus schemesand shares at market price, but we cannot rec-ommend that it consists of share optionschemes. (VI.1)


Not covered directly, but see 2.2.2. (In order tomake known ... the bonuses whereby the Boardof Directors works for increasing value-added,the annual report should ... separately mentionto what extent the members of the Board ofDirectors are remunerated based on criteriaother than Board membership; if no such remu-neration is paid, this shall also be stated.).

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Considering the responsibilities borne by direc-tors and the time they must devote to theirduties, fees should be more than token, and itthus appears natural to encourage directors toparticipate in advisory committees by increasingfees. (p. 22)

[A]bsenteeism is rare among directors. Where itdoes arise, it is the board’s duty to take the nec-essary measures to ensure members’ attendanceat its meetings and those of its advisory com-mittees. Such measures may include, forexample, making fees proportional to atten-dance, publication of attendance lists oradoption of rules requiring directors to resign orface dismissal by the shareholders’ meetingonce they have been absent a certain number oftimes. (p. 22)

See p. 20 (Directors should personally own afairly significant number of their company’sshares, whether or not this is required by com-pany by-laws. Should this not be the case ontheir appointment, they should use their direc-tors’ fees for this purpose.).

[D]irectors’ fees [should be tied to the perform-ance of the company and the value of thecompany’s share, and] should also take intoaccount their attendance. (§ II.C.2)

AFG-ASFFI considers that the number, exer-cise price and duration of stock options held byboard members … shall be the subject of par-ticular individual information….AFG-ASFFI is in favor of stock options with-out discount. (§ II.C.3)

[T]he Committee recommends that a statutoryamendment favor the personal holding by Di-rectors of shares of their corporation’s stock,and for this purpose, allow the Board of Direc-tors to resolve upon payment of all or part ofthe attendance fees in shares of the corpora-tion’s stock, valued at the market price on thedate of payment. (p. 12)

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Supervisory BoardThe remuneration of members of the Supervi-sory Board is made at a reasonable level and isrelated to performance.... (Code, IV.7.1)

The basis for assessing the performance of theindividual members of the Supervisory Board isthe extent of their duties. (Code, IV.7.2)

Supervisory Board members do not receivestock options…. (Code, VI.7.3)

Management Board[R]emuneration of the Management Board …shall include sufficient motivation to ensurelong-term corporate value creation. This in-cludes share option programs and performance-related incentives related to the share price de-velopment and the continuing success of theCompany…. To document the incentive char-acter as well as to balance the surrender of thesubscription right by the shareholders, the exer-cise shall depend on achieving or exceedingrelevant and transparent benchmarks…. (Code,II.3.a)

Recommendations for the recurring compensa-tion elements shall be determined by systematicperformance evaluation of the individual Man-agement Board members. (Code, III.3)

[R]emuneration of the members of the Man-agement Board embraces fixed and variablecomponents. The basis for determining thevariable components of remuneration is system-atic evaluation of the individual members of theManagement Board carried out periodically bythe personnel committee of the SupervisoryBoard. (Code, III.6.2)

[V]ariable remuneration can also be paid in partaccording to stock option schemes or compara-ble schemes…. (Code, III.6.3)

See also Code, II.3.a) – b) (Management Boardremuneration).

Supervisory BoardThe remuneration of the Supervisory Boardshall appropriately reflect the responsibility, thework performed, and the increase in the corpo-rate value. (Code, III.1.e)

Contracts, in particular consulting contracts ofthe company with members of the SupervisoryBoard, require the approval of the SupervisoryBoard (except everyday transactions). (Code,III.2.f)

Management BoardThe Personnel Committee ... shall make rec-ommendations with regard to the content of theemployment contracts of the ManagementBoard including their emoluments. Recom-mendations for the recurring compensationelements shall be determined by systematicperformance evaluation of the individual Man-agement Board members. In addition, theCommittee is responsible for the approval ofpay for outside company work by members ofthe Management Board. (Code, III.3)

Supervisory BoardCompensation of the members of the Supervi-sory Board is specified by resolution of theGeneral Meeting or in the Articles of Associa-tion. It takes into account the responsibilitiesand scope of tasks of the members of the Su-pervisory Board as well as the economicsituation and performance of the enterprise….Members of the Supervisory Board shall re-ceive a fixed salary as well as performance-related compensation. Performance-relatedcompensation should also contain componentsbased on long-term performance of the enter-prise. (§V.4.5)

Management BoardCompensation of the members of the Manage-ment Board is determined by the SupervisoryBoard under consideration of group payments,if any, at an appropriate sum and on the basis ofa performance assessment. Criteria for deter-mining the appropriateness of compensationare, in particular, the tasks of the member of theManagement Board, … performance, the eco-nomic situation, [and] the performance andoutlook of the enterprise…. (§IV.2.2)

[C]ompensation of the members of the Man-agement Board shall be comprised of a fixedsalary and variable components. Variablecompensation should include one-time andannually-payable components linked to theperformance of the enterprise as well as long-term incentives. In particular, stock options orcomparable instruments (e.g. phantom stocks)serve as variable compensation componentswith long-term incentive effect. (§IV.2.3)

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Preda Report(Italy)


Shareholders should have the right to participateequitably and efficiently in the general share-holder meetings and be sufficiently, timely andproperly informed on the decisions that need tobe made regarding fundamental changes in thecorporation. These changes include ... the ap-proval of the appointment and/or dismissal ofthe members of the Board of Directors ... and[their] compensation. (Recommendation 1.2.5)

The compensation of non-executive members ofthe Board should be comparable to the time theydevote to Board meetings and decision-making.Compensation should not be tied to the corpo-ration’s performance. Compensation may takethe form of stock options but should not take theform of participation in the corporation’s insur-ance or pension programmes.(Recommendation 6.1)

Not covered. Not covered directly, but see Guideline 11(Non-executive directors should not participatein any form of share option or other long-termincentive scheme (“LTIS”) in order to avoidcompromising their independent status.

Shares may be made available to non-executivedirectors in lieu of all or part of their normalfees, and disclosed accordingly.).

[W]here the shareholders’ meeting has notalready done so, [the board of directorsshall] allocate the total amount to which themembers of the board ... are entitled. (Code,1.2.c)

Directors’ pay is a field where decisions mustbe taken in such a way that no director caninfluence the determination of his or her remu-neration .... It is also important thatremuneration packages should be able to attractand motivate persons with adequate experienceand ability. (Report, 5.4.2)

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Supervisory BoardThe remuneration of Supervisory Board mem-bers should not be dependent on the results ofthe company. Stock options should not begranted to a person by virtue of his capacity as aSupervisory Board member. Nor is it desirableto remunerate a Supervisory Board memberseparately for his advice. (Recommendation2.13)

[T]o prevent every semblance of misuse, Super-visory Board members should accept limitationson their freedom of action with regard to theirprivate property, in terms of both shares in thecompany and other assets.... (Recommendation2.14)

Management BoardDutch company law prescribes that the GeneralMeeting of Shareholders determines the remu-neration of the members of the [ManagementBoard], unless the company’s articles of asso-ciation stipulate otherwise. Generally, thisremuneration is fixed by the Supervisory Board.(Recommendation 4.4)

Members of the [Management Board] shouldnot in any way derive personal gain from thecompany’s activities other than via the agreedremuneration or through capital growth anddividends resulting from their holding of securi-ties and related instruments. This means that, toprevent every semblance of misuse, they shouldaccept limitations on their freedom of actionwith regard to their private property, in the formof both shares in the company and related in-struments, as well as limitations on theacceptance of additional posts. (Recommenda-tion 4.7)

See Recommendation 4.6 (options).

Stock option plans should be described in aseparate document and should be approved byshareholders. (Recommendation 9)

Unrestricted stock option plans leave room forexcessive rewards and dilution of earnings pershare. (Commentary on Recommendation 9)

Supervisory BoardThe remuneration of supervisory board mem-bers should not be linked to the company’sprofits. Supervisory board members musttherefore not receive options. (Guideline13(b))

Management BoardShareholders at the general meeting must ap-prove option scheme plans in advance. This isto create a clear relationship between achievingstrategic goals and rewards in the form of op-tions. (Guideline 14)

See Guideline 15 (Dilution of earnings pershare must be avoided as much as possible inthe design of options plans. If this cannot beavoided, the company should strive to be astransparent as possible in explaining dilutionaspects.).

The board is encouraged to create internalcontrol committees with powers conferredfor matters in which there are potentialsituations of conflicts of interest, such as ...analysis of the remuneration policy.... (Rec-ommendation 17)

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The director remuneration policy, which is to beproposed, evaluated and reviewed by the Remu-neration Committee, should meet the criteria ofmoderation, connection with the company’sperformance and include detailed and individu-alized information. (Code, Recommendation15)

It is advisable that the [Remuneration] Com-mittee be formally granted at least the followingpowers:(a) proposing the system and amount of di-

rectors’ annual remunerations to the Board;(b) reviewing remuneration programmes from

time to time, gauging their adequacy andresults; and

(c) watching over the transparency of remu-nerations.

(Report, 7.1)

[T]he Committee thinks it [appropriate] tofavour schemes linking a significant part ofdirectors’ remunerations, particularly those ofexecutive directors, to the company’sperformance, because director incentives arethereby better aligned with shareholder interests(which are to be maximised). (Report, 7.3)

The nomination committee should also dealwith the question of remuneration of boardmembers. The nomination committee shouldprepare and put forward proposals for direc-tors’ fees. The general meeting must be givena clear account of all remuneration from thecompany to the board of directors. The nomi-nation committee should be obliged to explainthe reasoning behind their proposals at the gen-eral meeting, if asked to do so. (Guideline1.2.1)

Incentive programmes should only includepeople actively working in the companies con-cerned, i.e., not external board members.Board members are elected representatives andit is formally the board that works out and putsforward proposals for incentive programmes.This supports the view that it is unsuitable to letthe board participate in such programmes.(Guideline 3.3.2)

Not covered. All [directors’] service contracts should beapproved by a Compensation Committee.Despite the legislative provisions, contractsshould not run for a period of more than threeyears and there may be circumstances where arolling contract should be limited to a period ofno more than one year.). (p. 4)

See p. 3 (In order not to impair their impartial-ity, non-executive directors should not, undernormal circumstances, be offered participationin share option schemes, nor in performancerelated or other incentivized remunerationschemes, nor in any company pension schemes.They should not be entitled to any compensa-tion for loss of office.).

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There should be full and clear disclosure ofdirectors’ total emoluments and those of thechairman and highest-paid UK director,including pension contributions and stockoptions. Separate figures should be given forsalary and performance-related elements, andthe basis on which performance is measuredshould be explained. (Code, 3.2)

Executive directors’ pay should be subject to therecommendations of a remuneration committeemade up wholly or mainly of non-executivedirectors. (Code, 3.3)

The key to encouraging enhanced performanceby Directors lies in remuneration packageswhich:§ link rewards to performance, by both

company and individual; and§ align the interests of Directors and

shareholders in promoting the company’sprogress. (Introduction, 1.15)

The Board itself should determine theremuneration of the Non-Executive Directors,including members of the remunerationcommittee, within the limits set in the Articlesof Association. (Code, A6)

Remuneration committees must provide thepackages needed to attract, retain and motivateDirectors of the quality required, but shouldavoid paying more than is necessary for thispurpose. (Code, C1)

The performance-related elements ofremuneration should be designed to align theinterests of Directors and shareholders and togive Directors keen incentives to perform at thehighest levels. (Code, C4)

See Code, D1 – D6 and 7.1 – 7.20 (Directors’service contracts and compensation).

See also Commentary on RemunerationCommittees, 4.3 ([Boards] cannot decide theremuneration of their own members withoutpotential conflict of interest. The solution ... isto set up remuneration committees of Non-Executive Directors.).

See also Commentary on Remuneration Policy,6.1 – 6.45 (market forces and discretion, levelsof remuneration, international perspective,positioning vis-à-vis other companies,sensitivity to the wider scene, components ofremuneration and performance criteria).

See also Commentary on Privatized Utilities,8.1 – 8.12. (director remuneration before,during and after privatization).

Levels of remuneration should be sufficientto attract and retain the directors needed torun the company successfully. Thecomponent parts of remuneration should bestructured so as to link rewards to corporateand individual performance. (Principle B.I)

Companies should establish a formal andtransparent procedure for developing policyon executive remuneration and for fixing theremuneration packages of individualexecutive directors. (Principle B.II)

Cadbury and Greenbury both recommendedthat the boards of listed companies shouldestablish a remuneration committee to developa policy on the remuneration of executivedirectors and, as appropriate, other seniorexecutives; and to set remuneration packagesfor the individuals concerned. We agree. Wealso agree with Greenbury that the membershipof this committee should be made up wholly ofindependent non-executive directors.(Guideline 4.11)

See generally Guidelines 4.1 – 4.21.

Levels of remuneration should be sufficientto attract and retain the directors needed torun the company successfully, but companiesshould avoid paying more than necessary forthis purpose. A proportion of executivedirectors’ remuneration should bestructured so as to link rewards to corporateand individual performance. (Principle B.1)

Companies should establish a formal andtransparent procedure for developing policyon executive remuneration and for fixing theremuneration packages of individualexecutive directors. No director should beinvolved in deciding his or her ownremuneration. (Principle B.2)

Executive share options should not be offered ata discount save as permitted by paragraphs13.30 and 13.31 of the Listing Rules. (Code§ 1, B.1.5)

In designing schemes of performance-relatedremuneration, remuneration committees shouldfollow the provisions in Schedule A to thiscode. (Code § 1, B.1.6)

There is a strong case for setting notice orcontract periods at, or reducing them to, oneyear or less. Boards should set this as anobjective; but they should recognize that it maynot be possible to achieve it immediately.(Code § 1, B.1.7)

The board itself or, where required by theArticles of Association, the shareholders shoulddetermine the remuneration of the non-executive directors, including members of theremuneration committee, within the limits set inthe Articles of Association. Where permittedby the Articles, the board may, however,delegate this responsibility to a small sub-committee, which might include the chiefexecutive officer. (Code § 1, B.2.4)

See SCHEDULE A: PROVISION ON THE DESIGN OFPERFORMANCE-RELATED REMUNERATION.

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Non-executive directors should be rewardedcommensurate with their responsibilities. Aproportion of non-executive pay can be made inthe form of shares, provided these are notleveraged options. (§9(i))

Executive directors’ remuneration should berelated to the performance of the company.Levels of remuneration should be sufficient toattract and retain the directors needed to run thecompany successfully, but companies shouldavoid paying more than is necessary….An executive director’s remuneration should bestructured so that a proportion links reward tocorporate and individual performance….Performance-related elements of remunerationshould form a significant proportion of the totalremuneration package of executive directors andshould be designed to align their interests withthose of shareholders and to give those directorskeen incentives to perform at the highestlevels….The important factor is the need for a balancethat is relevant to the company’s businessdevelopment. The structure adopted can alsogive a clear message to the market. A high levelof incentive-related pay with challengingperformance hurdles indicates that a companybelieves it can significantly improve shareholdervalue. In the present climate of shareholderopinion, boards would be well advised todetermine the most appropriate and challengingperformance criteria for themselves. Boardsmust, therefore, explain and justify the proposedscheme to their shareholders.Directors’ and shareholders’ interests should bealigned and the NAPF therefore supports grantsof options to directors as part of their overallpackage. However, the NAPF will not agree tothe re-pricing of share options due to theunderperformance of the company share price.(§9(ii))

AUTIF encourages member firms, as part oftheir dialogue with the companies in whichthey invest and when scrutinizing the annualreports and accounts, to pay particular attentionto the companies’ compliance with the Com-bined Code in the area [of] ... directors’remuneration. (Guidance Note on Principle 5)

Principle B.1 of the Combined Code recom-mends that levels of remuneration should besufficient to attract and retain the directorsneeded to run the company successfully, butthat companies should avoid paying more thanis necessary for this purpose. Code ProvisionB.1.7 recommends that directors’ contractsshould, for the most part, be for one year.(Guidance Note on Key Principle 6)

Member firms should consider the remunera-tion policy of companies in which they invest.They may wish to pay particular attention tothose elements of remuneration packages fordirectors and senior executives which are per-formance related, including share options, andcompensation arrangements. (Guidance Noteon Key Principle 6)

Companies should require all directors to build,over a period of time, a substantial sharehold-ing, say, to the value of at least one year’semoluments. For NEDs, one way of achievingthis is to pay them partly in shares which mustbe retained whilst they hold office. NEDs whoare executives elsewhere, and whose fees arepaid to their primary employer, should receivethe share component of their fee. NEDs shouldnot participate in performance-related pay orincentive schemes. (APPENDIX 1.1.4)

PRINCIPLE: Contracts policy should balancepotential costs to shareholders with direc-tors’ interests. (Part 3: Directors’Compensation, p. 9)

PRINCIPLE: Shareholders should have theopportunity to vote on remuneration issues.(Part 3: Directors’ Compensation, p. 10)

PRINCIPLE: Remuneration structure shouldalign shareholders’ and directors’ interests,and payments should not be excessive.(Part 3: Directors’ Compensation, p. 10)

PRINCIPLE: Directors’ remuneration shouldtake account of pay conditions within thecompany. (Part 3: Directors’ Compensation,p. 11)

The performance basis of all ... incentiveschemes under which benefits are potentiallypayable should be clearly set out each year,together with the actual performance achievedagainst the same targets. (Part 3: Directors’Remuneration, p. 8)

The statement of remuneration policy shouldclearly explain the rationale behind the remu-neration structure and should refer to all theelements. (Part 3: Directors’ Remuneration,p 8)

See Part 3: Directors’ Remuneration, pp. 8-11.

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17. Executive Sessions of Outside Directors


172





Not covered directly, but see 3.1 (If there is noremuneration committee, the remuneration ofexecutive directors should be submitted to thenon-executive directors.).

See also Note 4.3.d (The [audit] committeeshould hear the company auditors at least onceeach year, on an occasion when the executivedirectors are not present.).

Not covered directly, but see Part I: B.4.3.c(The audit committee should have a discussionwith the internal and external auditors (includ-ing statutory auditors) at least once a year, fromwhich the executive directors may be excluded,to ensure that there are no unresolved issues ofconcern.).

See also Part I: B.3.2 (In case no remunerationcommittee is created, the board of directorsshould decide on the principles of the remu-neration of the executive management, in theabsence of the executive directors).

Not covered.

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Not covered. Not covered directly, but see V.4 (We cannotrecommend that managers of a company arealso directors of the company.).

Not covered. [In smaller companies ... the independence ofthe Board’s decision-making] can be arrangedby handling certain issues without the presenceof the members of the Board of Directors thatbelong to the hired top management of thecompany. Such issues [include] preparation ofthe recruitment of persons belonging to theexecutive group of the company and determin-ing their salaries and other bonuses. Inaddition, the auditors and internal auditorsshould be provided annually with the opportu-nity to discuss the auditing of the companywithout the presence of the members of theBoard of Directors belonging to the hired man-agement of the company.

The larger the company is, the more importantis the role of the external members of the Boardof Directors…. [T]he forming of workinggroups (“Committees”) from external membersshould be discussed…. [executive sessions ofoutside directors] can only be preparatory to theactual decision-making of the Board of Direc-tors…. it cannot substitute the actual decision-making. (2.2.1)

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Viénot II Report(France)

(Reserved)



175





In order to promote openness of discussion, theSupervisory Board meets at times for one sittingper year without the Management Board.(Code, IV.5.3)

See Code, IV.5.2 ([Among Supervisory Boardmembers,] [s]eparate preliminary discussions bythe representatives of the stockholders and bythose of the employees, if they take place,should ease the process of shaping opinion, butnot lead to actual prearrangements.).

Not covered directly, but see Code, II.2.f)(Should the business trend or risk exposure ofthe Group change significantly against plan, theManagement Board must immediately informthe Supervisory Board through its Chairman,who will call an extraordinary SupervisoryBoard meeting if so indicated.).

If necessary, the Supervisory Board shouldmeet without the Management Board. (§III.6)

The Chairman of the Supervisory Board will beinformed by the Chairman or Spokesman of theManagement Board without delay of unusualevents…. The Chairman of the SupervisoryBoard shall then inform the Supervisory Boardand, if required, convene an extraordinarymeeting of the Supervisory Board. (§V.2)

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Preda Report(Italy)


Not covered directly, but see Footnote 6 to Rec-ommendation 5.7 (Certain members – executiveor non-executive – may undertake special dutiesregarding certain corporate tasks for which theyare accountable to the Board of Directors thatmeets in full membership.).


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At least once a year the Supervisory Boardshould meet without the [Management Board]and discuss its own performance, its relationshipwith the [Management Board] and the composi-tion and performance of the [ManagementBoard], including issues regarding successionand remuneration. (Recommendation 3.5)


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Not covered directly, but see Report, 3.2 (sug-gesting that an independent Vice President ofthe board be appointed and empowered to callmeetings, add agenda items and submit infor-mation to directors).


179






Not covered. Not covered directly, but see Commentary onRemuneration Committees, 4.14 (The [remu-neration] committee may wish to consult theother Non-Executive Directors in its evaluationof the Chief Executive.).


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Not covered directly, but see §2 (Non-executivedirectors have the capacity to look at theinterests of the company as a whole over thelonger term and should be capable, therefore, ofexercising independent judgement with anability to influence board decision-making.).

See also §3 (Independent directors play anessential role by using their unfetteredjudgement on the issues of strategy,performance, resources, key appointments andstandards of conduct. Such independentassessment of strategic direction is probably thegreatest value to be derived from anindependent non-executive director.).

Not covered. The senior NED should have the authority tocall a meeting of the NEDs if, in his opinion, itis necessary. (APPENDIX 2.3)

See APPENDIX 2.2 (The senior NED shouldmake himself available for confidential discus-sions with other NEDs who may have concernswhich they believe have not been properlyconsidered by the board as a whole.).

Not covered directly, but see Part 2, Directors,p. 5 ([C]ommittees should meet without execu-tives present at least once a year.).

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18. Board’s Interaction with Institutional Investors, Press, Customers, etc.

Not covered directly, but see OECD PrincipleIV.D (Channels for disseminating informationshould provide for fair, timely and cost-efficientaccess to relevant information by users.).

See also OECD Principle V.D.7 (The boardshould fulfil certain key functions, including ...[o]verseeing the process of disclosure andcommunications.).

See also Millstein Report, Perspective 17 (Gov-ernments should avoid regulations that undulyinhibit the ability of institutional investors tocompete with one another. However, sound,prudent management of these funds should re-main the overriding objective of public policy inthis area.).

Not covered directly, but see OECD PrincipleIV.D (Channels for disseminating informationshould provide for fair, timely and cost-efficient access to relevant information by us-ers.).

See also OECD Principle V.D.7 (The boardshould fulfil certain key functions, including ...[o]verseeing the process of disclosure andcommunications.).

See also ICGN Statement 10 at 5 (Corporategovernance issues between shareholders, theboard and management should be pursued bydialogue and, where appropriate, with govern-ment and regulatory representatives as well asother concerned bodies, so as to resolve dis-putes, if possible, through negotiation,mediation or arbitration.).

As a consequence of the increased importanceof international investment, and in order toimprove communication with and amongstshareholders, a company should make everyeffort to enhance their participation throughmeans which make use of modern technology,such as the internet. In addition to the regularchannels, electronic means should be used by acompany to provide shareholders with price-sensitive information, which should include,but not be limited to:§ the annual report;§ press releases;§ the articles of association;§ the agenda and the minutes of the AGM;§ other information concerning the AGM.(Commentary on Recommendation 8)

The board should adopt a “statement of prac-tice” for ... communicating with persons orinstitutions inside or outside the company.(Recommendation V.5.f)

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Not covered. To operate in a [larger] market, Belgiancompanies will need to improve transparencywith respect to the shareholders and, morespecifically, to local and internationalinstitutional investors.... Belgian companieswill have to broaden their shareholder base andcomply as closely as possible with internationalstandards of corporate governance. (Part I:A.1)

See Part I: B.4.1 (The report and accounts ...should contain the information needed toenable investors and their investment advisorsto form a view of the company’s financialposition and performance.).

Not covered directly, but see p. 6 (The Directorundertakes, if the company is listed on theStock Exchange, to see to it that the Boardstrictly observes the regulations concerning thedistribution of occasional or periodic informa-tion.).

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All listed companies should have an investorrelations (IR) function.Internet and e-mail should be applied more fre-quently for communication with theshareholders.All shareholders – not having expressly declinedso – should receive information regarding thecompany.Representatives from the press and from DAF[the Danish Shareholders Association] shouldbe invited to participate in investor meetings.(V. Information To The Market)

Not covered directly, but see III.1 (It is recom-mended that the board adopts an informationand communication policy.).

See also III.2 (It is recommended that the boardensures that the continuous dialogue betweenthe company and the company’s shareholdersand potential shareholders is made flexible.This can be done in the following ways:§ by holding investor meetings.§ by continuously evaluating if information

technology can be used to improve inves-tor relations, including using part of thecompany’s homepage to deal with corpo-rate governance related issues.

§ by making all investor presentations ac-cessible on the Internet at the same time asthey are made.).


Not covered. Not covered directly, but see 2.1.2 ([To get theinvestors assured] of the fact that the operationsof the company are economically efficient,information shall be given in the annual reporton the accrual of economic value-added and itsmeasurement method in the company.).

184




(Reserved)



Not covered directly, but see § I.A.1 (TheCommission believes that shareholders shouldbe informed as quickly as possible of theircompany’s situation and, through their vote onresolutions, be in a position to react quickly tothat situation.).

See also § II (The portfolio manager’s advisoryrole requires that his activity, and that of hisemployees, be governed by the principles ofindependence. He may therefore not serve as amember of the Board of Directors of any com-pany whose shares are held in the portfolios hemanages.).

Not covered.

185





The communication system extends in particu-lar to the supply of information for actual andpotential investors (investor relations), theworkforce (employee relations), the consumers(customer relations) and the public-at-large(public relations). (Code, VI.1.2)

All stockholders receive access to the sameinformation without regard to the extent of theirparticular shares. The precept of equal treat-ment with information also applies particularlyto institutional investors on the one side andprivate small investors on the other. (Code,VI.1.3)

See Code, VI.1.5 (The company also uses mod-ern means of telecommunication such as theInternet for current and consistent informationto the various stakeholders of the company.Provided that it is commercially justified, itopens up the possibility of being able to followpress and analyst conferences directly over thenew medium.).

Not covered directly, but see Code, I ([T]heManagement Board shall regularly and withdue regard to equal treatment of all sharehold-ers (‘Fair Disclosure’) report on all Companymatters through Annual and Interim Reports,‘ad hoc’ communications, analyst and pressconferences. The OECD information require-ments are covered by these publicityundertakings.).

See also Code, II.2.a) (The Management Boardwill publish without delay any new facts arisingin the sphere of the Company’s activities whichare not yet publicly known and, due to theirimpact on the financial position of the Com-pany or its general course of business, arelikely to impact significantly on the price of theCompany’s listed securities (§ 15 German Se-curities Act).).

The company shall inform all domestic andforeign financial services providers, sharehold-ers and shareholders’ associations, who, in thepreceding 12 months, have requested such noti-fication, of the convening of the GeneralMeeting together with the convention docu-ments, upon request, also using electronicchannels. (§II.3.2)

186




Preda Report(Italy)


Shareholders, and particularly institutional in-vestors and pension funds, should beencouraged to use their voting rights in a man-ner that promotes the efficiency of thecorporation and the market. The encouragementto make use of voting rights should take intoaccount the increasing internationalization ofthe corporation’s shareholder base and not beconfined within the national limits. The use ofvoting rights by institutional investors shouldnot be opposed to the interests of small privateinvestors. (Recommendation 1.5)

See Recommendation 1.1.3 (Basic shareholderrights include the right to ... obtain sufficientand relevant information on the corporation on atimely and regular basis.).

See also Recommendation 4.3 (Channels fordissemination of information should providefair, timely and cost-efficient access to relevantinformation.).

Not covered directly, but see Topic Headings29 & 31, below.

Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode:Principle C.1 (Companies should be ready,where practicable, to enter into a dialogue withinstitutional shareholders based on the mutualunderstanding of objectives.);Principle C.2 (Boards should use the AGM tocommunicate with private investors and en-courage their participation.);Code § 1, B.2.3 (The chairman of the boardshould ensure that the company maintainscontact as required with its principal sharehold-ers about remuneration in the same way as forother matters.).

The chairman of the board of directors andthe managing directors shall ... actively en-deavour to develop a dialogue with ...institutional investors based on recognitionof their reciprocal roles. They designate aperson or, where appropriate, create a cor-porate structure to be responsible for thisfunction. (Code, 11; see Commentary onCode, 11 and Report, 5.5, 6)

[M]anaging directors ... shall propose to theboard of directors the adoption of an inter-nal procedure for the disclosure ofinformation to third parties.... (Code, 6.1;see Report, 5.3)

[I]t is in the interest of the generality of share-holders to know the personal traits andprofessional qualifications of candidates ...sufficiently in advance for them to be able tocast their votes in an informed manner, espe-cially in the case of institutional investors,which are often represented in shareholders’meetings by proxies. (Commentary on Code,7)

[D]ialogue [with institutional investors] can befostered by ... an ad hoc ... structure for thisfunction.... The Committee ... hopes that rec-ognition by [institutional investors] of theimportance of the rules of Corporate Govern-ance contained in this Code may help topromote a more whole-hearted and widespreadapplication of its principles by listed compa-nies. (Report, 5.5)

See Report, 6 (The task of verifying the suit-ability of the choices made [in the Code], andthe extent of the Code’s application, is ... re-served to shareholders’ meetings andencounters with institutional investors.).

187






The providers of risk capital should be able todemand from the management a clear and trans-parent account of the policy that has beenpursued.... The influence of the investors can beenhanced if there is active accountability to-wards the shareholders or holders of certificatesof shares. [T]he [Management Board] and theSupervisory Board will have to take [investor]reactions into serious account in the conduct oftheir future policy.... The Committee is confi-dent that if the shareholders, especially theinstitutional investors and other major share-holders, are ... present at the General Meeting ofShareholders and make their views heard, thiswill lead to higher attendance rates and to aconsiderable improvement in the quality of theGeneral Meeting of Shareholders. (Recommen-dation 5.1)

The Committee believes that investors should beable to exert real influence within the com-pany.... The company’s management must notbe allowed over a long period of time to ignorethe opinions of investors on subjects that con-cern them. (Recommendation 5.4.1)

Not covered directly, but see Commentary onRecommendation 2 (Clear objectives andstrategies give investors a hold to investmentdecisions and holding managers accountablefor their actions and management.).

Not covered directly, but see Guideline 2 (Toimprove … discussion between the board andcapital providers, the right to submit agendatopics [at annual shareholders’ meetings]should be enjoyed by shareholders and certifi-cateholders and not just management.).

See also Handbook, p. 12 (Pension funds …want to have their own opinion on the compa-nies they invest in as well as on the keydecisions taken by the directors. This does notmean that pension funds want to sit in the di-rector’s chair. It is the task of the companydirector to take decisions carefully. Pensionfunds play no role in the decision making proc-ess. But they can and will judge the decisionstaken by the director, to evaluate whether theyfit in with their investment policy criteria.).

See also Handbook, p. 21 (SCGOP has askedan independent bureau to follow developmentsat the largest Dutch companies and to report tothe SCGOP on any developments that affectshareholder interests….[M]embers of SCGOP have urged Dutch com-panies at shareholders meetings to implementthe recommendations of the Peters Commissionand the [Guidelines] drawn up by the SCGOP.).

The company should ensure the existence ofpermanent contact with the market, re-specting the principle of equality forshareholders and taking precautions againstasymmetries in access to information amonginvestors. For this purpose, the creation ofan investor information department is rec-ommended. (Recommendation 7)

The creation of an investor information depart-ment ... should be encouraged, since it is one ofthe measures that allows centralization of allquestions raised by investors and the necessaryexplanations that may be provided with thedisclosure of this information to the market,when this is judged appropriate. (Commentaryon Recommendation 7)

See Introduction (Corporate governance has ...an internal aspect and an external aspect....[E]xternal control ... relates to the assessment ofthe performance of the company which is con-ducted through the normal function of marketmechanisms, a domain in which the proceed-ings of institutional investors are of capitalimportance.).

See also Commentary on Recommendation 11(It is important to allow the market to easilyassess the attitude of institutional investors tothe governance of listed companies.).

188






The Board of Directors should promote theimplementation of proper measures to extendloyalty duties to significant shareholders, espe-cially establishing cautionary measures inrespect to transactions between those sharehold-ers and the company. (Code, Recommendation17)

Measures aimed at ... emphasising communica-tion between the company and its shareholders,especially institutional investors, should bepassed. (Code, Recommendation 18)

[The] Committee trusts in the increasing com-mitment of institutional investors with thepromotion of best governance rules. In thisrespect, it invites them to state their preferenceson Board of Director organisation patterns andto make good use of their influence to promoteor favour their acceptation by companies tar-geted for their investments. (Report, 9.4)

Not covered directly, but see Guideline 4.1(The Shareholders’ Association recommendsthat each stock market company institute aninvestor relations function. This will give theCompany’s shareholders the opportunity toquickly obtain information and particulars con-cerning the company.).

See also Guideline 4.3 ([A]nalyst meetingsorganized by the company ... should be directlybroadcast via the Internet with the aim ofachieving a fast and uniform dissemination ofinformation.).

See also Guideline 4.5 (Companies should notrelay information within closed circles that hasnot been made public and that can affect shareprices. Representatives of the media shouldalways be invited to what are known as analystmeetings. Alternatively, the company must beprepared to issue press releases to the market inconnection with the analyst meetings. Experi-ence shows that the publication of earningsforecasts reduces the risk of corporate man-agement relaying selective information.).

Not covered. Institutional investors are increasingly beingapproached by companies and their adviserswith requests to indicate what in their viewwould be the reasonable expectation of share-holders in such matters as the provisionsgoverning the appointment and removal ofdirectors, the duties of non-executive directors,directors’ service contracts and emoluments,their borrowing powers, etc….The [ISC] feels that a Statement of Best Prac-tice such as this which summarizes the views ofinstitutional shareholders will enable theseshareholders to give a more coherent and con-sistent response when their views and votes aresolicited by companies. The ISC feels also thatits publication will be helpful to companies andother interested bodies when consideringstructure and practice in these areas. (p. 1)

189






Not covered directly, but see Report, 6.11.1(Institutional investors should encourageregular, systematic contact at senior executivelevel to exchange views and information onstrategy, performance, board membership andquality of management.).

See also Report 6.1 – 6.16 (accountability ofboards to shareholders).

Not covered. Companies and institutional shareholdersshould each be ready, where practicable, toenter into a dialogue based on the mutualunderstanding of objectives. (Principle C. II)See Guideline 5.3 ([Institutional investors] nowtake a more active interest in corporategovernance. They can do this by voting onresolutions in General Meetings, andinformally through contact with the company.).

See also Guidelines 5.10-5.11 (The idea ofcontact between companies and institutions wasdeveloped in 1995 in the report of a joint City/Industry working group chaired by Mr. PaulMyners and titled Developing a WinningPartnership. The main recommendations ofthis report included:§ investors to articulate their investment

objectives to management;§ investors to be more open with manage-

ment in giving feedback on companies’strategies and performance;

§ improved training for fund managers onindustrial and commercial awareness;

§ improved training for company managersinvolved in investor relations;

§ meetings between companies and institu-tional investors to be properly prepared,with a clear and agreed agenda.

These recommendations have been broadlywelcomed by companies and investors, and [theCommittee] very much hope[s] that they willbe widely adopted and acted on....)

See generally Guidelines 5.1-5.25 (The Role ofShareholders).

Companies should be ready, wherepracticable, to enter into a dialogue withinstitutional shareholders based on themutual understanding of objectives.(Principle C.1)

The chairman of the board should ensure thatthe company maintains contact as required withits principal shareholders about remuneration inthe same way as for other matters. (Code § 1,B.2.6)

See Principle E.2 (Institutional shareholdersshould be ready, where practicable, to enterinto a dialogue with companies based on themutual understanding of objectives.).

See also Principle E.3 (When evaluating com-panies’ governance arrangements,particularly those relating to board structureand composition, institutional investorsshould give due weight to all relevant factorsdrawn to their attention.).

See also Code § 2, E.1.1 (Institutional share-holders should endeavour to eliminateunnecessary variations in the criteria whicheach applies to the corporate governance ar-rangements and performance of the companiesin which they invest.).

190






Boards should maintain a dialogue with institu-tional shareholders based on a mutualunderstanding of objectives. (§6)

It is unrealistic to expect institutional sharehold-ers to have sufficient knowledge of the businessto set specific performance hurdles for incentivereward. This is clearly a matter for the boarditself. (§9(ii))

See Introduction (Good corporate governance isnot just for boards of directors. It is essential toensure a close relationship between companiesand investors.Shareholders have a vital role to play in encour-aging a higher level of corporate performance.Pension funds in particular are long-term in-vestors, with significant exposure to and interestin the well being of many of the companieswhich drive the UK economy forward.Boards of directors are subject both to statutoryobligations under the Companies Act and to theCombined Code appended to the Listing Rules.These require them to get approval for certaindecisions. Following the recommendations of anumber of committees of inquiry into corporategovernance, the range of issues on which boardsmust seek shareholder approval has expanded.The NAPF, for its part, considers that there arefurther areas where companies have aresponsibility to put matters before shareholdersand these are also included in this document.)

See §16 (Institutional investors should engage inregular dialogue with investee companies.).

Not covered directly, but see Key Principle 5(Regular dialogue will provide opportunitiesfor member firms to explore with companiesany concerns they may have....).

If requested by major shareholders, the seniorNED should ensure that he is available forconsultation and direct communication. Atpresent, such communication is rare. When itdoes occur, it is invariably because of a “crisis”situation. Establishing direct channels ofcommunication as a matter of routine shouldenable difficult issues to be aired before a crisisdevelops. (APPENDIX 2.6)

See Code of Conduct 8 (Formal communicationchannels [between Hermes and] NEDs areencouraged.).

Not covered directly, but see Part 1: Introduc-tion, p. 2 (PIRC seeks to promote dialogue andengagement with the companies we researchthrough:§ hosting regular conferences and seminars

on governance and responsibility issues;§ circulating these Guidelines widely to

companies, investors and other marketparticipants;

§ giving companies opportunities to com-ment on our analyses both prior topublication and after publication;

§ engaging in dialogue with companies,investors, regulators and professionalbodies.).

191





19. Attendance of Non-Directors at Board Meetings / Board Access to Senior Management

The contributions of non-executive board mem-bers to the company can be enhanced byproviding access to certain key managers withinthe company.... (OECD Principle V.F Annota-tion at 43)

See OECD Principle V.F Annotation at 43 (Thecontributions of non-executive board membersto the company can be enhanced by providingaccess to certain key managers within the com-pany.).


192





Not covered directly, but see Note to 4.3.c (Thecompany auditors and, if such exist, the personresponsible for the internal audit and the finan-cial director, should attend the meetings of the[audit] committee.

See also Note 4.3.d (The [audit] committeeshould hear the company auditors at least onceeach year, on an occasion when the executivedirectors are not present.).

See also Note 4.3.e (The [audit] committee hasthe widest investigative powers within its do-main and may, by a majority decision, call uponprofessionals from outside the company andallow them to attend its meetings.).


Not covered.

193






Not covered. It is recommended that the board establish pro-cedures for … communication between theboard and the management. This will ensurethat the board is provided with the informationabout the company’s business which the boardrequires on a continuous basis. (IV.4)

See V.2 ([T]he directors are solely responsiblefor actively obtaining knowledge and continu-ously keeping themselves posted about theconditions of the company and the industry inquestion.).


194




(Reserved)


Not covered. The members of [the compensation and per-formance committee, and the audit committee]should be free to call on and hear from com-pany personnel. (§ II.B.2)

The Committee considers it legitimate forBoard committees to be allowed the opportu-nity to approach the corporation’s mainexecutives, other than corporate officers, or tocall for outside technical reviews at the corpo-ration’s expense. It goes without saying thatthis option should be exercised by committeesonly in performance of their respective duties,and after informing the Chairman of the Boardof Directors. In all cases, the committeesshould report to the Board of Directors on theinformation and opinions obtained on suchoccasions. (p. 17)

195





In order to allow the members of the Supervi-sory Board the opportunity of systematicallybecoming acquainted with potential candidatesfor membership of the Management Board, theManagement Board regularly suggests personsfrom the inner circle of junior management forpresentations in the Supervisory Board and itscommittees. (Code, II.1.6)

See Code, II.2.5 (The Supervisory Board, par-ticularly its Chairman and its committees,require for their part all information from theManagement Board which they ... require inorder to carry out efficiently the duties of su-pervision. The positive definition of theadditional requirement of information is animportant part of the duties of the SupervisoryBoard.).

See also Code, IV.5.2 (The exercise of supervi-sion – apart from contacts of the Chairman ofthe Supervisory Board with the ManagementBoard – is primarily made in the meetings of theSupervisory Board and its committees.).

Not covered. The Management Board coordinates the enter-prise’s strategic approach with the SupervisoryBoard and discusses the current state of thestrategy implementation with the SupervisoryBoard in regular intervals. (§III.2)

Good Corporate Governance requires an opendiscussion between the Management Board andSupervisory Board as well as among the mem-bers within the Management Board and theSupervisory Board. (§III.5)

The Chairman of the Supervisory Board shallmaintain regular contact with the ManagementBoard, in particular, with the Chairman orSpokesman of the Management Board andconsult on strategy, business development andrisk management of the enterprise. The Chair-man of the Supervisory Board will be informedby the Chairman or Spokesman of the Man-agement Board without delay of unusual eventswhich are of essential importance for the as-sessment of the situation and development aswell as for the management of the enterprise.The Chairman of the Supervisory Board shallthen inform the Supervisory Board…. (§V.2)

196




Preda Report(Italy)


Not covered directly, but see Recommendation5.9 (Procedures should be established that allowthe Board of Directors to obtain advice by ex-ternal advisors which would assist the exerciseof their duties.).

See also Recommendation 4.7.4 (The InternalAudit Committee should be able to obtain ex-ternal advice and, if necessary, to invite externalspecialists to attend the workings of the com-mittee.).

See also Footnote 7 to Recommendation 5.10 (Itis essential that the members of the Board havefull access to all information required, under theresponsibility of the chief executive officer andthe secretary of the Board.).


197







198






Within this [new directors’ induction] program,it would be very useful to offer new directorsthe chance of knowing the organisation directlyand dealing personally with its main managers.(Report, 5.3)


199






Not covered. Remuneration committees should consult theCompany Chairman and/or Chief Executiveabout their proposals and have access toprofessional advice inside and outside thecompany. (Code, A7)

See Commentary on Remuneration Commit-tees, 4.15 (The [remuneration] committeeshould be supported by a senior executive ofthe company with suitable expertise and inde-pendent access to the committee Chairman.).


200







201





20. Board Meetings and Agenda

Not covered directly, but see Topic Headings 2and 4, above.



The chairman should set the agenda of boardmeetings, taking into account items raised bymembers and management. (RecommendationV.3.ii)

The board should meet sufficiently frequentlyto discharge its duties responsibly; it must meetat least once every six months and should meetat least once every three months. (Recommen-dation V.5.a.i)

The board should define the subjects that itmust consider, as well as the decisions thatrequire its approval, and set levels of material-ity for them, subject to legal and statutoryconstraints. (Recommendation V.5.b)

Agendai. Every director should have the right to

propose items for the agenda of the meet-ing.

ii. It should be up to the board to accept itemssuggested by its members.

(Recommendation V.5.e)

See Recommendation V..3.a.i (The chairmanshould ensure that the board operates efficientlyand that its duties are effectively carried out.).

202





The Board of Directors, which is a collegiatebody, must meet at regular intervals.... (1.1)

The Secretary of the Board must ensure that theprocedures in relation to the functioning of theBoard and the regulations which apply to it arecomplied with.If there is no Secretary of the Board of Direc-tors, the Board shall take the necessary action sothat a person is given the task of monitoringcompliance with the procedures in connectionwith the functioning of the Board and the appli-cable regulations. (1.5)


Not covered directly, but see Part II: B.2(Information [to be disclosed] on thefunctioning of the board of directors [includes]the number of meetings per year [and] the mostsignificant types of subjects discussed....).


The Director undertakes to see to it that theBoard meets at regular intervals and receivessufficient and timely information enabling theDirectors to hold useful discussions. (p. 4)

See p. 3 ([When voicing opposition,] the Di-rector will ... consider: ....§ Requesting that the decision be postponed,

if possible, to an ulterior Board meeting sothat the Director’s position may be exam-ined;

§ Requesting that the Director’s writtenposition be annexed to the minutes of theBoard meeting;

§ Requesting a special meeting of the Boardto discuss this point.).

See also p. 6 (The Director undertakes to com-pletely inform the Board of any conflict ofinterest in which the Director could directly orindirectly be implicated, and this prior to anysuch potential conflict. The Director under-takes to abstain from participating in anydiscussions or decision-making on the mattersinvolved.).

203






Not covered directly, but see II. Governance. The chairman is especially responsible for en-suring that the board functions satisfactorilyand that the tasks of the board are handled inthe best possible way. In this connection, it isrecommended that the chairman ensures thatthe individual director’s particular knowledgeand competence are used as best as possible inthe board work for the benefit of the company.The board’s frequency of meeting is planned insuch a way that the board acts as an active spar-ring partner to the management and is able toreact quickly and efficiently at all times.…. The chairman should try to ensure that theboard’s negotiations take place when all thedirectors are present and that all essential deci-sions are made when all the directors arepresent. (IV.2)

It is essential that the procedures of the boardare an efficient and functional tool for solvingthe board’s tasks. It is recommended that theprocedures are always adjusted to the require-ments of the individual company, and that allthe directors review the procedures with regardto ensuring this at least once a year. (IV.3)

It is recommended that the board meets regu-larly according to a pre-prepared meeting andwork schedule and when a meeting seems nec-essary or appropriate in the light of thecompany’s requirements. However, it is rec-ommended that the board holds at least fiveordinary meetings a year. (V.5)

Not covered. The Board of Directors shall annually discussthe ways in which it aims to tend to its tasks.(2.1.1)

The Board of Directors shall discuss the waysof measuring the profitability of the company’sactions. It is essential to make sure that theactivities produce economic value-added meas-ured by the economic profit meter or by othercorresponding methods. (2.1.2)

Committee work or other preparation of issueswithout the presence of the members of theBoard of Directors belonging to the hired topmanagement does not affect the statutory deci-sion-making and responsibilities of the Boardof Directors. Subject to the Finnish CompaniesAct, all members of the Board of Directors shallanswer for the decisions made by the Board ofDirectors. Therefore the handling referred toabove can only be preparatory to the actualdecision-making of the Board of Directors, butit cannot substitute the actual decision-making.(2.2.1)

204




(Reserved)


The Committee believes that while it is theChairman’s role to draw up and propose astrategy, this must be adopted by the board.By virtue of the same principle, it must con-sider and decide on all strategicallyimportant decisions.... (p. 8)

In general, the boards of listed companies meet3 or 4 times a year, and in practice meetings lastaround 2 hours.The frequency and duration of meetings are notamenable to the definition of general rules, andshould be left up to each board to decide.Clearly, boards should meet whenevercircumstances make this desirable, but where nospecial circumstances arise, 4 to 6 meetingsshould be sufficient to review businessdevelopments and take necessary decisions,especially if preparatory work has been carriedout by specialized committees. The meetingsshould last long enough to allow properconsideration of the items on the agenda.(p. 16)

The minutes of the meeting summarize discus-sion and report decisions taken. (p. 17)


Not covered directly, but see § II.D.5 (It isrecommended that a charter consisting of akind of director’s code of professional conductbe established. At a minimum, it should in-clude … the obligation … to attend boardmeetings [and] to respect the confidentiality ofmatters relating to company business….).

With respect to the meetings of the Board ofDirectors and of the Board committees, theCommittee notes that their number seems tohave increased substantially in recent years,though without reaching the level of [frequencyobserved] in UK and US listed corporations.Naturally, the frequency and duration of suchmeetings cannot be subjected to any standards,as the situations and needs vary extensively inthis area.It remains that it is up to the Directors to ensurethat [the number of board meetings is] such asto allow in-depth review and discussion ofmatters within the purview of the Board orBoard committees. (p. 16)

205





Supervisory BoardThe Supervisory Board normally meets on sixoccasions annually. Extraordinary events mayrequire a higher number of meetings. The fre-quency of committee meetings is taken intoaccount when determining the number ofmeetings of the entire Supervisory Board. Theduration of the meetings should allow properexercise of supervisory tasks. (Code, IV.5.1)

The exercise of supervision – apart from con-tacts of the Chairman of the Supervisory Boardwith the Management Board – is primarilymade in the meetings of the Supervisory Boardand its committees. (Code, IV.5.2)

The chairman of the Supervisory Board pre-pares a systematic schedule of supervisionwhich stipulates the sequence and main focus ofthe topics more precisely to be discussed in theindividual meetings of the Supervisory Board....(Code, IV.5.4)

The chairpersons stipulate the agenda for theindividual meetings of the Supervisory Boardand its committees on the basis of the scheduleof supervision as well as current developments.(Code, IV.5.7)

Management BoardThe chairman or speaker of the ManagementBoard sets the agenda for the meetings of theManagement Board. Each member of the Man-agement Board may include on the agendapoints for discussion and decision by way of thechairman or speaker. (Code, III.4.1)

Supervisory BoardNot covered.


Supervisory BoardThe chairman of the Supervisory Board coordi-nates the work of the Supervisory Board. (§I)

In Supervisory Boards with co-determination,representatives of the shareholders and em-ployees should prepare the Supervisory Boardmeetings, each separately, possibly with mem-bers of the Management Board. (§III.6)

The Chairman of the Supervisory Board coor-dinates work within the Supervisory Board andchairs its meetings.The Chairman of the Supervisory Board shall… prepare the Supervisory Board meetings.(§V.2)

Management BoardThe Chairman of the Management Board coor-dinates the work of the Management Board’smembers. (§I)

206




Preda Report(Italy)


[T]he Board should meet at least once a month(according to the size of the corporation and thesector to which it belongs). (Recommendation5.1)

Not covered directly, but see Topic Headings21 & 23, below.

Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode:§ 1, A.1.1 (The board should meet regularly.);§ 1, A.1.2 (The board should have a formalschedule of matters specifically reserved to itfor decision.).

The chairman shall call the meetings of theboard.... (Code, 4.1; see Commentary onCode, 4 and Report, 5.2)

The chairman shall coordinate the activitiesof the board of directors and moderate itsmeetings. (Code, 4.2; see Report, 5.2)

The Code ... notes that the guidance function[of the board of directors] requires regular andsufficiently frequent meetings. (Report, 5.1)

207






Supervisory BoardThe [Supervisory] Board should meet accordingto a predetermined timetable. (Recommenda-tion 3.3)


Not covered. Not covered. [The board] should meet at regular intervals.(Commentary on Recommendation 14)

208






[T]he Chairman of the Board is not only sup-posed to call, prepare the agenda and lead themeetings, but must also ensure that members ofthe Board receive the necessary information,participate actively and be committed to theirtasks. (Report, 3.2)

See also Report, 3.2 (suggesting that an inde-pendent Vice President of the board beappointed and empowered to call meetings, addagenda items and submit information to direc-tors).

Not covered. The board should identify matters which re-quire the prior approval of the board and laydown procedures to be followed when, excep-tionally, a decision is required before its nextmeeting on any matter not required by law, tobe considered at board level. (Code, §4, foot-note omitted)

Decisions regarding the content of the agendafor individual meetings of the board and con-cerning the presentation of agenda items shouldbe taken by the chairman in consultation withthe company secretary. (Code, §8)

The company secretary should be responsibleto the chairman for the proper administration ofthe meetings of the company, the board and anycommittees thereof. To carry out this responsi-bility the company secretary should be entitledto be present at (or represented at) and prepare(or arrange for the preparation of) minutes ofthe proceedings of all such meetings. (Code,§9)

The minutes of meetings should record thedecisions taken and provide sufficient back-ground to those decisions. All papers presentedat the meeting should be clearly identified inthe minutes and retained for reference. Proce-dures for the approval and circulation ofminutes should be established. (Code, §10)

Notwithstanding the absence of a formalagenda item, the chairman should permit anydirector or the company secretary to raise atany board meeting any matter concerning thecompany’s compliance with this Code of Prac-tice, with the company’s memorandum andarticles of association and with any other legalor regulatory requirement. (Code, §13)

Not covered.

209






The board should meet regularly. (Code, 1.1)

See Code, 1.4 (The board should have a formalschedule of matters specifically reserved to itfor decision to ensure that the direction andcontrol of the company is firmly in its hands.).

Not covered. The board can only fulfil its responsibilities if itmeets regularly and reasonably often.(Guideline 3.11)


The board should meet regularly. (Code § 1,A.1.1)

See Code § 1, A.1.2 (The board should have aformal schedule of matters specifically reservedto it for decision.).

210






[T]he frequency of board meetings must besufficient to ensure that the directors, includingthe non-executive directors, can direct thatcorporate strategy, as well as monitoringperformance and risk.Whilst boards should meet regularly, each mustdecide its frequency.Where an “executive committee”, comprisingboth directors and senior management, meetsregularly to implement board strategy, the boardmay be content to meet at relatively infrequentintervals provided that the board as a whole issatisfied that agreed strategy is being followed.The board should adopt a formal schedule ofmatters specifically reserved for boarddecisions. This should include major strategicconcerns likely to impact on the direction of thecompany, setting strategic benchmarks and theassessment of management achievement againstthem. This would normally include, forexample, decisions on acquisitions and mergers.(§1)


211





21. Board Information Flow, Materials and Presentations

In order to fulfil their responsibilities, boardmembers should have access to accurate, rele-vant and timely information. (OECD PrincipleV.F)

Board members require relevant information ona timely basis in order to support their decision-making. Non-executive board members do nottypically have the same access to information askey managers within the company.... In order tofulfil their responsibilities, board membersshould ensure that they obtain accurate, relevantand timely information. (OECD Principle V.FAnnotation at 43)

The ICGN Statement adopts OECD PrincipleV.F (In order to fulfil their responsibilities,board members should have access to accurate,relevant and timely information.).

See also OECD Principle V.F Annotation at 43(Board members require relevant informationon a timely basis in order to support their deci-sion-making. Non-executive board membersdo not typically have the same access to infor-mation as key managers within the company....In order to fulfil their responsibilities, boardmembers should ensure that they obtain accu-rate, relevant and timely information.).

Not covered. It should be the Chairman’s responsibility thatadequate and timely information is provided toboard members ahead of meetings and, wherenecessary, in between. (RecommendationV.3.a.iv)

Background information should be given [inadvance of board meetings]. The materialshould be clear, sufficient, relevant and timely.(Recommendation V.5.e.iii)

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Not covered. An internal procedure should be established toensure that all directors, and in particular thenon-executive directors, are provided with andhave access to adequate information to enablethem to perform their duties. The availabilityof information should be guaranteed to alldirectors equally.It is essential that the directors are providedwith, and have access to, the information theyrequire in good time. This is in particular theresponsibility of the chairman, who may beassisted by the secretary to the board.Directors cannot use the information obtainedfor other purposes than for the exercise of theirmandate. They have an obligation of discretionrelating to the confidential information receivedin their capacity as director. (Part I: B.1.7)

The Director undertakes to see to it that theBoard ... receives sufficient and timely infor-mation enabling the Directors to hold usefuldiscussions. (p. 4)

See p. 7 (The Director undertakes not to dis-tribute, directly or indirectly, and without theauthorization of the Board, any information thathe or she has been privy to in his/her functionwithin the company.).

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Not covered. It is recommended that the board establish pro-cedures for how the management reports to theboard and for any other communication be-tween the board and the management. Thiswill ensure that the board is provided with theinformation about the company’s businesswhich the board requires on a continuous basis.In all circumstances the management mustensure that the board is provided with essentialinformation, whether the board has requested itor not. (IV.4)

See V.2 ([T]he directors are solely responsiblefor actively obtaining knowledge and continu-ously keeping themselves posted about theconditions of the company and the industry inquestion.).


214




(Reserved)


[T]he chairman is obliged to provide directors,in due time, with all significant informationnecessary to the fulfillment of their supervisoryduties. Directors should receive, in due time,documentation concerning items on the agendarequiring particular analysis and priorconsideration (whenever this is not prevented bythe need to respect confidentiality).The Committee considers that when directorsbelieve they have not been put in a position tomake an informed judgment, it is their dutyto say so at the board meeting and to demandthe information they need. (p. 17)

Directors must ensure that they are properlyinformed and to this end make timely requeststo the chairman for any information necessaryfor proper consideration of items on the board’sagenda. (p. 21)

Not covered. Prior and continuing information to the Direc-tors is an essential requirement for properperformance of their duties.As the case-law has outlined it for the pastfifteen years, the Committee considers it desir-able to affirm the following positions:Corporations are bound to provide their Direc-tors with the information required to take parteffectively in the Board’s proceedings, prior toBoard meetings if appropriate, in order to en-able them to perform their duties appropriately.This is true at all times in corporate life, be-tween meetings of the Board, if the importanceor urgency of the information so require.This duty to provide prior and continuing in-formation to the Directors, which must besufficient, relevant and first-rate, lies with thechairman of the Board of Directors.Conversely, the Directors are bound to call forthe appropriate information that they considernecessary to perform their duties. (p. 16)

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To ensure the necessary basis of information forsupervisory duties is the task of both the Man-agement Board (“obligation lying in render”)and of the Supervisory Board (“obligation lyingin collection”). The main responsibility for thislies with the Management Board as a result ofthe asymmetry of knowledge of both organs.(Code, II.2.1)

The Management Board’s general duty to pro-vide information arises from the informationsystem specified by the Supervisory Board.The Supervisory Board information systemtakes up the statutory duties to report and putsthe content, frequency and technical provisionsof the information to be supplied in concreteterms.... (Code, II.2.2)

The Supervisory Board information system alsostipulates that the Management Board reportsonce a year on the strategic development of thecompany.... (Code, II.2.3)

All members of the Supervisory Board receivethe schedule of supervision before each supervi-sory period. (Code, IV.5.6)

All documentation which is necessary forproper discussion of the items of the agendapending, is delivered to the members of theSupervisory Board or the committees in goodtime before each meeting. (Code, IV.5.8)

All members of the Management Board receiveinformation and supporting documentation rele-vant to the decision in good time before theManagement Board meetings. (Code, III.4.4)

See generally Code, II.2 (Provision of Informa-tion to the Supervisory Board).

The Management Board shall inform the Su-pervisory Board on a regular basis, in goodtime and comprehensively, about all relevantmatters regarding business development, riskexposure and risk management of the companyand major group subsidiaries. (Code, II.2.e))

All members of the Supervisory Board shallreceive the Audit Reports in good time beforethe pertinent Supervisory Board meetings(§ 170 German Stock Corporation Act). Audit-related meetings shall be held in the presenceof the Auditors. (Code, III.2.e))

See Code, III.2.g) (The Supervisory Board shallreceive regularly (at least annually) a report bythe Management Board with regard to dona-tions exceeding an amount determined by theSupervisory Board.).

Providing adequate information to the Supervi-sory Board is the joint responsibility of theManagement Board and Supervisory Board.The Management Board informs the Supervi-sory Board regularly, without delay andcomprehensively, of all issues important to theenterprise with regard to planning, businessdevelopment, risk situation and risk manage-ment. The Management Board brings updeviations in planning from previously formu-lated objectives and indicates the reasons.The Supervisory Board shall specify the Man-agement Board’s information and reportingduties. The Management Board’s reports to theSupervisory Board are, as a rule, to be submit-ted in written form. Documents required fordecisions, in particular, the Annual FinancialStatements, the Consolidated Financial State-ments and the Auditors’ Report are to be sent tothe members of the Supervisory Board, if pos-sible, in due time before the meeting. (§III.4)

Good Corporate Governance requires an opendiscussion between the Management Board andSupervisory Board as well as among the mem-bers within the Management Board and theSupervisory Board. The comprehensive obser-vance of confidentiality is of decisiveimportance for this.All board members ensure that the staff mem-bers they employ observe the confidentialityobligation in the same manner. (§III.5)

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Preda Report(Italy)


The members of the Board of Directors shouldhave all relevant information, act in good faithand with all required diligence and care in theinterest of the corporation and its shareholders.(Recommendation 5.1)

Internal audit procedures should be establishedensuring that all members of the Board havetimely, full and equitable access to all informa-tion required for the exercise of their duties.(Recommendation 5.10)

It is essential that the members of the Boardhave full access to all information required,under the responsibility of the chief executiveofficer and the secretary of the Board. (Foot-note 7 to Recommendation 5.10)

See Introduction (All functions of the Board ofDirectors ... should aim at the enhancement ofthe entire performance of the corporation withinan adequately supervised and informed envi-ronment.).

[T]he internal controller may obtain knowledgeof any book, document, bank account informa-tion or portfolio of the company, and accessany service of the company. The members ofthe board and the company’s employees mustcooperate with the internal controller and pro-vide him with information, and generallyfacilitate his work as may be appropriate. Thecompany’s management must provide the in-ternal controller with all the means necessary tofacilitate the exercise of an appropriate andeffective control. (§4.4)

[The internal controller] provides updates inwriting, at least once every three months, to theboard of directors on the results of his con-trol…. (§4.45(c))

Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode:Principle A.4 (The board should be supplied ina timely manner with information in a form andof a quality appropriate to enable it to dischargeits duties.);Code § 1, A.4.1 (Management has an obliga-tion to provide the board with appropriate andtimely information, but information volun-teered by management is unlikely to be enoughin all circumstances and directors should makefurther inquiries where necessary. The chair-man should ensure that all directors areproperly briefed on issues arising at boardmeetings.).

The chairman ... shall endeavour to ensure thatthe members of the board are provided reasona-bly in advance of the date of the meeting(except in cases of necessity and as a matter ofurgency) with the documentation and informa-tion needed for the board to express aninformed view on the matters it is required toexamine and approve. (Code, 4.1; see Report,5.2)

See Commentary on Code, 5 ([T]he Committeebelieves that, since the board of directors isrequired by law to inform the board of auditors,all the directors must possess at least as muchinformation as is provided to the board ofauditors.).

See also Report, 5.1 (The Code ... notes that theguidance function [of the board of directors]requires ... knowledge of the facts.).

See also Code, 6.2 and Report, 5.3 (All thedirectors are required to treat the documentsand information they acquire in the per-formance of their duties as confidential andto comply with the procedure for the disclo-sure to third parties of such documents andinformation.).

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Not covered directly, but see Recommendation4.2 (The [Management Board] should report inwriting to the Supervisory Board on the com-pany’s objectives, strategy and the associatedrisks and the mechanisms needed to controlrisks of a financial nature.).

See also Recommendation 4.3 (The [Manage-ment Board] will report in writing to theSupervisory Board on the risks entailed in thepolicy and strategy.).

See also Recommendation 4.3 (As a minimumrequirement, the [Management Board] shouldreport to the Supervisory Board on the results ofits assessment of the structure and functioningof the internal control systems which are in-tended to provide reasonable certainty that thefinancial information is reliable.).

Not covered. Not covered. Not covered directly, but see Commentary onRecommendation 14 ([The board should] beduly informed at all times.).

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The necessary measures must be adopted toensure that Directors are duly provided withsufficient information, specifically put togetherfor the purpose of preparing Board meetings.The significance or confidential nature of thisinformation will not render this measure inap-plicable, unless exceptional circumstancesconcur. (Code, Recommendation 9)

The right of all directors to collect and obtainthe information and advice needed to fulfill theirsupervision functions must be formally recog-nized. Appropriate channels should be createdto exercise this right, even resorting to outsideexperts in special circumstances. (Code, Rec-ommendation 14)

[T]he Chairman of the Board ... must also en-sure that members of the Board receive thenecessary information. (Report, 3.2)

[A]mong the independent Directors, a Vice-President with coordination functions ... couldbe empowered to ... submit information to di-rectors. (Report, 3.2)

The Secretary should see to the proper devel-opment of board meetings, taking special care toprovide directors with proper advice and infor-mation. (Report, 3.3)

We must underscore the authority and duty thateach director individually has of seeking andobtaining all the information required for thefulfillment of his/her supervision functions.(Report, 6.1)

In order to be able to fulfil their responsibili-ties, the members of the board should haveaccess to correct, relevant and current informa-tion. (Guideline 2.2)

The board should ensure that each director isgiven on appointment sufficient information toenable him/her to perform his/her duties. Inparticular, guidance for non-executive directorsshould cover the procedures:§ for obtaining information concerning the

company; and§ for requisitioning a meeting of the board.(Code, §2)

In the conduct of board business, two funda-mental concepts should, be observed:§ each director should receive the same

information at the same time, and§ each director should be given sufficient

time in which to consider any such infor-mation.

(Code, §3)

The board should approve definitions of theterms “material”* and “not in the ordinarycourse of business” and these definitionsshould be brought to the attention of all rele-vant persons. (Code, §6)

Where there is any uncertainty regarding themateriality or nature of a contract, it shouldnormally be assumed that the contract shouldbe brought before the board. (Code, §7)

The minutes of any meetings of committees ofthe board (or a written summary thereof)should be circulated to the board prior to itsnext meeting and the opportunity should begiven at that meeting for any member of theboard to ask questions thereon. (Code, §12)

* Different definitions of the term “material”should be established for “contracts not in theordinary course of business” and “contracts inthe ordinary course of business.” Financiallimits should be set where appropriate. (Code,fn. 2)

Not covered.

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It is for chairmen to make certain that their non-executive directors receive timely, relevantinformation tailored to their needs, [and] thatthey are properly briefed on the issues arising atboard meetings.... (Report, 4.8)

Non-executive directors lack the inside knowl-edge of the company of the executive directors,but have the same right of access to informationas they do. Their effectiveness turns to a con-siderable extent on the quality of theinformation which they receive and on the usewhich they make of it. Boards should regularlyreview the form and the extent of the informa-tion which is provided to all directors. (Report,4.14)

[T]he board should meet regularly, with duenotice of the issues to be discussed supported bythe necessary paperwork.... (Report, 4.23)

Not covered directly, but see Commentary onRemuneration Committees, 4.16 (The[remuneration] committee should have accessto reliable, up-to-date information aboutremuneration in other companies and shouldjudge the implications carefully. The fulldisclosure we advocate in this report will itselfprovide more accessible data.).

The board should be supplied in a timelyfashion with information in a form and of aquality appropriate to enable it to dischargeits duties. (Principle A.IV)

We endorse the view of the Cadbury committee(Cadbury Report, 4.14) that the effectiveness ofnon-executive directors (indeed, of all direc-tors) turns, to a considerable extent, on thequality of the information they receive.(Guideline 2.6)

The board should be supplied in a timelymanner with information in a form and of aquality appropriate to enable it to dischargeits duties. (Principle A.4)

Management has an obligation to provide theboard with appropriate and timely information,but information volunteered by management isunlikely to be enough in all circumstances anddirectors should make further enquiries wherenecessary. The chairman should ensure that alldirectors are properly briefed on issues arisingat board meetings. (Code § 1, A.4.1)

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The board requires appropriate and timelyinformation sufficient to enable it to dischargeits duties. It is the responsibility of companymanagement to ensure that all directors aresupplied with the information necessary to makeinformed judgements on matters affecting thecompany. (§5)


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22. Number, Structure and Independence of Committees

Boards should consider assigning a sufficientnumber of non-executive board members capa-ble of exercising independent judgement totasks where there is a potential for conflict ofinterest. Examples of such key responsibilitiesare financial reporting, nomination and execu-tive and board remuneration.While the responsibility for financial reporting,remuneration and nomination are those of theboard as a whole, independent non-executiveboard members can provide additional assur-ance to market participants that their interestsare defended. Boards may also consider estab-lishing specific committees to considerquestions where there is a potential for conflictof interest. These committees may require aminimum number, or be composed entirely of,non-executive members. (OECD PrincipleV.E.1 and Annotation at 42)

Stock exchange listing requirements that ad-dress a minimal threshold for ... audit committeeindependence have proved useful, while notunduly restrictive or burdensome. (MillsteinReport, Perspective 15)

The ICGN backs active, independent boardaudit committees. (ICGN Amplified OECDPrinciple IV at 8)

The ICGN Statement adopts OECD PrincipleV.E.1 (Boards should consider assigning asufficient number of non-executive boardmembers capable of exercising independentjudgement to tasks where there is a potentialfor conflict of interest. Examples of such keyresponsibilities are financial reporting, nomi-nation and executive and board remuneration.).To further strengthen the professionalism ofboards, the ICGN endorses earlier languageconsidered by the OECD. “Certain key respon-sibilities of the board such as audit, nominationand executive remuneration, require the atten-tion of independent, non-executive members ofthe board. Boards should consider establishingcommittees containing a sufficient number ofindependent non-executive board members inthese areas where there is a potential for con-flict of interest or where independent businessjudgment is advisable.” The ICGN considersthat to meet this challenge, audit, remunerationand nomination board committees should becomposed wholly or predominantly of inde-pendent non-executives. (ICGN AmplifiedOECD Principle V at 9; cf. ICGN Statement 4)

A special committee should be established toset the remuneration of the directors. (Com-mentary on Recommendations 10(a) and 10(b))

There should be a majority of independentboard members on all board committees wherethere is a potential for conflicts of interest.(Recommendation VI.4.a)

The chairman should be a non-executive boardmember for all committees; in addition, for theaudit and the remuneration committee, he orshe should be independent. (RecommendationVI.4.b)

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If there is an appointments committee, it shouldbe composed mostly of non-executive directorsand chaired by the Chairman of the Board ofDirectors or by a non-executive director. Theappointments committee should make proposalsto the Board of Directors, on the one hand forthe appointment of non-executive directors, andon the other hand for appointments to certainkey posts. (Note to 2.3)

If there is a remuneration committee, it shouldbe exclusively composed of non-executive di-rectors, and the remuneration of executivedirectors should be submitted to that committeefor an opinion.If there is no remuneration committee, the re-muneration of executive directors should besubmitted to the non-executive directors. (3.1)

The Board of Directors must exercise an auditfunction. To that end, it may set up an auditcommittee and determine its composition andmandate. (4.3)

Certain directors – whether executive or non-executive – may be given special responsibilityfor certain areas, on which they report to thefull board. (Part I: B.1.5)

The nomination committee should include amajority of non-executive directors and shouldbe chaired by the chairman of the board or anon-executive director. (Part I: B.2.4)

The executive management’s pay should besubject to the recommendations of aremuneration committee ... made up of amajority of non-executive directors. (Part I:B.3.2)

[A]n audit committee should be establishedconsisting of at least three non-executivedirectors whose authority and duties are clearlystated at the time of their appointment. (Part I:B.4.3)

See Part I: B.1.5 (The board should lay downrules to determine materiality for differentcategories of transactions, establishing clearlywhich transactions require multiple boardsignatures. The board should also establish theprocedures to be followed when, exceptionally,decisions are required between boardmeetings.).

See also Part II: B.6 (If the company ... iscontrolled or significantly influenced by one ormore dominant shareholders, ... [disclosureshould be made] of any agreements betweenthese shareholders and of the contents of suchagreements and of any committees established[and] the role played by these committees.).

[T]he Director will be attentive: ....§ That the Board, if it creates an internal

auditing committee, ensures that it becomposed of a majority of non-executiveDirectors, in direct and permanent contactwith the company’s auditors, and periodi-cally referring to the Board;

§ That the company’s internal controllingbody functions efficiently and that it beregularly controlled by the auditors.

(p. 4)

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Committees responsible for the proposal ofcandidates for the board and the auditing com-panies should be established. (I. The AnnualGeneral Meeting)

The board or a special committee should decideupon the remuneration of company [executives].(II. Governance)

Most company boards are not so large that theyrequire the establishment of board committeesin order to be able to manage their tasks, andtherefore appointments of board committeescannot be recommended in general. However,if the board is very large, or in the event ofother specific circumstances, the board mustconsider if it is necessary to establish boardcommittees. As a rule, if the board appoints acommittee, this should only be done in order toprepare decisions that must be reached by all ofthe directors. It is important that the boardensures that the appointment of a board com-mittee does not result in important informationdirected at all directors only reaching the boardcommittee. (V.9)

If the company has a special Audit Committee,it shall be governed by the following principles:§ The Committee shall, where possible, be

elected from among members of the Boardof Directors not employed by the com-pany.

§ The Board of Directors of the companyshall determine the central duties and op-erating principles of the Committee byinstructions of guidelines confirmed forthe committee.

§ The composition of the Committee shallbe explained in the annual Report and inthe Listing Particulars of the company.

(English Summary, 7)

The larger the company is, the more importantis the role of the external members of the Boardof Directors. Thus, the forming of workinggroups (“committees”) from the external mem-bers should be discussed at least by the Boardsof Directors of listed companies. Such workinggroups would be, e.g., the Auditing Committeeand the Nomination and Remuneration Com-mittee of the top management. (2.2.1)

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(Reserved)


[B]oards may appoint some of their members toform committees to consider specific aspects ofcompany operations. Quite a number have setup such committees with responsibilities in suchareas as remuneration, auditing and strategy,and these have been functioning satisfactorilyfor several years within the current legal frame-work. (p. 2)

[I]t is up to each board to determine the mostsuitable structure for its own membershipand that of the committees it sets up, and toensure that markets and shareholders haveno reason to doubt their independence andimpartiality. (p. 10)

The Committee recommends that all boardsshould set up special committees for the se-lection of directors, for remuneration and foraccounting....[T]he Committee recommends that boardsshould avoid appointing directors to theirremuneration committees when these direc-tors represent another company whose ownrepresentatives are members of the equiva-lent committee. (p. 18)

See pp. 18-19 (remuneration and audit commit-tees).

See also Topic Heading 6, above (“selectioncommittee”).

The existence of standing committees is a cen-tral element to corporate governance and henceto board functioning.The Commission recommends the creation ofat least three standing committees: a nominat-ing or appointments committee, acompensation and performance committee, andan audit committee.It is recommended that they shall compriseindependent directors up to one-third of theirmembers and in the majority in the compensa-tion and performance committee.Company executives or employees should notbe members of the compensation and perform-ance committee or of the audit committee.(§ II.B.2)

The Commission favors each Board having anominating committee responsible for propos-ing candidates to Board membership. Thiscommittee should be composed of from three tofive directors and include the chairman andone-third independent directors. This commit-tee should draw up a report, with supportinginformation, on the recommendations it makes.(§ II.B.3)

[The practice of reciprocal directors and cross-shareholdings] runs counter to openness andindependent decision-making. No reciprocaldirectors and directors representing cross-shareholdings, should the case arise, may sit onthe compensation and performance committee.(§ II.B.4)

[T]he presence of genuinely independent Di-rectors in sufficient numbers on ... Boardcommittees is an essential factor in guarantee-ing that the interests of all the shareholders willbe taken into account in the corporation’s deci-sions.In order to establish the role recognized forindependent Directors, the Committee consid-ers:§ that they should account for at least one-

third of ... the audit committee and the ap-pointments committee;

§ that they should be in the majority of thecompensation and options committee,having regard to its duties;

§ that they should be identified individuallyin the annual report.

(p. 15)

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Supervisory Board CommitteesThe Supervisory Board forms committees inorder to increase working efficiency. Thecommittees should have at least three but nomore than five members. The Chairman of theSupervisory Board coordinates the activitiesbetween the committees in consultation with thechairpersons of the committees. (Code, IV.3.3)

The number and tasks of the committees dependon the size of the Supervisory Board and therespective realities of the company. This in-cludes principally the size of the company aswell as the type, degree of diversification andgeographical extent of its value-creating proc-esses. Normally, there is to be established:§ at least one business committee for mana-

gerial key policy issues,§ a personnel committee for all matters af-

fecting the personnel of the ManagementBoard and, if necessary, a committee pur-suant to §27(3) of the Co-DeterminationAct 1976,

§ an investment and finance committee,§ an audit committee, and§ a committee for corporate governance.

Next to these are committees to be consideredfor particularly important functions such asresearch and development, products and mar-kets of the company. (Code, IV.3.4)

Management Board CommitteesNot covered.

Supervisory Board CommitteesThe Supervisory Board shall ensure independ-ent advice and monitoring of the ManagementBoard through a sufficient number of inde-pendent persons who have no current or formerbusiness association with the Group. This shallalso be taken into consideration for the compo-sition of the Supervisory Board committees.(Code, III.1.b)

The Supervisory Board shall establish, in linewith its Standing Rules, various committees todeal with complex business matters.... Incorpo-ration and duties of committees are subject tothe specific circumstances and the size of theCompany. The following committees could beinstituted:

General Committee....Accounts and Audit Committee....Personnel Committee....Nomination Committee....Market- and Credit Risk Committee....Mediation Committee.

(Code, III.3)


Supervisory Board CommitteesThe Supervisory Board can transfer prepara-tions for the appointment of members of theManagement Board to a committee, which alsodetermines the conditions of the employmentcontracts including compensation. (§V.1.2)

Depending on the enterprise’s specific circum-stances and the number of its employees, theSupervisory Board shall form qualified com-mittees. They serve to increase the efficiencyof the Supervisory Board’s work and the han-dling of complex issues. Each respectivecommittee chairman reports regularly to theSupervisory Board on the work of the commit-tee. (§V.3.1)

The Supervisory Board shall set up an AuditCommittee…. (§V.3.2)

The Supervisory Board can delegate othersubjects to be handled by one or several com-mittees. These subjects include the strategy ofthe enterprise, the compensation of the mem-bers of the Management Board, investmentsand financing. (§V.3.3)

The Supervisory Board can arrange for com-mittees to prepare Supervisory Board meetingsand to take decisions in place of the Supervi-sory Board. (§V.3.4)

Each member of the Supervisory Board shallinform the Chairman of the Supervisory Boardof any conflicts of interest…. The Chairman ofthe Supervisory Board shall inform the Super-visory Board or a committee commissioned forthis purpose of any personal conflicts of inter-est. (§V.5.1)


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Preda Report(Italy)


The establishment of an Internal Audit Com-mittee should be encouraged, which will consistof non-executive members of the Board of Di-rectors whose power and duties are clearlydescribed during the approval of their appoint-ment by the general shareholder meeting.(Recommendation 4.7)

It is a good practice that a review committee,consisting of the majority of non-executiveBoard members, be established by the generalshareholder meeting, which would review man-agement compensation. (Recommendation 7.2)

Non-executive members form the majority inthe board member committees…. (§2.2)

In order to ensure more effective managementof the company, at least two committees, com-prised of non-executive board members, areprovided and constituted: the Internal ControlCommittee and the Compensation and BenefitsCommittee. (§5.1)

The Combined Code recommends that theboards of listed companies should establish aremuneration committee to make recommen-dations to the board in relation to policy on theremuneration of executive directors and that themembership of this committee should be madeup wholly of independent non-executive direc-tors. (Guideline 1)

The IAIM Guidelines adopt the CombinedCode. See the Combined Code:§ 1, A.5.1 (Unless the board is small, anomination committee should be established tomake recommendations to the board on all newboard appointments. A majority of themembers of this committee should be non-executive directors, and the chairman should beeither the chairman of the board or a non-executive director.);

§ 1, B.2.2 (Remuneration committees shouldconsist exclusively of non-executive directorswho are independent of management and freefrom any business or other relationship whichcould materially interfere with the exercise oftheir independent judgement.);

§ 1, D.3.1 (The board should establish an auditcommittee of at least three directors, all non-executive, with written terms of referencewhich deal clearly with its authority and duties.The members of the committee, a majority ofwhom should be independent non-executivedirectors, should be named in the report andaccounts.).

The board of directors shall ... delegate pow-ers to the managing directors and to theexecutive committee. (Code, 1.2)

Where the board of directors has establisheda committee to propose candidates for ap-pointment to the position of director, themajority of the members of such committeeshall be non-executive directors. (Code, 7.2)

[T]he large proportion of companies with con-centrated ownership ..., and the by-lawsproviding for election lists in some companieswith a broad shareholder base, suggested that itwould not be advisable to institutionalize [thenominations] committee. (Report, 5.4.1)

The board of directors shall form a remunera-tion committee ..., the majority of whosemembers should be non-executive directors(Code, 8.1; see Report, 5.4.2)

Determining ... remuneration of top manage-ment obviously remains the task of themanaging directors. (Commentary on Code, 8)

The board of directors shall establish an internalcontrol committee ... made up of an appropriatenumber of non-executive directors. (Code,10.1; see Report, 5.4.3)

See Report, 5.5. ([D]ialogue [with institutionalinvestors] can be fostered by ... an ad hoc ...structure for this function.).

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Supervisory Board CommitteesNot covered directly, but see Recommendation3.2 (The Supervisory Board considers whetherto appoint from its midst a selection and nomi-nation committee, an audit committee and aremuneration committee. These committeessubmit reports on their findings and make rec-ommendations to the full Supervisory Board.).


Not covered. Not covered. The board is encouraged to create internalcontrol committees with powers conferredfor matters in which there are potentialsituations of conflicts of interest, such as thenomination of directors and managers, theanalysis of the remuneration policy and as-sessment of the corporate structure andgovernance. (Recommendation 17)

If an Executive Committee is created, itscomposition should reflect, insofar as it ispossible, the balance existing in the boardbetween directors linked to dominant share-holders and independent shareholders.(Recommendation 16)

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The composition of the Executive Committee, ifthere is one, should reflect the existing balancein the Board of Directors among the differenttypes [of directors]. Relationships between both[the Executive Committee and the board] shouldbe inspired on the transparency principle, inorder that the Board is completely aware of thematters dealt with and the decisions made by theCommittee. (Code, Recommendation 7)

The Board of Directors should create ControlCommittees within the Board, made up solely ofoutside directors, for information and account-ing control matters (Audit Committee), theselection of directors and executives (Nomina-tion Committee), defining and reviewingremuneration policies (Remuneration Commit-tee), and evaluating the governance system(Compliance Committee). (Code, Recommen-dation 8)


[T]he general meeting should take the initiativefor setting up nomination, audit and remunera-tion committees. (Guideline 1.2)

Nomination Committee[T]he Shareholders’ Association recommendsthat every company quoted on the stock marketset up a nomination committee....The nomination committee should comprisethree to five members and be appointed by thecompany’s owners. The majority of the mem-bers should represent the principal owners. Atleast one member should represent the smallerowners. This member can, on request, benominated by the Shareholders’ Association.The chairman of the board should also be onthe committee. Members should not be em-ployees of the company. (Guideline 1.2.1)

Audit CommitteeTo assure the quality of the audit and to im-prove contacts between the board and thecompany’s auditors, an audit committee shouldbe set up, thereby giving the auditors’ princi-pals, the shareholders, a better guarantee thattheir interests are safeguarded. The boardshould appoint an audit committee from amongboard members who are not employees of thecompany. The committee should consist of atleast three members and can coopt suitableadditional persons. (Guideline 1.2.2)

Remuneration CommitteeIn every company, the board should appoint aremuneration committee. (Guideline 1.2.3)

Not covered directly, but see Code, §11 (Wherethe articles of association allow the board todelegate any of its powers to a committee, theboard should give its prior approval to:§ the membership and quorum of any such

committee;§ its term of reference; and§ the extent of any powers delegated to it.)

There has been a growing awareness of thevalue of audit committees and the importanceof non-executive directors [on them] has be-come evident…. (p. 2)

A Compensation Committee should be ap-pointed by the Board, consisting solely ormainly of non-executive directors (and in thelatter case chaired by a non-executive director).(p. 4)

[In the event of a proposed takeover or man-agement buy-out,] [i]deally, the Board shouldappoint a separate committee consisting whollyor mainly of non-executive directors with directaccess to independent advisers…. The com-mittee should be responsible for a separatestatement to shareholders, giving the viewsboth of itself and of the independent advisers onthe bid. (p. 6)

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The board should establish an audit committeeof at least three non-executive directors withwritten terms of reference which deal clearlywith its authority and duties. (Code, 4.3)

A nomination committee should have a majorityof non-executive directors on it and be chairedby either the chairman or a non-executivedirector. (Report, 4.30)

Membership [on the audit committee] should beconfined to the non-executive directors of thecompany, and a majority of the non-executivesserving on the committee should beindependent.... (Report, 4.35(b))

We also recommend that boards should appointremuneration committees consisting wholly ormainly of non-executive directors, and chairedby a non-executive director, to recommend tothe board the remuneration of the executivedirectors in all its forms, drawing on outsideadvice as necessary. (Report, 4.42)

See Report, APPENDIX 4, AUDIT COMMITTEES.


To avoid potential conflicts of interest, Boardsof Directors should set up remunerationcommittees of Non-Executive Directors todetermine ... the company’s policy on executiveremuneration and specific remunerationpackages for each of the Executive Directors....(Code, A1)

Remuneration committee Chairmen shouldaccount directly to the shareholders through themeans specified in this Code for the decisionstheir committees reach. (Code, A2)

Remuneration committees should consistexclusively of Non-Executive Directors with nopersonal financial interest other than asshareholders in the matters to be decided, nopotential conflicts of interest arising fromcross-directorships and no day-to-dayinvolvement in running the business. (Code,A4)

The remuneration committee should consistexclusively of Non-Executive Directors withrelevant experience who:§ have no personal financial interest, other


§ have no “cross-directorships” with theExecutive Directors which could bethought to offer scope for mutualagreements to bid up each others’remuneration.

(Commentary on Remuneration Committees,Membership and Qualifications, 4.8)

The remuneration committee should consist ofat least three Non-Executive Directors (at leasttwo in the case of small companies). If this isnot practicable, the remuneration committee’sreport to shareholders should explain why.(Commentary on Remuneration Committees,Membership and Qualifications, 4.11)

We support the Cadbury committee’sendorsement of the nomination committee(Cadbury Report, 4.30); indeed, we believe thatthe use of such a committee should be acceptedas best practice.... (Guideline 3.19)

Cadbury and Greenbury both recommendedthat the boards of listed companies shouldestablish a remuneration committee to developa policy on the remuneration of executivedirectors and, as appropriate, other seniorexecutives; and to set remuneration packagesfor the individuals concerned. We agree. Wealso agree with Greenbury that the membershipof this committee should be made up wholly ofindependent non-executive directors.(Guideline 4.11)

Larger companies have implemented the[Cadbury Report] recommendations [that eachcompany should establish an audit committeeof at least three non-executive directors, at leasttwo of them independent] almost universally,and we believe that the results have beenbeneficial. Audit committees havestrengthened the independence of the auditorsby giving them an effective link to the board;and the explicit remit of the audit committeehas strengthened its members in questioningthe executive directors. (Guideline 6.3)

We do not favour relaxing the guidelines onthis point by size of company. (Guideline 6.4)

Unless the board is small, a nominationcommittee should be established to makerecommendations to the board on all new boardappointments. A majority of the members ofthis committee should be non-executivedirectors, and the chairman should be either thechairman of the board or a non-executivedirector. (Code § 1, A.5.1)

Remuneration committees should consistexclusively of non-executive directors who areindependent of management and free from anybusiness or other relationship which couldmaterially interfere with the exercise of theirindependent judgement. (Code § 1, B.2.2)

The board should establish formal andtransparent arrangements for consideringhow they should apply the financialreporting and internal control principles andfor maintaining an appropriate relationshipwith the company’s auditors. (Principle D.3)

The board should establish an audit committeeof at least three directors, all non-executive,with written terms of reference which dealclearly with its authority and duties. Themembers of the committee, a majority of whomshould be independent non-executive directors,should be named in the report and accounts.(Code § 1, D.3.1)

The role of board committees in the review [ofthe effectiveness of internal control], includingthat of the audit committee, is for the board todecide, and will depend upon factors such asthe size and composition of the board; the scale,diversity and complexity of the company’soperations; and the nature of the significantrisks that the company faces. (Turnbull Report,¶26)

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Where an “executive committee”, comprisingboth directors and senior management, meetsregularly to implement board strategy, the boardmay be content to meet at relatively infrequentintervals provided that the board as a whole issatisfied that agreed strategy is being followed.(§1)

Boards should establish a sub-committee(normally called the nomination committee) todeal with director appointments. Thenomination committee’s role is to filterproposals and recommend candidates to theboard. Final appointments are the responsibilityof the whole board. Where boards are verysmall, say five or less, there is likely to be a casefor the entire process to be undertaken by theboard itself, dispensing with the need for anomination committee. (§7)

Each board should establish a remunerationcommittee.The remuneration committee should consistsolely of independent non-executive directorsand be responsible for making recommendationsto the board.The remuneration committee requires aminimum of three independent non-executivedirectors. (§9)

Each board should establish an audit committee,comprising a majority of non-executivedirectors. The audit committee should report tothe board. (§12)

AUTIF encourages member firms, as part oftheir dialogue with the companies in whichthey invest and when scrutinizing the annualreports and accounts, to pay particular attentionto the companies’ compliance with the Com-bined Code in the areas summarized below ...§ nomination and audit committees§ remuneration committee and directors’

remuneration§ role of chairman and chief executive§ board balance§ financial reporting principles§ internal control system and annual review

of its effectiveness.(Guidance Note on Key Principle 5)

Principle D.3 [of the Combined Code] recom-mends the establishment of an audit committee.(Guidance Note on Key Principle 6)

A remuneration committee of independentNEDs is best placed to decide executive remu-neration on behalf of the board. (1.4)

The nomination committee should comprise aminimum of three directors, a majority ofwhom should be independent NED. (AP-PENDIX 3.1)

The chairman of the company and the seniorindependent NED should always be membersof the [nomination] committee. (APPENDIX 3.2)

The chairman of the nomination committeeshould normally be a fully independent non-executive director. (APPENDIX 3.4)

Board committees of independent non-executives should be established to deal withmatters where executive directors face a con-flict of interest. At the least, there should bestanding audit, remuneration and nominationcommittees [which] should have a minimum ofthree members and should comprise solelyindependent non-executive directors. It maybe appropriate for these committees to inviteexecutive directors to be present at certainmeetings, but committees should meet withoutexecutives present at least once a year. (Part 2,Directors, p. 5)

PRINCIPLE: There should be an independentand transparent appointments and reviewprocess.Appointments of all directors, whether execu-tive or non-executive, should be handled by thenomination committee [which] should comprisesolely independent directors, though executivedirectors may well be invited to contribute todiscussions on new executive director appoint-ments. (Part 2: Directors, p. 6)

PRINCIPLE: Executive remuneration shouldbe determined by a formal and independentprocedure.Remuneration committee exists comprisingwholly independent directors. Executive di-rector remuneration policy should bedetermined by a remuneration committee whichis free from executive influence and the mem-bers of which are fully independent by PIRCguidelines. It should have access to independ-ent advice. (Part 2: Directors, p. 7)

PRINCIPLE: The audit relationship should beoverseen by an independent audit committee.An audit committee exists comprising whollyindependent directors. In order to perform itsfunctions effectively, the audit committeeshould be fully independent. (Part 2: Direc-tors, p. 7)

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23. Committee Meeting Frequency, Length and Agenda




Terms of reference should be drawn up for eachcommittee, laying down its authority and itsduties. (Recommendation VI.5.a)

For the functioning of committees, the sameguidelines as for the board as a whole shouldapply, with the exception of composition.(Recommendation VI.5.b)

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If there is an audit committee, it should complywith the following rules:a) It is set up by the Board of Directors, to

which it is accountable and to which itmust regularly give an account of its man-date. It meets at least twice each year.

b) The composition of the committee is de-termined by the Board of Directors. It willensure that the committee includes non-executive directors and independent direc-tors....

c) The company auditors and, if such exist,the person responsible for the internal auditand the financial director, should attend themeetings of the committee.These meetings are also accessible to alldirectors who wish to attend.

d) The committee should hear the companyauditors at least once each year, on an oc-casion when the executive directors are notpresent.

e) The committee has the widest investigativepowers within its domain and may, by amajority decision, call upon professionalsfrom outside the company and allow themto attend its meetings.

f) The composition of the committee is an-nounced in the Annual Report and theChairman of the committee replies to thequestions which are asked at the GeneralMeeting about the activities of the com-mittee.

(Note to 4.3)

Irrespective of the special powers invested incertain individuals [in committees], the boardof directors as a whole retains responsibility forfulfilling its obligations. (Part I: B.1.5)

The Commission’s recommendations on auditcommittees are as follows:a) They should be formally created as sub-

committees of the main board, to whomthey are answerable and should reportregularly; they should be given writtenterms of reference which deal adequatelywith their membership, authority andduties; they should meet at least twice ayear.

b) Membership should be confined to thenon-executive directors, and there shouldbe a majority of independent directors....

c) The audit committee should have adiscussion with the internal and externalauditors (including statutory auditors) atleast once a year, from which theexecutive directors may be excluded, toensure that there are no unresolved issuesof concern.

d) The audit committee should have explicitauthority to investigate any matters withinits terms of reference, to have availablethe resources which it needs to do so andhave full access to information. Thecommittee should be able to obtain outsideprofessional advice and, if necessary, toinvite outsiders with the relevantexperience to attend meetings.

(Part I: B.4.3)


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Not covered. As a rule, if the board appoints a committee,this should only be done in order to preparedecisions that must be reached by all of thedirectors. It is important that the board ensuresthat the appointment of a board committee doesnot result in important information directed atall directors only reaching the board committee.(V.9)

Not covered directly, but see English Summary,7 (The Board of Directors of the company shalldetermine the central duties and operating prin-ciples of the [Audit] Committee by instructionsof guidelines confirmed for the committee.).

Not covered directly, but see 2.2.1 (Committeework or other preparation of issues without thepresence of the members of the Board of Di-rectors belonging to the hired top managementdoes not affect the statutory decision-makingand responsibilities of the Board of Directors.Subject to the Finnish Companies Act, allmembers of the Board of Directors shall answerfor the decisions made by the Board of Direc-tors. Therefore the handling referred to abovecan only be preparatory to the actual decision-making of the Board of Directors, but it cannotsubstitute the actual decision-making.).

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Remunerations CommitteeMost boards already have a committee chargedwith recommending remuneration levels forcorporate officers, including in some cases stockoption plans, although these may be the respon-sibility of a separate committee. (p. 18)

Accounting / Audit Committee(s)Adoption of financial statements is central to theboard’s supervisory duties as is its obligation toensure that information provided to markets andshareholders is reliable and clear.Preparatory consideration by a specializedcommittee, whose membership and powers aremade public, offers a guarantee that these dutieswill be fulfilled with the necessary diligence andimpartiality.The Committee thus recommends that eachboard should appoint an advisory committeeprincipally charged with ensuring the appro-priateness and consistency of accountingpolicies applied in consolidated and companyfinancial statements, and with verifying thatinternal procedures for collecting andchecking information are such that theyguarantee its accuracy.Particular attention should be paid to the mem-bership of the audit committee, which shouldinclude at least 3 directors, to the exclusion ofexecutive directors and employees, and includ-ing at least 1 independent director. (pp. 18-19)

Selection CommitteeSee Topic Heading 6, above.

Not covered directly, but see § II.B.2 (Throughthe Shareholders’ Meeting, the board shouldinform shareholders of the existence of [stand-ing] committees and the frequency of theirmeetings.).

[M]eetings of ... Board committees ... seem tohave increased substantially in recent years,though without reaching the [frequency ob-served] in UK and US listed corporations.Naturally, the frequency and duration of suchmeetings cannot be subjected to any standards,as the situations and needs vary extensively inthis area.It remains that it is up to the Directors to ensurethat they are such as to allow in-depth reviewand discussion of matters within the purview ofthe ... committees. (p. 16)

[I]t is up to the audit committee to ascertain[the independence of a corporation’s outsideauditors], and to report on this matter to theBoard of Directors every year.Likewise, it is up to the audit committee toascertain that the amount of fees for auditing,assistance and consultancy paid by the corpo-ration and affiliates of its group to the statutoryauditors’ network does not account for an ex-cessive percentage of the total fees collected bythat network during the year, and to report onthe matter to the Board of Directors annually.(p. 17)

The election among various [accounting] stan-dards may be momentous for corporations’earnings, according, for instance, to the dura-tion selected for amortization of goodwill, orthe duty to amortize intangible assets or not.The financial managers and statutory auditorsof corporations are naturally in charge of thetechnical reviews of this matter.The Committee considers, however, that it is upto the audit committee to obtain the technicalreviews supported by appropriate documenta-tion, and to ensure that it is updated havingregard to the rapid changes in accounting stan-dards.The Audit Committee should then report to theBoard of Directors. (p. 18)

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Supervisory Board CommitteesThe chairman of the Supervisory Board pre-pares a systematic schedule of supervisionwhich stipulates the sequence and main focus ofthe topics more precisely to be discussed in theindividual meetings of the Supervisory Board ...committees. (Code, IV.5.4)

The chairpersons stipulate the agenda for theindividual meetings of the Supervisory Board ...committees on the basis of the schedule of su-pervision as well as current developments.(Code, IV.5.7)


Supervisory Board CommitteesThe General Committee shall advise the Man-agement Board and prepare the decisions to betaken by the Supervisory Board.... It discussesthe strategy and planning for the Group and itsbusiness segments submitted by the Manage-ment Board on the basis of different scenariosand their feasibility.... It reviews CorporateGovernance Rules and their compliance....The Accounts and Audit Committee ... evalu-ates the Auditor’s reports, and reports to theSupervisory Board on its assessment of thecomments in the audit report, particularly withregard to the future development of the Group.It verifies the Management Board’s assump-tions on the budget figures for the Group andits business segments....The Personnel Committee deals with the per-sonnel issues of the Management Board.... [It]shall make recommendations with regard to thecontent of the employment contracts of theManagement Board....The Nomination Committee is in charge of thecomposition, size and balance of the Supervi-sory Board and the proposals for election to theGeneral Meeting....The Market- and Credit Risk Committee super-vises the handling of markets risks and creditmatters of the Group....The Mediation Committee ... delivers proposalsfor the appointment of Management Boardmembers if the required two-thirds majority forthe appointment or termination of ManagementBoard members has not been achieved. (Code,III.3)


Supervisory Board CommitteesThe Supervisory Board shall set up an AuditCommittee which, in particular, handles issuesof accounting and risk management, the neces-sary independence required of the auditor, theissuing of the audit mandate to the auditor, thedetermination of auditing focal points and thefee agreement. The Chairman of the AuditCommittee should not be a former member ofthe Management Board. (§V.3.2)


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Preda Report(Italy)


The Internal Audit Committee:§ Should be established as a sub-committee

of the Board of Directors, to which it is ac-countable, and should inform regularly.The operation of the sub-committee shouldbe characterized by clearly defined refer-ence terms.... The meetings of the sub-committee should take place regularly, twoor three times per year.

§ Should include in its composition at leastthree non-executive members of the Boardof Directors.

§ Should communicate with the internal(independent) and external auditors of thecorporation ....

§ Should have the authority to inquire into allmatters that fall into its domain, have therequired financial resources as well as haveaccess to all necessary information re-quired to accomplish its tasks. The InternalAudit Committee should be able to obtainexternal advice and, if necessary, to inviteexternal specialists to attend the workingsof the committee.

§ Should disclose its composition in the cor-poration’s annual report.


The Board of Directors should make availablethe resources required to assist the exercise ofproper and efficient internal auditing. (Recom-mendation 4.8)

See Recommendation 4.9 (The members of theBoard of Directors should disclose to the Inter-nal Audit Committee all necessary informationregarding the prospects of the corporation.).

The internal control committee, which meets atleast three times per year, evaluates and ex-ploits the findings of the control carried out bythe supervisory authorities, and of the internaland external control, by Report to the full boardof directors of the company. (§5.2)

The compensation and benefit committee’s taskis to determine the compensation and benefitsof any kind provided to the executive membersof the board of directors, and to lay down acompensation and benefits policy in respect ofthe company’s executives. (§5.3)

The composition and operation of these com-mittees is laid down in the internal regulationand their purpose is to support the whole boardof directors in its tasks. (§5.4)

[The remuneration] committee should takeresponsibility for the framing and explanationof company share option and other long-termincentive schemes (LTISs) and is expected to:i. select appropriate performance measures

... ;ii. satisfy itself that relevant performance

measures have been fully met on a con-sistent basis prior to the exercise ofoptions or other LTISs; and

iii. ensure that options and other LTISs areonly exercised where the company hasenjoyed real long-term sustained perform-ance improvement.

(Guideline 1)

The remuneration committee is expected toensure that the grant of options (or participationin the case of LTISs) be phased over the life-time of the scheme rather than be granted inlarge infrequent blocks. This is to ensure thatschemes relate rewards to long-term perform-ance and to ensure that participation isavailable to key employees in future years.(Guideline 13)

The remuneration committee must, prior togranting options to replace those already exer-cised, be satisfied that there has been asustained improvement in the performance ofthe company over the 2 or 3 years precedingthe further grant.... In addition, definitive per-formance criteria as a condition of exerciseshould be applied as for basic options under anexecutive scheme. (Guideline 16(ii))

The executive committee – in the person ofits chairman – and the managing directorsshall periodically report to the board of di-rectors....The bodies with delegated powers shall alsoprovide adequate information ... to the boardof directors. They shall provide the board ofdirectors and the board of auditors with thesame information. (Code, 5)

[The] remuneration committee ... shall submitproposals to the board on the remuneration ofthe managing directors and of those directorswho are appointed to particular positions and,on the indication of the managing directors, onthe criteria for determining the remuneration ofthe company’s top management. (Code, 8.1;see the Report, 5.4.2)

[T]he internal control committee shall:a) assess the adequacy of the internal control

system;b) assess the work program prepared by the

persons responsible for internal control,and receive periodic reports;

c) assess the proposals put forward by audit-ing firms to obtain the audit engagement,the work program for carrying out theaudit and the results thereof as set out inthe auditors’ report ....

d) report to the board of directors on its ac-tivity and the adequacy of the internalcontrol system at least once every sixmonths ....

e) perform other duties entrusted to it by theboard of directors, particularly as regardsrelations with auditing firms.

(Code, 10.2; see Code, 9.2 and Report, 5.4.3)

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Supervisory Board CommitteesThe Supervisory Board or the Audit Committeeshould meet with the auditor at least once ayear. (Recommendation 6.4)


Not covered. Not covered. As a general rule, the function of [the nomina-tion, remuneration and corporate governance]committees should be basically informative andconsultative, since they are not supposed toreplace the board in decision-making but ratherprovide it with information, advice and propos-als that may help it efficiently develop itsfunction of supervision and increase the qualityof its performance in these matters. (Com-mentary on Recommendation 17)

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The role of the Audit Committee is basicallythat of evaluating the company’s auditing sys-tem, ensuring that the external auditor isindependent, and reviewing the internal controlsystem. The major function of the NominationCommittee is to see to the soundness of theselection process for the company’s directorsand top management, seeing to it that the candi-dates meet the profile required for the vacantposition. The basic task of the RemunerationCommittee is to assist the Board in determiningand supervising the remuneration policy of thecompany’s directors and top management. Thebasic mission of the Compliance Committee isto watch over compliance with the companygovernance rules, reviewing results from time totime and reporting reform proposals to theBoard. (Report, 3.6)

[T]he Audit Committee must be entrusted withat least the following powers: (a) propose theauditors, terms and conditions of the auditagreement…; (b) review the company’s ac-counts, watching over compliance with legalrequirements and the proper application of gen-erally accepted accounting principles…; (c) actas a communication channel between the Boardof Directors and the auditors, evaluating theresults of each audit and the management team’sresponse to their recommendations, and mediateand arbitrate in the event of any disagreementregarding the appropriate principles and criteriato be used in the preparation of financial state-ments; (d) verify the adequacy and integrity ofinternal control systems and supervise the ap-pointment and replacement of the individuals incharge; (e) supervise the fulfillment of the auditagreement, seeing to it that the opinion on theannual accounts and the main contents of theauditing report are written in a clear and accu-rate way. (Report, 11.1)

[T]he Compliance Committee ... evaluat[es] theefficiency of the company’s control and deci-sion rules and watch[es] over their effectiveobservance.... (Report, 12.2)

A nomination committee increases opennessaround the nomination of board members andindividual shareholders are given a meanswhereby they can communicate their sugges-tions. (Guideline 1.2.1)

The duties of the audit committee:§ to maintain contact with the auditors on an

ongoing basis throughout the year, withaims that include checking that the com-pany’s internal and external auditing fulfilthe requirements incumbent on a [listed]company;

§ to discuss the scope and focus of theauditing work;

§ to deal with any differences of opinionbetween the corporate leadership and theauditors;

§ to ensure that important observationsmade by the auditors are brought to theattention of the whole board.

(Guideline 1.2.2)

The [remuneration] committee shall be respon-sible for ensuring that comprehensiveagreements ... are drawn up with the managingdirector and other key executives. (Guideline1.2.3)

[T]he remuneration committee ... should bothdetermine the salary and other conditions ofemployment for the managing director, and theprinciples for salary scales and other conditionsof employment for other people involved incorporate management. (Guideline 2.4.1)

The board should establish written proceduresfor the conduct of its business which shouldinclude the matters covered in this Code. Acopy of these written procedures should begiven to each director. Compliance should bemonitored, preferably by an audit committee ofthe board, and breaches of the proceduresshould be reported to the board. (Code, §1)

Where the articles of association allow theboard to delegate any of its powers to a com-mittee, the board should give its prior approvalto:§ the membership and quorum of any such

committee;§ its term of reference; and§ the extent of any powers delegated to it.(Code, §11)

The minutes of any meetings of committees ofthe board (or a written summary thereof)should be circulated to the board prior to itsnext meeting and the opportunity should begiven at that meeting for any member of theboard to ask questions thereon. (Code, §12)

All service contracts should be approved by aCompensation Committee. (p. 4)

The [Compensation] Committee’s function is todetermine the salaries and emoluments pack-ages of the executive directors. This wouldinclude salaries and also participation in shareoptions, profit sharing and incentive remunera-tion schemes and all other bonuses and benefitsreceivable by the executive directors. Execu-tive directors should not play any part indeciding their own compensation packages.(p. 4)

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[A] nomination committee [has] theresponsibility of proposing to the board, in thefirst instance, any new appointments, whether ofexecutive or of non-executive directors.(Report, 4.30)

[Audit committees] should normally meet atleast twice a year. (Report, 4.35(a))

The audit committee’s duties should bedetermined in the light of the company’s needsbut should normally include:

i. making recommendations to the board onthe appointment of the external auditor,the audit fee, and any questions ofresignation or dismissal;

ii. review of the half-year and annualfinancial statements before submission tothe board;

iii. discussion with the external auditor aboutthe nature and scope of the audit, co-ordination where more than one auditfirm is involved, any problems orreservations arising from the audit, andany matters which the external auditorwishes to discuss, without executiveboard members present;

iv. review of the external auditor’smanagement letter;

v. review of the company’s statement oninternal control systems prior toendorsement by the board;

vi. review of any significant findings ofinternal investigations.

(Report, 4.35(e))

Where an internal audit function exists, the auditcommittee should ensure that it is adequatelyresourced and has appropriate standing withinthe company. (Report, 4.35(f))

Remuneration committees should consult theCompany Chairman and/or Chief Executiveabout their proposals and have access toprofessional advice inside and outside thecompany. (Code, A7)

The remuneration committee should make areport each year to the shareholders on behalfof the Board. The report should form part of,or be annexed to, the company’s Annual Reportand Accounts. It should be the main vehiclethrough which the company accounts toshareholders for Directors’ remuneration.(Code, B1)

Remuneration committees must provide thepackages needed to attract, retain and motivateDirectors of the quality required but shouldavoid paying more than is necessary for thispurpose. (Code, C1)

Remuneration committees should judge whereto position their company relative to othercompanies. (Code, C2)

Remuneration committees should be sensitiveto the wider scene, including pay andemployment conditions elsewhere in thecompany, especially when determining annualsalary increases. (Code, C3)

Remuneration committees’ first concern shouldbe with the remuneration of the ExecutiveDirectors. However, their remit may need toextend to other senior executives in thecompany even if they are not formallyExecutive Directors. (Commentary onRemuneration Committees, 4.5)

See Code, C5 – C12 (additionalremuneration committee tasks and matters forconsideration).See also Code, D1 – D6 (Directors’ servicecontracts and compensation).See also Commentary on RemunerationCommittees, 4.4 (terms of reference forremuneration committees).

See Topic Heading 22, above. The remuneration committee should provide thepackages needed to attract, retain and motivateexecutive directors of the quality required, butshould avoid paying more than necessary forthis purpose. (Code § 1, B.1.1)

Remuneration committees should judge whereto position their company relative to othercompanies. They should be aware whatcomparable companies are paying and shouldtake account of relative performance. (Code§ 1, B.1.2)

Remuneration committees should be sensitiveto the wider scene, including pay andemployment conditions elsewhere in the group,especially when determining annual salaryincreases. (Code § 1, B.1.3.)

To avoid potential conflicts of interest, boardsof directors should set up remunerationcommittees of independent non-executivedirectors to make recommendations to theboard, within agreed terms of reference, on thecompany’s framework of executiveremuneration and its cost; and to determine ontheir behalf specific remuneration packages foreach of the executive directors, includingpension rights and any compensation payments.(Code § 1, B.2.1)

The duties of the audit committee should in-clude keeping under review the scope andresults of the audit and its cost effectivenessand the independence and objectivity of theauditors. (Code § 1, D.3.2)

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Remuneration committees must set, and takeresponsibility for, reward levels. Guidance frominstitutional shareholders can only be general innature and should be so regarded by companies.….Remuneration committees should be sensitive tothe wider scene, including pay and employmentconditions elsewhere in the group, especiallywhen determining annual salary increases.(§9(ii))

The audit committee is responsible for ensuringthat management applies financial reporting andinternal control principles. The committee mustmaintain an appropriate relationship with thecompany’s auditors. This will includereviewing the scope and results of the audit, itscost-effectiveness and the independence andobjectivity of the auditors. (§12)

Not covered directly, but see Guidance Note onKey Principle 6 (Companies listed on the Lon-don Stock Exchange are required, as acontinuing obligation of listing, to make twodisclosure statements. Firstly, they must reporton how they apply the principles in the Com-bined Code on Corporate Governance....Secondly, listed companies are also required toconfirm that they comply with the Code provi-sions or – where they do not – to provide anexplanation.).

Remuneration committees of independentNEDs are best placed to decide the remunera-tion packages necessary to recruit, retain andmotivate executives. They should take profes-sional advice as necessary. Where independentadvisers are appointed, they should be respon-sible to the remuneration committee and not thecompany EDs. (APPENDIX 1.1.2)

The nomination committee should be formallyconstituted as a sub-committee of the mainboard, to whom it is answerable and to whom itshould report. It should be given written termsof reference which deal adequately with itsmembership, authority and duties. (APPENDIX3.3)

Remuneration committees should explain pro-posed schemes clearly to shareholders,justifying the structure of the scheme and therelevance of the performance criteria chosen.(APPENDIX 3.4)

Hermes recommends that the nominationcommittee be responsible, after consultationwith other directors, for finalizing the candidatespecification for all board appointments and forapproving the process by which suitable candi-dates are identified and short listed, includingchoosing a third-party advisor where appropri-ate. (APPENDIX 3.5)

The nomination committee should ensure thatall board appointments undergo an appropriateinduction program. (APPENDIX 3.6)

All companies, including those with smallboards, should establish nomination committeeswith clear terms of reference. Shareholdersneed to have confidence in the independenceand transparency of the appointments processwhich results in proposals to nominate or re-elect directors to the board. Appointmentsshould be demonstrably made on merit alone.The directors should make a clear statementregarding these processes. (Part 2: Directors,pp. 6-7)

[A]n audit committee [reviews] the financialstatements provided to the auditors and [pro-vides] an opportunity for the auditors to meetprivately over issues of concern. (Part 4, Auditand Reporting, p. 12)

Appointments of all directors, whether execu-tive or non-executive, should be handled by thenomination committee. (Part 2: Directors,p. 6)

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24. Assignment and Rotation of Committee Members

Boards should consider assigning a sufficientnumber of non-executive board members capa-ble of exercising independent judgement totasks where there is a potential for conflict ofinterest. Examples of such key responsibilitiesare financial reporting, nomination and execu-tive board remuneration. (OECD PrincipleV.E.1)

See OECD Principle V.E Annotation at 41-42([Independent board members] can play an im-portant role in areas where the interests ofmanagement, the company and shareholdersmay diverge, such as executive remuneration,succession planning, changes of corporate con-trol, takeover defenses, large acquisitions andthe audit function.).


Responsibilities [of independent non-executivedirectors] should include ... staffing key com-mittees of the board. (ICGN Amplified OECDPrinciple V at 9)

See OECD Principle V.E Annotation at 41-42([Independent board members] can play animportant role in areas where the interests ofmanagement, the company and shareholdersmay diverge, such as executive remuneration,succession planning, changes of corporate con-trol, takeover defenses, large acquisitions andthe audit function.).


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If there is an appointments committee, it shouldbe composed mostly of non-executive directorsand chaired by the Chairman of the Board ofDirectors or by a non-executive director. Theappointments committee should make proposalsto the Board of Directors, on the one hand forthe appointment of non-executive directors, andon the other hand for appointments to certainkey posts. (Note to 2.3)

Not covered directly, but see Topic Heading 19,above, and Topic Heading 21, below.

Not covered.

243






Not covered. Not covered. Not covered directly, but see English Summary,1 (The company shall confirm in writing theduties of the administrative bodies and theirindividual members, if they are assigned spe-cial duties and areas of responsibilitysupplementing those in the applicable legisla-tion. . . .The duties and areas of responsibility of theadministrative bodies and their members haveto be explained in the Annual Report and in theListing Particulars, when they have been as-signed special duties supplementing theapplicable legislation. With regard to individ-ual members of the Board of Directors, theinformation has to be given when they are em-ployed by the company. An account shallfurther be given on the order in which the du-ties and areas of responsibility of the membersof the Board of Directors have been con-firmed.).

[T]he forming of working groups (“commit-tees”) from the external members should bediscussed at least by the Boards of Directors oflisted companies. (2.2.1)

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[T]he Committee advises boards against ap-pointing directors to their remunerations oraudit committees when these directors repre-sent another company where its ownrepresentatives are members of the equiva-lent committees. (p. 14)

[T]he Committee recommends that boardsavoid appointing directors to their remunera-tions committee when these directorsrepresent another company whose own rep-resentatives are members of the equivalentcommittee. (p. 18)

It is recommended that [committees] shallcomprise independent directors up to one-thirdof their members and in the majority in thecompensation and performance committee.Company executives or employees should notbe members of the compensation and perform-ance committee or of the audit committee.(§ II.b.2)

Not covered.

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Not covered. Supervisory Board CommitteesWith regard to the composition of [SupervisoryBoard] committees, the Supervisory Boardshall ensure the requisite professional experi-ence. (Code, III.3)


Supervisory Board CommitteesThe Chairman of the Supervisory Board shallalso chair the committees that handle contractswith members of the Management Board andprepare the Supervisory Board meetings. Heshould not be Chairman of the Audit Commit-tee. (§V.2)

The Chairman of the Audit Committee shouldnot be a former member of the ManagementBoard. (§V.3.2)


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Preda Report(Italy)


Not covered. Not covered directly, but see §2.1 (The boardof directors of a company listed on the AthensStock Exchange must include a number ofmembers necessary to ensure … the allocation,to certain of these members, of tasks resultingfrom the necessity to ensure proper corporategovernance.).

See also §2.2 (Non-executive members formthe majority in the board member commit-tees….).

Not covered. The managing directors shall ... appoint oneor more persons to run [the internal controlcommittee]. (Code, 9.1)

[P]rovision [is] made for the possible participa-tion at meetings of the [internal control]committee of the chairman of the board ofauditors, as the representative of the controlbody provided for in the by-laws. The manag-ing directors may also participate in the internalcontrol committee, since they are empowered tointervene in the matters examined and to iden-tify adequate measures to tackle potentiallycritical situations. (Commentary on Code, 10)

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Not covered. Not covered. Not covered. Not covered directly, but see Commentary onRecommendation 17 ([T]he members of eachcommittee [need not] be different; however, itis not recommended to unite all responsibilitiesinto one single committee, because of the riskof reducing its efficiency due to an excess ofwork and concentration of powers.).

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[I]t seems wise to entrust [the nomination com-mittee] with ... propos[ing] which directorsshould be in each Committee. (Report, 5.1)

[T]he Committee ... specifically suggests thepossibility of creating internal rotation guide-lines for independent directors regarding theirassignment to specific control tasks. It is basi-cally a question of avoiding their permanentattachment to the same Control Committee.(Report, 5.4)

Not covered. Not covered directly, but see Code, §11 (Wherethe articles of association allow the board todelegate any of its powers to a committee, theboard should give its prior approval to:§ the membership and quorum of any such

committee;§ its term of reference; and§ the extent of any powers delegated to it.)

Not covered.

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Not covered. It is sometimes suggested that remunerationcommittees should include one or more inde-pendent members not associated with thecompany’s Board or management. In our view,this would be wrong. The Board must be re-sponsible for all aspects of a company’s affairs.(Commentary on Remuneration Committees,Membership and Qualifications, 4.10)

The remuneration committee should consistexclusively of Non-Executive Directors withrelevant experience who:§ have no personal financial interest, other


§ have no “cross-directorships” with theExecutive Directors which could bethought to offer scope for mutualagreements to bid up each others’remuneration;

§ have a good knowledge of the companyand its Executive Directors, a keen interestin its progress and a full understanding ofshareholders’ concerns; and

§ have a good understanding, enhanced asnecessary by appropriate training or accessto expert advice, of the areas ofremuneration committee business.

(Commentary on Remuneration Committees,Membership and Qualifications, 4.8)

Executive Directors should not be members ofthe remuneration committee. (Commentary onRemuneration Committees, Membership andQualifications, 4.14)


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Not covered. The senior NED should chair some (or all) ofthe board subcommittees. Where the boardchairman either combines the role of chairmanand chief executive, or has at any time been anexecutive director of the company, then thesenior NED might chair both the nominationcommittee and the remuneration committee.(APPENDIX 2.1)

The chairman of the company and the seniorindependent NED should always be membersof the [nomination] committee. (APPENDIX 3.2)

The chairman of the remuneration committeeshould normally be a fully independent NED.(APPENDIX 3.4)

Not covered.

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25. Formal Evaluation of the Chief Executive Officer

Not covered directly, but see OECD PrincipleV.D.2 (The board should fulfil certain keyfunctions, including ... [s]electing, compensat-ing, monitoring and, when necessary, replacingkey executives.).

See also OECD Principle V.E Annotation at 41([Independent board members] can bring anobjective view to the evaluation of the perform-ance of ... management.).

Not covered directly, but see OECD PrincipleV.D.2 (The board should fulfil certain keyfunctions, including ... [s]electing, compensat-ing, monitoring and, when necessary, replacingkey executives.).

See also OECD Principle V.E Annotation at 41([Independent board members] can bring anobjective view to the evaluation of the per-formance of ... management.).

Not covered directly, but see Commentary onRecommendations 10(a) and 10(b) (Non-executive members of the board, as well as – ina two-tier structure – members of the supervi-sory board, are concerned with the supervisionof management policy and the general state ofaffairs in the company. Their main tasks are(in order of importance):§ to control and supervise the executive

board members [and]§ to ensure the good quality of the executive

board.).

Not covered directly, but see RecommendationVII.6 (Evaluation and review procedures ofmanagement performance should be estab-lished, and their existence disclosed.).

See also Recommendation IX.6.b (Outsidebusiness activities of executives should be re-ported to and, if significant, approved by theboard.).

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Not covered directly, but see 2.1 (A recommen-dation from [the non-executive directors] isrequired for appointments to certain key postsand for the standards of conduct which the com-pany imposes on itself.).

Not covered. Not covered directly, but see p. 4 (The Directorundertakes to verify that the powers and re-sponsibilities of ... Management are clearlyestablished, and specifically that the powers ofmanagement accorded to the Management areclearly defined.The Director undertakes to verify that theBoard effectively controls ... the activity ofManagement. In particular, the Director will beattentive ... [t]hat the Management cooperatefully and without reticence in regards to theBoard’s goal of control.).

See also p. 5 (The Director undertakes to see toit that the company’s Management is aware ofthe interests, views, and expectations of itspartners [i.e., stakeholders]; that procedures areimplemented to manage these relationships,and that proper and periodic communication isexchanged with these partners.).

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Not covered directly, but see V.11 (It is rec-ommended that the board evaluates themanagement’s work and results according toalready established explicit criteria once ayear.).

See also V.12 (It is recommended that the man-agement and the board establish a procedure bywhich the collaboration between the board andthe management is assessed in an annualmeeting between the managing director and thechairman of the board. The result of the as-sessment should be presented to the entireboard.).

Not covered directly, but see English Summary,2 (The Board of Directors of the company shalldefine the central terms of the employmentrelationship of the Managing Director in aManaging Director Agreement, which shall beapproved by the body appointing the ManagingDirector.).

Not covered.

254





Not covered directly, but see p. 15 (The ap-pointment of the chairman ... is the soleresponsibility of the board.).


Not covered.

255





Regular evaluation promotes continuousimprovement in the corporate governance ofa company. (Thesis 10)

The individual performance of ... the Chairmanof the Management Board is ... to be systemati-cally evaluated annually by the personnelcommittee. In this, the target-orientated devel-opment of the company and the individualcontributions made [by the Chairman] providethe scale for making the assessment. (Code,II.1.10)

See Code, III.3.3 (The Chairman of the Man-agement Board ... is primus inter pares (and not“CEO”). In particular, he does not have right ofcommand over the other members of the Man-agement Board.).

Not covered directly, but see Code, III.3([C]ompensation elements shall be determinedby systematic performance evaluation of theindividual Management Board members [by theSupervisory Board’s personnel committee].).

Not covered directly, but see §IV.2.2 (Compen-sation of the members of the ManagementBoard is determined by the Supervisory Board… on the basis of a performance assessment.).

See also §V.1.1 (The Supervisory Board ap-points and dismisses the members of theManagement Board.).

See also §V.1.3 (The Supervisory Board shallissue Terms of Reference.).


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Preda Report(Italy)


Shareholders should have the right to ... ap-proval of the ... chief executive officer (CEO)[and] his/her duties ..., following the recom-mendations of the Board of Directors.(Recommendation 1.2.6)

See Recommendation 5.1 ([T]he Board should... monitor continuously the corporation’s ex-ecutive management.).

See also Recommendation 5.3.3 (The Board ofDirectors has the responsibility ... for ... [t]heselection, appointment and monitoring of ex-ecutive management ... by taking account of thecorporation’s interests, as well as the executivemanagement’s dismissal and replacement.).

Not covered directly, but see §3.2(b) (TheInternal Operation Regulation must cover …procedures for the engagement of managementexecutives and their evaluation in the exerciseof their duties.).

[The remuneration committee] is expected toselect appropriate performance measures [forevaluating and remunerating the CEO and otherexecutive directors, and] satisfy itself thatrelevant performance measures have been fullymet. (Guideline 1)

See Guideline 2 (All share option and otherLTISs should require the satisfaction ofmeasurement criteria which are based onsustained and significant improvement in theunderlying financial performance of thecompany.).

See also Guidelines, Appendix 1 (The respon-sibility for setting performance criteria to beused as the basis on which share option andother long-term LTISs are exercisable is amatter for the remuneration committee.).

Not covered directly, but see Code, 8.1 (The[remuneration] committee ... shall submitproposals to the board ... on criteria for de-termining the remuneration of thecompany’s top management.).

See also Code, 8.2 ([I]n determining the totalremuneration payable to the managing di-rectors, the board of directors shall providefor a part to be linked to the company’sprofitability and, possibly, to the achieve-ment of specific objectives laid down inadvance by the board of directors itself.).

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Not covered. Shareholders should be able to file a resolutionfor dismissal of a member of the executiveboard. Adoption of this resolution requires atleast two-thirds support and a quorum of fiftypercent. (Recommendation 7)

See Commentary on Recommendation 7 (Thepossibility of dismissal will be used rarely butdoes offer sanctions when members of thesupervisory board fail to replace disfunctionalmanagement.).


Not covered directly, but see Recommendation2 (Information should be disclosed on theactual functions of each member of theboard of directors and executive manage-ment of the company....).

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[I]t seems wise to complement these measures[counterbalancing the power of a combinedCEO/Chairman] with an evaluation of theChairman’s performance once a year – asChairman and as corporate CEO. (Report, 3.2)

Not covered directly, but see Guideline 2.4.3 (Ifthe company’s board wishes to give notice to amanaging director on account of unsatisfactoryperformance, serious differences of opinion,changed ownership structure, or the like, themanaging director should receive severancepayment that normally does not exceed twoyears’ basic salary, including salary under no-tice. The severance pay should not include anybonus. There can be what is known as a set-tlement procedure, but this should not be usedduring the first twelve months after notice hasbeen given. Severance pay shall not be paid ifthe managing director resigns on his own ini-tiative or has seriously mismanaged hisassignment.).

Not covered. The Board has the power to appoint, monitorthe performance of and, if necessary, dismissthe Chief Executive. (p. 2)

[T]he importance of non-executive directors hasbecome evident, particularly in matters con-cerning … remuneration of the seniormanagement…. (p. 2)

259






Not covered directly, but see Report, 4.4 & 4.5(noting the important contributions non-executive directors have in reviewing theperformance of the board and of the CEO).

The [remuneration] committee may wish toconsult the other Non-Executive Directors in itsevaluation of the Chief Executive. (Commen-tary on Remuneration Committees,Membership and Qualifications, 4.14)


260







Not covered. The senior NED should be responsible forcompleting a periodic performance appraisal ofthe company chairman. (APPENDIX 2.4)

See 8.2 (Management contracts should havenotice periods of no more than one year.).

Not covered directly, but see Part 2: Directors,p. 4 ([T]he board’s role [is] holding the execu-tive management accountable.).

See also Part 2, Directors, p. 6 (Former chiefexecutives should not be appointed as chairmen(whether executive or non-executive) as thismay also inhibit an objective assessment of theexecutive management....[T]he board’s function of holding the executivemanagement accountable will be impeded if amajority of the board are executives. In orderthat the board is able to fulfill its primary rolesof leading the company and holding executivemanagement accountable, we consider it bestpractice that a clear majority of the directors arenon-executive.).


261





26. Executive Compensation

The board should fulfil certain key functions,including ... [r]eviewing key executive ... remu-neration. (OECD Principle V.D.3)

[Independent board members] can play an im-portant role in areas where the interest ofmanagement, the company and shareholdersmay diverge, such as executive remuneration.(OECD Principle V.E Annotation at 41-42)

See OECD Principle IV.A.4 (Disclosure shouldinclude, but not be limited to, material informa-tion on ... key executives, and theirremuneration.).

Remuneration of ... key executives should bealigned with the interests of shareholders.(ICGN Statement 5 at 4; ICGN AmplifiedOECD Principle IV at 8)

The ICGN Statement adopts OECD PrincipleV.D.3 (The board should fulfil certain keyfunctions, including ... [r]eviewing key execu-tive ... remuneration.).

See OECD Principle V.E Annotation at 41-42([Independent board members] can play animportant role in areas where the interest ofmanagement, the company and shareholdersmay diverge, such as executive remuneration.).

See also OECD Principle IV.A.4 (Disclosureshould include, but not be limited to, materialinformation on ... key executives and their re-muneration.).

The payment of executive directors can to someextent be flexible – related to the company’sprofitability – but shall not exceed double thefixed payment. (Commentary on Recommen-dations 10(a) and 10(b)

[Management’s] incentives should, as far aspossible, be aligned with those of the companyand its shareholders as a whole. (Principle VII)

Appointment and remuneration of executivesshould be determined in accordance with theprinciples and policies defined by the board andits relevant committee, which should strive toalign executives’ interest with those of thecompany and its shareholders as a whole.(Recommendation VII.5.a)

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[T]he remuneration of executive directorsshould be submitted to [the remuneration]committee for an opinion.If there is no remuneration committee, the re-muneration of executive directors should besubmitted to the non-executive directors.). (3.1)

The Belgian Commission on CorporateGovernance regards it as good practice for partof the executive management’s pay to berelated to the company’s performance and/orvalue. (Part I: B.3.1)

The executive management’s pay should besubject to the recommendations of aremuneration committee, where such exists,made up of a majority of non-executivedirectors. In case no remuneration committeeis created, the board of directors should decideon the principles of the remuneration of theexecutive management, in the absence of theexecutive directors. (Part I: B.3.2)

Not covered.

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The board or a special committee should decideupon the remuneration of company [executives].(II. Governance)

The remuneration of [executives] and boardmembers should, to a reasonable extent, dependon the company’s profitability and share pricedevelopment. (II. Governance)

[Executives’] dismissal compensation shouldnormally not exceed 2 years payment. Thecompensation should not be paid if the [execu-tive] severely mismanages his/her job, or ifhe/she resigns on his/her own initiative. Thedismissal compensation should not include anykind of bonuses. (II. Governance)

Motivating programmes are seen as positive –providing they are reasonable in scope.(III. Motivating Programmes)

A competitive remuneration is a prerequisitefor attracting and keeping competent … man-agers. The remuneration to … the managersshould be reasonable in connection with theassigned tasks and the responsibilities whichare connected with solving these tasks. (VI)

The board establishes the principles and theguidelines for the preparation of any incentiveschemes for the company’s managers…. It isrecommended that the total remuneration iscompetitive and reasonable and that it reflectshow the managers … have performed inde-pendently, as well as how much value theyhave created for the company. Likewise, in-centive schemes should reflect the interests ofthe shareholders and the company, be adjustedto the company’s specific circumstances and bereasonable in relation to the tasks and the re-sponsibilities of the managers….If the remuneration for the managers consists ofshare or subscription options, we recommendthat the schemes are set up as roll-over schemes(i.e. the options are allocated and expire over anumber of years) and that the redemption priceis higher than the market price at the time ofthe allocation. Moreover, the schemes shouldbe set up in a way that promotes long-termbehaviour and they should be transparent, aswell as clearly understandable to outsiders.(VI.1)

It is recommended that any redundancyschemes for a manager be reasonable and re-flect the results the individual manager hasachieved, the cause of the resignation and themanager’s responsibilities, as well as the remu-neration which the manager in question hasreceived. (VI.3)

The company shall determine the general prin-ciples that will be complied with when decidingon the salaries and other privileges of the topmanagement. If a member of the Board ofDirectors is, in addition to the fee for his mem-bership in the Board of Directors, paid anotherfee on another basis, the Board of Directorsshall always be informed thereof. Informationregarding the payment of such fees shall haveto be notified in the Annual Report and in theListing Particulars. (English Summary, 6)

In order to make known by the interest groupsthe bonuses whereby the Board of Directorsworks for increasing value-added, the annualreport should include ... [i]nformation on theprinciples followed when deciding on the sala-ries and other bonuses of the companymanagement. (2.2.2)

See 2.2.1 (In smaller companies, [the independ-ence of the Board’s decision-making] can bearranged by handling certain issues without thepresence of the members of the Board of Di-rectors that belong to the hired top managementof the company. Such issues [include] deter-mining the salaries and other bonuses [ofmanagement].).

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Most boards already have a committee chargedwith recommending remuneration levels forcorporate officers, including in some cases stockoption plans, although these may be the respon-sibility of a separate committee. (p. 18)

Executive compensation and its adjustment upor down should be tied to the performance ofthe company and the value of the company’sshare. (§ II.C.1)

The board should deliberate on executive com-pensation and should publish its method ofcalculation and the existence, if any, of stockoptions. (§ II.C.2)

AFG-ASFFI considers that the number, exer-cise price and duration of stock options held by… the company’s ten most highly compensatedpersons exercising management functions shallbe the subject of particular individual informa-tion….AFG-ASFFI is in favor of stock options with-out discount. (§ II.C.3)

The Commission is opposed to severance pay-ments that are not a function of the individual’stime of service or of his compensation and ofthe company’s intrinsic value during his periodof service. (§ II.C.4)

The Committee recommends that with assis-tance from the Compensation Committee….the Board of Directors of any listed corporationshould [disclose] to the Shareholders … thecompensation collected by the corporate offi-cers. (p.11)

Compensation means the direct or indirectcompensation of any kind by all the French andforeign companies consolidated, includingthose consolidated by the equity method, in thegroup’s accounts. (p.12)

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The remuneration of … Executive Staff shallinclude sufficient motivation to ensure long-term corporate value creation. This includesshare option programs and performance-relatedincentives related to the share price develop-ment and the continuing success of theCompany. In connection with the granting ofshare options and similar rights to … the ex-ecutive staff ... [t]he exercise of the rightsarising from share option programs shall not bepossible before three (but in no case earlierthan two) years since the grant. To documentthe incentive character as well as to balance thesurrender of the subscription right by the share-holders, the exercise shall depend on achievingor exceeding relevant and transparent bench-marks (e.g., the development of an industryindex). (Code, II.3.a)

See Code, II.4(h) (The purchase and sale ofCompany shares, options or other share deriva-tives by … senior Group executives are subjectto special rules.).



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Preda Report(Italy)


Shareholders should have the right to ... theapproval of the ... chief executive officer (CEO)[and] his/her ... compensation, following therecommendations of the Board of Directors.(Recommendation 1.2.6)

The Board of Directors has the responsibility ...for ... [t]he selection, appointment and monitor-ing of executive management and thedetermination of their compensation. (Recom-mendation 5.3.3)

It is good practice that management compensa-tion be tied to the corporation’s general level ofprofitability and overall performance.... It is agood practice that concrete determination pro-cedures be adopted for managementcompensation. (Recommendation 7.1)

It is a good practice that a review committee,consisting of the majority of non-executiveBoard members, be established by the generalshareholder meeting, which would review man-agement compensation. (Recommendation 7.2)

Not covered directly, but see §5.3 (The com-pensation and benefit committee’s task is todetermine the compensation and benefits of anykind provided to the executive members of theboard of directors, and to lay down a compen-sation and benefits policy in respect of thecompany’s executives.).

The IAIM recognizes the benefits of share op-tion and other incentive schemes in aligning theinterests of participants in such schemes withthose of shareholders and in focusing attentionon long-term growth in shareholder value.(Introduction, 2)

In voting in favour of share option and otherincentive schemes, institutional shareholdershave a responsibility to ensure that, in return,enhanced performance is achieved, giving anenhanced return to their clients. The extent ofenhanced performance will vary with the levelof equity or economic dilution involved inschemes. (Introduction, 3)

Over a period of 10 years, no more than 10% ofissued ordinary share capital ... should be util-ized for share options, LTIS, PSS and SAYE[schemes] of all kinds. (Guideline 5)

In acknowledging a trend to wider share own-ership, it is emphasized that part or all of the10% of issued ordinary share capital availableunder Guideline 5 is available for broadlybased employee share schemes meeting therequirements set out in these Guidelines. Inaddition, over a period of 10 years, a furtheramount of up to a total of 5% of issued ordi-nary share capital ... may, following approvalby the IAIM, be used for broadly based em-ployee share schemes of all kinds. TheGuidelines governing the applicability of thisprinciple are set out below under the headingsof Profit Sharing Schemes, Save As You EarnSchemes and ESOPs. (Introduction to Em-ployee-Wide Share Schemes)

The board of directors shall ... determine,after examining the proposal of the specialcommittee and consulting the board of audi-tors, the remuneration of the managingdirectors and of those directors who are ap-pointed to particular positions within thecompany and, where the shareholders’meeting has not already done so, allocate thetotal amount to which the members of theboard and of the executive committee areentitled. (Code, 1.2.c)

The [remuneration] committee ... shall submitproposals to the board on the remunerationof the managing directors and of those direc-tors who are appointed to particularpositions and, on the indication of the man-aging directors, on the criteria fordetermining the remuneration of the com-pany’s top management. (Code, 8.1)

As a general rule, in determining the totalremuneration payable to the managing di-rectors, the board of directors shall providefor a part to be linked to the company’sprofitability and, possibly, to the achieve-ment of specific objectives laid down inadvance by the board of directors itself.(Code, 8.2)

The Committee believes that the appropriatestructuring of the total remuneration of manag-ing directors is one of the main means ofaligning their interests with those of the share-holders and that systems of variableremuneration linked to results ... make it easierto motivate the entire top management. (Com-mentary on Code, 8; see Report, 5.4.2)

It is important that remuneration packagesshould be able to attract and motivate personswith adequate experience and ability ... for topmanagement positions. (Report, 5.4.2)

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An employee stock option plan serves tostrengthen involvement in the company over thelong-term (at least 3 years). The employeestock option is a form of remuneration whichshould be related to the degree of success of theefforts made by the person concerned to en-hance the market value of the company. Thisshould be reflected in the conditions on whichthe stock options are granted. (Recommenda-tion 4.6)

Members of the [Management Board] shouldnot in any way derive personal gain from thecompany’s activities other than via the agreedremuneration or through capital growth anddividends resulting from their holding of securi-ties and related instruments. This means that, toprevent every semblance of misuse, they shouldaccept limitations on their freedom of actionwith regard to their private property, in the formof both shares in the company and related in-struments, as well as limitations on theacceptance of additional posts. (Recommenda-tion 4.7)


Unrestricted stock option plans leave room forexcessive rewards and dilution of earnings pershare. (Commentary on Recommendation 9)

Shareholders at the general meeting mustapprove option scheme plans in advance. Thisis to create a clear relationship betweenachieving strategic goals and rewards in theform of options. (Guideline 14)

See Guideline 15 (Dilution of earnings pershare must be avoided as much as possible inthe design of options plans. If this cannot beavoided, the company should strive to be astransparent as possible in explaining dilutionaspects.).

The board is encouraged to create internalcontrol committees with powers conferredfor matters in which there are potentialsituations of conflicts of interest, such as ...analysis of the remuneration policy....(Recommendation 17)

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[The remuneration] committee should be re-sponsible for ensuring that comprehensive andwell thought through contracts are drawn upwith the managing director and other key ex-ecutives.The remuneration committee should also beresponsible for ensuring that principles forsalary structures and other terms of employ-ment are additionally drawn up for other peoplein corporate management. This increases thelikelihood that these matters will receive a bal-anced and thorough treatment.It is the remuneration committee and ultimatelythe board that decide on salary levels and otherterms of employment for the company’s keyexecutives, in the first place the managing di-rector and that person’s deputy. (Guideline2.4.2)

Remuneration to the managing director andother key executives shall be sufficient to at-tract and keep leaders of the right caliber to runthe company well. Remuneration should re-flect the importance of the post and theresponsibility of its incumbent. Salaries for thecompany’s key executives can well be per-formance-based. (Guideline 2.4.3)

See Guideline 2.4.3 (managing director’s pen-sion benefits).

See also Guideline 3 (incentive programmes forboth executives and other employees).

Not covered. The [Compensation] Committee’s function is todetermine the salaries and emoluments pack-ages of the executive directors. This wouldinclude salaries and also participation in shareoptions, profit sharing and incentive remunera-tion schemes and all other bonuses and benefitsreceivable by the executive directors. Execu-tive directors should not play any part indeciding their own compensation packages.(p. 4)

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[Executive] Directors’ service contracts shouldnot exceed three years without shareholders’approval. (Code, 3.1)

Executive directors’ pay should be subject to therecommendations of a remuneration committeemade up wholly or mainly of non-executivedirectors. (Code, 3.3)

We also recommend that boards appoint remu-neration committees consisting wholly ormainly of non-executive directors, and chairedby a non-executive director, to recommend tothe board the remuneration of the executivedirectors in all its forms, drawing on outsideadvice as necessary. (Report, 4.42)

The remuneration packages UK companiesoffer must be sufficient to attract, retain andmotivate ... managers of the highest quality.(Introduction, 1.10)

Boards should develop clear terms of referencefor their remuneration committees. Theseshould require the committee:§ to determine on behalf of the Board and

the shareholders the company’s broadpolicy for executive remuneration and theentire individual remuneration packagesfor each of the Executive Directors and, asappropriate, other senior executives;

§ in doing so, to give the ExecutiveDirectors every encouragement to enhancethe company’s performance and to ensurethat they are fairly, but responsibly,rewarded for their individualcontributions;

§ to comply with our Code of best practice;§ to report and account directly to the

shareholders, on the Board’s behalf, fortheir decisions.

(Commentary on Remuneration Committees,4.4)

Although Executive Directors should not bemembers of the remuneration committee, thecompany’s Chairman and/or Chief Executiveshould normally be invited to attend meetingsto discuss the performance of the otherExecutive Directors and make proposals asnecessary. (Commentary on RemunerationCommittees, Membership and Qualifications,4.14)

[A] significant part of executive directors’ re-muneration should be linked to the company’sperformance, whether by annual bonuses, shareoption schemes, or long-term incentive plans.(Guideline 4.6)

A proportion of executive directors’remuneration should be structured so as tolink rewards to corporate and individualperformance. (Principle B.1)


The performance-related elements ofremuneration should form a significantproportion of the total remuneration package ofexecutive directors, and should be designed toalign their interests with those of shareholdersand to give these directors keen incentives toperform at the highest levels. (Code § 1, B.1.4)

Executive share options should not be offered ata discount save as permitted by paragraphs13.30 and 13.31 of the Listing Rules. (Code§ 1, B.1.5)

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Policy on executive remuneration should followa formal and transparent procedure.No director should be involved in deciding hisor her own remuneration. (§9(i))

Performance-related elements of remunerationshould form a significant proportion of the totalremuneration package of executive directors andshould be designed to align their interests withthose of shareholders and to give those directorskeen incentives to perform at the highest levels.The balance between the performance andsalary-related elements will depend on thenature of the underlying business. (§9(ii))


Principle B.2 of the Combined Code recom-mends that companies should establish a formaland transparent procedure for developing pol-icy on executive remuneration. In practice, thisnormally results in the appointment of a remu-neration committee. There have beensuggestions, as part of the DTI’s review ofcompany law, that a company’s remunerationpolicy (and possibly also the report of the re-muneration committee) should be ratified at theAGM. (Guidance Note on Key Principle 6)

Member firms should consider the remunera-tion policy of companies in which they invest.They may wish to pay particular attention tothose elements of remuneration packages, fordirectors and senior executives, which are per-formance related, including share options, andto compensation arrangements. (GuidanceNote on Key Principle 6)

A remuneration committee of independent non-executive directors is best placed to decideexecutive remuneration on behalf of the board.Actual and potential awards should not be ex-cessive and should be directly related to thesuccess of the company and aligned over timeto the returns achieved by shareholders. Her-mes encourages companies to put the board’sremuneration report to a vote at the AGM....(1.4)

Performance-related remuneration is the prin-cipal means by which executive directors aremotivated to achieve greater shareholder valueand are rewarded for doing so. (APPENDIX1.1.1)

Performance-related remuneration should bealigned over time with returns earned by share-holders. Increases in remuneration should bedriven by improved performance…. (AP-PENDIX 1.1.3)

Although it is accepted that companies have tooffer packages that are competitive in the localmarket, there are certain features that should beuniversal. (APPENDIX 1.1.5)

Incentive schemes should be designed to re-ward exceptional performance. Awards shouldbe scaled.... No award should be made wheretargets are not met. (APPENDIX 3.1)

Remuneration committees should explain pro-posed schemes clearly to shareholders,justifying the structure of the scheme and therelevance of the performance criteria chosen....The link between company performance andexecutive reward should be clear. (APPENDIX3.4)

In Hermes’ view, schemes based on the grantof shares are preferable to many share optionschemes. (APPENDIX 4.2)

See generally APPENDIX 1: REMUNERATION.

Most companies justify their remunerationpolicy in the general terms of the need to “at-tract, retain and motivate” executives.However, companies have different circum-stances, structures and outlooks. Their policiesshould reflect this. Financial rewards need tobe seen in the context of ... other terms andconditions, the company’s culture and its aimsand objectives. Care should be taken that re-wards are not overgenerous and out of line withreturns received by shareholders and the bene-fits received by other stakeholders, includingemployees. (Part 3: Directors’ Remuneration,p. 8)

See Part 3: Directors’ Remuneration, p. 8(When considering pay policy, remunerationcommittees will be held accountable forbreaches of best practice on remuneration is-sues or failure to seek shareholderauthorization.).


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27. Succession Planning / Management Development

The board should fulfil certain key functions,including . . . overseeing succession planning.(OECD Principle V.D.2)

[Independent board members] can play animportant role in areas where the interests ofmanagement, the company and shareholdersmay diverge, such as . . . succession planning.(OECD Principle V.E Annotation at 41-42)

The ICGN Statement adopts OECD PrincipleV.D.2 (The board should fulfil certain keyfunctions, including ... overseeing successionplanning.).

See also OECD Principle V.E Annotation at41-42 ([Independent board members] can playan important role in areas where the interests ofmanagement, the company and shareholdersmay diverge, such as ... succession planning.).


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In contrast to the situation in other countries, itis generally thought that French boards do notmake adequate provision for the replacement ofthe chairman, which makes for some concern onthe market.The Committee thus recommends that itshould be the permanent responsibility of theselection committee to be in a position topropose successors at short notice, althoughclearly this would require confidentiality. (p.15)

Not covered. The Committee wishes to stress the need for aplan for succession of executive Directors.This is one of the main tasks of the appoint-ments committee, though it may, if appropriate,be assigned by the Board to an ad hoc com-mittee.It is natural that the corporation’s Chairmanshould be a member of the committee in per-formance of this assignment. However, eventhough his or her opinion should be obtained, itis not desirable that the Chairman should chairthis committee. (p. 18)

The appointments committee (or an ad hoccommittee) should draw up a plan for succes-sion of the executive directors. The chairmanshould be a member of that committee, but notits chairman. (p. 26)

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Recruiting members of the Management Boardfrom within the ranks of the company’s ownexecutives is the normal case and is the result ofplanned training for the next generation. TheManagement Board should be endowed with aparticularly good insight into the current poten-tial of junior management by reason of itsposition as organ of management. Conse-quently, it is advisable that the members of theManagement Board (as part of their managerialfunctions) narrow down the circle of potentialsuccessors to a manageable number of persons.The Chairman of the Supervisory Board is keptinformed about this from time to time. (Code,II.1.4)

The suggestions of the Management Boardshould certainly not unduly restrict the optionsof the Supervisory Board as regards personnel.The Supervisory Board can and must more ob-jectively assess the contribution of possiblecandidates to an optimal qualification profile ofthe organ of management, by reason of itsgreater distance. Accordingly, the ManagementBoard’s knowledge of personnel matters is to becombined with the neutrality of the SupervisoryBoard. (Code, II.1.5)

In order to allow the members of the Supervi-sory Board the opportunity of systematicallybecoming acquainted with potential candidatesfor membership of the Management Board, theManagement Board regularly suggests personsfrom the inner circle of junior management forpresentations in the Supervisory Board and itscommittees. (Code, II.1.7)

The Supervisory Board appoints the membersof the Management Board and ensures orderlylong-term succession planning (§ 84 GermanStock Corporation Act). (Code, III.2.a)

The personnel committee [of the SupervisoryBoard] deals with the personnel issues of theManagement Board (including its successionplanning). (Code, III.3)

Together with the Management Board, [theSupervisory Board] ensures that there is long-term successor planning. (§V.1.2)

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[E]fficient governance means that, in view ofthe accomplishment of good long-term corpo-rate performance and sustainability, executivemanagement should be endowed with consider-able flexibility and freedom of movement whichwould make possible the proper and timelyacquisition and implementation of organisa-tional and technological knowledge. Efficientknowledge is an essential prerequisite for theeffective confrontation of modern competitivechallenges. In such a flexible framework, therequired long-term commitment and efficiencyof management will be secured by the properdevelopment, consistent monitoring and effec-tive supervision of the capital market.(Introduction)


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At least once a year the Supervisory Boardshould meet without the [Management Board]and discuss ... the composition and performanceof the [Management Board], including issuesregarding succession.... (Recommendation 3.5)


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Not covered. Not covered. Not covered. [T]he importance of non-executive directors hasbecome evident … in matters concerning topmanagement succession…. (p. 2)

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Not covered. Not covered. Not covered. [T]he chairman should have a key role in de-termining board appraisal in which theperformance of the chief executive and theirsuccession must be considered objectively.This can only be done if the posts are separate.(Part 2: Directors, p. 4)

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28. Outside Advice

An annual audit should be conducted by anindependent auditor in order to provide an ex-ternal and objective assurance on the way inwhich financial statements have been preparedand presented. (OECD Principle IV.C)

It is widely felt that the application of highquality audit standards and codes of ethics isone of the best methods for increasing inde-pendence and strengthening the standing of theprofession. Further measures include strength-ening of board audit committees and increasingthe board’s responsibility in the auditor selec-tion process.Other proposals have been considered by OECDcountries. Some countries apply limitations onthe percentage of non-audit income that theauditor can receive from a particular client.Other countries require companies to disclosethe level of fees paid to auditors for non-auditservices. In addition, there may be limitationson the total percentage of auditor income thatcan come from one client. Examples of otherproposals include quality reviews of auditors byanother auditor, prohibitions on the provision ofnon-audit services, mandatory rotation of audi-tors and the direct appointment of auditors byshareholders. (OECD Principle IV.C Annota-tion at 38)

The contributions of non-executive board mem-bers to the company can be enhanced byproviding ... recourse to independent externaladvice at the expense of the company. (OECDPrinciple V.F Annotation at 43)

Policy makers and regulators should encouragesound audit practices, which include board se-lection of, and reliance on, an independentauditor. (Millstein Report, Perspective 16)

The ICGN Statement adopts OECD PrincipleIV.C (An annual audit should be conducted byan independent auditor in order to provide anexternal and objective assurance on the way inwhich financial statements have been preparedand presented.).

The ICGN advocates annual audits of corpora-tions by independent, outside auditors, togetherwith measures that enhance confidence in thequality and independence of the audit. TheICGN itself has voted support for the develop-ment of the highest quality internationalaccounting standards, and would encouragecorporations to apply those or other standardsof comparable quality. The ICGN also backsactive, independent board audit committeesand, to limit the risks of possible conflicts ofinterest, disclosure of the fees paid to auditorsfor non-audit services. (ICGN AmplifiedOECD Principle IV at 8)

The contributions of non-executive boardmembers to the company can be enhanced byproviding ... recourse to independent externaladvice at the expense of the company. (OECDPrinciple V.F Annotation at 43)

Auditors have to be independent and should beelected by the general meeting. (Recommen-dation 6)

Basic shareholder rights include ... approving ofthe external auditors, subject to legal con-straints. (Recommendation I.1.d)

The external auditors should be independentand free from conflicting interests which, ifthey exist, must be disclosed. (Recommenda-tion VIII.7)

The external auditors’ responsibilities towardsshareholders are without prejudice to their ad-ditional duties of informing the board of theirfindings with regard to internal controls andother verifications. (Recommendation VIII.8)

The external auditors should be present atshareholders meetings to which they report andon request at relevant board and committeemeetings. (Recommendation VIII.9)

Auditors should be given a hearing by the boardat their request. (Recommendation VIII.10)

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28. Outside Advice

The Board of Directors must ensure that objec-tive relationships are developed with thecompany auditors, based on the highest degreeof professionalism. (4.2)

The company auditors and, if such exist, theperson responsible for the internal audit and thefinancial director should attend the meetings ofthe [audit] committee....The [audit] committee should hear the companyauditors at least once each year, on an occasionwhen the executive directors are not present....The [audit] committee has the widest investiga-tive powers within its domain and may, by amajority decision, call upon professionals fromoutside the company and allow them to attendits meetings. (Note to 4.3)

There should be an agreed procedure fordirectors in the furtherance of their duties totake independent professional advice at thecompany’s expense. (Part I: B.1.6))

The board should ensure that the auditors haveno relationship with the company, whetherdirectly or indirectly, which could influencetheir judgement. (Part I: B.4.2)

The audit committee should have a discussionwith the internal and external auditors(including statutory auditors) at least once ayear, from which the executive directors maybe excluded, to ensure that there are nounresolved issues of concern. (Part I: B.4.3.c)

The audit committee ... should be able to obtainoutside professional advice and, if necessary, toinvite outsiders with relevant experience toattend meetings.... (Part I: B.4.3.d)

See Part I: A.2 ([T]he General Meeting ofShareholders is responsible for appointing ...the auditors. (Part I: A.2)

[When voicing opposition,] the Director will ...consider ... [o]btaining ... professional advice.(p. 3)

[T]he Director will be attentive:§ That the Board, if it creates an internal

auditing committee, ensures that it be ... indirect and permanent contact with thecompany’s auditors ....

§ That the company’s internal controllingbody functions efficiently and that it beregularly controlled by the auditors.

(p. 4)

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28. Outside Advice

The auditors should be independent of the man-agement, and they should be elected by theshareholders – for a total period of maximum 7years. (I. The Annual General Meeting)

[T]he auditors should carefully evaluate [em-ployee motivation] programmes and answer allquestions at the shareholders meeting.(III. Motivating Programmes)

[T]he board should consider how any collabo-ration with the company’s external audit couldcontribute to the risk management…. (VII.1)

Not covered. [A]uditors and internal auditors should be pro-vided annually with the opportunity to discussthe auditing of the company without the pres-ence of the members of the Board of Directorsbelonging to the hired management of the com-pany. (2.2.1)

See 2.1.2 (In the annual report or the relatingenvironmental audit, an account of the meas-ures implemented should be given in order totake account of environmental values in thebusiness of the company.).

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28. Outside Advice

Not covered. Not covered. The Committee considers it legitimate forBoard committees to be allowed the opportu-nity ... to call for outside technical reviews atthe corporation’s expense. It goes withoutsaying that this option should be exercised bycommittees only in performance of their re-spective duties, and after informing theChairman of the Board of Directors. In allcases, the committees should report to theBoard of Directors on the information andopinions obtained on such occasions. (p. 17)

The independence of a corporation’s auditorsshould not be jeopardized by the award to enti-ties belonging to their networks of assistance orconsulting assignments (technical, legal, tax,organization, etc.) by the corporation itself orby other affiliates of its group, which are ofmaterial importance either in terms of stakesfor the corporation and its group or in terms ofthe related fees. (p. 17)

The election among various [accounting] stan-dards may be momentous for corporations’earnings.... The financial managers and statu-tory auditors of corporations are naturally incharge of the technical reviews of this matter.(p. 18)

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28. Outside Advice

[The Supervisory Board’s] controlling activitiesare supported and complemented by the auditorwho [independently] examines the company’srendering of accounts. (Code, I.5)

The auditor is an independent guarantor of opendisclosure for the reference groups of the com-pany and, in addition, is a supportive partner tothe Supervisory Board in the supervisory proc-ess. The auditor controls separate parts ofManagement Board dealings but is also avail-able to the Management Board as advisor.(Code, VI.2.1)

In the case of a public corporation with a stockmarket quotation, the auditor also has to assessthe efficiency of risk management. (Code,VI.2.4)

Apart from the audit certificate required bystatute, the auditor also prepares a report for theManagement Board noting the weak points inthe company (management letter). (Code,VI.2.5)

The independence of the auditor is essential fora consistent and reliable control. Hence, theauditor takes all reasonable steps to safeguardneutrality. (Code, VI.2.6)

The Supervisory Board should also take intoconsideration, on the recommendation for theappointment of the auditor, whether the work ofthe auditor should undergo evaluation by anexpert third party at regular intervals (peer re-view). (Code, VI.2.7)

The Supervisory Board mandates the Auditorsto audit the Company and the Group annualaccounts (§ 111 German Stock CorporationAct). To ensure the independence of the audi-tors, particular regard shall be given:§ that the mandated Auditor has not

achieved during the last 5 years with theAudit and advice of the Company ... morethan 30% of its total revenue....

§ that no auditor is employed in the Auditthat has issued the auditors’ confirmationfor the Annual Accounts or Group Ac-counts in more than 6 instances in the 10years preceding the audit;

§ that no conflicts of interest exist for theauditor.

The Supervisory Board may call for additionalaudit issues that extend the legally requiredscope and focus of the audit. The stipulation ofthe audit fee is part of the appointment process.Audit-related meetings shall be held in thepresence of the Auditors (§ 171 German StockCorporation Act). (Code, III.2.e)

[The tasks of the Accounts and Audit Commit-tee include] selection of the Auditor, thedetermination of additional major auditingissues, as well as the determination of theAuditor’s fee. The selection of the Auditortakes into account the participation of theAuditor in a regular external peer review....Furthermore, the fees for other consultingservices shall be seen in relation to the auditingfee; if necessary, this relationship can lead tolimiting consulting fees. (Code, III.3)

The General Meeting … elects … the auditor.(§II.2.1)

Prior to submitting a proposal for election [ofthe outside auditor], the Supervisory Board or,respectively, the Audit Committee shall obtaina statement from the intended auditor statingwhether, and where applicable, which profes-sional, financial and other relationships existbetween the auditor and its executive bodiesand head auditors on the one hand, and theenterprise and the members of its executivebodies on the other hand, that could call itsindependence into question….The Supervisory Board shall agree with theauditor that the Chairman of the SupervisoryBoard will be informed immediately of anygrounds for disqualification or impartialityoccurring during the audit, unless such groundsare eliminated. (§VII.2.1)

The Supervisory Board commissions the audi-tor to carry out the audit and concludes anagreement on the latter’s fee. In this respect,the Supervisory Board shall consult the Man-agement Board. (§VII.2.2)

The Supervisory Board shall arrange for theauditor to inform it and/or note in the Auditor’sReport if, during the performance of the audit,the auditor comes across facts which show amisstatement by the Management Board andSupervisory Board on the Code. (§VII.2.3)

The auditor takes part in the SupervisoryBoard’s deliberations on the Annual FinancialStatements and Consolidated Financial State-ments and reports on the essential results of itsaudit. (§VII.2.4)

See generally §VII, Reporting and Audit of theAnnual Financial Statements.

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28. Outside Advice

[T]he general shareholder meeting has the re-sponsibility of appointing ... the external ...auditors. (Introduction)

Shareholders should have the right to participateequitably and efficiently in the general share-holder meetings and be sufficiently, timely andproperly informed on the decisions that need tobe made regarding fundamental changes in thecorporation. These changes include ... the ap-proval of the appointment and/or dismissal ofthe external and internal auditors, their dutiesand compensation, following the recommenda-tions of the Board of Directors.(Recommendation 1.2.7)

The Board of Directors should ensure the gen-eral shareholder meetings that the externalauditors have no relationship with the corpora-tion, directly or indirectly, which could affecttheir judgement and evaluation. (Recommen-dation 4.5)

The Internal Audit Committee ... [s]hould com-municate with the internal (independent) andexternal auditors of the corporation with thepurpose of achieving a settlement of all unre-solved issues in the corporation.(Recommendation 4.7.3)

Procedures should be established that allow theBoard of Directors to obtain advice by externaladvisors, which would assist the exercise oftheir duties. The corporation should meet thecost of external advice. (Recommendation 5.9)

See Footnote 3 to Recommendation 4.6 (legalrequirements for Board oversight of externaland internal auditors, and expansion of suchrequirements).

Not covered directly, but see §4.4 (In the exer-cise of his duties, the internal controller mayobtain knowledge of any book, document, bankaccount information or portfolio of the com-pany, and access any service of the company.).

Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode:§ 1, A.1.3 (There should be a procedure agreedby the board for directors in the furtherance oftheir duties to take independent professionaladvice if necessary, at the company’s ex-pense.).§ 1, B.2.5 (Remuneration committees shouldconsult the chairman and/or chief executiveofficer about their proposals relating to theremuneration of other executive directors andhave access to professional advice inside andoutside the company.).

[T]he [remuneration] committee may employexternal consultants at the company’s ex-pense. (Code, 8.1)

[The internal control committee] should assess... the reports of the external auditors ... and theoffers and work programmes of auditing firms.(Report, 5.4.3)

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28. Outside Advice

The Supervisory Board may grant an assign-ment to the auditor to assess the accuracy ofreports by the [Management Board] on compli-ance with the verifiable recommendations. (6.2)

Not covered. Unless the law or articles of association deter-mine otherwise, it is the task of shareholders toappoint the … auditors. (Handbook, p. 8)

Not covered.

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28. Outside Advice

The right of all directors to collect and obtainthe information and advice needed to fulfill theirsupervision functions must be formally recog-nized. Appropriate channels should be createdto exercise this right, even resorting to outsideexperts in special circumstances. (Code, Rec-ommendation 14)

The Board of Directors and the Audit Commit-tee should watch over situations that may poserisks for the independence of the external audi-tors of the company. They should particularlycheck the percentage that the company’s feesrepresent in the total revenues of the auditingfirm and should publicly report any fees corre-sponding to professional services other thanauditing. (Code, Recommendation 21)

If necessary, in matters of importance for thecompany, individual board members shouldhave the right, at the cost of the company, toseek information and advice from independentsources. (Guideline 2.2)

The company’s auditor is appointed by theshareholders and has the role of independentexaminer. The Shareholders’ Association con-siders that the auditor, prior to a directed newplacement for employees, ought to examine theprogram and evaluation that is the basis for theterms of the issue. The auditor should also beable to inform the shareholders at the generalmeeting about the proposed scheme. (Guide-line 3.6)

Not covered directly, but see Code, §2 (Theboard should ensure that each director is givenon appointment sufficient information to enablehim/her to perform his/her duties. In particular,guidance for non-executive directors shouldcover the procedures:§ for obtaining information concerning the

company; and§ for requisitioning a meeting of the board.)

It is recognized that professional advisers suchas merchant bankers and solicitors may wellfulfil a specialist role…. (p. 3)

[In the event of a proposed takeover or man-agement buy-out,] where the the buy-outconsortium comprises or includes management,the need for full disclosure and independentadvice becomes more acute….Ideally, the Board should appoint a separatecommittee… with direct access to independentadvisers. The independent advisers shouldhave access to all information necessary toenable them to give a fully informed opinion asto the merits of the offer.The consortium should not have access to thecompany’s usual professional advisers, sincethat would aggravate the conflict of interest.(pp. 5-6)

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28. Outside Advice

There should be an agreed procedure fordirectors, in the furtherance of their duties, totake independent professional advice ifnecessary, at the company’s expense. (Code,1.5)

The board should ensure that an objective andprofessional relationship is maintained with theauditors. (Code, 4.2)

Occasions may arise when directors have toseek legal or financial advice in the furtheranceof their duties. They should always be able toconsult the company’s advisors. If, however,they consider it necessary to take independentprofessional advice, we recommend that theyshould be entitled to do so at the company’sexpense, through an agreed procedure laid downformally, for example in a Board Resolution, inthe Articles, or in the Letter of Appointment.(Report, 4.18)

We also recommend that boards should appointremuneration committees ... [that draw] on out-side advice as necessary. (Report, 4.42)

[T]he shareholders appoint the auditors to pro-vide an external check on the directors’financial statements. (Report, 6.1)

The company’s statement of compliance shouldbe reviewed by the auditors insofar as it relatesto paragraphs 1.4, 1.5, 2.3, 2.4, 3.1 to 3.3, and4.3 to 4.6 of the Code. (Footnote, p. 60)

Remuneration committees should ... haveaccess to professional advice inside and outsidethe company. (Code, A7)

The remuneration committee should ... have agood understanding, enhanced as necessary byappropriate training or access to expert advice,of the areas of remuneration committeebusiness. (Commentary on RemunerationCommittees, Membership and Qualifications,4.8)

The [remuneration] committee may need todraw on outside advice. This should combinequality and judgement with independence. Thecompany’s management will normally hireoutside consultants, if any, but the committeeshould be consulted about such appointmentsand should be free to retain its own consultantsin case of need. (Commentary onRemuneration Committees, Membership andQualifications, 4.17)

See Code, B9 (The amounts received by, andcommitments made to, each Director ... shouldbe subject to audit.).

The board should establish formal andtransparent arrangements for maintainingan appropriate relationship with thecompany’s auditors. (Principle D.III)

The external auditors should ... independ-ently assure the board on the discharge of itsresponsibilities ... in accordance with profes-sional guidance. (Principle D.IV)

The board should establish formal andtransparent arrangements ... for maintainingan appropriate relationship with thecompany’s auditors. (Principle D.3)

There should be a procedure agreed by theboard for directors in the furtherance of theirduties to take independent professional advice,if necessary, at the company’s expense. (Code§ 1, A.1.3)

Remuneration committees should ... have ac-cess to professional advice inside and outsidethe company. (Code § 1, B.2.5)

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28. Outside Advice

The [audit] committee must maintain anappropriate relationship with the company’sauditors. This will include reviewing the scopeand results of the audit, its cost-effectivenessand the independence and objectivity of theauditors. (§12)

Any change of auditors, agreed by the board aspart of a periodic planned review, or for anyother reason, should be explained and justifiedto shareholders. (§13)


[Remuneration committees] should take profes-sional advice as necessary. Where independentadvisers are appointed, they should be respon-sible to the remuneration committee and not thecompany EDs. Consideration should be givento naming the advisers in the board’s remu-neration report. (APPENDIX 1.1.2)

Hermes recommends that the nominationcommittee be responsible ... for finalizing thecandidate specification for all board appoint-ments and for approving the process by whichsuitable candidates are identified and short-listed, including choosing a third-party advisorwhere appropriate. (APPENDIX 3.5)

PRINCIPLE: [A]uditors should describe theirrespective responsibilities for the accounts.(Part 4, Audit and Reporting, p. 13)

PRINCIPLE: The auditors should be inde-pendent of the company.F. No directors have a significant connectionwith the auditors....G. There are no provisions for indemnificationor liability insurance. It is inappropriate forauditors to be indemnified by the company....Such relationships can affect independentjudgment. (Part 4: Audit and Reporting, p. 13)

[The remuneration committee] should haveaccess to independent advice. (Part 2: Direc-tors, p. 7)

There should be an annual appraisal of thefunctioning of the board as a whole and thecontribution made by all directors individu-ally.... It may be helpful to use an independentagency to perform this appraisal. (Part 2: Di-rectors, p. 7)

When considering pay policy, remunerationcommittees should have access to independentadvisers, separate from those used by execu-tives. (Part 3: Directors’ Remuneration, p. 8)

See Part 4, p. 12 (The Cadbury Committeecalled the annual audit “one of the cornerstonesof corporate governance.” It is vital that theaudit process is, and is seen to be, objective,rigorous and independent.).

See generally Part 4: Audit and Reporting,pp. 12-14.

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29. Content and Character of Disclosure

The corporate governance framework shouldensure that timely and accurate disclosure ismade on all material matters regarding thecorporation, including the financial situation,performance, ownership and governance ofthe company. (Principle IV)

Disclosure should include, but not be limited to,material information on:1. The financial and operating results of the

company....2. Company objectives.... .3. Major share ownership and voting rights....4. Members of the board and key executives,

and their remuneration....5. Material foreseeable risk factors....6. Material issues regarding employees and

other stakeholders....7. Governance structures and policies....(OECD Principle IV.A)

Capital structures and arrangements that enablecertain shareholders to obtain a degree of con-trol disproportionate to their equity ownershipshould be disclosed. (OECD Principle I.D)

Members of the board and managers should berequired to disclose any material interests intransactions or matters affecting the corporation.(OECD Principle II.C)

See Annotation to OECD Principle IV.D at 39(public filings).

Regulators should encourage ongoing improve-ments in both disclosure techniques andformats. (Millstein Report, Perspective 12)

[C]orporations should disclose the extent towhich they pursue projects and policies thatdiverge from the primary corporate objective ofgenerating long-term economic profit so as toenhance shareholder value in the long term.(Millstein Report, Perspective 21)

The overriding objective of the corporationshould be to optimise over time the returns toits shareholders. Where other considerationsaffect this objective, they should be clearlystated and disclosed. (ICGN Statement 1 at 3)

The ICGN Statement adopts OECD PrincipleIV.A (The corporate governance frameworkshould ensure that timely and accurate disclo-sure is made on all material matters regardingthe corporation, including the financial situa-tion, performance, ownership, and governanceof the company.)Disclosure should include, but not be limitedto, material information on:1. The financial and operating results of the

company....2. Company objectives....3. Major share ownership and voting

rights....4. Members of the board and key executives,

and their remuneration....5. Material foreseeable risk factors....6. Material issues regarding employees and

other stakeholders....7. Governance structures and policies....).

See also OECD Principles I.D (re: controldisproportionate with equity ownership) andII.C (re: material interests of directors andmanagers).

See also ICGN GLOBAL SHARE VOTINGPRINCIPLES, 6 (Companies with internationallydiversified ownership should ensure that agen-das and notices are accessible to shareholdersin at least one internationally-accepted lan-guage. Companies should ensure that transla-tions are timely, accurate and complete, withthe meaning and purpose of resolutions clear.).

Companies should clearly state (in writing)their financial objectives as well as their strat-egy, and should include these in the annualreport. (Recommendation 1)

Shareholders should be informed about:a) financial objectives;b) strategy;c) the company’s prospects; andd) sensitivity to external circumstances.

.... In addition, companies should statewhen they intend to reach their objectives.

(Commentary on Recommendation 1)

Companies should immediately disclose infor-mation which can influence the share price, aswell as information about those shareholderswho pass (upwards or downwards) 5% thresh-olds. There should be serious penalties in caseof non-compliance. (Recommendation 5)

Companies should disclose all relevant andimportant information to the shareholders, butat least the following:§ clear goals in financial terms and clear

corporate strategy;§ quarterly results;§ sensitive stock-related information, which

should be disclosed immediately;§ members of the board should be required

to disclose their interests in transactions ormatters affecting the company.


See Recommendation 8 (In addition to theregular channels, electronic means should beused by a company to provide shareholderswith price-sensitive information.).

Without prejudice to disclosures advocatedelsewhere in these recommendations, informa-tion on the company should at least cover:a) its objectives....b) its accounts....c) its significant shareholders, if known....d) its board members and key executives ....e) material foreseeable risk factors....f) related party transactions;g) governance structures and policies ....h) internal controls.(Recommendation VIII.1)

Disclosed information should be readily acces-sible at minimal cost, and availablesimultaneously to all shareholders. (Recom-mendation VIII.2)

See Principle I (Shareholders ... have a right toadequate and timely information.).

See also Recommendation II.3 (disclosure obli-gations of custodians).

See also Recommendation II.4 (Institutionalinvestors acting in a fiduciary capacity for ex-ternal beneficial owners should state theirvoting policies.).

Note:“Disclosure” refers to information printed,electronically distributed or made availablethrough the media to shareholders at large inthe form of annual reports, financial statements,prospectuses, announcements, etc. (Preambleat 6)

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The obligations, the duration of the mandate andthe means of remuneration of directors must beannounced at the time of their appointment.(Note to 1.6)

The responsibilities of the Board of Directorsinclude producing a comprehensive and objec-tive Annual Report on the situation of thecompany each year. (4.1)

This Annual Report and the annual accountsmust represent the situation and results of thecompany and developments under considera-tion, as clearly as possible and in numericalform. This ... must refer to both successes andfailures, in words which are easy to understand.(Note to 4.1)

Information about the relevant interests ofdirectors should be disclosed in the annualreport. (Part I: B.2.2)

The report and accounts should contain acoherent narrative of the company’s financialposition, supported by information on thecompany’s performance and prospects.... Theneed for the report to be readily understoodemphasizes that words are as important asfigures. (Part I: B.4.1)

The directors should report on the company’sprospects. (Part I: B.4.5)

Information [to be disclosed] on thecomposition of the board of directors[includes]:§ List of the directors de facto representing

the dominant shareholders, the directors incharge of the daily management, and the di-rectors considered by the company as beingindependent from the dominant shareholdersand the management.

§ When the function exercised by a director inthe company is not his main function, indi-cation of his main function outside thecompany....

§ Mention of the rules, if any, ... governing theappointment of directors and the renewal oftheir mandates....

§ For natural persons representing directors,which are actually legal personae, indicationof these persons’ capacity in the companywhich they represent.

(Part II: B.1)


The Director undertakes, if the company islisted on the Stock Exchange, to see to it thatthe Board strictly observes the regulations con-cerning the distribution of occasional orperiodic information. (p. 6)

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All listed companies should, in the annual re-port, inform about their strategy and objectivefinancial goals.All listed companies should publish quarterlyreports and inform when insiders ([executives],members of the board, and majority sharehold-ers) have been trading shares in the company.News having anything more than marginal in-fluence on the share price should immediatelybe communicated – including an evaluation ofthe consequences for the company....Prospects should include budgets. At take-overs, the consequences of a stand-alone alter-native should be included.) (V. Information ToThe Market)

[I]t is necessary to provide shareholders, in-cluding potential shareholders and otherstakeholders, with information about the com-pany. How they understand and relate to thecompany depends on the amount of informa-tion and the quality of the informationpublished or provided by the company. Open-ness and transparency are essential conditionsfor ensuring that the company’s shareholdersand other stakeholders are able to continuouslyevaluate and relate to the company and itsprospects, and through this, openness andtransparency can contribute to a constructiveinteraction with the company. (III)

[I]t is recommended that the company developsprocedures which ensure that the companyimmediately publishes all essential informationof importance for how the shareholders and thefinancial markets evaluate the company and itsactivities, as well as its business goals, strate-gies and results, unless publication can beomitted according to the legal rules of the stockexchange. The publication must be carried outin a reliable and adequate manner.It is recommended that published informationis both in Danish and in English…. (III.1)

In connection with the preparation of the an-nual report it is recommended that the boarddecides if it is expedient that the company pub-lishes further elaborating non-financialinformation, even in instances where this is notrequired by the Danish Company Accounts Actor any other laws. Such information could beinformation about the company’s§ impact on the external environment.§ development and maintenance of internal

knowledge resources.§ ethical and social responsibilities.§ health and safety policies.(III.4)

The company shall explain in the Annual Re-port and in the Listing Particulars which bodyelects the Board of Directors and the ManagingDirector of the company, and when. (EnglishSummary, 4)

The personal and interest-group informationof the persons nominated as members of theBoard of Directors have to be notified, at thelatest, at the General Meeting of Sharehold-ers. . . . After the election, the informationhas to be mentioned in the Annual Report andin the Listing Particulars.The same publication criteria that govern themembers of the Board of Directors shall beapplied to the members of the SupervisoryBoard and, after the election, to the ManagingDirector. If the composition of the SupervisoryBoard of the company is especially large, thecompany may omit this information from itsAnnual Report. In this case, the informationshall be kept available at the head office of thecompany and it shall be sent to anyone re-questing it. The Listing Particulars shall alsocontain the personal and interest-group infor-mation of the members of the SupervisoryBoard.The following items shall be disclosed as per-sonal and interest-group information:§ name and age;§ education and the most central work or

other experience;§ main job at the time of nomination; and§ the most central simultaneous tasks or

known future tasks.(English Summary, 5)

To get the investors assured of the fact that theoperations of the company are economicallyefficient, information shall be given in the an-nual report on the accrual of economic value-added and its measurement method in the com-pany.....It is also necessary to put forward in the annualreport what are, in the company management’sopinion, the risk factors that could prevent theattainment of the objectives set. Likewise, thegeneral features of the risk management sys-tems used by the company should be described.....In the annual report or the relating environ-mental audit, an account of the measuresimplemented should be given in order to takeaccount of environmental values in the busi-ness of the company. (2.1.2)

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While it is the Chairman’s duty to provide themarket with a regular flow of information on aday-to-day basis, the board of directors is re-sponsible for presenting annual and half-yearlyfinancial statements, and for informing the mar-ket of major financial transactions. In suchcases, the board must provide quality informa-tion, which is sufficiently reliable and clear toensure the fair execution of the transactionsconcerned.With a view to achieving this transparency,the Committee believes that the board shouldpublish its assessment of all transactions con-cerning the company’s securities, even whenthis is not legally required. (p. 6)

The Commission is in favor of companies pub-lishing two annual reports, one complete, theother in summary form, making company in-formation and, in particular, the proposedresolutions more easily accessible for share-holders who are less expert on the company.Every shareholder should receive the summaryreport, with the complete report available uponrequest. These reports should also be availablethrough electronic means, in both French andEnglish. (§ I.B.2)

Within the shortest possible delay following thegeneral meeting, the Commission would like tosee companies publish an extract of the meet-ing’s minutes informing shareholders, inparticular foreign shareholders, of the results ofthe votes on the resolutions, along with ananalysis of those votes.It is recommended that systematically, within30 days at the latest following the shareholders’meeting, this report be sent (by electronic orother means) to all holders of registered sharesand to shareholders present or represented atthe meeting. (§ I.B.5)

The Committee notes that major efforts havebeen made in recent years by many corpora-tions to expedite the publication of half-yearlyand annual accounts, and approves this trend asthe prompt publication of earnings is an essen-tial factor in providing financial disclosureconsistent with the expectations of analysts andshareholders.There remains, nonetheless, too much diversityin the practices of listed corporations with re-spect to the time required for the publication ofaccounts. The Committee recommends thatlisted corporations should take all necessarysteps to achieve, as soon as possible, compli-ance with the following schedule:§ if the corporation publishes estimated or

provisional consolidated annual accounts,they should be published at the latest onemonth after the close of the financial year,followed by final accounts within threemonths after the close;

§ if not, the final accounts should be pub-lished within two months after the close ofthe financial year;

§ final consolidated half-yearly accounts, fortheir part, should be published at the latesttwo and a half months after the end of thefirst half, if the estimated or provisionalaccounts are not published sooner.

(pp. 18-19)

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Cromme Commission Code(Germany) (Rerserved)


Information on the efficiency of the companyensures the confidence of the stakeholdersand is therefore of strategic importance.(Thesis 9)

The public corporation does not restrict itself toinformation for the stockholders and other ref-erence groups [by merely] fulfilling minimumstatutory requirements which arise from theappropriate regulations concerning financialreporting and disclosure. Rather, the companyestablishes an integrated system of externalcommunication which covers ... the legitimateinformation needs of the various stakeholders ofthe company. (Code, VI.1.1)

The stockholders receive access to all informa-tion which has been provided to financialanalysts and similar addressees. (Code, VI.1.4)

The company reports at regular intervals on,among other things, the company’s strategy,and periodically on realized as well as planneddevelopment of important managerial ratios inthe individual sectors of business. (Code,VI.1.6)

The company also makes the existing risks forthe present, and for the business activitiesplanned for the future, transparent. (Code,VI.1.7)

See Commentary on Thesis 9 (Adequate infor-mation on the terms, results and planneddevelopments of the company’s activities, forthe stockholders and other reference groups, is apre-condition for reinforcing the trust and, withit, the necessary support of those interested inthe company.).

The point ‘Disclosure and Transparency’ of theOECD Principles is generally covered by lawfor German companies through the corre-sponding provisions on the obligation toprovide and enclose information (§§ 20-22,160, 328 German Stock Corporation Act;§§ 15, 25 German Securities Trading Act;§§ 285, 325 ff German Commercial Code;§§ 35, 39 German Antitrust Act; § 24 GermanBanking Act). (Code, I)

The Management Board will publish withoutdelay any new facts arising in the sphere of theCompany’s activities which are not yet publiclyknown and, due to their impact on the financialposition of the Company or its general courseof business, are likely to impact significantlyon the price of the Company’s listed securities(§ 15 German Securities Act). (Code, II.2.a)

The Company shall pursue the principle ofequal treatment of all shareholders in the matterof information dissemination. (Code, II.2.b)

The regular financial reporting (annual andquarterly reports) will be timely. The quarterlyreports shall be published no later than twomonths after the close of the quarter and shallcontain segment reporting as well as the resultsper share. (Code, II.2.c)

As soon as the Company ... becomes ... awarethat another party has obtained, exceeds or nolonger holds 5, 10, 25, 50 or 75% of the votingrights in the Company, this will immediately bepublished by the Management Board. (Code,II.2.i)

See Code, II.2.d)-j) (Management Board dis-closure requirements) and Topic Heading 31 ,below.

The Management Board submits to the GeneralMeeting the established Annual FinancialStatements and the Consolidated FinancialStatements. (§II.2.1)

The Management Board shall not only providethe reports and documents, including the An-nual Report, required by law for the GeneralMeeting, and send them to shareholders uponrequest, but shall also publish them on thecompany’s Internet site together with theagenda. (§II.3.1)

The company shall inform all domestic andforeign financial services providers, sharehold-ers and shareholders’ associations, who, in thepreceding 12 months, have requested such noti-fication, of the convening of the GeneralMeeting together with the convention docu-ments, upon request, also using electronicchannels. (§II.3.2)

The Management Board will disclose any newfacts which have arisen within the enterprise’sfield of activity which are not known publiclywithout delay, if such facts could, owing totheir impact on the asset and financial situa-tions or general business development,substantially influence the stock price of thecompany’s registered securities. (§VI.1)

The company’s treatment of all shareholders inrespect of information shall be equal. It shallmake all new facts which have been madeknown to the financial analysts and similaraddressees available to the shareholders with-out delay. (§VI.3)

The Consolidated Financial Statements shall bepublicly accessible within 90 days of the end ofthe financial year; interim reports shall be pub-licly accessible with 45 days of the end of thereporting period. (§VII.1.2)

See generally §VI, Transparency and §VII,Reporting and Audit of the Annual FinancialStatements.

296




Preda Report(Italy)


The corporate governance framework shouldensure the full, timely and detailed disclosure ofinformation on all material matters, includingthe financial situation, performance, ownershipstructure and governance of the corporation.(Principle 4)

The establishment of transparency involves thedisclosure of information on:§ The financial and operating results of the

corporation.§ The corporation’s ownership structure.§ Members of the Board of Directors and

management.§ Quantitative and qualitative matters con-

cerning employees and other stakeholdersin the corporation.

§ Governance structures and policies.§ Corporate targets and prospects.§ The execution of unusual and complex

transactions, transactions on derivativeproducts and their level of risk.


All investors should be able to obtain informa-tion on the voting rights affiliated with allclasses of shares before their purchase of shares.(Recommendation 2.1.1)

The Board of Directors should ensure the gen-eral shareholder meetings that the internal(independent) auditors are given the requiredfinancial and operating autonomy to accomplishtheir task completely. Internal auditors shouldbe subject to oversight in a satisfactory manner.(Recommendation 4.6)

The Internal Audit Committee ... [s]hould dis-close its composition in the corporation’s annualreport. (Recommendation 4.7.5)

Corporate governance aims at full transparencyin the overall management of the company,allowing the dissemination of any vital infor-mation to all shareholders and thus providingthem with the opportunity to participate ac-tively in the company’s activities, on the basisof the legislation in force, and to protect andpromote their interests in a non-discriminatoryand fair manner, within the framework of thecompany’s long-term and balanced develop-ment. (§1.3)

The Internal Operation Regulation must cover… procedures for the pre-announcement ofimportant transactions and financial activitiesof board members or third parties having man-agement tasks, to the extent these are related tothe company as well as its important clients orsuppliers. (§3.2(d))

Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode:

Principle D.1 (The board should present abalanced and understandable assessment of thecompany’s position and prospects.);

Principle D.2 (The board should maintain asound system of internal control to safeguardshareholders’ investment and the company’sassets.);

Principle D.3 (The board should establishformal and transparent arrangements forconsidering how they should apply thefinancial reporting and internal controlprinciples and for maintaining an appropriaterelationship with the company’s auditors.);

Code § 1, D.1.1 (The directors should explaintheir responsibility for preparing the accounts,and there should be a statement by the auditorsabout their reporting responsibilities.);

Code § 1, D.1.2 (The board’s responsibility topresent a balanced and understandableassessment extends to interim and other price-sensitive public reports and reports toregulators as well as to information required tobe presented by statutory requirements.);

Code § 1, D.2.1 (The directors should, at leastannually, conduct a review of the effectivenessof the group’s system of internal control andshould report to shareholders that they havedone so. The review should cover all controls,including financial, operational and compliancecontrols and risk management.);

Code § 1, D.2.2 (Companies which do not havean internal audit function should from time totime review the need for one.).

See Topic Headings 30, 31 and 32, below.

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By the Supervisory Board[T]he chairman should ensure that informationis not made available solely to certain groups ofshareholders. (Recommendation 2.6)

The Supervisory Board should report on theexistence of ... committees in the annual report.(Recommendation 3.2)

By the Management BoardThe main points of the report [of the Manage-ment Board to the Supervisory Board] should begiven a permanent place in the annual report.(Recommendation 4.2)

In the General Meeting of Shareholders, a thor-ough exchange of ideas should take placebetween company executives and investors.Relevant information should therefore be sup-plied so that, on the basis of soundly-basedsector and investment analyses, it is possible tocommunicate effectively about, and make acritical assessment of, strategy, risks, activitiesand financial results. (Recommendation 5.2)

[T]he [Management Board] should take stock ofthe influence available to the investors in thecompany and should report its findings in writ-ing to them. (Recommendation 5.4.3)

To enhance the quality of the debate in the Gen-eral Meeting of Shareholders and bring about ade facto increase in the influence of the inves-tors, it is not only of importance that the[Management Board] provides good qualityinformation in good time, but that the investorscan also have recourse to the work done byinvestment analysts and the press. (Recommen-dation 5.4.4)

Companies should clearly state in writing thefinancial objectives and strategy and shouldoutline them in the annual report. (Recom-mendation 2)

Companies should reveal quarterly results andshould immediately disclose information thatcan influence the share price. (Recommenda-tion 3)

According to the ‘Stock Exchange Regulation’of the Amsterdam Exchanges, companiesshould immediately disclose key informationthat can influence the share price. In practice,many companies often do not comply. Quar-terly results are crucial to keep investorsinformed. In a transitional period (one year),interim statements without profit/turnover fig-ures may be optional. (Commentary onRecommendation 3)

Companies whose shares are listed also onstock exchanges outside The Netherlandsshould make available on their websites anydocuments they are obliged to make public inthose countries. (Guideline 18)

A description of the market behaviour of theshares should be made and issued at leastonce a year. (Recommendation 3)

Information should be disclosed to the publicon the dividend policy commonly adopted bythe company. (Recommendation 4)

Shareholder agreements regarding the exer-cise of rights in the company or regardingtransferability of shares, when relevant tothe organization of companies, should bedisclosed to the public. (Recommendation 5)

See Recommendation 6 (The use of new in-formation technologies is encouraged for thedisclosure of financial information.).

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The Board of Directors, beyond current regula-tory requirements, should be in charge offurnishing markets with quick, accurate andreliable information, particularly in connectionwith the shareholder structure, substantialchanges in governance rules, and especiallyrelevant transactions or those having to do withtreasury stock. (Code, Recommendation 19)

The duty of loyalty also involves the obligationfor directors to report personal circumstances,those of close relatives or even circumstancesrelating to companies where they may play asignificant role. This includes shareholdings,positions and activities performed in other or-ganisations, unionization agreements and, ingeneral terms, any fact, situation or link whichmight be relevant for their loyal performance astrustees. (Report, 8.5)

[T]he Board of Directors would be bound toinclude in the company’s Annual Report infor-mation on transactions carried out withsignificant shareholders … so that their reachand importance will be known to all. (Report,8.6)

[T]his Committee recommends that the Board ofDirectors stretch its sense of duty to the point ofoffering immediate and sufficient informationnot only on relevant facts that may have a size-able influence on price formation in the stockmarket, but also on anything that may: influ-ence the company’s ownership structure …;involve a substantial change of governance rules(this is in addition to what is laid out under 12.2below); deal with specially relevant linkedtransactions (transactions within the group andwith individuals linked to Board members); orhave to do with the company’s equity. (Report,10.1)


To make it easier for shareholders to follow thecompany’s activities, the dates when informa-tion will be issued to shareholders during thecoming year, as well as the date of the generalmeeting, should be stated in interim reports,financial statements, the annual report or othertimely information sent to shareholders.[N]otice [of shareholders’ meetings] should beposted on the company’s web site on the Inter-net.... (Guideline 1.1)

For many years there has been a carefullyregulated obligation for stock market compa-nies to provide information....The obligation to inform is regulated above allby the law on stock exchange and clearingoperations. With the support of this law, theFinancial Supervisory Authority (Finansin-spektionen) has issued regulations about thecontent of the duty to inform (FFFS 1995:43).These regulations have formed the foundationsfor the content of the stock exchange’s quota-tion contracts. Further, the Industry andCommerce Stock Exchange Committee hasissued recommendations concerning informa-tion in certain situations. OMStockholmsbörsen publish a handbook on stockmarket information that should be used by allcompanies quoted on the stockmarket. (Guide-line 4)

Laws and bourse contracts regulate the mini-mum demands on the content and form of thecompany’s information to the market. Regis-tered shareholders have a self-evident right toinformation from the company. (Guideline 4.2)

See Guideline 3.5 (information to be madeavailable to shareholders).

See also Guidelines 4.4 (annual and quarterlyreports) and 4.6 (prospectuses).

Not covered directly, but see Code, §10 (Theminutes of meetings should record the deci-sions taken and provide sufficient backgroundto those decisions. All papers presented at themeeting should be clearly identified in the min-utes and retained for reference. Procedures forthe approval and circulation of minutes shouldbe established.).

Not covered directly, but see Topic Headings30, 31 & 36, below.

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It is the board’s duty to present a balanced andunderstandable assessment of the company’sposition. (Code, 4.1)

An open approach to the disclosure ofinformation contributes to the efficient workingof the market economy, prompts boards to takeeffective action and allows shareholders andothers to scrutinize companies more thoroughly.(Report, 3.2)

What is required of financial reporting is that itshould be honest and that it should present abalanced picture of the state of the company’saffairs. (Report, 3.3)

The lifeblood of markets is information, andbarriers to the flow of relevant informationrepresent imperfections in the market. The needto sift and correct the information put out bycompanies adds cost and uncertainty to themarket’s pricing function. The more theactivities of companies are transparent, the moreaccurately will their securities be valued.(Report, 4.48)

[B]oards should aim for the highest level ofdisclosure consonant with presenting reportswhich are understandable and with avoidingdamage to their competitive position. (Report,4.51)

The demand for an ever-increasing amount ofdetail in reports and accounts has to be weighedagainst the need for them to be understandableby the reasonably informed shareholder. (Re-port, 4.58)

Most listed companies have already establishedremuneration committees. Those which havenot should establish them now or explain intheir next annual report why they have not doneso and what alternative arrangements they havemade. (Commentary on RemunerationCommittees, 4.6)

We attach the highest importance to fulldisclosure of Directors’ remuneration as ameans of ensuring accountability toshareholders and reassuring the public.Existing disclosure requirements ... are notsufficient. (Commentary on Disclosure, 5.2)

Full disclosure does not mean swampingshareholders with a mass of detail in which theessential points risk being lost. The importantpoint is rather that companies and theirremuneration committees should adopt a newphilosophy of full transparency such thatshareholders have access to all the informationthey may reasonably require to enable them toassess the company’s general policy onexecutive remuneration and the entireremuneration packages of individual Directors.(Commentary on Disclosure, 5.3)

The annual remuneration committee report toshareholders should be the main vehiclethrough which the company discusses andaccounts to shareholders for Directors’remuneration. The report should be made onbehalf of the Board. It should form a separatesection within, or annexed to, the company’sannual report and accounts. It should set outboth the company’s general policy on executiveremuneration and the actual remunerationpackages, including share options and pensionentitlements earned, of the individual Directorsby name. The amounts received by, andcommitted to, each Director should be subjectto audit. (Commentary on Disclosure, 5.4)


The board should present a balanced andunderstandable assessment of the company’sposition and prospects. (Principle D.I)

The external auditors should independentlyreport to shareholders in accordance withstatutory and professional requirements andindependently assure the board on the dis-charge of its responsibilities under D-I andD-II above in accordance with professionalguidance. (Principle D.IV)

The board should present a balanced andunderstandable assessment of the company’sposition and prospects. (Principle D.1)

The directors should explain their responsibilityfor preparing the accounts, and there should bea statement by the auditors about their reportingresponsibilities. (Code § 1, D.1.1)

The board’s responsibility to present a balancedand understandable assessment extends tointerim and other price-sensitive public reportsand reports to regulators as well as toinformation required to be presented bystatutory requirements. (Code § 1, D.1.2)

The directors should, at least annually, conducta review of the effectiveness of the group’ssystem of internal control and should report toshareholders that they have done so. Thereview should cover all controls, includingfinancial, operational and compliance controlsand risk management. (Code § 1, D.2.1)


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[T]his document already reflects the changes tothe Pensions Act 1995, which … requiretrustees to set out their voting policy in theirStatements of Investment Principles. Lookingahead, the range of issues, and appropriaterecommendations, may be widened furtherfollowing the Review of Company Law,currently in progress. (Introduction)

As well as summarising their voting policies inStatements of Investment Principles (SIPs),pension fund trustees are now required, underPensions Act regulation, to state in the SIP theextent, if at all, that social, environmental andethical considerations are taken into account inconnection with their investment strategy.….Companies should now ensure that they reportto shareholders on these developments. (§24)

See Topic Headings 30-32, below.

Where member firms have a policy on widerissues affecting the companies in which theyinvest, such as attitudes towards environmentalor social issues, or on donations to politicalparties, AUTIF encourages firms to disclosethis to investors. (Key Principle 9)

Companies listed on the London Stock Ex-change are required, as a continuing obligationof listing, to make two disclosure statements.Firstly, they must report on how they apply theprinciples in the Combined Code on CorporateGovernance. The form and content of thisreport are not prescribed - it is for shareholdersto make their own evaluation. Secondly, listedcompanies are also required to confirm thatthey comply with the Code provisions or -where they do not - to provide an explanation.Again, it is for shareholders to evaluate suchexplanations. Copies of the Combined Codemay be obtained from the London Stock Ex-change. (Guidance Note on Key Principle 6).

Member firms may wish to consider including... in their annual reports to their investors [an]indication of issues which could cause concern.(Guidance Note on Key Principle 7).

See Key Principle 1 (AUTIF encourages allmember firms to adopt a clear and consideredpolicy towards their responsibilities as share-holders.).

The Annual Report should:2.1 Include information on SEE [social, envi-ronmental and ethical] matters that significantlyaffect the company’s short- and long-termvalue.2.2 Describe the company’s policies and pro-cedures for managing risks to the company’sshort- and long-term value arising from SEEmatters. If the annual report and accountsstates that the company has no such policiesand procedures, the board should provide rea-sons for their absence.2.3 Include information about the extent towhich the company has complied with its poli-cies and procedures for managing risks arisingfrom SEE matters.2.4 Describe the procedure for verification ofSEE disclosures. The verification procedureshould be such as to achieve a reasonable levelof credibility.(Appendix 4.2)

The company’s share structure should beclearly disclosed including the voting rights andother rights attached to each class of shares.(Part 5: Share Capital and Shareholder Rela-tions, p. 15)

PRINCIPLE: Non-audit fees [from the outsideauditor] should be disclosed and should notpotentially affect independence. (Part 4:Audit and Reporting, p. 13)

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30. Disclosure Regarding Compensation and Director Assessment

The corporate governance framework shouldensure that timely and accurate disclosure ismade on all material matters regarding thecorporation, including the financial situation,performance, ownership, and governance ofthe company. (Principle IV)

Disclosure should include, but not be limited to,material information on ... [m]embers of theboard and key executives, and their remunera-tion. (OECD Principle IV.A.4)

Companies are generally expected to disclosesufficient information on the remuneration ofboard members and key executives (either indi-vidually or in the aggregate) for investors toproperly assess the costs and benefits of remu-neration plans and the contribution of incentiveschemes, such as stock option schemes, to per-formance. (OECD Principle IV.A.4 Annotationat 37)

The ICGN Statement adopts OECD PrincipleIV.A.4 (The corporate governance frameworkshould ensure that timely and accurate disclo-sure is made on all material matters regardingthe corporation, including the financial situa-tion, performance, ownership, and governanceof the company....Disclosure should include, but not be limitedto, material information on ... [m]embers of theboard and key executives, and their remunera-tion.).

See also OECD Principle IV.A.4 Annotation at37 (Companies are generally expected to dis-close sufficient information on theremuneration of board members and key ex-ecutives (either individually or in theaggregate) for investors to properly assess thecosts and benefits of remuneration plans andthe contribution of incentive schemes, such asstock option schemes, to performance.).

Remuneration of corporate directors or supervi-sory board members and key executives shouldbe aligned with the interests of shareholders.Corporations should disclose in each annualreport or proxy statement the board’s policieson remuneration – and, preferably, the remu-neration break up of individual directors andtop executives – so that investors can judgewhether corporate policies and practices meetthat standard. (ICGN Amplified OECD Princi-ple IV at 8)

Not covered directly, but see Commentary onRecommendations 10(a) and 10(b) (The princi-ples upon which [directors’] remuneration isbased should be published in the annual re-port.).

Board ... remuneration policies [should be]transparent. (Principle VI)

The elements of the remuneration and share-holdings of the top executives should bemeaningfully disclosed at least in the aggregate,together with the material elements of theirparticipation in stock options, pension plans orother similar schemes, as well as severanceprovisions or payments if, in the opinion of theboard, these exceed customary norms. (Rec-ommendation VII.5.b)

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The means of remuneration of directors must bestated in the Annual Report. (1.7)

The Annual Report must state the method ofremuneration of the directors (fixed amounts,bonuses, variable results-linked part, etc.)Large companies (in the sense of accountinglaw) are obliged to provide information in thenotes to the Annual Accounts on the total remu-neration of the directors. (Note to 1.7)

It is recommended to disclose the total amountof the non-executive directors’ remunerationseparately in the annual report and to specifyboth the fixed and the variable part of theremuneration. In addition, the principlesunderlying the calculation of the variable part,if any, should be disclosed. (Part I: B.2.1)

It is recommended to disclose the total amountof the executive management’s remunerationseparately in the annual report and to specifyboth the fixed and the variable part of theremuneration. In addition, the principlesunderlying the calculation of the variable part,if any, should be disclosed. (Part I: B.3.1)

Information [to be disclosed] on thefunctioning of the board of directors [includes]the rules and procedures with regard to thedetermination of total emoluments, annual fees,benefits in kind and share options granted todirectors, as well as loans and advances whichmay have been granted to them. (Part II: B.2)

Not covered.

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[R]emuneration principles should be publishedin the annual report. (II. Governance)

It is recommended that the annual report con-tains the following information about thedirectors elected by the general meeting: ….§ how many shares, options and warrants

the director owns in the company and inaffiliated companies and the changes inthe director’s portfolio of the mentionedsecurities which have taken place duringthe accounting year.

(V.4)

We recommend that all important issues re-garding performance-related pay based onshares are published in the company’s annualreport, including who receives it and what thetotal for the managers and the directorsamounts to. Likewise, information about theincentive remuneration based on shares to theindividual director or manager should also bepublished in the company’s annual report.(VI.2)

Information about the most important contentsof the redundancy scheme [for a manager]should be published in the company’s annualreport. (VI.3)

If a member of the Board of Directors is, inaddition to the fee for his membership on theBoard of Directors, paid another fee on anotherbasis, the Board of Directors shall always beinformed thereof. Information regarding thepayment of such fees shall have to be notifiedin the Annual Report and in the Listing Par-ticulars.The order of making decisions when deter-mining the salaries and privileges of the topmanagement shall be made public in the An-nual Report and in the Listing Particulars.The Annual Report and the Listing Particularsshall contain the information on the totalamount of salaries and fees paid, as well as thefringe benefits granted, to the members of theBoard of Directors and the Supervisory Board,the Managing Director and the Deputy Man-aging Director for the latest financial period, onthe one hand with regard to the Board of Di-rectors and, on the other, the SupervisoryBoard. In this case, the Managing Director andhis Deputy are considered to belong to theBoard of Directors. (English Summary, 6)

An account of the bonus scheme is important,since it serves the external investor when as-suring that the incentives of the personnel are inline with the objectives of the company man-agement. Therefore it should be stated clearlyin the annual report how successful theachievement of the objectives is considered tobe in the payment plan. The common guide-lines of the personnel strategy should also bedescribed, as well as development of the work-ing conditions. (2.1.2)

[T]he annual report should include ...[i]nformation on the principles followed whendeciding on the salaries and other bonuses ofthe company management. In the annual re-port, it shall be separately mentioned to whatextent the members of the Board of Directorsare remunerated based on criteria other thanBoard membership; if no such remuneration ispaid, this shall also be stated. (2.2.2)

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Not covered. The Commission favors the practice of ex-plaining the reason for and the consequences ofthe resolutions, in particular those related toappointments, the renewal of Directors’ terms,and authority to carry out financial operations.The resumés of these Directors and the numberof shares they hold should also be includedwith the information.The Commission takes the view that the aggre-gate number and total value of stock optionsheld by the ten most highly paid executives ofthe company should be included in this infor-mation. This also applies to a company’s listedand unlisted subsidiaries. (§ I.B.3)

The board should deliberate on executive com-pensation and should publish its amount,method of calculation and the existence, if any,of stock options.The Commission recommends full disclosureregarding the amounts and all forms and cal-culations of direct, indirect, or deferredcompensation of individual executives anddirectors and the ten most highly compensatedpersons exercising management functions (in-cluding stock options in France or abroad,pension plans, and so forth). (§ II.C.2)

The Committee recommends that ... the Boardof Directors of any listed corporation shouldinclude in its annual report a specific chapterrelating to disclosure to the shareholders of thecompensation collected by the corporate offi-cers. (p. 11)

The third part [of a proposed chapter in theannual report disclosing compensation] woulddeal with attendance fees. It would specify themaximum amount permitted by the meeting ofshareholders and the amount actually paid tothe members of the Board of Directors duringthe elapsed financial year in relation to theprevious year. In addition, the rules for alloca-tion of the fees (Chairman, Directors, fixedportion, variable portion, additional fees formembership of Board committee) would beprecisely stated. (p. 12)

[T]he Committee considers that any listed cor-poration, having granted options, ought to drafta related chapter to be included in the section ofthe annual report dealing with the structure of,and changes in, the corporate capital. (p. 12)

The annual report and the notice calling theannual meeting of shareholders, every year,should inform the shareholders, who are legiti-mately highly interested in the matter, of thenumber of shares held by each Director in thecorporation’s stock. (p. 14)

The number of shares of stock held by eachDirector in his or her personal capacity in thecorporation concerned should be entered in theannual report and notice calling the meeting ofshareholders. (p. 24)

See pp. 22-23 (summary of disclosure recom-mendations).

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Supervisory BoardThe company also publishes, apart from thetotal remuneration, the principles of the remu-neration system of the members of theSupervisory Board. (Code, IV.7.4)

Management BoardApart from the emoluments of the ManagementBoard as a whole, the company also disclosesthe fundamentals of the system for remunera-tion. In this are included, in particular, theprocedure and the standards of comparison forevaluating the performance of the ManagementBoard, as well as the form of any market price-orientated compensation systems. (Code,III.6.4)

Supervisory BoardThe total remuneration [of the SupervisoryBoard] shall be listed in the Notes to the Com-pany Accounts. (Code, III.1.e)

The Notes to the Company Accounts shallcontain details of the share ownership (includ-ing existing option rights) of the SupervisoryBoard members and their changes in relation tothe previous year. (Code, III.1.f)

Management BoardThe structure, total amount, exercise prices andexercise periods, as well as the allocations ofshare options and similar rights in the reportingperiod, shall be published in the Notes to theCompany Accounts, separately by members ofthe Management Board and Executive Staff.To ensure compliance with insider laws, suit-able precautions like closed periods of time areimplemented. (Code, II.3.a)

The fixed and variable remuneration elementsof the Management Board shall be detailed inthe Annual Report. (Code, II.3.b)

Supervisory BoardThe total compensation of the members of theSupervisory Board shall be reported in theNotes of the Consolidated Financial State-ments, subdivided according to components.Also payments made by the enterprise to themembers of the Supervisory Board or advan-tages extended for services provided individ-ually, in particular, advisory or agency servicesshall be listed separately in the Notes to theConsolidated Financial Statements. (§V.4.5)

Management BoardThe concrete details of a stock option plan orcomparable compensation system shall be dis-closed in a suitable form. (§IV.2.3)

Compensation of the members of the Manage-ment Board shall be reported in the Notes ofthe Consolidated Financial Statements subdi-vided according to fixed, performance-relatedand long-term incentive components. The fig-ures should be individualized. (§IV.2.4)

The Consolidated Financial Statements shallcontain information on stock option pro-grammes and similar securities-based incentivesystems. (§VII.1.3)

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Preda Report(Italy)


Total compensation of non-executive membersof the Board should be reported separately andwith the required justification in the corpora-tion’s annual report. (Recommendation 6.1)

It is a good practice that the total compensationof management be disclosed and justified in thefinancial statements of the corporation. (Rec-ommendation 7.1)

See Recommendation 7.2 (It is a good practicethat a review committee, consisting of the ma-jority of non-executive Board members, beestablished by the general shareholder meeting,which would review management compensa-tion. The review committee’s compositionshould be disclosed in the corporation’s annualreport.).

Not covered. The IAIM’s endorsement of the [Combined]Code extends to its requirements regardingdisclosure of directors’ remuneration, the areaof single greatest difference between the corpo-rate governance regimes of Ireland and the UK.It is the IAIM’s strong view that, given theincreased globalisation of capital markets,trends towards greater accountability and trans-parency, and the need to ensure the optimumattractiveness of Irish stocks in a Euro envi-ronment, current disclosure practice in this areais unsustainable. The IAIM recommends thatthe Combined Code’s requirements regardingdisclosure of directors’ remuneration beadopted in their entirety and that the Irish StockExchange should amend its Listing Rules ac-cordingly. (Introduction, § 1)

Note:The Combined Code has been annexed to thelisting rules of the Irish Stock Exchange, re-quiring Irish listed companies to either complywith its recommendations or publicly explaintheir departure.

Information on share option schemes should bedisclosed so as to comply with the requirementsof the Appendix to Abstract 10 of the UrgentIssues Task Force and its successors. In accor-dance with Schedule B of the Combined Code,full information on LTISs should be disclosedin the Annual Report. (Guideline 4)

[P]erformance criteria [for the exercise of shareoption and other long-term incentivie schemes]must be clearly explained upon the scheme’sadoption and thereafter in the annual financialstatements. (Appendix 1: Performance Crite-ria)


Directors’ pay is a field ... which calls for ade-quate disclosure of information andtransparency concerning fees and the manner ofdetermining them. (Report, 5.4.2)

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Supervisory BoardThe aggregate number of shares, certificates ofshares and stock options* held by all the Su-pervisory Board members should be publishedeach year in the annual report. (Recommenda-tion 2.12)

Management Board[T]he aggregate sum of the remuneration in theannual report should be split into paymentsmade to serving [Management] board membersand those made to former [Management] boardmembers. (Recommendation 4.4)

The aggregate number of securities held by allthe members of the [Management Board] at theend of the financial year should be included inthe annual report and should be subdivided into:§ shares/certificates of shares;§ convertible bonds;§ marketable options;§ options issued by the company;§ together with the most significant condi-

tions relating thereto.(Recommendation 4.5)

See Recommendation 4.6 (The stock optionsgranted by the company in a particular financialyear to the joint members of the [ManagementBoard] and to other employees should be in-cluded in the annual report together with themost significant conditions relating thereto.).

* I.e., marketable options, not employee stockoptions. The Committee assumes that, in accor-dance with Recommendation 2.13, no employeestock options will be granted to SupervisoryBoard members.


The company must clearly disclose … the levelof remuneration of the executive and non-executive directors. (Handbook, p. 9)

Dilution of earnings per share must be avoidedas much as possible in the design of optionsplans. If this cannot be avoided, the companyshould strive to be as transparent as possible inexplaining dilution aspects. (Guideline 15)

Options plans should be reported on in theannual accounts. Should options positionsrepresent an off-balance sheet risk to the com-pany, this risk should be quantified in theannual accounts. (Guideline 16)

Information should be disclosed on the actualfunctions of each member of the board of di-rectors and executive management of thecompany, as well as their positions in othercompanies. (Recommendation 2)

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[T]he Committee recommends that directorremuneration information policies be groundedon a principle of maximum transparency.Applying this principle requires a quick ad-vancement from the current situation to morecomplete and detailed information on directorremunerations. This involves individual infor-mation on each one, itemized by headings,whether they be remunerations attached to theirdirector status (fixed earnings, allowances, shareof profits, bonuses, incentives, pensions, insur-ance, payments in kind or others) orremunerations paid by the company for otherkinds of legal relations (professional services,line management or executive positions).The Committee recommends that companiestargeted by this report that do not choose toimmediately apply this maximum transparencyprinciple, but prefer a gradual implementation(or by stages), provide an explanation in theirAnnual Report. In either case, these companiesshould provide at least individualized informa-tion on the remunerations of all of the directorsas such, for each of the items stated above aswell as any professional fees. On the otherhand, the remuneration of executive directorswould be stated for all of them in the aggregate,stating how many directors receive each of theremuneration items. All this information wouldbe included in the Annual Report. (Report, 7.4)

Information should be given in the annual re-port concerning the principles the companyapplies when it comes to periods of notice,severance pay, pension and other benefits forthe managing director and other key executives.Information should also be given regardingbonus payments and other similar results-basedremuneration. The recommendations of theIndustry and Commerce Stock ExchangeCommittee (Naringlivets Borskommitte) con-cerning benefits to key executives,“Information angaende ledande befactningsha-vares formaner,” apply in this respect ... forcompanies that are registered on the StockholmStock Exchange (Stockholm Fondbors).[T]here is a latent exposure risk in regard tocosts for changing corporate leadership. Thesecommitments can amount to considerablesums.The shareholders and the market have a legiti-mate interest in knowing how much the totalexposure amounts to. It is the job of the audi-tors to go through all such contracts. The valueof the total remuneration of this nature that thecompany/group may have to pay out for themanaging director and corporate managementshould be specifically stated in the annual re-port.In accordance with the rules of the stock ex-change contract, the sum of the boardmembers’ fees and other remuneration must bestated in the annual accounts, including thatwhich issues from subsidiaries and associatedcompanies. The fee to the chairman of theboard and other remuneration, if applicable,should be stated in a separate account. (Guide-line 2.4.1)

Not covered. The disclosure required in the Annual Report ofdirectors’ emoluments and of any compensationpayments in respect of loss of office made todirectors is considered by institutional share-holders to be an important feature of companylegislation.The Companies Act and The InternationalStock Exchange impose certain requirementsgoverning such payments including the issue ofshares and grant of loans, guarantees etc. (p. 4)

Those companies which do not have a sufficientbody of non-executive directors to form aCompensation Committee should take steps toremedy the situation. In the interim their An-nual Report should state the method by whichall directors’ compensation is determined.(p. 4)

A summary of the details of any performance-linked remuneration schemes and of all types ofshare option and other incentive and profitsharing and bonus schemes should be disclosedin the Annual Report.Details of any ex gratia payments or paymentsby way of compensation should be disclosed toshareholders in the Annual Report and Ac-counts.It is in general undesirable that details of anycompensation payments or ex gratia paymentsshould be subject to confidentiality agreementsor similar arrangements. (p. 5)

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The overriding principle in respect of boardremuneration is that of openness. Shareholdersare entitled to a full and clear statement ofdirectors’ present and future benefits, and ofhow they have been determined. Werecommend that, in disclosing directors’ totalemoluments and those of the chairman andhighest-paid UK director, separate figuresshould be given for their salary andperformance-related elements, and that thecriteria on which performance is measuredshould be explained. Relevant informationabout stock options, stock appreciation rights,and pension contributions should also be given.(Report, 4.40)

Following the issuance of the Greenbury Reportin 1995, the London Stock Exchange adoptedlisting rules requiring that companies listed onthe exchange disclose directors’ remunerationpackages (broken down by director) includingsalary, bonuses, pensions, and stock optionplans. Also, companies must state whether ornot they comply with the remunerationcommittees and policy sections of the CadburyReport. See London Stock Exchange ListingRule 12.43 (w) and (x).


Boards of Directors need to delegateresponsibility for determining executiveremuneration to a group of people [that] needsto submit a full report to the shareholders eachyear explaining the company’s approach toexecutive remuneration and providing fulldisclosure of all elements in the remunerationof individual Directors. (Introduction, 1.14)

The remuneration committee Chairman should... ensure that the company maintains contact asrequired with its principal shareholders aboutremuneration in the same way as for othermatters. (Code, A8)

The remuneration committee should make areport each year to the shareholders on behalfof the Board. The report should form part of,or be annexed to, the company’s Annual Reportand Accounts. (Code, B1)

See Code, B2 – B11 (data to be disclosedinclude remuneration policy, comparisons withother companies, share options, grants,pension entitlements, bonuses, servicecontracts, shareholdings and long-termincentive schemes).

See also Commentary on Disclosure, 5.1–5.33(disclosure of remuneration in the event ofunsatisfactory performance and/or earlytermination, and the duration of contracts).

See also Appendix I, Existing DisclosureRequirements.


Companies should establish a formal andtransparent procedure for developing policyon exeutive remuneration and for fixing theremuneration packages of individualexecutive directors. (Principle B.II)

The company’s annual report should containa statement of remuneration policy anddetails of the remuneration of each director.(Principle B.III)

Directors’ remuneration is of legitimate con-cern to the shareholders. They are entitled toexpect that remuneration will be “sufficient toattract and retain the directors needed to run thecompany successfully” and that “the remunera-tion of executive directors should link rewardsto corporate and individual performance.”More generally, now that details of individualdirectors’ remuneration are disclosed, they areliable to have an impact both on the company’sreputation and on morale within the company.(Guideline 4.2)


The company’s annual report should containa statement of remuneration policy anddetails of the remuneration of each director.(Principle B.3)

The board should report to the shareholderseach year on remuneration. The report shouldform part of, or be annexed to, the company’sannual report and accounts. It should be themain vehicle through which the companyreports to shareholders on directors’remuneration. (Code § 1, B.3.1)

The report should set out the company’s policyon executive directors’ remuneration. It shoulddraw attention to factors specific to thecompany. (Code § 1, B.3.2)

In preparing the remuneration report, the boardshould follow the provisions in Schedule B tothis code. (Code § 1, B.3.3)

Shareholders should be invited specifically toapprove all new long term incentive schemes(as defined in the Listing Rules) save in thecircumstances permitted by paragraph 13.13Aof the Listing Rules. (Code § 1, B.3.4)

See SCHEDULE B: PROVISIONS ON WHATSHOULD BE INCLUDED IN THE REMUNERATIONREPORT.

Note: Amendment 12 to the London Stock Ex-change Listing Rules, dated June 25, 1998,requires that companies disclose their govern-ance practices in relation to the CombinedCode.

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The remuneration of each individual director,together with the components that form his/herpay package, should be tabulated and explainedin a form that can be easily understood byshareholders. (§9(ii))

Any rolling contract [of a director] should notexceed one year. If, on first appointment, aninitial longer period is deemed essential by theboard, this would generally be acceptableprovided that shareholders are given anexplanation in the annual report. (§9(iii))

The report of the remuneration committeeshould be submitted to shareholders each yearfor their approval.Long-term incentive schemes must be put toshareholders for approval. Performance hurdlesshould be set before incentive scheme grants aremade.Remuneration committee reports should berelevant to corporate objectives, andcommunicated in a clear and transparentmanner. (§9(iv))


Remuneration committees should explain pro-posed schemes clearly to shareholders,justifying the structure of the scheme and therelevance of the performance criteria chosen.Schemes should be structured as simply aspossible to ensure they can be understood byparticipants and monitored by shareholders.The link between company performance andexecutive reward should be clear. The effect ofthe scheme should be illustrated with examplesshowing rewards at various performance levelsfor one of the participants, say, the chief ex-ecutive. (APPENDIX 1.3.4)

Where remuneration committees have authorityto vary incentive schemes they should only doso in exceptional circumstances and to ensurethat the scheme continues to motivate execu-tives. All changes should be reported andjustified to shareholders. (APPENDIX 1.3.7)

Companies should confirm continuing share-holder support for a scheme [of executivecompensation] during its lifetime, givingshareholders an opportunity to reassess thescheme in light of actual payout levels.(APPENDIX 1.3.8)

The annual report should disclose the level ofrecent grants made under any existing incentivescheme, the performance criteria applied to thegrants, and any payouts resulting from grantsmade in previous years. The actual perform-ance resulting in the vesting of grants should bedisclosed and clearly explained. (APPENDIX1.3.10)

Principle: There should be full and trans-parent disclosure of directors’ remuneration.A. Remuneration figures are clearly disclosed.In disclosing remuneration, companies shouldprovide figures for each element of each direc-tor’s remuneration, with the addition ofproviding at least two years’ figures for eachcomponent, in order to allow trends to be as-sessed. This should include provision of thetransfer value of increases in accrued pensionbenefits after inflation.B. The performance basis for all incentiveschemes is clearly set out. For all annual orlonger-term incentive schemes, there should bea full explanation in each annual report includ-ing: the performance criteria used, theperformance targets, the performance period,the maximum level of awards which may bemade and the actual level of awards grantedduring the year. Performance achieved againstthe targets used should be disclosed. whererelative or comparative performance measuresare being used, the company’s performanceranking should be provided each year. Forannual schemes, the targets which resulted inany payments during the year should be dis-closed. Discretionary or exceptional bonuspayments should be fully described and ex-plained.C. Options and share awards are fully valued.Rewards under share-based long-term incentiveplans may accrue over time and will depend onthe future share price. For share-based incen-tive schemes, companies should provide a fullindividual breakdown of all awards which havenot yet fully vested or been exercised, togetherwith a fair valuation of the value of such awardsusing an option pricing model. (Part 3: Direc-tors’ Remuneration, p. 9)

See Part 3: Directors’ Remuneration, p. 8 (dis-closure).

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31. Disclosure Regarding Corporate Governance

The corporate governance framework shouldensure that timely and accurate disclosure ismade on all material matters regarding thecorporation, including ... governance of thecompany. (OECD Principle IV)

Disclosure should include, but not be limited to,material information on ... [g]overnance struc-tures and policies. (OECD Principle IV.A.7)

Companies are encouraged to report on howthey apply relevant corporate governance prin-ciples in practice. Disclosure of the governancestructures and policies of the company, in par-ticular the division of authority betweenshareholders, management and board members,is important for the assessment of a company’sgovernance. (OECD Principle IV.A.7 Annota-tion at 38)

See Millstein Report, Perspective 3 (Regulatoryintervention in the area of corporate governanceis likely to be most effective if limited to:§ Ensuring the protection of shareholder

rights and the enforceability of contractswith resource providers (Fairness);

§ Requiring timely disclosure of adequateinformation concerning corporate financialperformance (Transparency);

§ Clarifying governance roles and responsi-bilities, and supporting voluntary efforts toensure the alignment of managerial andshareholder interests, as monitored byboards ... having some independent mem-bers (Accountability); and

§ Ensuring corporate compliance with otherlaws and regulations (Responsibility).).

See also Millstein Report, Perspective 23 (Indi-vidual corporations, shareholders and otherinterested parties should continue their efforts toarticulate and adopt – voluntarily – corporategovernance “best practices” designed to im-prove board independence and activism, andaccountability to shareholders.).

The ICGN Statement adopts OECD PrincipleIV (The corporate governance frameworkshould ensure that timely and accurate disclo-sure is made on all material matters regardingthe corporation, including ... governance of thecompany.).

The ICGN Statement adopts OECD PrincipleIV.A.7 (Disclosure should include, but not belimited to, material information on ...[g]overnance structures and policies.).

[C]orporations should disclose … sufficientinformation on the identities, core competen-cies, professional backgrounds, other boardmemberships, factors affecting independence,and overall qualifications of board membersand nominees so as to enable the assessment ofthe value they add to the company. Informa-tion on the appointment procedure should alsobe disclosed annually. (ICGN AmplifiedOECD Principle IV at 8)

See OECD Principle IV.A.7 Annotation at 38(Companies are encouraged to report on howthey apply relevant corporate governance prin-ciples in practice. Disclosure of the govern-ance structures and policies of the company, inparticular the division of authority betweenshareholders, management and board members,is important for the assessment of a company’sgovernance.).

See also ICGN GLOBAL SHARE VOTING PRINCI-PLES, 10 (There should be appropriate regula-tion or an effective mechanism to ensure thatshareholder meeting agendas are released ac-cording to established rules and procedures,and that the correct amount and appropriatecontent of proxy information is distributed toshareholders.).

See also ICGN GLOBAL SHARE VOTING PRINCI-PLES, 11 (A relevant body or bodies in eachmarket should pursue implementation of theICGN share voting principles.).

Not covered. Board ... nomination ... policies [should be]transparent. (Principle VI)

Conflicts of interest should be avoided [or]disclosed. (Principle IX)

Ownership cascades that procure a degree ofcontrol disproportionate to individual equityownership and significant shareholder agree-ments should be disclosed. (RecommendationIII.3)

The number of [board] meetings held [annu-ally] should be disclosed. (RecommendationV.5(a)(ii))

[N]ames of directors who did not personallyattend at least 75% of the meetings should bedisclosed. (Recommendation V.5(c))

The nomination process and criteria for boardand board committee members should be dis-closed. (Recommendation VI.2(a))

[F]ounders and controlling blockholders mayand do consider other objectives to overrideshareholder return maximalization.... [T]hesemust be properly disclosed and explained.(Preamble at 5)

[D]eviations from the Recommendations ... andtheir reasons should be duly disclosed. (Pre-amble at 6)

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The composition of the [audit] committee isannounced in the Annual Report.... (Note to 4.3)

See 2.1 (A recommendation from [the non-executive directors] is required for ... the stan-dards of conduct which the company imposeson itself.).

[The Code] proposes a so-called “comply orexplain” approach. (Part I: A.5)

[M]embership of the remuneration committeeshould be disclosed in the annual report.(Part I: B.3.2)

[M]embership of the [audit] committee shouldbe disclosed in the annual report. (Part I:B.4.3.e)

Information [to be disclosed] on thefunctioning of the board of directors [includes]:§ Indications on the most significant types of

subjects discussed [in meetings].§ Indication of specific rules, if any, ... gov-

erning the decision-making process...§ A description of the way in which the board

of directors is organised to supervise thedaily management....

§ A description of the way in which the boardof directors is organised to follow the evo-lution of the activities of subsidiaries andparticipating interests.

§ If the board of directors has adopted rulesfor the exercise of the director’s function,this should be mentioned together with asummary of these rules.

(Part II; B.2)

See Part I: A.4 (Belgian company law alreadyincorporates the basic concepts required foradequate corporate governance.).

See also Part II: B.3 (disclosure of informationon committees) and B.4 (disclosure of boardoversight of management).


Not covered directly, but see p. 5 (The Directorundertakes to encourage the Board to adopt acode of good practice.).

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Not covered direcly, but see Topic Headings 29and 30, above.

[I]t is important that the companies state towhat extent they follow the recommendations.(Introduction)

If [voting rights] restrictions are already part ofa company’s Articles, it is recommended thatthe board evaluates the expediency of this andaccounts for its evaluation of whether a revo-cation of these restrictions is desirable andpossible in the annual report. (I.2)

It is recommended that the annual report con-tains the following information about thedirectors elected by the general meeting:§ the director’s occupation.§ the director’s other managerial positions

or directorships….(V.4)

[Board] meeting frequency should be publishedin the annual report. (V.5)

The annual report should contain informationabout the age of the individual directors. (V.7)

The annual report should state when the direc-tor joined the board, if the director has beenreelected and when the new election periodexpires. (V.8)

The board must account for why it has chosento use board committees in the annual report.(V.9)

[I]t is recommended that the board states theprocedures of the board’s self-assessment in theannual report. (V.10)

See Introduction (The recommendations fromOECD operate with several basic values suchas openness, transparency, responsibility andequality of treatment. The committee is con-vinced that these values are universal andessential….).


The company shall explain the main duties ofthe Supervisory Board in the Annual Reportand in the Listing Particulars. (English Sum-mary, 3)

The company shall confirm in writing the du-ties of the administrative bodies and theirindividual members if they are assigned specialduties and areas of responsibility supplement-ing those in the applicable legislation. Theareas of responsibility shall be defined in par-ticular in the case of a full-time Chairman ofthe Board of Directors or another member ofthe Board of Directors employed by the com-pany.The duties and areas of responsibility of theadministrative bodies and their members haveto be explained in the Annual Report and in theListing Particulars, when they have been as-signed special duties supplementing theapplicable legislation. With regard to individ-ual members of the Board of Directors, theinformation has to be given when they are em-ployed by the company. An account shallfurther be given on the order in which the du-ties and areas of responsibility of the membersof the Board of Directors have been confirmed.(English Summary, 1)

The composition of the Committee shall beexplained in the Annual Report and in theListing Particulars of the company. (EnglishSummary, 7)

It is justified to include a presentation of thetasks of the Board of Directors in the annualreport of the company. The Annual Reportshould at least list the tasks that are the Board’sresponsibility; the functions of the possibleSupervisory Board should be mentionedseparately. Similarly, if the company followssome corporate governance guidelines, amention of this should be made in the annualreport. The possible internal assignment oftasks of the Board of Directors — including theCommittees ... — should be presented. (2.1.2)

To allow for the shareholders to be assured ofthe fact that the company management does nothave any conditions that are more advantageousthan those depending on the markets in theirpossible business activity with the company,the annual report should also state that themembers of the company management and theirimmediate circles do not have any related partytransactions with the company. (2.2.2)

In order to define the owner role of the State,the annual report shall mention the possiblecommitment of the State to the responsibilitiesof the company concerned in addition to theshare capital investment. As the FinnishGovernment has not assumed suchresponsibilities, it is justified to mention thisseparately, especially in view of foreigninvestors. (2.3.2)

See Cover Letter to Civil Servants on theBoards of Directors of state-owned companiesfrom the Ministry of Trade & Industry, 7 No-vember 2000 (The companies’ corporategovernance schemes must be up-to-date in or-der to ensure the attractiveness of state-ownedcompanies and associated companies as in-vestment objects, and to enable efficientownership steering and control of shareholdersby the State.).

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The Committee considers that each boardshould periodically review its membership,organization and operations, and keepshareholders informed of conclusions andaction taken. (p. 3)

In France, board operations remain highly in-formal, and even where formal procedures havebeen adopted, the boards concerned have giventhem little publicity. This has led to some con-cern as to whether the boards of listedcompanies carry out their assignments with thenecessary thoroughness and efficiency.The Committee believes that each boardshould inform shareholders of the arrange-ments made to ensure that its duties areproperly performed, and should periodicallyreview the adequacy of its organization andoperation. In particular, such arrangementsshould include more formal procedures forthe preparation of meetings. (p. 16)

The Commission recommends that the boardregularly evaluate its own degree of opennessin terms of its membership, its organisation andits mode of functioning. It should informshareholders of any measures taken as a result.

The Commission further recommends that eachyear, in the annual report, the board publish thenumber of its meetings during the year, plus anattendance record, an evaluation of board or-ganisation and functioning, and a detailedresumé and list of directorships of each boardmember and of candidates to director posts.(§ II.D.3)

See § I.B (The shareholders’ meeting is theoccasion when the Board of Directors rendersits accounts to the shareholders on the exerciseof its duties.).

The French position seems unique in that noother country offers the option between a uni-tary system (Board of Directors) and a dualsystem (Supervisory Board and Board of Man-agement) in all corporations, including listedcorporations. (p. 5)

[I]t is essential that the shareholders and thirdparties be fully informed of the options and ofthe allocation of powers selected by the Board.The annual report is the location for the infor-mation due to the shareholders, to which thereasons for, and justification of, the optionsmade by the Board should be reported.It ought to be possible to append the rules ofoperation, having become the basic collectionof rules for internal operation, to the by-laws,or at least to disclose them to third parties.Information to the latter relating to the natureof the election made could also be provided bymeasures such as an entry in the Registry ofCommerce and Companies or a mention in thecorporate documents. (p. 9)

The annual report should specify the number ofmeetings of the Board of Directors and Boardcommittees held during the elapsed financialyear, and provide the shareholders with infor-mation as to the Directors’ actual attendance atthe meetings. (p. 16)

The annual report should specify precisely thedates of the initiation and expiry of each direc-tor’s term, so as to highlight the staggering [ofDirectors’ terms].It should also mention for each Director his orher age, major position, and directorships inother listed corporations (other than groupaffiliates), and specify the names of all themembers of each Board committee. (p. 24)

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Adequate information ... is a pre-condition forreinforcing trust.... This applies not least toinformation on the chosen form of corporategovernance. (Commentary on Thesis 9)

Companies with more than 500 employeesshould formulate guidelines for the managementand supervision of the company.... (Code,VII.3)

See also:Thesis 1 ([This Code] strengthens the qualityand transparency of the management ofGerman companies.).

Thesis 2 ([This Code] must take into accountthe special context of German companies in aglobalised economy.).

Thesis 3 (An effective [German Code] has ademonstratively managerial perspective.).

Thesis 4 (Rules on corporate governancemust be tailored to the particular character-istics of companies, principally their legalforms and owner structures.).

Thesis 5 (The Management Board stands atthe center point of [these] guidelines.).Commentary on Thesis 5 (Rules for the supervi-sion of the Management Board by theSupervisory Board are certainly of importance,but they must not take centre stage and domi-nate the understanding of corporate governance.In the final analysis, an excellent companymanagement does not allow itself to be‘checked into.’).

What is inappropriate in particular is the attemptto want to ‘check into’ the quality of manage-ment by concentrating on ... supervision and theauditor of the company. Instead of such con-trol, or Supervisory Board over-balance, the aimshould rather be to establish terms most prom-ising for success of the management of thecompany. (Code, I.7)

Members of the Management Board must dis-close to the Supervisory Board materialpersonal interests in transactions of the Com-pany and Group companies as well as otherconflicts of interest. They must also informtheir Management Board colleagues. (Code,II.4.b)

If a member of the Supervisory Board does notparticipate personally in more than half of theBoard Meetings of any given fICSAl year, thishas to be noted in the Annual Report. (Code,III.1.d)

The Supervisory Board members must discloseany conflict of interest to the Chairman of theSupervisory Board or his deputy unless they donot participate for cause in a specific meetingor retire for cause due to a continuing conflict.In the event of serious conflicts of interest, theChairman of the Supervisory Board or his dep-uty shall decide to whom the informationshould be forwarded and whether the memberof the Supervisory Board in question shall par-ticipate in a specific meeting.In their decisions, the Supervisory Board mem-bers must not pursue their own interests orthose of associated persons or companies whichare in conflict with the interests of the Com-pany or any Group Company. (Code, III.4.a -b)

See generally Code, II.4 (rules governing con-flicts of interest and own-account transactions).

The Management Board and Supervisory Boardshall report on the enterprise’s Corporate Gov-ernance in the Annual Report. This alsoincludes explanation of possible deviationsfrom this Code. (§III.10)

If a member of the Supervisory Board did notpersonally take part in more than half of themeetings of the Supervisory Board in a finan-cial year, this shall be noted in the Report of theSupervisory Board. (§V.4.6)

In its report, the Supervisory Board shall in-form the General Meeting of any conflicts ofinterest which have occurred together with theirtreatment. (§V.5.3)


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Preda Report(Italy)


The corporate governance framework shouldensure the shareholders that the operation of thecorporation is characterized by fairness andtransparency:§ The rules and procedures governing the

selection of the members of the Board ofDirectors, the acquisition of control of alisted corporation and the execution of un-usual and complex transactions ... shouldbe fully analysed and disclosed so that in-vestors know their rights and theprocedure. The price of these transactionsshould be transparent and be settled interms and conditions that protect the rightsof the shareholders.

§ Capital structures and arrangements thatenable certain shareholders to obtain a de-gree of control disproportionate to theirequity ownership should be disclosed.

(Recommendations 1.4.1 and 1.4.2)

See Recommendation 2.2 (Actions and transac-tions based on insider information or undertakenfor private benefit should be prohibited.).

See also Recommendation 2.3 (Members of theBoard of Directors and executive managersshould be required to disclose information onany private material interest involved in trans-actions or other matters affecting thecorporation.).

See also Footnote 2 to Recommendation 4.1.1(legal stipulations regarding disclosure of cor-porate information)

[These] principles of corporate governance arevoluntary in character, but constitute self-binding commitments of the company.The company must make public, at leastthrough its annual reports, the principles ofcorporate governance that it applies. (§§7.1 &7.2)


§ 1, A.2.1 (The chairman, chief executive offi-cer and senior independent director should beidentified in the annual report.);

§ 1, A.3.2 (Non-executive directors consideredby the board to be independent should be iden-tified in the annual report.);

§ 1, A.5.1 (The chairman and members of thenomination committee should be identified inthe annual report.);

§ 1, B.2.3 (The members of the remunerationcommittee should be listed each year in theboard’s remuneration report to shareholders.).

The Preamble to the Combined Code makesclear that listed companies should be requiredto disclose how they apply the Principles ofGood Governance and whether they are incompliance with the Code of Best PracticeProvisions.

The Committee recommends that the electionof members of the board of directors shouldtake place in accordance with a transparentprocedure. (Commentary on Code, 7; see Re-port, 5.4.1)

Where ... the board has delegated powers tothe chairman, it shall disclose adequate in-formation in its annual report on the powersdelegated. (Code, 4.3; see Commentary onCode, 4; Report, 5.2)

[The nominations] committee ... serves theprimary purpose of rendering the selection pro-cedure transparent. (Commentary on Code, 7)

[T]he Committee recommends that the mem-bers of the board of auditors be elected bymeans of a transparent procedure and thatshareholders should receive the informationthey need to exercise their voting rights in aninformed manner. (Commentary on Code, 13;see Report, 5.6)

See Report, 6 (The task of verifying the suit-ability of the choices made [in the Code], andthe extent of the Code’s application, is en-trusted to the institutional fora for theconfrontation between companies and the mainactors interested in good Corporate Govern-ance: It is therefore to be reserved toshareholders’ meetings and encounters withinstitutional investors.).

317


VEB RecommendationsThe Netherlands




The basic outlines of Corporate Governancewithin the Company should be explained in theannual report. The Company should give amotivated explanation in the annual report ofthe extent to which it has complied with therecommendations.The profile [of the Supervisory Board] is a pub-lic document and should be available forinspection at the company’s offices. (Recom-mendation 2.2)

The annual report should state the ages of theindividual Supervisory Board members, theiroccupation, main job, nationality and the mainadditional posts they hold, to the extent that thelatter are of importance for performing the du-ties of a Supervisory Board member. The reportshould also state when a member was first ap-pointed and the current term of the appointment.(Recommendation 2.4)

The fact that discussion [regarding performanceof the Supervisory Board & the ManagementBoard] has been held is to be mentioned in theSupervisory Board’s report in the annual report.(Recommendation 3.5)

The basic outlines of Corporate Governancewithin the company should be explained in theannual report. (Recommendation 6.1)

The annual accounts audit is one of the corner-stones for sound Corporate Governance.(Recommendation 6.3)

Not covered directly, but see Recommendation10 (If a shareholder’s stake in the companypasses 331/3 percent, that shareholder should beobliged to bid for the remaining shares underreasonable conditions.).

See also Commentary on Recommendation 10(The Peters code recommends a threshold of 50percent, which is considerably higher than inother European countries. In fact, with smallerstakes substantial control is already feasible.).

Companies should state which recommenda-tions of the Corporate Governance Commission[i.e., Peters Report] they are not adopting andwhy. (Guideline 1)

A company should only accept a so-called“structure regime” by choice if this decisionhas been put to (annual) approval of share-holders at the annual meeting. (Guideline 10)

The annual report must state whether each su-pervisory board member is independent frommanagement and any majority shareholders.(Guideline 13(a))

Profiles of the supervisory board and its rulesand regulations should be made available toshareholders. (Guideline 17)

The management structure must … be trans-parent.The company must clearly disclose its strategy[and] the decision-making process within thecompany. (Handbook, p. 9)

[I]t is recommended that listed companies andinstitutional investors include a mention in theirannual reports of the adoption, or degree ofadoption, of these recommendations, with thegrounds for this adoption. (Introduction)

Information should be disclosed on thesharing of powers between the differentbodies and departments or divisions of thecompany, within the framework of the cor-porate decision process, particularly throughflowcharts or functional maps. (Recommen-dation 1)

It is recommended that, for those matters whichare central to the configuration of corporategovernance, information be disclosed, even ifonly summarized, on the special procedures ofdecision, particularly regarding the company’sstrategic options. (Commentary on Recom-mendation 1)

It is recommended that, within the internalorganization of the company, specific regula-tions be established aimed at regulatingsituations of conflict of interest betweenmembers of the board and the company, aswell as the main obligations resulting fromduties of diligence, loyalty and confidential-ity of the members of the board, particularlyregarding the prevention of improper use ofbusiness opportunities and company assets.(Recommendation 12)

Internal control procedures, besides the possi-bility of them having a significant impact on thelevel of corporate efficiency, are ... privilegedmeans to guarantee transparent corporate gov-ernance. (Commentary on Recommendation12)

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ISC Staement(United Kingdom)


The Board of Directors should include in itspublic annual report some information con-cerning its governance rules, providing anexplanation in connection with any rules devi-ating from the recommendations of thisCommittee. (Code, Recommendation 23)

It is obvious that corporate governance issuesare extremely relevant, as shown by availableexperience. In general, the experts in this matter– analysts and fund managers – consider thatcorporate governance standards are quite im-portant when making investing decisions, andsurveys carried out confirm this view. Compa-nies must be transparent in order to allow theevaluation of the governance systems by mar-kets. for this reason, we recommend that listedcompanies provide public information on thosetopics, making sure that the Compliance Com-mittee, which has the basic task of evaluatingthe efficiency of the company’s control anddecision rules and watch over their effectiveobservance, takes part in preparing that infor-mation.The objective is that the Board of Directorsinclude information on its governance ruleswithin its annual public documentation. Itseems very wise that companies justify theirdecision to not follow the recommendations ofCode of Best Practice issuing from this report.(Report, 12.2)

[Nomination] committee members should bepresented in the annual report. (Guideline1.2.1)

[A]udit committee members should bepresented in the annual report. (Guideline1.2.2)

Not covered. As a matter of law and Stock Exchangerequirements, copies of all directors’ servicecontracts with an unexpired term of 12 monthsor more must be made available in anaccessible place for inspection byshareholders…. The unexpired period of anyservice contract must be disclosed where adirector is being proposed for re-election. (p.4)

The composition of the CompensationCommittee should be disclosed in the AnnualReport. (p. 4)

There is no requirement either under theStatutes or under the Listing Agreement that thepowers of directors to borrow on behalf of acompany should be limited.It is suggested that, as a matter of good practice,there should be a reasonable limit under theArticles of Association on the power of thedirectors to borrow, which should relate to theborrowings of the group as a whole. It isdesirable that the amount permitted under theBorrowing Powers Article should be stated inthe Annual Report and Accounts. (p. 5)

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We recommend that listed companies ... shouldstate in the report and accounts whether theycomply with the Code and identify and givereasons for any areas of non-compliance.(Report 3.7)

Note: The London Stock Exchange ListingRules subsequently came to require that listedcompanies disclose how they comply with thePrinciples of the Combined Code of 1998 andwhether they comply with its Provisions(“comply or explain”). See §12.43A(a) and (b)(January 1999).

We envisage, however, that many companieswill wish to go beyond the strict terms of theLondon Stock Exchange rule and make ageneral statement about the corporategovernance of their enterprises, as some leadingcompanies have already done. We welcomesuch statements and leave it to boards to decidethe terms in which they make their statements ofcompliance. (Report 3.8)

We recommend that all listed companiesregistered in the UK should comply with theCode to the fullest extent practicable andinclude a statement about their compliance inthe annual reports to shareholders by theirremuneration committees or elsewhere in theirannual reports and accounts. Any areas of non-compliance should be explained and justified.(Code, 2.3)

We further recommend that the London StockExchange should introduce the followingcontinuing obligations for listed companies:§ an obligation to include in their annual

remuneration committee reports toshareholders or their annual reports ageneral statement about their compliancewith section A of the Code which shouldalso explain and justify any areas of non-compliance;

§ a specific obligation to comply with theprovisions in section B of the Code whichare not already covered by existingobligations, and with provision C10 of theCode, subject to any changes of wordingwhich may be desirable for legal ortechnical reasons.

(Code, 2.4)

Note: The London Stock Exchange ListingRules subsequently came to require that listedcompanies disclose how they comply with thePrinciples of the Combined Code of 1998 andwhether they comply with its Provisions(“comply or explain”). See §12.43A(a) and (b)(January 1999).

The members of the remuneration committeeshould be listed each year in the committee’sreport to shareholders. When they stand for re-election, the proxy cards should indicate theirmembership on the committee. (Code, A5)


We draw a distinction between principles ofcorporate governance and more detailedguidelines like the Cadbury and Greenburycodes. With guidelines, one asks: “How far arethey complied with?”; with principles, the rightquestion is: “How are they applied in practice?”[The Committee] recommends that companiesshould include in their annual report andaccounts a narrative statement of how theyapply the relevant principles to their particularcircumstances. Given that the responsibility forgood corporate governance rests with the boardof directors, the written description of the wayin which the board has applied the principles ofcorporate governance represents a key part ofthe process. We do not prescribe the form orcontent of this statement, which couldconveniently be linked with the compliancestatement required by the Listing Rules.(Guideline 2.1)

See Principle C.III (When evaluatingcompanies’ governance arrangements,particularly those relating to boardstructure and composition, institutionalinvestors and their advisers should give dueweight to all relevant factors drawn to theirattention.).


The chairman, chief executive officer andsenior independent director should be identifiedin the annual report. (Code § 1, A.2.1)

Non-executive directors considered by theboard to be independent ... should be identifiedin the annual report. (Code § 1, A.3.2)

The chairman and members of the nominationcommittee should be identified in the annualreport. (Code § 1, A.5.1)

The members of the remuneration committeeshould be listed each year in the board’sremuneration report to shareholders. (Code § 1,B.2.3)

The members of the [audit] committee, amajority of whom should be independent non-executive directors, should be named in thereport and accounts. (Code § 1, D.3.1)

The London Stock Exchange introduced a re-quirement that listed companies disclose howthey apply the Principles of Good Governanceand whether they are in compliance with theCode of Best Practice Provisions. See: ListingRules, §§ 12.43A(a) and (b) (January 1999).

If the company does not have an internal auditfunction and the board has not reviewed theneed for one, the Listing Rules require theboard to disclose these facts. (Turnbull Report,¶47)

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31. Disclosure Regarding Corporate Goverance

The majority of non-executive directors shouldbe independent of management and identified assuch in the annual report. (§3)

There should be a formal and transparentprocedure for the appointment of new directorsto the board. (§7)

Any change of auditors, agreed by the board aspart of a periodic planned review, or for anyother reason, should be explained and justifiedto shareholders. (§13)

AUTIF encourages member firms to identify anindividual who may be contacted regardingcorporate governance matters. (Principle 1)

Regular dialogue will provide opportunities formember firms to explore with companies anyconcerns they may have about companies’compliance with the Combined Code.(Principle 5)

AUTIF recommends that member firms shouldinclude in their annual reports to investors, as aminimum, a statement as to whether the firm isfollowing the AUTIF code of good practice oranother similar code. (Principle 7)

AUTIF encourages all member firms to providetraining for relevant staff on corporategovernance issues and on communicating thefirm’s policy on corporate governance to itsinvestors. (Principle 10)

The chairman, chief executive and seniorindependent director should be identified in theannual report. (Guidance Note on KeyPrinciple 6)

A.5.1 [of the Combined Code] recommends...[that] the chairman and members [of thenomination committee be] identified in theannual report. The company should provide anexplanation if there is no nominationcommittee. (Guidance Note on Key Principle6)

Member firms may wish to consider includingin their annual reports to their investors ...[a]general policy statement on corporategovernance. (Guidance Note on Key Principle7)

Hermes accepts that not all NEDs need to beindependent ... and that there can be a role forother NEDs provided that at least three, and amajority, of NEDs satisfy the ... test of inde-pendence.... There should be full disclosure inthe annual report of any factors to be taken intoaccount in judging an individual’s independ-ence. (2.3)

Membership of the [nomination] committeeshould be disclosed in the annual report.(APPENDIX 3.1)

The company should disclose in its AnnualReport whether:1.1 The formal schedule of matters reserved tothe Board takes account of SEE [social, envi-ronmental and ethical] matters.1.2 The Board has identified and assessed thesignificant risks to the company’s short- andlong-term value arising from SEE matters.1.3 Account is taken of SEE matters in thetraining of directors.1.4 The Board has received adequate informa-tion about SEE matters that may affect thecompany’s short- and long-term value.1.5 The remuneration committee, in designingand implementing performance-related remu-neration schemes, has considered the effect onthe company’s performance of SEE matters.(APPENDIX 4.1)

See 6.1 (It is inappropriate that any of the re-turn that is rightfully shareholders’ should bediverted to political donations. Donations tocharities are acceptable within reason.).

Disclosure about the directors and the board iscritical in enabling shareholders to form aproper judgement when voting. Apart from theareas set out in the Combined Code, particularfeatures on which PIRC considers there shouldbe full disclosure include:§ The cycle of board and committee meetings;§ The availability of the terms of reference for

the board and the committees;§ Directors’ attendance record at board and

committee meetings held during the year;§ Training provided and required for directors

... ;§ Procedures and responsibilities for succes-

sion planning;§ Full biographies for all directors.... Any

regulatory or statutory breaches of profes-sional conduct should be reported in full;

§ The main terms of each director’s servicecontract.... [C]opies of all contracts ...should be available upon request.

(Part 2: Directors, p. 4)

Committee membership, frequency of meetingsand attendance records should be disclosed inannual reports. (Part 2, Directors, p. 5)

The annual report is the most important channelof communication between a company and itsshareholders and other stakeholders. Corporategovernance is an issue of concern to a wideraudience than institutional investors since itrelates to the exercise of power and the successof business and the wider economy. PIRCconsiders that corporate governance involvesconsideration of the range of relationships en-tered into by companies. Although the primefocus is on the board and accountability toshareholders, directors should identify their keystakeholders, and should report on and be heldaccountable for the quality of these relation-ships since they underpin long-term businesssuccess. (Part 4: Audit and Reporting, p. 12)


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32. Accuracy of Disclosure / Internal Control Systems / Liability

The corporate governance framework shouldensure that timely and accurate disclosure ismade on all material matters regarding thecorporation, including the financial situation,performance, ownership, and governance ofthe company. (OECD Principle IV)

Information should be prepared, audited, and dis-closed in accordance with high quality standardsof accounting, financial and non-financial disclo-sure. (OECD Principle IV.B)

The Principles support development of high qual-ity internationally recognized standards. (OECDPrinciple IV.B Annotation at 38)

An annual audit should be conducted by an inde-pendent auditor in order to provide an externaland objective assurance on the way in which fi-nancial statements have been prepared andpresented. (OECD Principle IV.C)

Regulators should require that corporations dis-close accurate, timely information concerningcorporate financial performance. (Millstein Re-port, Perspective 9)

Regulators should cooperate internationally indeveloping clear, consistent and comparable stan-dards for disclosure. (Millstein Report,Perspective 10)

Policy makers and regulators should articulateclearly the legal standards that govern share-holder, director and management authority andaccountability, including their fiduciary roles andlegal liabilities.... [L]egal standards should beflexible and permissive of evolution. (MillsteinReport, Perspective 13)

See OECD Principle V.D.7 (The board shouldfulfil certain key functions, including ...[o]verseeing the process of disclosure and com-munications.).


The ICGN Statement adopts OECD PrincipleIV (The corporate governance frameworkshould ensure that timely and accurate disclo-sure is made on all material matters regardingthe corporation, including the financial situa-tion, performance, ownership, and governanceof the company.).

See also OECD Principle IV.B (Informationshould be prepared, audited, and disclosed inaccordance with high quality standards of ac-counting, financial and non-financialdisclosure.).

See also OECD Principle IV.C (An annualaudit should be conducted by an independentauditor in order to provide an external and ob-jective assurance on the way in which financialstatements have been prepared and presented.).

The ICGN holds that corporations should dis-close accurate, adequate and timelyinformation, in particular meeting marketguidelines where they exist, so as to allow in-vestors to make informed decisions about theacquisition, ownership obligations and rights,and sale of shares. (ICGN Amplified OECDPrinciple IV at 7)

See OECD Principle V.D.7 (The board shouldfulfil certain key functions, including ...[o]verseeing the process of disclosure andcommunications.).

See also ICGN GLOBAL SHARE VOTING PRINCI-PLES, 10 (There should be appropriate regula-tion or an effective mechanism to ensure thatshareholder meeting agendas are released ac-cording to established rules and procedures,and that the correct amount and appropriatecontent of proxy information is distributed toshareholders.).

Auditors have to be independent and should beelected by the general meeting. (Recommen-dation 6)

See Commentary on Recommendation 6 (Theannual report and the annual accounts are ex-tremely important for shareholders, since thesedocuments are needed to:§ judge the evolution of the company’s re-

sults;§ judge the performance of the management;§ make investment decisions.Shareholders should therefore be allowed toelect the auditors.).

Relevant, timely, accurate and understandabledisclosure should be made of material informa-tion necessary for the proper evaluation of thestatus and the situation of the company. Inter-nal controls should provide for the integrity ofcorporate data. Independent verification andcertification of the existence of appropriatecontrols and the integrity of data, in particulardisclosed information, should be obtained tothe fullest extent feasible. (Principle VIII)

Disclosed information should be provided ac-cording to recognized high-quality internationalstandards. (Recommendation VIII.4)

Disclosed information should be substantiallyaudited. (Recommendation VIII.5)

The audit should be conducted in accordancewith internationally accepted standards. (Rec-ommendation VIII.6)

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The Secretary of the Board must ensure that theprocedures in relation to the functioning of theBoard and the regulations which apply to it arecomplied with.If there is no Secretary of the Board of Directors,the Board shall take the necessary action so that aperson is given the task of monitoring compliancewith the procedures in connection with the func-tioning of the Board and the applicableregulations.In both cases, he can only be replaced by a deci-sion of the Board itself. (1.5)

Integrity demands that the financial reports andother information disseminated by the companypresent an accurate and complete picture of thecompany’s position.[T]he responsibility of the board of directorschiefly relates to the quality of the informationit provides to shareholders. (Part I: A.7)

The report and accounts should contain acoherent narrative of the company’s financialposition, supported by information on thecompany’s performance and prospects.Depending on the nature of the company, itshould contain the information needed toenable investors and their investment advisersto form a view of the company’s financialposition and performance.... Balance requiresthat setbacks should be dealt with as well assuccesses. (Part I: B.4.1)

The Director undertakes to verify that correctinformation is given to shareholders, within thelimits compatible with commercial and com-petitive necessities, concerning the company’sstrategy in general on all subjects of importanceaffecting the company, and specifically in timesof crisis. (p. 5)

The Director undertakes to ensure that thecompany always respects its legal obligationsand regulations; and if the company is listed onthe Stock Exchange, that it rigorously observesthe regulations of the Stock Exchange. (p. 5)

The Director undertakes not to distribute, di-rectly or indirectly, any information that he orshe knows to be false or misleading. (p. 7)

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Not covered directly, but see I. The Annual Gen-eral Meeting (The auditors should be independentof the management, and they should be elected bythe shareholders.).

The company report must be presented ac-cording to the relevant Danish laws, and it isrecommended that the board considers applyingInternational Accounting Standards (IAS).Other accepted standards such as US-GAAPcan be applied as supplements, if this is rele-vant in connection with trade conditions orother circumstances with regard to the infor-mation requirements of the recipients,including comparability facilitation. (III.3)

It is recommended that companies use quarterlyreports. (III.5)

Efficient risk management is a prerequisite forthe board being able to perform the tasks forwhich it is responsible in the best possible way.Thus it is important that the board ensures thatthere are appropriate systems for risk manage-ment in place and, moreover, ensures that suchsystems meet the requirements of the companyat any time. (VII)

The purpose of risk management is:§ to develop and maintain an understanding

within the organisation of the company’sstrategic and operational goals, includingidentification of the critical success fac-tors.

§ to analyse these possibilities and chal-lenges which are connected with therealisation of the above goals and to ana-lyse the risk of these goals not being met.

§ to analyse the most important activities ofthe company in order to identify the risksattached hereto.

The risk management system must define therisk and describe how this risk is eliminated,controlled or hedged on a continuous basis.(VII.1)See generally VII (risk management).

Not covered. In the operational presentation [in the annualreport], the aim should be to give a comprehen-sive picture of the instruments whereby theBoard of Directors envisages to make the com-pany produce economic value-added. It isimportant to describe the monitoring systemwhereby the Board of Directors ensures that thegoals that it has set for the company will bemet. First of all, a description of the system formonitoring profit targets should be included,i.e., a report on how and when the implementa-tion is monitored. This is also connected with adescription of the activities of the internalauditing: what kind of resources are availableand how it is working to ensure that the com-pany’s operations comply with the law and toprevent possible abuse cases involving theemployees. (2.1.2)

Committee work or other preparation of issueswithout the presence of the members of theBoard of Directors belonging to the hired topmanagement does not affect the statutory deci-sion-making and responsibilities of the Boardof Directors. Subject to the Finnish CompaniesAct, all members of the Board of Directorsshall answer for the decisions made by theBoard of Directors. Therefore the handlingreferred to above can only be preparatory to theactual decision-making of the Board of Direc-tors, but it cannot substitute the actual decision-making. (2.2.1)

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While it is the Chairman’s duty to provide themarket with a regular flow of information on aday-to-day basis, the board of directors is respon-sible for presenting annual and half-yearlyfinancial statements, and for informing the marketof major financial transactions. In such cases, theboard must provide quality information, which issufficiently reliable and clear to ensure the fairexecution of the transactions concerned. (p. 6)

[T]he board of directors collectively representsall company shareholders.... It must carry out itsduties in the interests of the company and, if itfails to do so, its members are jointly and sever-ally liable.Similarly, ... individual board members ... mustconsider themselves representatives of allshareholders and behave as such, and are per-sonally liable if they fail to do so. (p. 10)

Adoption of financial statements is central to theboard’s supervisory duties as is its obligation toensure that information provided to markets andshareholders is reliable and clear.Preparatory consideration by a specialized com-mittee, whose membership and powers are madepublic, offers a guarantee that these duties will befulfilled with the necessary diligence and imparti-ality.The Committee recommends that each boardshould appoint an advisory committee princi-pally charged with ensuring theappropriateness and consistency of accountingpolicies applied in consolidated and companyfinancial statements, and with verifying thatinternal procedures for collecting and checkinginformation are such that they guarantee itsaccuracy. The advisory committee’s task is not so much toexamine the details of financial statements as toassess the reliability of procedures for their estab-lishment and the validity of decisions takenconcerning significant transactions. (pp. 18-19)

Not covered. [If French law were amended to allow for theseparation of chairman and CEO roles in aunitary board system, and if] the Chairman ofthe Board of Directors is [thus] devoid of man-agement prerogatives, he or she should besubject to either civil or criminal liability onlyin respect of misconduct in the performance orin connection with performance of his or herpersonal duties, exclusive of mismanagement.(p. 8)

The election among various [accounting] stan-dards may be momentous for corporations’earnings, according, for instance, to the dura-tion selected for amortization of goodwill, orthe duty to amortize intangible assets or not.The financial managers and statutory auditorsof corporations are naturally in charge of thetechnical reviews of this matter. (p. 18)

The statutory rules with respect to civil andcriminal liability will need to be amended so asto provide for the situation where the Board ofDirectors elects to separate the positions ofchairman and chief executive officer [in a uni-tary board system], so that the chairman of theBoard of Directors, devoid of managementprerogatives, could be held liable only as re-gards misconduct connected with his personalduties. (p. 22)

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The purchase and sale of Company shares, op-tions or other share derivatives by members of theManagement Board and senior Group executivesare subject to special rules. (Code, II.4(h))

The Company shall prepare its Group Accountsand its quarterly reports according to interna-tionally recognized accounting principles.(Code, II.2.d; see Code, I)

The Supervisory Board ... stipulates the infor-mation and reporting duties of the ManagementBoard. (Code, III.2.d)

The [Accounts and Audit] Committee ... evalu-ates the Auditor’s reports, and reports to theSupervisory Board on its assessment of thecomments in the audit report, particularly withregard to the future development of the Group.It verifies the Management Board’s assump-tions on the budget figures for the Group andits business segments. Important other docu-ments issued to shareholders shall be presentedbefore publication to the Committee. (Code,III.3)

The Management Board and Supervisory Boardcomply with the rules of proper corporate man-agement. If they violate the due care anddiligence of a prudent and conscientious Man-aging Director or Supervisory Board member,they are liable to the company for damages.

If the company takes out … directors and offi-cers’ liability insurance … for the ManagementBoard and Supervisory Board, a suitable de-ductible shall be agreed. (§III.8)

The Management Board ensures that all provi-sions of law are abided by and works towardstheir compliance by group companies.(§IV.1.3)

The Management Board ensures appropriaterisk management and risk controlling in theenterprise. (§IV.1.4)

The Management Board shall establish princi-ples and guidelines for the enterprise.(§IV.1.5)

The Consolidated Financial Statements andinterim reports shall be prepared under obser-vance of internationally recognised accountingprinciples. For corporate law purposes …,Annual Financial Statements will be preparedaccording to national regulations (GermanCommercial Code)…. (§VII.1.1)

The Consolidated Financial Statements will beprepared by the Management Board and ex-amined by the auditor and Supervisory Board.(§VII.1.2)


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Information should be prepared, audited and dis-closed according to the prevailing rules of theEuropean Union, and should be in the spirit of therules of the [OECD]. (Recommendation 4.2)

The annual report and the quarterly financialstatements should contain consistent reporting ofthe entire financial situation of the corporation,supplemented by the provision of sufficient in-formation on the corporation’s performance andprospects.... [T]he annual report and the quarterlyfinancial statements should contain all necessaryinformation, in comprehensive form, required byinvestors and their consultants for the formationof a clear profile of the corporation’s financialsituation and prospects. (Recommendation 4.4)

The Board of Directors has the responsibility ...for ... [t]he consistency of disclosed accountingand financial statements, including the report ofthe (independent) certified accountants, the exis-tence of risk evaluation procedures, supervision,and the degree of compliance of the corporation’sactivities to existing legislation. (Recommenda-tion 5.3.4)

See Recommendation 1.2.4 (Shareholders shouldhave the right to ... be sufficiently, timely andproperly informed on decisions that need to bemade regarding fundamental changes in the cor-poration. These changes include ... the solution ofproblems related to designing, reporting andmaintaining transparency in the financial state-ments and profit-sharing policies.).

See also Recommendation 7.3 (It is a good prac-tice that a financial chief executive officer beappointed as part of the management team.).

The existence of internal regulation for thecompany’s operations is a fundamental princi-ple of corporate governance. Internaloperations regulation is constituted by decisionof the company’s board of directors and aims atassisting the board in the exercise of its duties,with a view to protecting the company’s inter-ests. (§3.1)

Internal operations regulation must cover …[t]he structuring of the company’s services,their scope, as well as relations of these serv-ices among themselves and vis-à-vismanagement. At a minimum, there must alsobe services for internal control, shareholderservices and company announcements.(§3.2(a))

See §3.2(b), (c) & (d) (other procedures thatinternal operations regulation must cover).

The organization and operation of internalcontrol is a fundamental condition of corporategovernance. Internal control is carried out by aspecial company service, staffed by at least oneperson.The internal controller is hierarchically inte-grated in the management of the company butremains independent in the exercise of his du-ties.The internal controller is appointed by thecompany’s board of directors…. The companymust inform the Capital Market Commission,within ten working days, of any changes to theperson or the organization of its internal con-trol. (§§4.1, 4.2 & 4.3)

[The internal controller] tracks the applicationof, and ongoing compliance with, internal op-erations regulation, the company’s statutes, andthe general legislation affecting the company…. (§4.5(a))

See §§4.4 & 4.5(b), (c) & (d) (internal con-troller’s access to company information andjob description).

Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode, Principle D.2 (The board should main-tain a sound system of internal control tosafeguard shareholders’ investment and thecompany’s assets.).

See also the Combined Code, § 1, D.2.1 (Thedirectors should, at least annually, conduct areview of the effectiveness of the group’s sys-tem of internal control and should report toshareholders that they have done so. The re-view should cover all controls, includingfinancial, operational and compliance controlsand risk management.).

The internal control system is charged withthe task of checking effective compliancewith the operational and administrative in-ternal procedures adopted to guarantee asound and efficient management and toidentify, forestall and limit, as far as possi-ble, financial and operational risks andfraud at the company’s expense. (Code, 9.2;see Report, 5.4.3)

[The internal control] committee is the formallyconstituted body able to assess autonomouslyand independently from both the managingdirectors on issues concerning the safeguardingof the company’s integrity and from the audit-ing firms on the results set out in the auditors’report and their letter of suggestions. (Com-mentary on Code, 10)

See Code, 9.3 (The persons appointed to runthe internal control system ... shall report ontheir activity to the directors delegated to thetask, to the internal control committee, andto the members of the board of auditors.).

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At least once a year the Supervisory Board shoulddiscuss the strategy and the risks associated withthe company and the results of the assessmentmade by the [Management Board] of the systemsof internal control. (Recommendation 3.4)

The agenda for the annual General Meeting ofShareholders is organized in such a way thatclearly identifiable decisions can be made con-cerning ... approval of the policy pursued and therelease from liability therefor. . . . This meansapproval of the policy pursued by the [Manage-ment Board] and of the supervision carried out bythe Supervisory Board, which approval shalllikewise imply a release from liability for the[Management Board] and the Supervisory Board.(Recommendation 3.6)

As a minimum requirement, the [ManagementBoard] should report to the Supervisory Board onthe results of its assessment of the structure andfunctioning of the internal control systems whichare intended to provide reasonable certainty thatthe financial information is reliable. (Recommen-dation 4.3)

For the benefit of all the investors the quality andspecialisation of investment analysis, particularlythat of the different sectors, should increase.(Recommendation 5.8)

Not covered. Shareholders must be given timely access to allrelevant financial information in order to judgewhether a company’s actions are in line with itsstated goals. (Handbook, p. 9)

Not covered

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Any periodic financial information which is madeavailable to markets (besides the annual accounts)must be produced according to the same princi-ples and professional practices as the annualaccounts and must be verified by the Audit Com-mittee prior to its disclosure. (Code,Recommendation 20)

The Board of Directors should try to avoid that itsaccounts be submitted to the General Sharehold-ers’ Meeting with reservations and provisos on theaudit report. Whenever this is not possible, boththe Board of Directors and the auditors shouldclearly explain to shareholders and markets thenature and scope of those discrepancies. (Code,Recommendation 22)

[C]ompanies ... should have an induction programfor new directors ... to provide them with adviceon their legal duties.... (Report, 5.3)

See Report, 3.4 (All [directors] have to take partin the deliberations and collective decisions, andare accountable for them.).

The audit committee should be a sub-committee of the board, and does not exemptthe board from responsibility. (Guideline1.2.2)

Not covered directly, but see Code, §5 (As abasic principle, all material contracts, andespecially those not in the ordinary course ofbusiness, should be referred to the board fordecision prior to the commitment of thecompany.).

Not covered.

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The directors should explain their responsibilityfor preparing the accounts next to a statement bythe auditors about their reporting responsibilities.(Code, 4.4)

Directors are responsible under s. 221 of theCompanies Act 1985 for maintaining adequateaccounting records. To meet theseresponsibilities, directors need in practice tomaintain a system of internal control over thefinancial management of the company, includingprocedures designed to minimize the risk of fraud.There is, therefore, already an implicitrequirement on directors to ensure that a propersystem of internal control is in place. (Report,4.31)

Since an effective internal control system is a keyaspect of the efficient management of a company,we recommend that the directors should make astatement in the report and accounts on theeffectiveness of their system of internal controland that the auditors should report thereon.(Report, 4.32)

The cardinal principle of financial reporting is thatthe view presented should be true and fair.Further principles are that boards should aim forthe highest level of disclosure consonant withpresenting reports which are understandable andwith avoiding damage to their competitiveposition. They should also aim to ensure theintegrity and consistency of their reports and theyshould meet the spirit as well as the letter ofreporting standards. (Report, 4.51)

The Committee is convinced that an effectiveinternal control system is an essential part of theefficient management of a company.... A greatdeal of detailed work is now necessary to developthese proposals, and we recommend that theaccounting profession ... should take the lead.(Report, 5.16)

See APPENDIX 6: AUDITORS’ LIABILITY: THECAPARO CASE.

Not covered. The board should maintain a sound systemof internal control to safeguard sharehold-ers’ investment and the company’s assets.(Principle D.II)


Accounting principles and the content offinancial statements are regulated by both thelaw and by accounting standards. The Cadburycommittee drew attention to weaknesses whichthen existed in financial reporting, andendorsed the objectives of the then newlyestablished Financial Reporting Council andthe Accounting Standards Board in settingreporting standards. Cadbury also welcomedthe actions of the Financial Reporting ReviewPanel in monitoring compliance. These bodiesare making good progress. We note that thereare moves towards the internationalharmonization of accounting standards.However, we do not consider that our remitrequires us to review these areas, in which theaccounting authorities are closely involved.(Guideline 6.16)

In this report we do not propose any change inthe role of auditors or their public reportingresponsibilities. We feel that best practiceshould be allowed to develop and evolve. It isclear, however, that while boards often seekgreater reassurance about controls and othermatters, auditors feel inhibited in going beyondtheir present functions because of concernsabout the present law on professional liability.We consider that account should be taken ofthese concerns by those setting professionalstandards and when decisions on changes in therelevant law are taken. (Guideline 6.19)

See generally PART 6, ACCOUNTABILITY ANDAUDIT.

The board should maintain a sound systemof internal control to safeguard sharehold-ers’ investment and the company’s assets.(Principle D.2)

The directors should, at least annually, conducta review of the effectiveness of the group’ssystem of internal control and should report toshareholders that they have done so. The re-view should cover all controls, includingfinancial, operational and compliance controlsand risk management. (Code § 1, D.2.1)

Effective financial controls, including themaintenance of proper accounting records, arean important element of internal control. Theyhelp ensure that the company is not unneces-sarily exposed to avoidable financial risks andthat financial information used within the busi-ness and for publication is reliable. They alsocontribute to the safeguarding of assets, in-cluding the prevention and detection of fraud.(Turnbull Report, ¶12)

The board of directors is responsible for thecompany’s system of internal control....It is the role of management to implementboard policies on risk and control. (TurnbullReport, ¶¶16, 18)

An internal control system encompasses thepolicies, processes, tasks, behaviours and otheraspects of a company that, taken together, fa-cilitate its effective and efficient operation....This includes the safe-guarding of assets frominappropriate use or from loss and fraud, andensuring that liabilities are identified and man-aged. (Turnbull Report, ¶20)

[I]nternal controls considered by the boardshould include all types of controls, includingthose of an operational and compliance nature,as well as internal financial controls. (TurnbullReport, ¶28)

See the Turnbull Report, passim.

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Good quality accounts are essential if investorsare to understand where the company is today andwhere it is going. The board should present abalanced and understandable assessment of thecompany’s position and prospects.The board should ensure that the managementestablishes and maintains a sound system ofinternal control to safeguard shareholders’investments and the company’s assets. (§11)

There should be full disclosure of any non-auditfees charged by a related company of the auditorsin the annual report and accounts. (§13)

See §14 (The NAPF has noted and, in principle,supports the proposals in INTERNAL CONTROL:GUIDANCE FOR DIRECTORS ON THE COMBINEDCODE formulated by a working party of theInstitute of Chartered Accountants in England &Wales, chaired by Nigel Turnbull. Therequirements have been incorporated into theCombined Code and companies must comply foraccounting periods ending on or after 23December 1999.).

See also §22 (The NAPF supports the issue ofshares provided, where there is a proposeddisapplication of pre-emption rights, these arewithin the current guidance of the Pre-emptionGroup.).

See also §23 (Companies are permitted to makemarket purchases of their own ordinary shares.Provided the requirements of the Companies Act,Listing Rules and relevant shareholder guidanceare met, the NAPF will support sharerepurchases.).

AUTIF encourages member firms, as part oftheir dialogue with the companies in whichthey invest and when scrutinizing the annualreports and accounts, to pay particular attentionto the companies’ compliance with the Com-bined Code in ... financial reporting principles.(Guidance Notes on Key Principle 5)

Accountability and Audit§ Principle D.2 states that the board should

maintain a sound system of internal con-trol to safeguard shareholders’ investmentand the company’s assets. Code ProvisionD.2.1 recommends an annual review bythe directors of the company’s effective-ness of internal controls, with a report toshareholders. This review should coverfinancial, operational and compliancecontrols and risk management.

§ Guidance for directors on the implemen-tation of these recommendations was setout in the report of the Internal ControlWorking Party of the Institute of Char-tered Accountants in England and Wales(the Turnbull Committee). The Stock Ex-change considers that compliance with theTurnbull guidance will constitute compli-ance with the relevant provisions of theCombined Code.

(Guidence Note on Key Principle 6)

Not covered. [T]he legal position [is] that all directors areequally responsible for the board’s actions andall are equally accountable to the shareholders.(Part 2, Directors, p. 4)

In reporting on their risk control policies andprocesses, we consider that directors should gobeyond the basic requirements and identify thesignificant areas of risk and how the companymanages these. (Part 4: Audit and Reporting,p. 12)

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33. Shareholder Voting Practices (Cumulative & Confidential Voting, Broker Non-Votes, One Share/One Vote)

The corporate governance framework shouldensure the equitable treatment of all share-holders, including minority and foreignshareholders. All shareholders should havethe opportunity to obtain effective redress forviolation of their rights.A. All shareholders of the same class should be

treated equally.1. Within any class, all shareholders

should have the same voting rights. Allinvestors should be able to obtain in-formation about the voting rightsattached to all classes of shares beforethey purchase. Any changes in votingrights should be subject to shareholdervote.

2. Votes should be cast by custodians ornominees in a manner agreed upon withthe beneficial owner of the shares.

3. Processes and procedures for generalshareholder meetings should allow forequitable treatment of all sharehold-ers....

B. Insider trading and abusive self-dealingshould be prohibited.

(OECD Principle II, A & B)

Some companies issue preferred (or preference)shares which have a preference in respect of re-ceipt of the profits of the firm but which normallyhave no voting rights. Companies may also issueparticipation certificates or shares without votingrights which would presumably trade at differentprices than shares with voting rights. All of thesestructures may be effective in distributing risk andreward in ways that are thought to be in the bestinterest of the company and to cost-efficient fi-nancing. The Principles do not take a position onthe concept of “one share/one vote.” (OECDPrinciple II.A.1 Annotation at 30)

[D]ivergence from a ‘one share/one vote’ stan-dard, which gives certain shareholders powerdisproportionate to their equity ownership, isundesirable. Any such divergence should beboth disclosed and justified. (ICGN AmplifiedOECD Principle I at 7)

The ICGN Statement adopts OECD Principle II(The corporate governance framework shouldensure the equitable treatment of all sharehold-ers, including minority and foreignshareholders.)

[B]oards should treat all the corporation’sshareholders equitably and should ensure thatthe rights of all investors, “including minorityand foreign shareholders,” are protected.(ICGN Amplified OECD Principle II at 7)

See ICGN GLOBAL SHARE VOTING PRINCIPLES,1 (The same voting rights should attach toshares regardless of how much equity a share-holder holds, or how geographically distant ashareholder may be from the company. Votesshould be cast only according to instructions bythe owner or the owner’s agent.).

See also ICGN GLOBAL SHARE VOTINGPRINCIPLES, 4 (Companies should set the votingdeadline for mailed ballots as close to themeeting as is practical, with the emphasis onease of share voting. At the same time, custo-dians, voting agents and depositary institutions… should move their own voting deadlines asclose as practical to company deadline date.).

See also ICGN GLOBAL SHARE VOTINGPRINCIPLES, 5 (Shareholders should be able tovote at companies they own without facing thecost and inconvenience of having their sharesblocked from trading or deposited in a desig-nated institution for a period of time.).

See also ICGN GLOBAL SHARE VOTINGPRINCIPLES, 9 ([S]hare voting systems shouldbe designed to minimize costs….).

The principle of “one share, one vote” is thebasis of the right to vote. Shareholders shouldhave the right to vote at general meetings inproportion to the issued shareholder capital. Inline with this principle, certification (The Neth-erlands) should be terminated because itdeprives the investor of his voting right andtransfers influence to a trust office which lieswithin the company’s own sphere of influence.Nor should companies issue shares with dis-proportional voting rights, intended toinfluence the balance of power within the an-nual general meeting (AGM). (Commentary onRecommendation 2)

Deviations from “one-share-one-vote” shouldbe avoided and, where they exist, must be dis-closed. (Principle III)

Deviations from “one-share-one-vote” broughtabout by mechanisms that induce voting rightsdisproportional to cash-flow rights, such asmultiple vote shares, voting caps, the use ofmultiple legal devices, the use of cross-holdings, as well as overly complicated statu-tory provisions are discouraged. If they exist,theya) must not apply within a single class of

shares;b) must be simple and easy to understand;c) must be disclosed and explained.(Recommendation III.2)

The principles favour “one-share-one-vote”because it provides all shareholders with agreater incentive to participate in the decision-making process, furthering more closely theinterests of the company as a whole. (Pream-ble at 5)

See Principle II (Shareholder voting should beencouraged and collective action problemsshould be solved through appropriate mecha-nisms.)

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Not covered. Belgian company law already incorporates ...the principle of “one share/one vote.” (Part I:A.4)

Not covered.

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Limitations on voting rights should be limited to aminimum in importance and time – shareholdersshould have easy access to vote in absentia, andshares with disproportional voting rights shouldbe abandoned. (I. The Annual General Meeting)

It is not recommended to include provisionswhich contain voting rights differentiation,restrict the number of votes which the individ-ual shareholder can cast, or which restrict thenumber of shares which the individual share-holder may own in the company.If these restrictions are already part of acompany’s Articles, it is recommended that theboard evaluates the expediency of this[arrangement]. (I.2)

Proposals to the General Meeting of Share-holders regarding the election of the membersof the Board of Directors and the SupervisoryBoard . . . shall be made public, at the latest, atthe General Meeting of the Shareholders whenthe proposal is supported by at least 20% of allthe votes in the company. (English Summary,4)

Participation of the shareholders in theshareholders’ meetings shall be secured as faras possible; [thus], the position of othershareholders in addition to that of the State-owner is taken into account in relation to theweight of their holdings. (2.3.1)

See generally 2.3 (Participation of theshareholders in the shareholders’ meetings andthe role of the State-owner).

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Not covered. In the Commission’s view, it is particularlyimportant that asset management firms developGeneral Meeting voting guidelines includingvoting criteria for resolutions…. (§ I)

The Commission would like to see that, when acompany solicits [blank] proxies, it specifies itsvoting intentions….The Commission is likewise favorable to astandardization of voting forms…. (§ I.C.1)

AFG-ASFFI is generally not in favor of issuingshares without voting rights. (§ I.C.2)

Being in favor of the principle “one share, onevote,” the Commission takes the view that [thepractice of double voting rights as a way toreward the loyalty of certain shareholdersshould be] abandoned. … The Commission isalso against limitations on voting rights as wellas “loyalty premium” dividend payments….(§ I.C.3)

As a practical matter, the Commission is infavor of electronic voting and would like to seethat the most reliable and rapid system be used,while ensuring the shareholder the greatestdegree of confidentiality. (§ I.C.6)

[T]he Committee recommends that corpora-tions cease in future to submit to the extraordi-nary meeting of their shareholders a resolutionexpressly permitting the use of delegations ofauthority to increase the capital after a take-over bid has been made. (p. 19)

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Not covered directly, but see Topic Headings 34and 35, below.

[There is a] full voting right for each ordinaryshare (§ 12 German Stock Corporation Act).(Code, I)


In principle, each share carries one vote. Thereare no shares with multiple voting rights, pref-erential voting rights (golden shares) ormaximum voting rights. (§II.1.2)

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Basic shareholder rights include the right to ...cast a vote for each share, regardless of class.(Recommendation 1.1.7)

Shareholders should be able to vote in person orthrough a representative, and equal effect shouldbe given to votes whether cast in person orthrough a representative. (Recommendation1.3.3)

Multiple voting procedures and the issuance ofnon-voting privileged shares should be discour-aged. (Recommendation 1.6)

All shareholders of the same class should betreated equally: within any class, all shareholdersshould have the same voting rights.... Anychanges in voting rights between or within classesshould be subject to shareholder vote. (Recom-mendation 2.1.1)

Votes through a representative should be castafter consultation with the legal owner of theshares. (Recommendation 2.1.2)

The procedures of the corporation should make itsimple and inexpensive to cast votes. (Recom-mendation 2.1.3)

Not covered. Not covered directly, but the IAIM Guidelinesadopt the Combined Code. See the CombinedCode § 2, E.1.3 (Institutional shareholdersshould take steps to ensure that their votingintentions are being translated into practice.).

Not covered.

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The general principle should be that proportion-ality exist between capital contribution andinfluence. The maxim “one share/one vote” is thecustomary way of expressing this principle.(Recommendation 5.1)

[M]easures such as priority shares and certifica-tion may be justified [in certain circumstances].(Recommendation 5.1.1)

The board of the trust office will in general haveto take account of the opinions of the holders ofcertificates of shares and, if necessary, adjust itsvoting behaviour accordingly at the GeneralMeeting of Shareholders. (Recommendation5.6.1)

Regarding priority shares issued to protect thecompany’s interests, the Committee proposesthat, in situations where approval has to be givenin advance, the holder of priority shares shouldnot stand in the way of the decisions called for bythe investors in the General Meeting of Share-holders.... (Recommendation 5.6.2)

[P]rotective preference shares should under nor-mal circumstances not be issued. The voting righton protective preference shares should be exer-cised with due regard for the function of theshares. (Recommendation 5.6.3)

Not covered. A practical system of proxy voting should beintroduced to allow institutional investors tovote at the shareholders’ meetings of all thecompanies in which they have shares.(Guideline 4)

If the [annual shareholders’] meeting suffersfrom absenteeism, … the company might wantto certify its shares. For this reason, the trustoffice of the company should be independent.When it comes to voting, its management mustact in the interests of holders of certificates, ordepository receipts. The trust office should inprinciple cooperate when asked to convertcertificates. (Guideline 6(a))

If in addition to the trust office there are othershareholders, and if the trust office wishes tovote differently from the majority of thoseother shareholders, the trust office must justifyits standpoint. The trust office therefore mustnot exercise its voting right before othershareholders have done so. (Guideline 6(d))

The introduction of a practical and efficientproxy voting system and proxy solicitation willenable the practice of limiting voting rights tobe abolished. (Guideline 8)

The board should take pains to prevent anunbalanced relationship arising between thecapital providers and voting right influence as aresult of the issuance of preference shares.(Guideline 9)


Not covered directly, but see Topic Heading34, below.

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[A] rule of abstention ... would oblige significantshareholders not to vote in board decisions re-garding which they have a direct or indirectinterest (for instance, defensive measures againsthostile takeover bids). (Report, 8.6)

The Shareholders’ Association would like tosee a development of new possibilities forshareholders to vote at the general meetingfrom a distance, for example, via the Internet.(Guideline 4.3)


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Institutional investors should make positive use oftheir voting rights, unless they have good reasonfor doing otherwise. They should register theirvotes whenever possible on a regular basis.(Report, 6.11.2)

The Institutional Shareholders’ Committee’sadvice to its members to use their voting rightspositively is important in the context of corporategovernance. Voting rights can be regarded as anasset, and the use or otherwise of those rights byinstitutional shareholders is a subject of legitimateinterest to those on whose behalf they invest. Werecommend that institutional investors shoulddisclose their policies on the use of voting rights.(Report, 6.12)

Not covered. Institutional shareholders have aresponsibility to make considered use oftheir votes. (Principle C.I)

[S]ome [institutional investors] now take amore active interest in corporate governance.They can do this by voting on resolutions inGeneral Meetings, and informally throughcontact with the company. (Guideline 5.3)

The right to vote is an important part of theasset represented by a share, and in our view aninstitution has a responsibility to the client tomake considered use of it. (Guideline 5.7)

See Guideline 5.9. (It has been suggested thatinstitutions should make public their votingrecords, both in the aggregate, in terms of theproportion of resolutions on which votes werecast or non-discretionary proxies lodged, and interms of the numbers of votes cast and proxieslodged on individual resolutions. Institutionalinvestors should, in our view, take steps toensure that their voting intentions are beingtranslated into practice; publishing figuresshowing the proportion of voting opportunitiestaken would be one way of doing this. Wetherefore recommend that institutions should,on request, make available to their clientsinformation on the proportion of resolutions onwhich votes were cast and non-discretionaryproxies lodged.).

Institutional shareholders have a responsi-bility to make considered use of their votes.(Principle E.1)

Institutional shareholders should take steps toensure that their voting intentions are beingtranslated into practice. (Code § 2, E.1.3)

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Not covered directly, but see Introduction (Thereis a clear Government expectation thatshareholders, particularly institutional investors,will exercise their corporate governance rights,including voting. The NAPF supports this stanceand encourages pension funds, in their capacity asmajor investors in the UK economy, to make useof the power derived from those voting rights.).

AUTIF … encourages member firms to exer-cise actively the voting rights represented bythe shares they manage on behalf of their in-vestors. (Principle 2)

AUTIF recommends that member firms agree,in writing, and keep under regular review withtrustees, depositaries and custodians the practi-cal arrangements for circulating companyresolutions of meetings and for exercising votesin accordance with standing or special instruc-tions. (Principle 3)

AUTIF encourages members firms to establishappropriate systems of internal audit of votingactivity. Firms may wish to include in the an-nual report a statement that such an internalaudit system is in place. (Principle 4)

Where member firms already subscribe to therecommended practice of another representa-tive body (for example, ABI or NAPF),including the possible use of a voting advisoryservice, AUTIF encourages member firms tocommunicate this to investors. (Principle 8)

Member firms should review regularly anystanding or special instructions on voting.Responsible shareholders should, where possi-ble, discuss with company representatives anyissues on which they are unlikely to be able tosupport the board.

Member firms should agree, preferably inwriting, and review regularly with trustees ordepositaries, the voting process, i.e., the practi-cal arrangements for transmission of companyresolutions, meeting notices, proxy votes, etc.(Guidance Notes on Principles 2 and 3)

Member firms may wish to consider including... in their annual reports to their investors ... [a]general statement as to voting practice. (p. 7)

See Guidance Notes on Principles 2 and 3(electronic voting).

Hermes welcomes the introduction of elec-tronic proxy voting and encourages companiesto adopt this as soon as practicable. (3.2)

A split-share capital structure often disadvan-tages the majority of shareholders. Hermeswill not support the issue of shares with re-duced or no voting rights, and is likely towithhold support for other capital-raising exer-cises by companies with such capital structures.Support for a company with an unequal capitalstructure would be qualified in the event of itbecoming a takeover target. (4.1)

See Code of Conduct 4 (Hermes will lodgeproxies at AGMs and EGMs in accordancewith the principles outlined in this document.).

PRINCIPLE: All ordinary shares should haveequal rights.G. Each ordinary share has equal votingrights....H. There is no controlling shareholder....I. No persons have the right to designatedirectors to the board.(Part 5: Share Capital and Shareholder Rela-tions, p. 17)

PRINCIPLE: Voting by shareholders shouldbe democratic and transparent.J. All voting is conducted by poll on the basisof one share/one vote....K. The levels of proxy votes are disclosed onrequest.(Part 5: Share Capital and Shareholder Rela-tions, p. 17)

PIRC’s views ... closely follow those of theCadbury Committee which argued: “Votingrights can be regarded as an asset, and the useor otherwise of those rights by institutionalshareholders is a subject of legitimate interestto those on whose behalf they invest. We rec-ommend institutional investors should disclosetheir policies on the use of voting rights.” (Part1: Introduction, p. 2)

Shareholders who have the same financialcommitment to the company should have thesame rights. Dual share structures with differ-ent voting rights are disadvantageous to manyshareholders and should be reformed. (Part 5:Share Capital and Shareholder Relations, p. 15)

See Part 5: Share Capital and ShareholderRelations, pp. 15-16 (safeguards for share-holders in companies where there is acontrolling shareholder; share buy-backs andshare issue authorities).

See also APPENDIX: Standard Voting Out-comes, pp. 22-24 (a guide to PIRC’s usualapproach to the provision of voting advice).

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34. Shareholder Voting Powers

The corporate governance framework shouldprotect shareholders’ rights.A. Basic shareholder rights include the right to:

1) secure methods of ownership registra-tion;

2) convey or transfer shares;3) obtain relevant information on the cor-

poration on a timely and regular basis;4) participate and vote in general share-

holder meetings;5) elect members of the board; and6) share in the profits of the corporation.

B. Shareholders have the right to participate in,and to be sufficiently informed on, decisionsconcerning fundamental corporate changes.

C. Shareholders should have the opportunity toparticipate effectively and vote in generalshareholder meetings and should be in-formed of the rules, including votingprocedures, that govern general shareholdermeetings.... Shareholders should be able tovote in person or in absentia, and equal ef-fect should be given to votes whether cast inperson or in absentia.

(OECD Principle I, A, B & C)

The corporate governance framework shouldensure the equitable treatment of all share-holders, including minority and foreignshareholders. All shareholders should havethe opportunity to obtain effective redress forviolation of their rights. (OECD Principle II)

Policy makers and regulators should protect andenforce shareholders’ rights to vote. (MillsteinReport, Perspective 14)

The ICGN Statement adopts OECD Principle I,including A.4)-5) (The corporate governanceframework should protect shareholders’ rights.Basic shareholder rights include the right to ...vote in general shareholder meetings….).

Major strategic modifications to the core busi-ness(es) of a corporation should not be madewithout prior shareholder approval…. Equally,major corporate changes which in substance oreffect materially dilute the equity or erode theeconomic interests or share ownership rights ofexisting shareholders should not be made with-out prior shareholder approval…. (ICGNAmplified OECD Principle I at 6)

The ICGN underlines both the OECD assertionthat “equal effect should be given to voteswhether cast in person or in absentia” and theAnnotation’s statement that “as a matter oftransparency, meeting procedures should en-sure that votes are properly counted andrecorded, and that a timely announcement ofthe outcome be made.” (ICGN AmplifiedOECD Principle I at 6)

Corporate governance issues … should be pur-sued by dialogue and, where appropriate, withgovernment and regulatory representatives …to resolve disputes, if possible, through nego-tiation, mediation or arbitration. Where thosemeans fail, more forceful actions should bepossible…. [I]nvestors should have the right tosponsor resolutions or convene extraordinarymeetings. (ICGN Statement 10 at 5)

See ICGN GLOBAL SHARE VOTING PRINCIPLES,8 (All votes should be counted regardless ofwhether they are received by proxy or othermeans, or cast by hand or voice at the meeting,and the results should be declared. Companiesshould ensure that a process exists by whichshareholders can ascertain that their votes werecorrectly and officially cast….).

Major decisions which have a fundamentaleffect upon the nature, size, structure and riskprofile of the company, and decisions whichhave significant consequences for the positionof the shareholder within the corporation,should be subject to shareholders’ approval orshould be decided by the AGM. (Recommen-dation 2)

Shareholders shall have the right to elect mem-bers of at least one board and shall also be ableto file a resolution for dismissal. Prior to theelection, shareholders should be able to suggestcandidate members to the board. (Recommen-dation 9)

Shareholders should have significant influenceover major changes in the company. (Com-mentary on Recommendation 2)

The following items should be subject to share-holder approval.§ Mergers and takeovers....§ Distribution of profits....§ Stock option schemes....§ Share buy-back programmes....§ Capital increases connected with the ex-

emption of pre-emptive rights of theexisting shareholders.


Controlling shareholders should give due con-sideration to the interests of minorityshareholders. Minority shareholders shouldnot unreasonably restrain corporate action.(Principle IV)

Steps should be taken to promote shareholderrights ... and shareholders should be givenpossibilities to seek redress for violation oftheir rights. (Recommendation I.3)

[V]ideo-conferencing and electronic voting areencouraged. (Recommendation II.1)

In Europe, ... three stylized paths of sellingownership and control on stock markets can bedistinguished:1. Cash-flow rights and voting rights are

widely dispersed; the market for both isliquid and control is relinquished.

2. Cash-flow rights are widely dispersed andthe initial shareholder uses a legal instru-ment to retain or lock in control ... ; themarket for cash-flow rights is liquid butcontrol cannot be contested.

3. Few of the cash-flow rights and votingrights are sold; trading is illiquid since thestock lacks a broad shareholder base.

(Preamble at 3-4)

See Preamble at 4 (discussion of governanceproblems that arise in each of these situations).

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Not covered.

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Limitations on voting rights should be limited to aminimum in importance and time – shareholdersshould have easy access to vote in absentia, andshares with disproportional voting rights shouldbe abandoned. (I. The Annual General Meeting)

[G]ood corporate governance depends on ap-propriate frameworks which encourage theshareholders to enter into a dialogue with themanagement of the company and each other.This can be encouraged … by creating propor-tionality between capital investments and thevoting rights of all the shares in the company.(I)

It is not recommended to include provisionswhich contain voting rights differentiation,restrict the number of votes which the individ-ual shareholder can cast, or which restrict thenumber of shares which the individual share-holder may own in the company.If these restrictions are already part of a com-pany’s Articles, it is recommended that theboard evaluates the expediency of this [ar-rangement. (I.2)

See I (As owners of the company, the share-holders can actively exercise their rights anduse their influence resulting in the managementprotecting the interests of the shareholders asbest as possible, and ensuring efficient deploy-ment of the company’s funds both in the shortas well as the long term.).

Not covered. Not covered directly, but see 2.3 (Participationof the shareholders in the shareholders’ meet-ings and the role of the State-owner).

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Not covered. The General Shareholders’ Meeting is the pre-eminent occasion for the shareholder toexercise his company rights. (§ I)

[T]he code of ethics governing portfolio man-agers ... holds them to exercising the votingrights associated with the securities they man-age, and requires them to be able to justify theiractions in this regard…. (§ I)

The Commission recommends that companiesremind their shareholders of their right to sub-mit resolutions to the general shareholders’meeting and to raise questions; in each case, theconditions needing to be met to exercise thisright should be indicated. In this regard, itwould be fitting to remind shareholders of thepossibility of joining together to reach theminimum amount of capital necessary to pro-pose a resolution. (§ I.B.4)

[T]he Commission would like to see that therights of holders of preferred shares (excludingtheir participation in the general meeting) berespected based on the amount of capital theycontrol in the company. (§ I.C.2)

AFG-ASFFI is generally not in favor of issuingshares without voting rights. (§ I.C.2)

The Commission is in favor of reducing oreven eliminating [the blocking of shares fivedays prior to the General Meeting] so that anyshareholder may exercise his voting rights.(§ I.C.5)

[T]he Commission is in favor of the “recorddate” system [in lieu of the blocking system],as it seems to meet the concerns of portfoliomanagers. (§ I.C.5)

Not covered.

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All stockholders have the same powers of influ-ence over the public corporation according totheir holding in the company. The precept ofequal treatment within the limits of the extent ofthe participation also applies in particular againstinstitutional investors on the one side and privatesmall stockholders on the other. (Code, V.1.1)

See Code, V.1.3 (Depositary banks have a par-ticular responsibility for safeguarding theinterests of stockholders. They must keep clearof possible conflicts of interest.... Proper repre-sentation of the rights of the stockholders is also aduty of the protection associations.).

[T]he following OECD points are covered bymandatory law (§ 23 German Stock Corpora-tion Act):§ full voting right for each ordinary share

(§ 12 German Stock Corporation Act)§ no impediments with regard to ownership

or registration (§ 67 German Stock Corpo-ration Act)

§ transferability of shares at any time (§ 68German Stock Corporation Act)

§ participation, proxy and exercise of votingrights at General Meetings (§ 134 GermanStock Corporation Act)

§ election of members of the SupervisoryBoard (§ 101)

§ participation in company profits (§ 58German Stock Corporation Act).

(Code, I)

An authorization to increase the share capitalwith exclusion of shareholder participationrights in order to pursue either an acquisition ora share placement near the prevailing marketprice will only be exercised by the Manage-ment Board if the share capital increase doesnot exceed 10% (20% for acquisitions) of thethen existing share capital. In this calculation,the re-utilization of any repurchased shares willbe included. (Code, I)

In the case of repurchase of its own shares ac-cording to § 71, subparagraph 1, No. 8 GermanStock Corporation Act, the Company shallobserve the principle of equal treatment of allshareholders. (Code, I)

Shareholders exercise their rights at the Gen-eral Meeting and vote there. (§II.1.1)

In issuing new shares, shareholders, in princi-ple, have pre-emptive rights corresponding totheir share of the equity capital. (§II.2.2)

The company shall make arrangements to fa-cilitate shareholders’ personal exercising oftheir voting rights. Also, the company shallassist the shareholders in the use of proxies.The Management Board shall arrange the ap-pointment of a representative to exerciseshareholders’ voting rights in accordance withinstructions. This representative should also beavailable for contact during the General Meet-ing. (§II.3.3)

See §VI.2 (As soon as the company becomesaware of the fact that an individual acquires,exceeds or falls short of 5, 10, 25, 50 or 75% ofthe voting rights in the company by means of apurchase, sale or any other manner, it will bedisclosed by the Management Board withoutdelay.).

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Preda Report(Italy)


The corporate governance framework shouldprotect shareholder rights. (Principle 1)

The corporate governance framework shouldensure the equitable treatment of all shareholders,including minority and foreign shareholders. Allshareholders should have the opportunity to ob-tain an effective redress for violation of theirrights. (Principle 2)

Basic shareholder rights include the right to ...vote in general shareholder meetings [and protec-tion of] the rights of minority shareholders in amanner that establishes their representation andtheir ability to exercise control of managers.(Recommendations 1.1.4, 1.1.6)

Shareholders should have the right to participateequitably and efficiently in the general share-holder meetings and be sufficiently, timely andproperly informed on the decisions that need to bemade regarding fundamental changes in the cor-poration. These changes include ... the adoptionof voting procedures compatible with the mar-ket’s prevailing exchange ethics as regards votinginfluence and the concentration of corporate own-ership. (Recommendation 1.2.8)

The Shareholders of the corporation should havethe opportunity to actively participate and vote inthe general Shareholder meeting and be fully andtimely informed about the rules and procedures ofvoting. (Reccomendation 1.3)

All shareholders of the same class should betreated equally: within any class, all shareholdersshould have the same voting rights.... Anychanges in voting rights between or within classesshould be subject to shareholder vote. (Recom-mendation 2.1.1)


Shareholders must have the opportunity to voteon share option and LTISs upon initial schemeadoption, on the material amendment of suchschemes and on any changes to performancecriteria. (Guideline 3)

[S]hareholders must be afforded the opportu-nity to approve the selected performancecriteria [to be used as the basis on which shareoptions and other LTISs are exercisable], oramendments thereto. (Appendix 1: Perform-ance Criteria)

The IAIM Guidelines adopt the CombinedCode. See the Combined Code:

Principle E.1 (Institutional shareholders have aresponsibility to make considered use of theirvotes.);

Code § 2, E.1.2 (Institutional shareholdersshould, on request, make available to their cli-ents information on the proportion ofresolutions on which votes were cast and non-discretionary proxies lodged.).

In the event of a significant change in themarket value of the company, the composi-tion and/ or the number of shareholders, thedirectors shall assess whether proposalsshould be submitted to the shareholders’meeting to amend the by-laws as regards themajorities required for the approval ofresolutions to adopt the measures and exer-cise the rights provided to protect minorityinterests. (Code, 12.5)

The Committee believes that, in a correct sys-tem of Corporate Governance, the interests ofthe generality of shareholders must all be puton the same footing and equally protected andsafeguarded.The Committee is convinced that the interestsof the majority and minority shareholders mustconfront each other in the election of the gov-erning bodies; subsequently, the governingbodies, and hence also the members of theboard of auditors, must work exclusively in theinterest of the company and to create value forthe generality of shareholders. (Commentaryon Code, 13; see Report, 5.6)


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In principle, Dutch company law grants consider-able powers to shareholders. At the same time,however, it offers possibilities which are fre-quently applied for these powers to besubstantially curtailed in the companies’ articlesof association, for example, by stipulating that thecooperation of the priority shareholder(s) is re-quired for the adoption of resolutions in theGeneral Meeting of Shareholders. (Recommen-dation 5.2)

Those who exercise powers on behalf of the realproviders of risk capital should, during the deci-sion-making process at the General Meeting ofShareholders, be aware at all times that the saidpowers are in principle vested in those providersof risk capital. This creates an obligation forthem to attach particular importance to the inter-ests of the investors when exercising thesepowers. (Recommendation 5.2)

Although the Committee realizes that, under thecircumstances mentioned above, the continuity ofdecision-making and the protection against hostiletakeovers may justify a departure from the princi-ple that the investor should be able to exercise adegree of influence which is proportionate to thecapital contribution, the Committee believes thatthis should never lead to the investors being de-prived of exerting a real influence.(Recommendation 5.4.1; cf. 5.4.4, 5.7)

[T]he Supervisory Board and the [ManagementBoard], if an initiative for decision-making isneeded in the General Meeting of Shareholders,should not stand in the way of decisions called forby the investors in the General Meeting of Share-holders, unless a substantial company interestrules against such. (Recommendation 5.6.4)

Certification should be terminated (a) or de-pository receipt holders (certificateholders)should be given a proxy, whereas the trust of-fice only votes in case of takeover threats (b).(Recommendation 4)

Certification in its present state deprives theinvestor of his voting right and transfer to atrust office that lies within the company’s rangeof influence. The recommendations of thePeters committee (proxy, minority in the trustoffice) still lead to a weaker position of theinvestor than when certification is absent. Aproxy could be a solution in case the trust of-fice does not take part in a vote. (Commentaryon Recommendation 4)

To prevent dilution of voting rights, financialpreference shares should not be issued at adiscount to the price of ordinary shares. (Rec-ommendation 5)

Issues of preference shares with a large dis-count dilute the influence of other investors,provides protection and gives financial institu-tions disproportional influence. (Commentaryon Recommendation 5)

See Recommendation 10 (If a shareholder’sstake in the company passes 331/3 percent, thatshareholder should be obliged to bid for theremaining shares under reasonable conditions.).

See also Commentary on Recommendation 10(The Peters code recommends a threshold of 50percent, which is considerably higher than inother European countries. In fact, with smallerstakes substantial control is already feasible.).

Companies should introduce a “record date”system so that the period of share depositiondoes not prevent shareholders from exercisingtheir voting rights. (Guideline 3)

The trust office should in principle issue votingrights to certificateholders upon request. In thecase where no voting rights are issued, the trustmust accept voting instructions. If the trustoffice has issued no voting rights and receivedno voting instructions for shares in itsjurisdiction, the trust office must decide how tovote following its own judgment. (Guideline6(b))

The management of the trust office shouldreport to certificateholders on its actions. If thetrust office makes use of voting rights linked toshares, it must explain at the shareholders’meeting how this action is in the interests ofcertificateholders. (Guideline 6(c))

Due to a change in the law, everyone who ownsshares on the so-called date of registration –often seven days before the planned meeting –has the right to vote. Investors who want tovote therefore no longer have to block theirshares for a few days, which was the case in thepast. (Handbook, p. 23)

See Handbook, p. 12 (Management of sharevoting rights is an important element of invest-ment policy and on a par with the managementof financial rights linked to share ownership.).

See also Handbook, p. 14 (Practice shows anactive use of shareholder rights can deliverhigher investment returns…. [S]uppression ofshareholder rights has been shown to have anegative influence on performance.).


The active exercise of voting rights shouldbe stimulated, whether directly (postal) orby representation. (Recommendation 8)

Institutional investors should take into con-sideration their own responsibilities fordiligent, efficient and critical use of therights conferred by the securities of whichthey are holders, or whose management hasbeen entrusted to them, in particular asregards information and voting rights.(Recommendation 10)

See Commentary on Recommendation 5 (Vot-ing agreements and other shareholderagreements to contest takeover bids are consid-ered shareholder agreements [and shouldtherefore be disclosed].).

See also Recommendation 11 (Institutionalinvestors should disclose information on thepractice followed regarding the exercise ofvoting rights on securities whose manage-ment has been entrusted to them.).

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Measures aimed at making the system of votingby proxy more transparent, and emphasizingcommunication between the company and itsshareholders, especially institutional investors,should be passed. (Code, Recommendation 18)

All shareholders are, as a whole, the owners ofthe company, but the different roles of each of thegroups of shareholders require that moderation orcounterweight steps are passed so that none of thegroups assumes power at the expense of the inter-ests of other groups. (Introduction, 2)

[The Committee suggests that there be] a rule ofpowers, according to which the Board of Direc-tors should formally keep to itself knowledge ofany direct or indirect transactions between thecompany and a significant shareholder, in orderthat it may not be passed unless the most appro-priate delegated Committee issues a favourableopinion. Said Committee will evaluate the trans-action from the standpoint of equal considerationfor all shareholders and equal market conditions.(Report, 8.6)

Regarding the use of non-public information, theCommittee is aware of a degree of concern in themarket on the unequal distribution of informationamong shareholders and on significant sharehold-ers accessing confidential information. TheBoard of Directors should watch over such situa-tions in order to decide whether there are anyanomalies or leakages that someone would beheld accountable for. In any event, it might beappropriate to consider extending to significantshareholders the obligation of keeping certaininformation confidential and not using insideinformation to their advantage. (Report, 8.6)

[I]t has become increasingly common to pro-pose at the general meeting that the board begiven the authority to decide on new shareissues, thus waiving the shareholders’ prefer-ential rights as stated in the SwedishCompanies Act (Aktiebolagslagen), ChapterFour, paragraph 14. Departure from the share-holders’ preferential rights is an encroachmenton the rights of shareholders, and it is thereforenecessary that the shareholders be given de-tailed information concerning the authorizationin the notice of the meeting. The Shareholders’Association considers that the notice shouldclearly state what ... new issues the board, withthe support of the authorization, can decide on,[what they] are to be used for, who shall beallowed to subscribe, the main subscriptionconditions, [and] how great a dilution of theshareholders’ ownership the new issue couldlead to. A dilution greater than 10% should notoccur. (Guideline 1.1)

An important part of owner responsibility is thelarger owners’ solicitude for the company andits minority shareholders. Larger institutionalinvestors are above all interested in the sharesas a capital investment. This is a reason for thelack of interest shown in some cases in exer-cising the voting rights coupled with the shares.Larger owners have a responsibility that goesbeyond the obligation to vote. Controllingshareholders are in duty bound to heed theinterests of minority shareholders before theysell their shares and leave other shareholderswith a new principal owner. In a number ofcases, a change in controlling ownership hasbrought with it losses for the minority. Tocome to terms with this situation, many coun-tries have introduced an obligation regardingoffers. (Guideline 5)


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Not covered directly, but see Report, 6.6(Shareholders have delegated many of theirresponsibilities as owners to the directors who actas their stewards. It is for the shareholders to callthe directors to book if they appear to be failing intheir stewardship, and they should use this power.While they cannot be involved in the directionand management of their company, they can insiston a high standard of corporate governance, andgood governance is an essential test of thedirectors’ stewardship. The accountability ofboards to shareholders, will, therefore, bestrengthened if shareholders require theircompanies to comply with the Code.).

Not covered. [S]hareholders should be invited specifically toapprove all new long-term incentive plans ...which potentially commit shareholders’ fundsover more than one year, or dilute the equity.(Guideline 4.20)

[S]hareholders should have an opportunity tovote separately on each substantially separateproposal. (Guideline 5.17)

[P]rivate investors [can] hold shares throughnominees. This deprives the investors con-cerned of the right to vote and to receivecompany information, unless some specialarrangement is made. A number of companieshave established their own “in-house” nomineeand use it to restore rights to private sharehold-ers. We commend this. (Guideline 5.25)

Institutional shareholders should be ready,where practicable, to enter into a dialoguewith companies based on the mutual under-standing of objectives. (Principle E.2)

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There is a clear Government expectation thatshareholders, particularly institutional investors,will exercise their corporate governance rights,including voting. The NAPF supports this stanceand encourages pension funds, in their capacity asmajor investors in the UK economy, to make useof the power derived from those voting rights.(Introduction)

The approval of the appointment of directors tothe board is, arguably, the most important routineresponsibility placed upon a company’sshareholders. (§2)

The names of directors submitted for election orre-election should be accompanied by sufficientbiographical details to enable shareholders to takean informed decision on their election. (§8)

Resolutions should cover separate issues andshould not be “bundled”. (§10)

AUTIF supports pre-emption rights for existingshareholders in the event of an issue of newshare capital. Member firms should discusswith the company any proposal to depart fromthis policy. (Guidance Note to Key Principle 6)

Other methods of communicating with inves-tors on the subject of voting policy whichmember firms may wish to consider include:§ pre-sale communications such as scheme

particulars, key features documents orother marketing material;

§ half yearly reports or other reports atregular intervals;

§ as frequently as is appropriate on thefirm’s website;

§ and of course at the request of investors.(Guidance Note on Key Principle 7)

See Key Principle 3 (AUTIF recommends thatmember firms agree, in writing, and keep underregular review with trustees, depositaries andcustodians the practical arrangements for cir-culating company resolutions of meetings andfor exercising votes in accordance with stand-ing or special instructions.).

See also Key Principle 5 (AUTIF welcomesPrinciple E.2 of the Combined Code, whichstates that shareholders should be ready, wherepracticable, to enter into a dialogue with com-panies based on mutual understanding ofobjectives.AUTIF therefore encourages member firms todevelop and maintain a dialogue with the com-panies in which they invest. This dialogue islikely to be most effective if it includes, wherepracticable, regular meetings with companyrepresentatives.).

Existing shareholders should be offered right offirst refusal when a company issues sharesexceeding 5% of the existing shares in issue.Only in exceptional circumstances would Her-mes approve the waiver of clients’ preemptionrights. (5.1)

Performance-related remuneration is ... an areaof company policy in which shareholders havea valid role. (APPENDIX 1.1.1)

See 1.1 (Shareholders and their agents haveresponsibilities as owners to exercise steward-ship of companies.).

PRINCIPLE: Shareholders should haveproper notice of resolutions and be able tovote on all substantive issues.A. Notice of the AGM was sent at least 20working days before the meeting....B. Resolutions on substantially separate issuesare put to the AGM....C. A resolution on the report and accounts isproposed....D. Dividend is put to the vote....(Part 5: Share Capital and Shareholder Rela-tions, p. 16)

PRINCIPLE: Shareholders should have ade-quate information on all directors andresolutions.E. Sufficient biographical information on alldirectors is disclosed....F. All resolutions are explained....(Part 5: Share Capital and Shareholder Rela-tions, p. 17)

[On two-tiered boards,] shareholders shouldhave the right to elect directors [of the supervi-sory board] and hold them accountable throughregular election. Shareholders should alsohave the power to remove those individualsexercising the powers of the company orcharged with overseeing executive manage-ment. This applies to stakeholderrepresentatives and also to alternate directorswho are not elected. (Part 2: Directors, p. 4)

See Part 6: Other Voting Issues, p. 18(amending the Memorandum and Articles ofAssociation, on which the exercise of share-holders’ rights is based).

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35. Shareholder Meetings / Proxy Proposals

Shareholders should have the opportunity to par-ticipate effectively and vote in general shareholdermeetings and should be informed of the rules,including voting procedures, that govern generalshareholder meetings:1. Shareholders should be furnished with suffi-

cient and timely information concerning thedate, location and agenda of general meetings,as well as full and timely information re-garding the issues to be decided at themeeting.

2. Opportunity should be provided for share-holders to ask questions of the board and toplace items on the agenda at general meet-ings, subject to reasonable limitations.

3. Shareholders should be able to vote in personor in absentia, and equal effect should begiven to votes whether cast in person or in ab-sentia.

(OECD Principle I.C)

Processes and procedures for general shareholdermeetings should allow for equitable treatment ofall shareholders. Company procedures should notmake it unduly difficult or expensive to cast votes.(OECD Principle II.A.3)

The Principles recommend that voting by proxy begenerally accepted. Moreover, the objective ofbroadening shareholder participation suggests thatcompanies consider favourably the enlarged use oftechnology in voting. (OECD Principle I.C.3 An-notation at 26)

Proposals to change the voting rights of differentclasses of shares are normally submitted for ap-proval at general shareholders meetings by aspecified majority of voting shares in the affectedcategories. (OECD Principle II.A.1 Annotation at30)

The ICGN Statement adopts OECD PrincipleI.C (Shareholders should have the opportunityto participate effectively and vote in generalshareholder meetings and should be informed ofthe rules, including voting procedures, thatgovern general shareholder meetings:1. Shareholders should be furnished with

sufficient and timely information con-cerning the date, location and agenda ofgeneral meetings….

2. Opportunity should be provided for share-holders to ask questions of the board andto place items on the agenda….

3. Shareholders should be able to vote inperson or in absentia….).

See ICGN Amplified OECD Principle I at 6(ICGN supports initiatives to expand votingoptions to include the secure use of telecommu-nication and other electronic channels.).

See also ICGN GLOBAL SHARE VOTING PRINCI-PLES, 2 (Company law, corporate articles and/orvoluntary coordination among companiesshould allow firms to structure their reportingcalendar and notice distribution so as to givepriority to creating a reasonable time for share-holders to receive meeting agendas, considervoting items, make arrangements to attend themeeting if they so desire, and vote in time forthe ballot to count. The notice should be clearas to the actual date and location of the meetingand it should be distributed as widely as possi-ble so as to reach investors.).

See also ICGN GLOBAL SHARE VOTING PRINCI-PLES, 3 (Meeting agendas should be presentedin such a way that shareholders can understandand ascertain which items are to be voted.Companies should faithfully present the princi-pal purpose of each resolution.).

See also ICGN GLOBAL SHARE VOTING PRINCI-PLES, 7 (Procedures should be … simplified andupdated with a view to enfranchising and fa-cilitating share voting by investors.).

Major decisions which have a fundamentaleffect upon the nature, size, structure and riskprofile of the company, and decisions whichhave significant consequences for the positionof the shareholder within the corporation,should be subject to shareholders’ approval orshould be decided by the AGM. (Recommen-dation 2)

Shareholders should be able to vote in personor in absentia.... [A]n efficient proxy votingsystem should be established. (Commentary onRecommendation 2)

Auditors … should be elected by the generalmeeting. (Recommendation 6)

Shareholders should be able to place items onthe agenda of the AGM. (Recommendation 7)

[I]nformation concerning the agenda or othermatters pertaining to a general meeting shouldbe published in good time. At the generalmeeting, a company has the obligation to an-swer all questions put, unless this wouldseriously damage its interests. (Commentaryon Recommendation 7)

The minutes [of the AGM] should be:§ taken by an appointed secretary, and§ checked by an independent person or or-

ganisation.The minutes should be made available toshareholders as soon as possible, and should beproperly distributed before the next meeting.The debate at the general meeting should berecorded on tape and the recording made avail-able to the shareholders in the event of anydisagreement. (Commentary on Recommenda-tion 7)

In both the one-tier and the two-tier system, atleast some of the members of the board – or ofone of the two boards – should be elected bythe AGM. (Commentary on Recommendation9)

Basic shareholder rights include ... participatingand voting in shareholder meetings, in particu-lar to decide on fundamental changes in thecompany or in shareholders’ rights. (Recom-mendation I.1.c)

Shareholders should have timely and practicalaccess to information on the rules and votingprocedures relating to meetings. Substantiallydifferent subjects should be voted on sepa-rately.Shareholders should receive sufficient noticeand information on meeting location, date,agenda and issues to be discussed, with theability to request items to be placed on theagenda and to ask questions....The Chairman should be present at sharehold-ers’ meetings to answer questions or to referthem to appropriate members of the board(such as committee chairmen) or management,who should also hold themselves available forthat purpose.After shareholders’ meetings, shareholdersshould have prompt and practical access toinformation on the substance of the discussionand the results of the vote. (RecommendationI.2)

A quorum of board members should be entitledto call a meeting. (Recommendation V.5.d,iii)

See Recommendation II.2 (Voting by Proxy).

See also Recommendation IV.1 (minorityshareholders’ interests).

See also Preamble at 5 ([T]he committee hasendorsed ... the ability to vote by proxy.).

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According to Belgian law, the General Meetingappoints all directors, whether they are executiveor not.For non-executive directors, however, this ap-pointment must take place on a proposal from theBoard of Directors. (Note to 2.3)

[T]he Chairman of the [audit] committee replies tothe questions which are asked at the GeneralMeeting about the activities of the committee.(Note to 4.3)

The Board of Directors has the task of producingthe Annual Accounts and presenting them to theGeneral Meeting. (4.4)This recommendation corresponds to a require-ment of company law. (Note to 4.4)

[T]he general meeting of shareholders isresponsible for appointing the members of theboard of directors and the auditors. The boardof directors is responsible for ... reporting to theshareholders on the performance of its duties.(Part I: A.2)

It is the board’s duty to present a clear andaccurate evaluation of the company’s situationto the general meeting of shareholders. (Part I:B.4.1)

See Part II: B.5 (Information [to be disclosed]on the functioning of the board of directors[includes] information on the policy applied bythe board of directors in its proposals to theGeneral Meeting with regard to theappropriation and, especially, the distribution ofthe results.).

Not covered.

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Invitations should be sent out at least 3 weeks inadvance and enclose an agenda with detailed pro-posals and recommended decisions to be taken.All strategic decisions of a fundamental impor-tance to the company should be approved at ashareholders meeting....Statements from minority board members orshareholders should be registered in the minutes.(I. The Annual General Meeting)

[G]ood corporate governance depends on ap-propriate frameworks which encourage theshareholders to enter into a dialogue with themanagement of the company and each other.This can be encouraged through a strengtheningof the AGM’s role as a forum for communica-tion and decisions…. (I)

It is recommended that the AGM is called withsufficient notice so that the shareholders areable to prepare for the meeting and decide onthe issues which will be dealt with at the AGM.The notice of meeting, including the agenda,should be drawn up in such a way that theshareholders are provided with a satisfactorypicture of the matters included in the points ofthe agenda. Authorisations given to a com-pany’s directors should be limited to oneparticular AGM and should, as far as possible,include the position of the shareholder regard-ing each point on the agenda. (I.3)

[W]ithout the acceptance of the AGM, or on itsown, the board should refrain from countering atakeover bid by reaching decisions which inreality prevent the shareholders from decidingon the takeover bid. (I.4)

It is recommended that the board enclose adescription of the nominated candidates’ back-ground in the notice of the AGM when theelection of the directors is on the agenda. (V.1)

Proposals to the General Meeting of Share-holders regarding the election of the membersof the Board of Directors and the SupervisoryBoard that have come to the knowledge of theBoard of Directors of the company shall bemade public, at the latest, at the General Meet-ing of the Shareholders when the proposal issupported by at least 20% of all the votes in thecompany and the person nominated has givenhis consent for the task. . . .Requests to resign as well as refusals for newcandidacy known to the company shall be [dis-closed], at the latest, at the General Meeting ofthe Shareholders. (English Summary, 4)

Participation of the shareholders in the share-holders’ meetings shall be secured as far aspossible; [thus], the position of other share-holders in addition to that of the State-owner istaken into account, in relation to the weight oftheir holdings.In a listed company, this means that the regula-tions on pre-registration for and on thebalancing date of the shareholders’ meetingshall be as flexible as possible, according tocompany law and legislation on book-entrysecurity currently in force. (2.3.1)

See 2 (The Ministry of Trade and Industrydraws the attention of civil servants on theBoard of Directors especially to ... participationof the shareholders in the shareholders’ meet-ings and the State-owner’s role.).

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[T]he board of directors is collectively answerableto the General Meeting of Shareholders for thefulfillment of its duties.... [It] informs the share-holders’ meeting through its annual report and thefinancial statements which it adopts. (p. 5)

[T]he board must respect the rights of the GeneralMeeting of Shareholders when it envisages atransaction which is of a nature to affect, de jure orde facto, the company’s [purposes]. (p. 6)

[[I]t is the Committee’s opinion that the boardshould also ask the general meeting of share-holders to consider any divestment representinga preponderant portion of the company’s assetsor activities.] (p. 6)

The Committee recommends that all boards shouldset up special committees [and] inform the AnnualGeneral Meeting of Shareholders of the existenceof these committees and of the number of meetingsthey have held in the course of the year. (p. 18)

[T]he Committee considers it highly desirable fordirectors to attend general meetings of sharehold-ers. (p. 21)

The General Shareholders’ Meeting is the pre-eminent occasion for the shareholder to exercisehis company rights. This meeting is therefore adecisive element in a company’s corporate gov-ernance. (§ I)

The Commission would like to see the timeperiod for calling the general meeting extendedbeyond 15 days so that documents and infor-mation, which on occasion may be complex,can be delivered to the shareholders sufficientlyin advance of the meeting for them to reviewtheir contents. (§ I.A.1)

The presence of the maximum number ofshareholders at shareholders’ meetings contrib-utes to the interest of the discussion. Theirparticipation should be encouraged. (§ I.A.2)

The shareholders’ meeting is the occasion whenthe Board of Directors renders its accounts tothe shareholders on the exercise of its duties.The directors’ presence is therefore essential.(§ I.B)

The Commission recommends that companiesdraw up and distribute a guide for shareholders’participation in the general meeting. (§ I.B.1)

Through the Shareholders’ Meeting, the boardshould inform shareholders of the existence of[standing] committees and the frequency oftheir meetings. (§ II.B.2)

Not covered.

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The annual general meeting as the organ of thestockholders decides mandatorily in certain basicquestions as well as when so demanded by theManagement Board. It elects the members of theSupervisory Board insofar as they may be ap-pointed by the stockholders – depending on the co-determination situation – either completely, or asto two-thirds, or as to one half. (Code, I.5)

The annual general meeting also appoints theauditor. (Code, I.5)

Properly understood checks and balances in com-pany management are expressed by the fact thatthe Management Board ... presents fundamentalissues, subject to certain preconditions, to the an-nual general meeting for final decision. (Code,II.3.1)

After approval by the Supervisory Board has beengiven, the Management Board lets the annual gen-eral meeting decide in cases expressly provided forby statute, or if the fundamental structural andmanagerial measures affect the core membershiprights of stockholders. (Code, II.3.5)

Stockholders exercise their influence at the annualgeneral meeting. (Code, V.1.2)

The Management Board, the Supervisory Boardand the auditor participate in the annual generalmeeting. (Code, V.1.4)

The stockholders alone decide whether to acceptor reject offers of acquisition. (Code, V.1.6)

As part of its regular communication efforts,the dates of major regular publications (such asannual and quarterly reports, General Meetings)shall be published in a ‘Financial Calendar’sufficiently in advance (at least one year).The information published by the companyshall also be available via the ‘Internet’. Thisincludes the invitation to General Meetings,their agenda as well as shareholder initiativesand management comments hereto, as well asvoting results of such meetings. If possible, allpublications are provided in the English lan-guage. (Code, II.2.a)

Shareholders exercise their rights at theGeneral Meeting and vote there. (§II.1.1)

The Management Board submits to the GeneralMeeting the established Annual FinancialStatements and the Consolidated FinancialStatements. The General Meeting resolves onthe appropriation of net income and on ratifica-tion of the acts of management of the Manage-ment Board and of the Supervisory Board,elects the shareholders’ representatives to theSupervisory Board and, as a rule, the auditor.(§II.2.1)

[T]he General Meeting resolves on the Articlesof Association, the object of the company,amendments to the Articles of Association andessential corporate measures such as … inter-company agreements and transformations, theissuing of new shares and … convertible bondsand bonds with warrants, and the authorizationto purchase own shares. (§II.2.1)

Each shareholder is entitled to participate in theGeneral Meeting, to take the floor on matterson the agenda and submit materially relevantquestions and proposals. (§II.2.3)

Shareholder minorities are entitled to demandconvention of a General Meeting and extensionof the agenda. (§II.3.1)

The company shall inform all domestic andforeign financial services providers, sharehold-ers and shareholders’ associations, who, in thepreceding 12 months, have requested such noti-fication, of the convening of the GeneralMeeting together with the convention docu-ments…. (§II.3.2)

The company should make it possible forshareholders to follow the General Meetingusing modern communication media (Internet).(§II.3.4)

See generally §II, Shareholders and the GeneralMeeting.

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Preda Report(Italy)


[T]he general shareholder meeting has the respon-sibility of appointing the Directors to the Board,the external and internal auditors, and approvingthe corporation’s general strategy. (Introduction)

All functions of the ... general shareholder meet-ings should aim at the enhancement of the entireperformance of the corporation within an ade-quately supervised and informed environment. Itis important to ... empower the authority of thegeneral shareholder meeting and establish therights of the minority shareholders. (Introduction)

Shareholders should have the right to participateequitably and efficiently in the general shareholdermeetings and be sufficiently, timely and properlyinformed on the decisions that need to be maderegarding fundamental changes in the corporation.(Recommendation 1.2; for a list of proposedchanges to the corporation about which share-holders should be duly informed, seeRecommendation 1.2)

Procedures for general shareholder meetingsshould ensure the equitable treatment of all share-holders. (Recommendation 2.1.3)

The Board of Directors should present to the gen-eral shareholder meeting a clear and credibleevaluation of the existing situation and the pros-pects of the corporation. (Recommendation 4.4)

See Recommendation 1.3 (participation and votingat shareholders’ meetings).

[The internal controller] is present in the gen-eral assembly’s meetings. (§4.45(c))

In the event of a share capital increase throughcash contributions, the company’s board ofdirectors presents a written report to the generalassembly of shareholders, providing the generaldirections of the company’s investment pro-gram, an indicative timeline for itsimplementation, as well as a report on the useof capital paid in since the last capital increase,provided that this took place not more thanthree years prior to that date. The relevant deci-sion of the general assembly must include theabove elements, as well as the content of thereport. (§6.1)

Where the decision on the share capital increaseis taken by the board of directors pursuant tothe provisions of Art. 13(1) of Law 2190/1920,all elements referred to in the previous para-graph must be mentioned in the board’sminutes. (§6.2)

Important deviations in the use of paid-in capi-tal as compared to the expected use set forth inthe information reports and the decisions of thegeneral assembly or those of the board pursuantto paras. 1 and 2 of the present article, may bevalidly decided by a two-thirds majority of theboard’s members. The board must inform thegeneral assembly, at the first meeting followingthis decision, of the new intended use of thecapital, as well as of the reason for the deviationfrom the originally intended use. (§6.3)


Principle C.2 (Boards should use the AGM tocommunicate with private investors and en-courage their participation.);

Code § 1, B.3.5 (The board’s annual remunera-tion report to shareholders need not be astandard item of agenda for AGMs. But theboard should consider each year whether thecircumstances are such that the AGM should beinvited to approve the policy set out in the re-port and should minute their conclusions.);

Code § 1, C.2.2 (Companies should propose aseparate resolution at the AGM on each sub-stantially separate issue.);

Code § 1, C.2.3 (The chairman of the boardshould arrange for the chairmen of the audit,remuneration and nomination committees to beavailable to answer questions at the AGM.);

Code § 1, C.2.4 (Companies should arrange forthe Notice of the AGM and related papers to besent to shareholders at least 20 working daysbefore the meeting.);

Code § 1, C.2.1 (Companies should count allproxy votes and, except where a poll is called,should indicate the level of proxies lodged oneach resolution, and the balance for and againstthe resolution, after it has been dealt with on ashow of hands.);

Code § 2, E.1.2 (Institutional shareholdersshould, on request, make available to their cli-ents information on the proportion ofresolutions on which votes were cast and non-discretionary proxies lodged.).

The directors shall encourage and facilitatethe broadest possible participation of share-holders in shareholders’ meetings. (Code,12.1; see Report, 5.5)

As a general rule, all the directors shall at-tend shareholders’ meetings. (Code, 12.2;see Report, 5.5)

Shareholders’ meetings shall also be an op-portunity to provide shareholders withinformation on the company. (Code, 12.3;see Report, 5.5)

The board of directors shall propose for theshareholders’ approval a set of rules to en-sure the orderly and effective conduct of thecompany’s ordinary and extraordinaryshareholders’ meetings, while guaranteeingthe right of each shareholder to speak on thematters on the agenda. (Code, 12.4)

In the event of a significant change in themarket value of the company, the composi-tion and/ or the number of shareholders, thedirectors shall assess whether proposalsshould be submitted to the shareholders’meeting to amend the by-laws as regards themajorities required for the approval ofresolutions to adopt the measures and exer-cise the rights provided to protect minorityinterests. (Code, 12.5)

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[I]f the shareholders, especially the institutionalinvestors and other major shareholders, are actu-ally present at the General Meeting ofShareholders and make their views heard, this willlead to higher attendance rates and to a consider-able improvement in the quality of the GeneralMeeting of Shareholders. (Recommendation 5.1)

[E]ach company’s General Meeting is the forum towhich the [Management Board] and the Supervi-sory Board report and to which they areaccountable for their performance. The agendaitems should include the company strategy, policy– financial and otherwise – and the business re-sults. (Recommendation 5.2)

In the General Meeting of Shareholders a thoroughexchange of ideas should take place between com-pany executives and investors. Relevantinformation should therefore be supplied. (Rec-ommendation 5.2)

The basic principle is that the [ManagementBoard] and the Supervisory Board should have theconfidence of the shareholders’ meeting. (Rec-ommendation 5.3)

[A]n effective proxy solicitation system withoutprohibitive costs would improve the representativenature of the General Meeting of Shareholders.The Committee is aware that a study group is pre-paring a proposal for the implementation of proxysolicitation. (Recommendation 5.4.4)

An efficient proxy solicitation system should beestablished ... [and] entrusted to a neutral body thatdraws up and publishes the conditions for admis-sion. (Recommendation 5.9)

See Recommendation 5.7 (conditions required forshareholders to add items to the agenda)

Substantial changes of business activities, riskprofile, size and structure should be approvedby the shareholders meeting. (Recommenda-tion 6)

A shareholder does not have the intention toparticipate in the management of the company,but should have influence on very substantialchanges. This may concern major takeovers(Akzo Nobel), mergers (P&O Nedlloyd),amendments to the articles of association andsubstantial changes of business activities (riskprofile). (Commentary on Recommendation 6)


See Recommendation 4 (Certification should beterminated (a) or depository receipt holders(certificateholders) should be given a proxy,whereas the trust office only votes in case oftakeover threats (b).).

See also Commentary on Recommendation 4(Certification in its present state deprives theinvestor of his voting right and transfer to atrust office that lies within the company’s rangeof influence. The recommendations of the Pe-ters committee (proxy, minority in the trustoffice) still lead to a weaker position of theinvestor than when certification is absent. Aproxy could be a solution in case the trust officedoes not take part in a vote.).

To improve the role of annual shareholdersmeetings as a forum for discussion between theboard and capital providers, the right to submitagenda topics should be enjoyed by sharehold-ers and certificateholders and not justmanagement. (Guideline 2)

A practical system of proxy voting should beintroduced to allow institutional investors tovote at the shareholders’ meetings of all thecompanies in which they have shares.(Guideline 4)

Major decisions should be approved at theannual general meeting of shareholders. Thisdemonstrates how the interest of shareholdersis weighted in relation to other interests, andalso in relation to the interests of any majorityshareholders. (Guideline 5)

If the [annual shareholders’] meeting suffersfrom absenteeism, … the company might wantto certify its shares. (Guideline 6(a))

If the trust office makes use of voting rightslinked to shares, it must explain at theshareholders’ meeting how this action is in theinterests of certificateholders. (Guideline 6(c))

The introduction of a practical and efficientproxy voting system and proxy solicitation willenable the practice of limiting voting rights tobe abolished. (Guideline 8)

The board of a company should not issue(certificates of) preference shares withouthaving first justified the planned issue andrelated financial advantages at theshareholders’ meeting. (Guideline 9)

Shareholders at the general meeting mustapprove option scheme plans in advance.(Guideline 14)

The annual general meeting of shareholders(AGM) is the formal forum for discussionbetween the managing board of a company andits shareholders. (Handbook, p. 21)

The principles of good practice and trans-parency which should inform corporategovernance recommend that the proceduresrelated to requests for proxy voting at Gen-eral Meetings should be developed. Inparticular, it is fundamental that sharehold-ers be provided not only with theinformation necessary to take a correct deci-sion regarding the stipulation of votinginstructions, but also that the grounds ex-plaining how the representatives should votebe clear, especially in the event of a lack ofinstructions from the shareholder repre-sented. (Recommendation 9)

See Recommendation 6 (The use of new in-formation technologies is encouraged for thedisclosure of ... preparatory documents forGeneral Meetings.).

See also Commentary on Recommendation 8(The generic regulations set out in the Portu-guese Companies Act ... on the exercise ofvoting rights leave room for companies, in theirown statutes, to establish measures to stimulatethe exercise of this right, in order to combat thefrequent absence of shareholders at GeneralMeetings. In line with this philosophy, the newSecurities Code ... has confirmed the principleof admissibility of postal votes at GeneralMeetings of publicly-held companies, and de-veloped the system of representation ofshareholders by proxy, a sign of a legislativedevelopment that should be accompanied inpractice by companies.).

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Measures aimed at making the system of voting byproxy more transparent ... should be passed.(Code, Recommendation 18)

The Board of Directors should try to avoid that itsaccounts be submitted to the General Sharehold-ers’ Meeting with reservations and provisos on theaudit report. Whenever this is not possible, boththe Board of Directors and the auditors shouldclearly explain to shareholders and markets thenature and scope of those discrepancies. (Code,Recommendation 22)

[T]his Committee cannot ignore an undeniablefact—the effectiveness of the General Sharehold-ers’ Meeting of listed companies as an instrumentof control and decision is subject to many struc-tural limitations. Experience shows, in fact, thatmost ordinary shareholders neglect General Share-holders’ Meeting tasks....To a great extent, the reform movement drivingthis report, with the purpose of boosting the Boardas a supervising body, takes rise from the provenlack of disciplinary efficiency of the GeneralShareholders’ Meeting. Against this backdrop,this Committee harbours doubts on the effective-ness of certain policies directed towards thereactivation of the General Shareholders’ Meetingby fostering participation of shareholders (creatingshareholder committees, seeing to it that meetingsurged by shareholders are called, resorting to at-tendance premia, etc.). This does not mean,however, that any action directed to increase theefficiency of shareholder control should be re-jected. In fact, the Committee considers that this isa field where a lot can still be done. (Report, 9.1)

The company’s top decision-making organ isthe general meeting, where the owners togetherdecide on important questions for the company.The general meeting elects the board, which isresponsible for the administration of the com-pany’s affairs. The shareholders’ mainopportunity to exert influence over the companyis the right to ask questions, to get answers, andto vote at the general meeting on questions thatconcern decisions about the company’s results,choice of board and auditors, their remunera-tion, and inspection of the board’sadministration. (Guideline 1)

The notice of the general meeting should con-tain a full and numbered agenda and, as far aspossible, proposals that are to be decided upon.In special matters, for example directed place-ments, the background to the proposals shouldbe accounted for in detail. (Guideline 1.1)

[T]he general meeting should take the initiativefor setting up nomination, audit and remunera-tion committees. (Guideline 1.2)

The notice of a general meeting where theboard is to be elected should include the namesof people the committee intends to propose andinformation about them. (Guideline 1.2.1)

The general meeting must be given a clear ac-count of all remuneration from the company tothe board of directors. (Guideline 1.2.1)

The general meeting is the company’s highestorgan and decides on a number of importantquestions. (Guideline 2)

The Shareholders’ Association considers inaddition that it is desirable in [takeover bid]situations to call the shareholders to a generalmeeting where the board explains what theirattitude to the offer is based on, and allows theopportunity for discussion concerning the bid.(Guideline 5.1)

The company secretary should be responsibleto the chairman for the proper administration ofthe meetings of the company…. (Code, §9)

A director must be elected by the Company inGeneral Meeting unless provision is made oth-erwise. The directors may appoint additionaldirectors if the Articles so provide and anychange in the directorate must be notified tothe International Stock Exchange immediately.Such an appointment terminates at the nextAnnual General Meeting when the directorwould normally be eligible for election at thatmeeting. (p.2)

Service contracts may not be entered into for aperiod in excess of five years without the con-sent of the company in general meeting. (p. 4)

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[T]he chairman of the [remuneration] committeeshould be available to respond to any concerns ofshareholders at the Annual General Meeting.(Report, 4.44)

The Annual General Meeting provides theopportunity for shareholders to make their viewson such matters as directors’ benefits known totheir boards.... [S]hareholders can play a morepractical governance role by aiming to influenceboard policies in this way than by seeking to makethe details of board decisions subject to their vote.(Report, 4.45)

[S]hareholders can make their views known to theboards of the companies in which they haveinvested by communicating with them directly andthrough their attendance at general meetings.(Report, 6.5)

Reports and accounts are presented to shareholdersat the Annual General Meeting. ... In particular,the Annual General Meeting gives all shareholders... direct and public access to their boards.(Report, 6.7)

[T]he chairman of the [audit] committee should beavailable ... at the AGM. (APPENDIX 4, 6(f))

The committee’s annual report to shareholdersshould not be a standard item of agenda forAGMs. But the committee should considereach year whether the circumstances are suchthat the AGM should be invited to approve thepolicy set out in their report and should minutetheir conclusions. (Code, A9)

The remuneration committee Chairman shouldattend the company’s Annual General Meeting(AGM) to answer shareholders’ questions aboutDirectors’ remuneration.... (Code, A8)

Shareholders should be invited specifically toapprove all new long-term incentive schemes(including share option schemes) whetherpayable in cash or shares in which Directors orsenior executives will participate whichpotentially commit shareholders’ funds overmore than one year or dilute the equity. (Code,B12)

Any new long-term incentive schemes whichare proposed should preferably replace existingschemes or at least form part of a well-considered overall plan, incorporating existingschemes, which should be approved as a wholeby shareholders. (C7)

Where Directors stand for re-election, the proxycards should indicate their specific duties,including membership on the remuneration orother committees. (Commentary onRemuneration Committees, Membership andQualifications, 4.12)

See Commentary on Disclosure, ShareholderCommunications and Approval, 5.26 – 5.33,including:5.33. Shareholders should be invited toapprove all long-term incentive schemesavailable to Directors and senior executives,whether payable in cash or shares, and not justshare option schemes.

Companies should use the AGM tocommunicate with private investors andencourage their participation.(Principle C.IV)

The AGM is often the only opportunity for thesmall shareholder to be fully briefed on thecompany’s activities and to question seniormanagers on both operation and governancematters. (Guideline 5.13)

[T]he chairman of the audit committee [should]be available to answer questions at the AGM.(Guideline 5.19)

[D]irectors must lay before the AGM theannual accounts and the directors’ report....Most boards propose a resolution relating to thereport and accounts.... We recommend this asbest practice, which allows a general discussionof the performance and prospects of thebusiness, and provides an opportunity for theshareholders in effect to give – or withhold –approval of the directors’ policies and conductof the company. (Guideline 5.20)

Notice of the AGM and accompanying docu-ments should be circulated at least 20 workingdays in advance of the meeting.... (Guideline5.21)

Boards should use the AGM to communicatewith private investors and encourage theirparticipation. (Principle C.2)

The board’s annual remuneration report toshareholders need not be a standard item ofagenda for AGMs. But the board shouldconsider each year whether the circumstancesare such that the AGM should be invited toapprove the policy set out in the report andshould minute their conclusions. (Code § 1,B.3.5)

Companies should count all proxy votes and,except where a poll is called, should indicatethe level of proxies lodged on each resolution,and the balance for and against the resolution,after it has been dealt with on a show of hands.(Code § 1, C.2.1)

Companies should propose a separateresolution at the AGM on each substantiallyseparate issue, and should in particular proposea resolution at the AGM relating to the reportand accounts. (Code § 1, C.2.2)

The chairman of the board should arrange forthe chairmen of the audit, remuneration andnomination committees to be available toanswer questions at the AGM. (Code § 1,C.2.3)

Companies should arrange for the Notice of theAGM and related papers to be sent to share-holders at least 20 working days before themeeting. (Code § 1, C.2.4)

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All directors must be put forward for election byshareholders at the first AGM after theirappointment. (§8)

The report of the remuneration committee shouldbe submitted to shareholders each year for theirapproval.Long-term incentive schemes must be put toshareholders for approval. (§9(iv))

The results of all proxy votes should be publishedduring or shortly after the AGM….Notice of the AGM and related papers should besent to shareholders at least 20 working daysbefore the meeting. (§10)

The NAPF would not normally support the policyof making UK political donations. However,companies wishing to make such donations shouldseek shareholder approval at general meetings….[S]uch resolutions, once passed, should be votedon by shareholders at least every three years.(§15)

A resolution to adopt the report and accounts mustbe presented at the AGM. (§17)

As a company’s memorandum and articles protectthe interests of shareholders, any proposed changesshould be fully explained and clearly drafted.Significant, non-routine changes should not be“bundled” into a single resolution. (§18)

Where a final dividend is proposed, shareholderapproval must be sought. (§19)

In accordance with company law, companies mustsecure share holder approval to offer scripdividend programmes.Shareholders should not be forced to accept a scripdividend. Cash should always be offered as achoice. (§21)In accordance with company law, companies mustsecure shareholder approval to be able to issue newshares. (§22)


Hermes encourages companies to put theboard’s remuneration report to a vote at theAGM, particularly where significant changesare made to policy or controversial issues ariseduring the year. (1.4 and APPENDIX 1.1.2)

Hermes believes that a separate resolutionseeking approval of the annual report and ac-counts should be tabled at all AGMs. (3.1)

Hermes will lodge proxies at AGMs and EGMsin accordance with the principles outlined inthis document. (Code of Conduct 4)

PRINCIPLE: Shareholders should haveproper notice of resolutions and be able tovote on all substantive issues.A. Notice of the AGM was sent at least 20working days before the meeting....B. Resolutions on substantially separate issuesare put to the AGM....C. A resolution on the report and accounts isproposed....D. Dividend is put to the vote.(Part 5: Share Capital and Shareholder Rela-tions, p. 16)

PRINCIPLE: Shareholders should have ade-quate information on all directors andresolutions.E. Sufficient biographical information on alldirectors is disclosed....F. All resolutions are explained.(Part 5: Share Capital and Shareholder Rela-tions, p. 17)

PRINCIPLE: Shareholders should have theopportunity to vote on remuneration issues.G. The remuneration committee report or paypolicy is put to the vote....H. All new share or incentive schemes overone year are put to the vote.(Part 3: Directors’ Remuneration, p. 10)

Voting on the appointment of the directors isthe most important routine issue for sharehold-ers to consider at general meetings. (Part 2,Directors, p. 4)

[S]cheme rules [of directors’ remuneration]should be available on request as well as beingon display at the AGM. (Part 3: Directors’Remuneration, p. 8)

See Part 5, Share Capital and Shareholder Re-lations, p. 15 (AGM procedures and voting).

See also Part 6: Other Voting Issues, pp. 18-19(shareholder resolutions, EGMs).

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36. Anti-Takeover Devices

Shareholders have the right to participate in, andto be sufficiently informed on ... extraordinarytransactions that in effect result in the sale of thecompany. (OECD Principle I.B)

Markets for corporate control should be allowed tofunction in an efficient and transparent manner.1. The rules and procedures governing the ac-

quisition of corporate control in the capitalmarkets, and extraordinary transactions suchas mergers, and sales of substantial portionsof corporate assets, should be clearly articu-lated and disclosed so that investorsunderstand their rights and recourse. Trans-actions should occur at transparent prices andunder fair conditions that protect the rights ofall shareholders according to their class.

2. Anti-takeover devices should not be used toshield management from accountability.

(Principle I.E)

In some countries, companies employ anti-takeover devices. However, both investors andstock exchanges have expressed concern over thepossibility that widespread use of anti-takeoverdevices may be a serious impediment to the func-tioning of the market for corporate control. Insome instances, takeover defenses can simply bedevices to shield management from shareholdermonitoring. (OECD Principle I.E.2 Annotation at28)

[Independent board members] can play an impor-tant role in ... changes of corporate control.(OECD Principle V.E Annotation at 41-42)

The ICGN Statement adopts OECD PrincipleI.B (Shareholders have the right to participatein, and to be sufficiently informed on ... ex-traordinary transactions that in effect result inthe sale of the company.).

See also OECD Principle I.E (Markets for cor-porate control should be allowed to function inan efficient and transparent manner.1. The rules and procedures governing the

acquisition of corporate control in thecapital markets, and extraordinary trans-actions such as mergers and sales ofsubstantial portions of corporate assets,should be clearly articulated and dis-closed....

2. Anti-takeover devices should not be usedto shield management from accountabil-ity.).

See also OECD Principle I.E.2 Annotation at28 (In some countries, companies employ anti-takeover devices. However, both investors andstock exchanges have expressed concern overthe possibility that widespread use of anti-takeover devices may be a serious impedimentto the functioning of the market for corporatecontrol. In some instances, takeover defensescan simply be devices to shield managementfrom shareholder monitoring.).

See also OECD Principle V.E Annotation at41-42 ([Independent board members] can playan important role in ... changes of corporatecontrol.).

Anti-takeover defenses or other measureswhich restrict the influence of shareholdersshould be avoided. (Recommendation 3)

Widespread use of anti-takeover devices are aserious impediment to the functioning of thecorporate control market and can be used toshield the management from shareholdermonitoring. In order to achieve the efficientand transparent functioning of the corporatecontrol market, effective regulation is neces-sary. (Commentary on Recommendation 3)

The process of mergers and takeovers shouldbe regulated and compliance with these regula-tions should be supervised. (Recommendation4(a)

See also Recommendation 4(b) (If a share-holder’s stake in the company passes a certainthreshold, that shareholder should be obliged tomake an offer for the remaining shares underreasonable conditions, i.e., at least the price thatwas paid for the control of the company.).

See also Commentary on Recommendations4(a) & 4(b) (In order to protect the interests ofminority shareholders, there should exist anobligation for a dominant shareholder to bid forthe remaining shares under reasonable condi-tions. This should become effective when ashareholder’s stake passes a certain threshold.This threshold should be at least 25% and notbe higher than 33.33%, at which level a share-holder can be considered to have a controllinginterest.).

The market for corporate control should beallowed to function in an efficient and transpar-ent manner. Takeover barriers should notshield management, the board and influentialshareholders from accountability. (Principle X)

Anti-takeover devicesa) Companies should not adopt statutory

anti-takeover devices unless they are inthe best interest of the company;

b) The existence of anti-takeover devicesmust be disclosed and justified in an ap-propriate statement to shareholders.

(Recommendation X.2)

[F]ounders and controlling blockholders mayand do consider other objectives to overrideshareholder return maximalization, such associal, economic and environmental contribu-tions.... To ensure that these other aims can bepursued over time, some companies seek im-munity from measures such as takeover bidsthat would increase the value of the companyby eliminating such overriding objectives....[T]hese must be properly disclosed and ex-plained. (Preamble at 5)

See Preamble at 5 (To overcome the coordina-tion and monitoring problems that can arisewhen ownership and voting rights are dis-persed, the committee has endorsed ... thepossibility of conducting contested takeovers.).

362






363






Not covered directly, but see IV. Public TakeoverBids (Takeover bids should always, wheneverpossible, include a share trading alternative – andshareholders obtaining more than 33% of the votesin a listed company should be obliged to bid forthe remaining shares at identical conditions.The listing of the taken-over company shouldremain in force for the longest possible period oftime.The forced sale of shares should be carried out asquickly as possible.).

See also V. Information To The Market (At take-overs, the consequences of a stand-alonealternative should be included.).

In the event of attempted takeovers, it is rec-ommended that the shareholders are given theopportunity to decide if they wish to surrendertheir shares in the company on the conditionsoffered. Therefore, without the acceptance ofthe AGM, or on its own, the board should re-frain from countering a takeover bid byreaching decisions which in reality prevent theshareholders from deciding on the takeover bid.The decisions which are advised against in-clude implementing capital increases orallowing the company to buy its own sharesbased on a previously announced authority forinstance. (I.4)


364





Not covered. Considering the interests of the minority share-holders, AFG-ASFFI is generally not in favorof anti-takeover measures. (§ I.C.4)

The Committee has reviewed a resolution by ameeting of shareholders, the legitimacy ofwhich has given rise to recurring discussion, towit, permission granted to the Board of Direc-tors to use delegations of authority to increasecapital after a takeover bid has been made.In 1989, the legislature laid down a principle ofsuspension of those delegations at such a time,subject to one exception: the extraordinarymeeting of shareholders may expressly permitthe Board of Directors, for a term not exceed-ing one year, to make use after a takeover bidhas been made of the delegations of authoritygranted to it by the meeting of shareholders fora capital increase with or without preemptivesubscription rights, provided that the capitalincrease is open (not restricted)....Since then, most listed companies have sub-mitted to their meeting of shareholders everyyear a resolution for this purpose. In recentyears, approval by the shareholders of thisresolution, to which many institutional inves-tors object as a “poison pill,” has beenincreasingly lukewarm.Accordingly, the Committee recommends thatcorporations cease in future to submit to theextraordinary meeting of their shareholders aresolution expressly permitting the use of dele-gations of authority to increase the capital aftera takeover bid has been made. (p. 19)

365





The stockholders alone decide whether to acceptor reject offers of acquisition. The ManagementBoard and the Supervisory Board are obliged topresent the chances and risks of the offers in abalanced manner. The chief measure for evalua-tion in this is the presumed development in theprosperity of the company on an acquisition orwith independence. Securing the independence ofthe company is not normally a material aim of thecompany. (Code, V.1.6)

Not covered directly, but see Code, I (Until theenactment of the German Takeover Law, thevoluntary Takeover Code of the Capital Mar-kets Expert Commission of the GermanMinistry of Finance applies.).

In the event of a takeover offer, the Manage-ment Board and Supervisory Board of thetarget company must submit a statement oftheir reasoned position so that shareholders candecide on the offer with knowledge of thesituation.After the announcement of a takeover offer, theManagement Board may not execute any ac-tions outside of the ordinary course of businessthat could prevent the success of the offer un-less the Management Board has been author-ized by the General Meeting to do so or theSupervisory Board has given its approval. Inmaking their decisions, the Management Boardand Supervisory Board are bound to act in thebest interests of the shareholders and of theenterprise.In appropriate cases the Management Boardshould convene an extraordinary GeneralMeeting at which shareholders are advised ofand discuss the takeover offer and, possibly,decide on corporate actions. (§III.7)

See §II.2.1 ([T]he General Meeting resolves …inter-company agreements and transforma-tions….).

366




Preda Report(Italy)


Devices that limit or prevent merger and acquisi-tion activity should be adopted only when they areconsidered to be in the interest of the corporationand its shareholders. (Recommendation 1.4.3)

The corporate governance framework should dis-courage the use of devices that prevent merger andacquisition activity. However, any such useshould take place only in the interest of the share-holders. (Recommendation 5.13)

See Recommendation 1.2.3 (Shareholders shouldhave the right to participate equitably and effi-ciently in the general shareholder meetings and besufficiently, timely and properly informed on thedecisions that need to be made regarding funda-mental changes in the corporation. These changesinclude ... the approval of unusual and complexcapital transactions, such as mergers, acquisitionsand sales of the corporation’s assets.).

See also Recommendation 5.8 (The Board of Di-rectors should establish rules governing theprocedures for special transactions, such as merg-ers, acquisitions and other import capitaltransactions in the corporation.).

Not covered. An ESOP or employee share ownership trustshould not be used as an anti-takeover device.(Guideline 21)

See Guideline 17 (In the event of a takeover ofthe grantor company, options may be exercisedwithin 6 months of the offer being declaredunconditional in all respects, lapse or be con-verted into options of the offeror companywhere that alternative is available.).

Not covered.

367






In the situation where the company becomes thetarget of a hostile takeover bid by a party at-tempting to acquire control over it, the company’smanagement should be allowed the time to pro-vide adequate protection for the interests to whichthe hostile takeover bid relates. Protective meas-ures can, within certain limits, be accepted in thesecircumstances. Anti-takeover regulations do notfall within the remit of the Committee and itawaits the proposed legislation on this subject.(Recommendation 5.1.2)

Although the Committee realizes that under thecircumstances mentioned above the continuity ofdecision-making and the protection against hostiletakeovers may justify a departure from the princi-ple that the investor should be able to exercise adegree of influence which is proportionate to thecapital contribution, the Committee believes thatthis should never lead to the investors being de-prived of exerting a real influence.(Recommendation 5.4.1)

The Committee believes that protective preferenceshares should under normal circumstances not beissued. The voting right on protective preferenceshares should be exercised with due regard for thefunction of the shares. The holder of these sharesshould be reticent in using the voting rights at-tached to these shares when decisions are beingtaken that do not concern the protection of thecompany against an unfriendly acquisition of con-trol. (Recommendation 5.6.3)

Certification should be terminated (a) or de-pository receipt holders (certificateholders)should be given a proxy, whereas the trust of-fice only votes in case of takeover threats (b).(Recommendation 4)

See Commentary on Recommendation 6 (Ashareholder … should have influence on verysubstantial changes. This may concern majortakeovers [or] mergers….).

Anti-takeover defenses can only be used in theevent of a takeover to override the right of sayof the providers of capital. This is in order togrant the executive board a pre-set period oftime in which to weigh carefully the argumentsfor and against. The use of more than one anti-takeover device should be avoided. (Guideline7)

The board of a company should not issue (cer-tificates of) preference shares without havingfirst justified the planned issue and relatedfinancial advantages at the shareholders’meeting. The board should take pains toprevent an unbalanced relationship arisingbetween the capital providers and voting rightinfluence as a result of the issuance ofpreference shares. Preference shares thatcannot be freely traded must be seen as anti-takeover preference shares. (Guideline 9)

To prevent an issue of ordinary shares frombeing used as an anti-takeover device,companies should limit the period during whichthe authority to issue shares is granted to 18months. In addition, the number of non-preference shares issued should not exceed 10percent of existing outstanding shares.(Guideline 11)

Companies should not issue options onordinary or anti-takeover preference shares thathave a life longer than the period for which theauthority to issue these shares has been granted.(Guideline 12)

Anti-takeover defenses can be useful forguaranteeing the continuity of a company inexceptional situations. Anti-takeover defensesmust however not be used to give managementthe opportunity to go against the advice of themajority of shareholders for long periods oftime. (Handbook, p. 9)

Measures adopted to prevent the success oftakeover bids should respect the interests ofthe company and its shareholders. Measuresconsidered contrary to these interests in-clude defensive clauses intended to cause anautomatic erosion in company assets in theevent of transfer of control or change ofcomposition in the board, detrimental to thefree transferability of shares and the freeassessment by shareholders of the perform-ance of members of the board.(Recommendation 13)

Efficiency of the shareholder control market isbased essentially on the right to transferabilityof shares, on the unwaivable possibility grantedto the shareholder to assess the situation of thecompany and on the responsibility of its leadersfor the results obtained. These principles re-quire a distinction to be made between benigndefensive measures and those that harm therights and expectations of shareholders and themarket in general. For this reason, it is impor-tant to condemn the adoption of certaindefensive measures which, seeking at all coststo contain the success of takeover bids withoutthe agreement of the board, end up damagingthe interests of partners and the company.(Commentary on Recommendation 13)

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[A] rule of abstention ... would oblige significantshareholders not to vote in board decisions re-garding which they have a direct or indirectinterest (for instance, defensive measures againsthostile takeover bids). (Report, 8.6)

[I]n the event of including a proposal to introducedefensive measures against hostile takeover bids,it should be stated that the Board of Directors is ina conflicting situation. (Report, 9.2)

See Guideline 5, Public Takeover Bids, in-cluding the following:Guideline 5.1 (When a quoted company bidsfor another company, the offer ought, in viewof the tax consequences, to contain an exchangealternative, i.e., that settlement is paid out inshares in either the purchasing company or thenew company, and a pure cash offer.The Shareholders’ Association feels that, in thecase of a bid in which the principal owner di-rectly or indirectly participates, higher demandsshould be placed on objective evaluation thanthose currently stipulated. Independent opin-ions should be obtained to give theshareholders a complete and comprehensivefoundation on which to base their decision.The Shareholders’ Association considers inaddition that it is desirable in these situations tocall the shareholders to a general meetingwhere the board explains what their attitude tothe offer is based on, and allows the opportu-nity for discussion concerning the bid.)

Guideline 5.2 (The Swedish Companies Actdoes not include any offer obligation. Prevail-ing international conditions, work on EUdirectives and Swedish experience all argue infavour of such an obligation being introducedin Sweden.).

Guideline 5.3 (It is expedient and probablynecessary for the functioning of the stock mar-ket that the compulsory purchase of minorityshares be possible.).

Not covered. Management Buy-OutsConsiderable concern has been expressed at theinadequacy of information given to sharehold-ers, particularly when compared with theknowledge of the business held by the man-agement buy-out team, and also of the need tohave competent independent advice. The ad-vent of a takeover or a management buy-outimposes obligations on management to makeall relevant information available and theTakeover Code imposes quite stringent obliga-tions in bid situations. Given the potential forconflicts of interest, … [i]t is suggested that, asa matter of good practice, these further provi-sions should be observed:(a) The directors must use their best endeav-

ours to ensure that there is made availableto shareholders sufficient information toenable them properly to assess the valueof the company or other assets which it isproposed to sell.

(b) Ideally, the Board should appoint a sepa-rate committee consisting wholly ormainly of non-executive directors with di-rect access to independent advisers. Theindependent advisers should have accessto all information necessary to enablethem to give a fully informed opinion asto the merits of the offer. The committeeshould be responsible for a separatestatement to shareholders, giving theviews both of itself and of the independentadvisers on the bid.

(c) The consortium should not have access tothe company’s usual professional advis-ers, since that would aggrevate theconflict of interest.

(p. 6)

See pp. 2-3 ([T]he importance of non-executivedirectors has become evident, particularly … incircumstances where there is potential for con-flict of interest such as management buy-outs.).

369






Not covered directly, but see Report, 4.6 (Animportant aspect of effective corporate governanceis the recognition that the specific interests of theexecutive management and the wider interests ofthe company may at times diverge, for example,over takeovers.... Independent non-directors,whose interests are less directly affected, are well-placed to help to resolve such situations.).


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Not covered. Not covered. Takeovers are an important part of an efficientand competitive corporate environment but donot always add to shareholder value, particu-larly for the bidding company. Hermes’ pre-disposition in a hostile bid is to support existingmanagement, but this support is conditional. Itdoes not apply where confidence has been lostin management nor, for example, where syner-gistic or strategic benefits clearly justify a bidpremium. Unreasonable or unjustifiably ex-pensive defense tactics will not be supported.(7.1)

Contracts [between the company and executivedirectors] with a clause that increases compen-sation paid for early termination in the event ofa takeover are not supported. (APPENDIX 1.2.1)

Hermes will normally support incumbent man-agement in hostile takeover situations, but thesupport is conditional (as explained in para-graph 7.1, above). Hermes generally preferschange from within rather than hostile bids.(Code of Conduct 3)

Not covered directly, but see Part 5: ShareCapital and Shareholder Relations, p. 15(Takeover Code Waivers. Share buy-backsand other capital changes can have the effect ofincreasing the stake of controlling shareholders.In such circumstances, companies may seekwaivers from the Takeover Code requirementthat a controlling shareholder should make anoffer to all shareholders if their holding in-creases. Resolutions seeking such a waivershould always be voted on by a poll. The con-trolling shareholders’ intentions, should a sharerepurchase go ahead, should be stated. Waiversshould not be approved if there is the potentialthat a controlling shareholder’s stake couldincrease beyond 50%.).

* Investor viewpoint.** Combined viewpoint of investors, academics and private business sector representatives.

App-1

APPENDIX

PARTIAL LISTING OF CORPORATE GOVERNANCE GUIDELINES AND CODES OF BEST PRACTICETHROUGHOUT THE WORLD

INTERNATIONAL ORGANIZATIONS

§ APEC-PECC, Guidelines for Good Corporate Governance Practice (September 18, 2001). <www.pecc.net>§ European Association of Securities Dealers (“EASD”), Corporate Governance: Principles and Recommendations (May 2000). <www.easd.com/recommendations>§ The European Shareholders Group (“Euroshareholders”), Euroshareholders Corporate Governance Guidelines (February 2000). <www.dcgn.dk/publications/2000>*§ Hermes Investment Management Ltd., International Corporate Governance Principles (December 13, 1999). <www.hermes.co.uk>*§ Commonwealth Association for Corporate Governance (“CACG”), CACG Guidelines: Principles for Corporate Governance in the Commonwealth (November 1999). <www.cbc.to>§ International Corporate Governance Network (“ICGN”), Statement on Global Corporate Governance Principles (July 1999). <www.icgn.org>*§ Organization for Economic Cooperation and Development (“OECD”) Ad Hoc Task Force on Corporate Governance, OECD Principles of Corporate Governance (May 1999).

<www.oecd.org/daf/governance/principles.htm>§ ICGN, Global Share Voting Principles (July 1998). <www.icgn.org>*§ OECD Business Sector Advisory Group on Corporate Governance, Corporate Governance: Improving Competitiveness and Access to Capital in Global Markets, Report to the OECD

(Millstein Report) (April 1998). <www.oecd.org>§ European Bank for Reconstruction and Development (“EBRD”), Sound Business Standards and Corporate Practices: A Set of Guidelines (September 1997). <www.ebrd.com>§ Centre for European Policy Studies (“CEPS”), Corporate Governance in Europe – Recommendations (June 1995). <www.ecgn.org>

ARGENTINA§ Report on Capital Market Transparency and Reform for Best Corporate Governance Practices (the Villegas Report) (June 2001). <[email protected]>

AUSTRALIA§ Investment & Financial Services Association (“IFSA”), formerly Australian Investment Managers Association (“AIMA”), Corporate Governance: A Guide for Investment Managers and

Corporations (3d ed., July 1999). <www.ifsa.com.au>*§ Working Group representing Australian Institute of Company Directors, Australian Society of Certified Practicing Accountants, Business Council of Australia, Law Council of Australia,

The Institute of Chartered Accountants in Australia & The Securities Institute of Australia, Corporate Practices and Conduct (Bosch Report) (3d ed., 1995). <www.ecgn.org>

BELGIUM§ Fondation des Administrateurs (“FDA”), The Directors’ Charter (January 2000). French and English: <www.ecgi.org>§ Brussels Stock Exchange/Banking & Finance Commission, Corporate Governance for Belgian Listed Companies (a “Dual Code” combining the Cardon Report and the Banking &Finance

Commission Recommendations) (December 1998). <www.cbf.be/pe/pec/en_ec01.htm>§ Federation of Belgian Companies (VBO/FEB), Corporate Governance – Recommendations (January 1998). Dutch, French and English: <www.vbo-feb.be>


App-2

BRAZIL§ Instituto Brasileiro de Governança Corporativa (“IBGC”), formerly Instituto Brasileiro de Conselheiros Administraçao (“IBCA”), Code of Best Practice of Corporate Governance (May 8,

1999, revised April 9, 2001). <www.ibgc.org.br>

CANADA§ Joint Committee on Corporate Governance, Beyond Compliance: Building a Governance Culture (Saucier Report) (November 2001). <www.jointcomgov.com>§ Institute of Corporate Directors & Toronto Stock Exchange, Report on Corporate Governance, 1999 – Five Years to the Dey (1999). <www.ecgn.org>§ Pension Investment Association of Canada (“PIAC”), Corporate Governance Standards (September 1993; revised March 1997, updated June 1998). <www.piacweb.org>*§ Toronto Stock Exchange Commission on Corporate Disclosure, Responsible Corporate Disclosure: A Search for Balance (March 1997). <[email protected]>§ Toronto Stock Exchange Committee on Corporate Governance in Canada, “Where Were The Directors?”: Guidelines For Improved Corporate Governance in Canada (Dey Report) (De-

cember 1994). <www.ecgn.org>

CHINA§ China Securities Regulatory Commission, Corporate Governance Code and Standards for Chinese Listed Companies (draft, June 11, 2001). Available upon request at

<[email protected]>. English translation available upon request from <[email protected]>

CZECH REPUBLIC§ Czech Securities Commission (Komise pro Cenne Papiry), Draft Corporate Governance Code Based on the OECD Principles (September 2000).§ Czech Institute of Directors, Corporate Governance Code of Practice (draft, August 2000).

DENMARK§ The Nørby Commission, Recommendations for Good Corporate Governance in Denmark (December 6, 2001). <www.corporategovernance.dk>§ Danish Shareholders Association, Guidelines on Good Management of a Listed Company (Corporate Governance) (draft, February 29, 2000). <www.shareholders.dk>*

FINLAND§ Ministry of Trade and Industry, Guidelines for Handling Corporate Governance Issues in State-Owned Companies and Associated Companies (November 7, 2000).

<www.vn.fi/ktm/eng/newsktm_etu.htm>§ Central Chamber of Commerce/Confederation of Finnish Industry and Employers, Corporate Governance Code for Public Limited Companies (February 10, 1997).

FRANCE§ Association Française de la Gestion Financière – Association des Sociétés et Fonds Français d’Investissement (“AFG-ASFFI”), Recommendations on Corporate Governance (Hellebuyck

Commission Recommendations) (June 9, 1998, revised September 2001) English translation (1998) by AFG-ASFFI; English translation of 2001 version not yet available. <www.afg-asffi.com>*

§ Association Française des Entreprises Privées (AFEP) & Mouvement des Entreprises de France (MEDEF), Report of the Committee on Corporate Governance (Viénot II) (July 1999).<www.ecgn.org> (French and English).

§ Stock Exchange Operations Commission, Regulation No. 98-01 – 98-10 (March 1999). English translation available at <[email protected]>§ Conseil National du Patronat Français (“CNPF”) & Association Française des Entreprises Privees (“AFEP”), The Boards of Directors of Listed Companies in France (Viénot I) (July 10,

1995). <www.ecgn.org> (French only). English translation by CNPF & AFEP.§ CNPF & AFEP, Stock Options: Mode d’Emploi pour les Enterprises (Lévy-Lang Report) (1995). English translation by CNPF & AFEP.


App-3

GERMANY§ Regierungskommission Deutscher Corporate Governance Kodex / Government Commission German Corporate Governance Code, Deutscher Corporate Governance Kodex / German

Corporate Governance Code (draft, December 17, 2001). <www.corporate-governance-code.de> (German and English)§ Government Panel on Corporate Governance, Recommendations (Baums Report) (July 2001). German original: <www.bundersregierung.de>; English summary:

<[email protected]>§ Grundsatzkommission Corporate Governance (“GCP” – German Panel on Corporate Governance), Corporate Governance Rules for German Quoted Companies (January 2000, revised

July 2000). English translation by GCP. <www.corgov.de>**§ Berliner Initiativkreis, German Code of Corporate Governance (June 6, 2000). English translation by Berlin Initiative Group. <www.gccg.de>§ Deutsche Schutzvereinigung für Wertpapierbesitz e.V. (“DSW”), DSW Guidelines (June 1998). <www.ecgn.org>*§ Deutsche Bundestag, Gestez zur Kontroll und Tranzparenz im Unternehmensbereich (Law on Control and Transparency in the Corporate Sector) (“KonTraG”) (March 1998).

GREECE§ Federation of Greek Industries, Principles of Corporate Governance (August 2001). English translation by Weil, Gotshal & Manges LLP (January 2002).§ Capital Market Commission, Committee on Corporate Governance, Principles on Corporate Governance in Greece: Recommendations for its Competitive Transformation (Mertzanis Re-

port) (October 1999). <www.ecgn.org>

HONG KONG§ Hong Kong Society of Accountants (“HKSA”), Corporate Governance Disclosure in Annual Reports: A Guide to Current Requirements and Recommendations for Enhancement (March

2001). <www.hksa.org.kk>§ The Stock Exchange of Hong Kong (“SEHK”), Code of Best Practice (December 1989; revised June 1996, February 1999, August 2000). <www.sehk.com>§ SEHK, Model Code for Securities Transactions by Directors of Listed Companies (August 2000). <www.sehk.com>§ HKSA, New Corporate Governance Guide on Formation of Audit Committees (January 1998). <www.hksa.org.hk>

INDIA§ Securities & Exchange Board of India (“SEBI”) Committee on Corporate Governance (“Kumar Mangalam Committee”), Draft Report on Corporate Governance (September 1999).

<www.sebi.gov.in>§ Confederation of Indian Industry, Desirable Corporate Governance – A Code (April 1998). <[email protected]>

IRELAND§ Irish Association of Investment Managers (“IAIM”), Corporate Governance, Share Option and Other Incentive Scheme Guidelines (March 1999). <www.iaim.ie>*§ IAIM, Statement of Best Practice on the Role and Responsibilities of Directors of Public Limited Companies (1992). <www.iaim.ie>*

ITALY§ Comitato per la Corporate Governance delle Società Quotate (Committee for the Corporate Governance of Listed Companies), Report & Code of Conduct (Preda Report) (October 1999).

<www.borsaitalia.it>§ Ministry of the Italian Treasury, Report of the Draghi Committee (Audizione Parlamentare, Prof. Mario Draghi, Direttore Generale de Tesoro) (December 1997). <www.ecgn.org>

JAPAN§ Kosei Nenkin Kikin Rengokai (Pension Fund Corporate Governance Research Committee), Action Guidelines for Exercising Voting Rights (June 1998).*§ Japan Corporate Governance Forum, Corporate Governance Principles – A Japanese View (May 1998, revised November 2001). <www.jcgf.org>§ Japan Federation of Economic Organizations (Keidanren), Urgent Recommendations Concerning Corporate Governance (Provisional Draft, Sept. 1997). <www.ecgn.org>


App-4

KENYA§ The Private Sector Initiative for Corporate Governance, Principles for Corporate Governance in Kenya and a Sample Code of Best Practice for Corporate Governance (November 1999,

revised July 2000). <[email protected]>

KYRGYZ REPUBLIC§ Prime Minister’s Office of the Kyrgyz Republic, Department of Economic Sectors Development, Model Charter of a Shareholding Society of Open Type (Approved by decree of govern-

ment July 26, 1997). <www.cdc.kg/eng/doc_2.html>§ Working Group on Corporate Governance, Handbook on Best Practice – Corporate Governance in the Kyrgyz Republic (Approved by decree of government July 26, 1997).

<www.cdc.kg/eng/doc_3.html>

MALAYSIA§ Kuala Lumpur Stock Exchange, Listing Requirements (January 2001, effective as of June 1, 2001). <www.klse.com.my>§ JPK Working Group I on Corporate Governance in Malaysia, Report on Corporate Governance in Malaysia (March 20, 2000). <www.sc.com.my/html/publications/ inhouse>§ High Level Finance Committee on Corporate Governance, Report on Corporate Governance (March 25, 1999). <www.sc.com.my/html/publications/fr_public.html>

MEXICO§ El Consejo Coordinador Empresarial (“CCE”) y la Comisión Nacional Bacaria y de Valores (“CNBV”), Código de Mejores Práticas (June 9, 1999). English translation available at

www.ecgn.org, Corporate Governance Code for Mexico. Spanish and English: <www.ecgn.org>

THE NETHERLANDS§ Stichting Corporate Governance Onderzoek voor Pensioenfondsen (“SCGOP”) (Foundation for Corporate Governance Research for Pension Funds), Corporate Governance Handbook of

the SCGOP (August 2001). Dutch and English: <www.scgop.nl/downloads/Handbook_scgop.pdf>*§ Committee on Corporate Governance, Corporate Governance in the Netherlands – Forty Recommendations (Peters Code) (June 1997). English: <www.ecgn.org>§ Vereniging van Effectenbezitters (“VEB”), Ten Recommendations on Corporate Governance in the Netherlands (1997). www.vebbottomline.com*

NEW ZEALAND§ Institute of Directors in New Zealand, Inc., under the aegis of the Commonwealth Association for Corporate Governance (“CACG”), Best Practice Statements for Boards and Directors in

New Zealand (August 2000). <[email protected]>

PORTUGAL§ Comissäo do Mercado de Valores Mobiliários (Securities Market Commission), Recommendations on Corporate Governance (November 1999). <www.cmvm.pt>

ROMANIA§ International Center for Entrepreneurial Studies (Bucharest University) & Strategic Alliance of Business Associations, Corporate Governance Code: Corporate Governance Initiative and

Economic Democracy in Romania (draft March 24, 2000).

RUSSIA§ Federal Securities Commission (Igor Kostikov, Chairman), Corporate Governance Code (draft, September 2001). <www.rid.ru> (Russian and English).§ Corporate Governance Initiative of the World Economic Forum, Changing Corporate Governance in Russia (January 29, 2001).§ Yeltsin, Boris, President of the Russian Federation & Parker School of Foreign & Comparative Law, Columbia University, Decree on Measures to Ensure the Rights of Shareholders (as

amended, October 27, 1993) (Release No. 28, TRANSNATIONAL JURIS, 1996).


App-5

SINGAPORE§ Private Sector-led Committee on Corporate Governance, under the auspices of the Singapore Ministry of Finance, Code of Corporate Governance (2001).

<www.mof.gov.sg/cor/cor_pcode.html>§ Stock Exchange of Singapore, Listing Manual (as amended) & Best Practices Guide (1998, amended 2000). <www.ses.com.sg>

SOUTH AFRICA§ The Institute of Directors in Southern Africa, The King Report on Corporate Governance (King Report) (November 1994, revised draft July 2001). <www.iodsa.co.za>

SOUTH KOREA§ Committee on Corporate Governance (sponsored by the Korea Stock Exchange et al.), Code of Best Practice for Corporate Governance (September 1999). <www.ecgn.com>

SPAIN§ Comisión Especial para el Estudio de un Código Etico de los Consejos de Administración de las Sociedades, El gobierno de las sociedades cotizadas (Olivencia Report) (February 1998).

English translation by Instituto Universitario Euroforum Escorial, The Governance of Spanish Companies (February 1998). <www.ecgn.org> (Spanish); English translation: <[email protected]>

§ El Circulo de Empresarios, Una propuesta de normas para un mejor funcionamiento de los Consejos de Administración (October 1996). <www.ecgn.org>

SRI LANKA§ The Institute of Chartered Accountants of Sri Lanka, Code of Best Practice: Report of the Committee To Make Recommendations on Matters Relating to Financial Aspects of Corporate

Governance (December 12, 1997). <[email protected]>

SWEDEN§ Swedish Shareholders Association, Corporate Governance Policy (January 2000). <www.aktiesparana.se>. English translation: <www.ecgn.org>*§ The Swedish Academy of Directors, Western Region, Introduction to a Swedish Code of “Good Boardroom Practice” (March 27, 1995). <[email protected]>

SWITZERLAND§ Panel of Experts on Corporate Governance, Swiss Code of Best Practice (Böckli Report) (draft, October 25, 2001). German: <www.economiesuisse.ch>; English: <an-

[email protected]>

THAILAND§ The Stock Exchange of Thailand (“SET”), The Roles, Duties and Responsibilities of the Directors of Listed Companies (December 1997; revised October 1998). <[email protected]>

UNITED KINGDOM§ Association of British Insurers, ABI Guidelines, Guidance Notes and Other Relevant Material (various dates, 1993-2001). <www.ivis.computasoft.com>*§ National Association of Pension Funds (“NAPF”), NAPF Corporate Governance Handbook 2001/02 (2001). <www.napf.co.uk/cgi-bin/publications>*§ Pensions Investment Research Consultants (“PIRC”), PIRC Shareholder Voting Guidelines (1993 and regularly revised through March 12, 2001). <www.pirc.co.uk/pubserv.htm>*§ Hermes Investment Management Ltd., Statement on UK Corporate Governance & Voting Policy (March 1997, revised January 2001). <www.hermes.co.uk>*§ Association of Unit Trusts and Investment Funds, Code of Good Practice (January 2001). <www.investmentfunds.org.uk>*§ NAPF, Towards Better Corporate Governance (June 5, 2000). <www.napf.co.uk/cgi-bin/publications>*§ Institute of Chartered Accountants in England and Wales, Internal Control: Guidance for Directors on the Combined Code (Turnbull Report) (September 1999). <www.ecgn.org>§ Law Commission & The Scottish Law Commission, Company Directors: Regulating Conflicts of Interests and Formulating a Statement of Duties (September 1999).

<www.lawcom.gov.uk/library/lc261>§ London Stock Exchange Committee on Corporate Governance, The Combined Code: Principles of Good Governance and Code of Best Practice (July 1998). <www.ecgn.org>


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§ Committee on Corporate Governance (sponsored by the London Stock Exchange et al.), Final Report (Hampel Report) (January 1998). <www.ecgn.org>§ Study Group on Directors’ Remuneration, Directors’ Remuneration (Greenbury Report) (July 1995). <www.ecgn.org>§ Institute of Directors, Good Practice for Directors – Standards for the Board (1995).§ The City Group for Smaller Companies, The CISCO Guide: The Financial Aspects of Corporate Governance: Guidance for Smaller Companies (1994).§ Report of the Committee on the Financial Aspects of Corporate Governance (Cadbury Report) (December 1, 1992, reissued unrevised in April 1996). <www.ecgn.org>§ Institutional Shareholders’ Committee, The Role and Duties of Directors: A Statement of Best Practice (April 1991).*§ Institute of Chartered Secretaries and Administrators, Good Boardroom Practice: A Code for Directors and Company Secretaries (February 1991, reissued unrevised in 1995).

<www.thecorporatelibrary.com/docs/index.html>

UNITED STATES§ Council of Institutional Investors (“CII”), Core Policies, General Principles, Positions & Explanatory Notes (March 1998 and regularly revised through March 2001).

<www.cii.org/corp_governance.htm>*§ General Motors Board of Directors, GM Board of Directors Corporate Governance Guidelines on Significant Corporate Governance Issues (January 1994 and regularly revised through

2001). <www.gm.com>§ Teachers Insurance and Annuity Association – College Retirement Equities Fund (“TIAA-CREF”), TIAA-CREF Policy Statement on Corporate Governance (October 1997, revised

March 2000). <www.tiaa-cref.org/governance>*§ Blue Ribbon Commission on Improving the Effectiveness of Corporate Audit Committees, Report and Recommendations (1999) (sponsored by New York Stock Exchange & National

Association of Securities Dealers). <www.nyse.com> or <www.nasd.com>§ California Public Employees’ Retirement System (“CalPERS”), Global Corporate Governance Principles and Country Principles for: UK; France; Germany; Japan (1999).

<www.calpers-governance.org>*§ CalPERS, Domestic Proxy Voting Guidelines and International Proxy Voting Guidelines (February 1999). <www.calpers-governance.org>*§ CalPERS, Corporate Governance Core Principles and Guidelines: The United States (April 1998). <www.calpers-governance.org>*§ The Business Roundtable (“BRT”), Statement on Corporate Governance (September 1997). <www.brtable.org/issue.cfm>§ American Federation of Labor and Congress of Industrial Organizations (“AFL-CIO”), Investing in Our Future: AFL-CIO Proxy Voting Guidelines (1997). <[email protected]>*§ American Society of Corporate Secretaries, Suggested Guidelines for Public Disclosure and Dealing with the Investment Community (1997). <www.ascs.org/ascstitles.html>§ National Association of Corporate Directors (“NACD”), Report of the NACD Blue Ribbon Commission on Director Professionalism (November 1996, reissued 2001).

<www.nacdonline.org>§ NACD, Report of the NACD Blue Ribbon Commission on Performance Evaluation of Chief Executive Officers, Board and Directors (1994). <www.nacdonline.org>§ American Bar Association, Committee on Corporate Laws, Section of Business Law, Corporate Directors’ Guidebook (1978; 2d ed. 1994): abanet.org/abapubs/business.html>§ American Law Institute (“ALI”), Principles of Corporate Governance: Analysis & Recommendations (1992). <www.ali.org/index.htm>§ BRT, Statement on Corporate Governance and American Competitiveness (1990).

Comparative Matrix Of Corporate Governance Codes Relevant To...

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