French issuer control of governance queried by AMF report

9 April 2016

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French regulator AMF has found that France is the only country where governance codes are drawn up by bodies representing issuers and where code amendment to its code are not subject to a prior public consultation on the website of the entity responsible for drafting the code.

The French financial regulator, the Autorite des Marches Financiers (AMF) has published a study which  compares the French AFEP-MEDEF corporate governance code with nine from other European countries - Belgium, Finland, Germany, Italy, Luxembourg, the Netherlands, Spain, Sweden and the United Kingdom.

The report aimed to identify best practices on the development process, monitoring of implementation, and topics related to corporate governance and executive directors’ remuneration across Europe and was partly a response by the AMF to the European Commission seeking greater harmonisation of member states' national codes on key issues.

France and the UK are the only countries where the specific characteristics of small- and mid-caps are taken into consideration, creating a tailored code for these companies.

The history and culture of each country is reflected in their national codes, the AMF found - this is particularly notable in respect of  the separation of the roles of chairman of the board and chief executive. The report recommends that the AFEP-MEDEF code should clarify the status of the chairman of the board of directors, by noting, where applicable, whether or not he or she is an executive member, based on the duties actually assigned. The definition of independence, as applied in respect of non-executive directors, also varies across Europe, the study found. Although the European Commission's definition is used, local characteristics also provide the basic of the national codes.

The authors said that the AFEP-MEDEF code appears to be relatively precise, particularly as regards the assessment of the board, the proportion of female board members and the criteria for awarding variable compensation. However, other codes provide more detail in respect of the independence of the chairman of the board and his/her compensation, the role and duties of the lead director and his/her independence, the transparency of the method used to calculate the maximum amount of severance benefits and the use of variable compensation clawback clauses.

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