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1. Context and objective
The environment in which companies operate is undergoing profound changes that are both the driving force behind and the result of scientific and technological developments affecting all areas of activity and society as a whole.
Developing an efficient, high-quality system of corporate governance is critical if companies are to be able to seize the opportunities afforded by such changes and the need to control the accompanying risks.
Given this context, over the past few years a number of regulations and recommendations have been drawn up both at international level and in many individual countries on required levels of corporate governance.
Furthermore, in the United States and in other countries too, particularly in Europe, recent corporate collapses have shown the serious damage that poor or non-existent governance can cause both for individual companies and for the system as a whole.
Although the exception rather than the rule, such situations have given rise to a whole array of initiatives to draw up new legislation and regulations, and to produce fresh recommendations for companies.
As regards the European Union, on 21 May 2003 the European Commission sent the Council and the Parliament a communication containing details of an action plan on corporate governance. The plan stated that it is the responsibility of each individual EU Member State to designate a code of reference. With which listed companies are to comply or in relation to which they are to explain deviations.
Many European countries have opted not to wait for or respond to Community initiatives but have already compiled up-to-date regulations on corporate governance.
In Great Britain, in July 2003 the Financial Reporting Council published the (New) UK Combined Code on Corporate Governance.
In France, in October 2003 the French Association of Private Business (Association Française des Entreprises Privées or AFEP) and the French Business Confederation (Mouvement des Entreprises de France or MEDEF) published a document entitled "Principes de gouvernement d’entreprise" (Principles of Corporate Governance).
In the Netherlands, on 9 December 2003 a Corporate Governance Committee chaired by Mr Tabaksblat published a new Corporate Governance Code.
In other European countries, similar initiatives have been taken or are in progress.
Belgium currently has three documents setting out recommendations on governance for listed companies.
Drawn up in 1998 by the FEB, the Belgian Banking and Finance Commission at the time, and Euronext respectively, these documents do not form a single definitive code; they should be updated in the light of recent developments and expectations in terms of corporate governance.
With this in mind, the Banking, Finance and Insurance Commission, FEB and Euronext have taken a joint initiative to form a Corporate Governance Committee.
This Committee will be asked to draw up a «Code of Best Practice» on corporate governance, aimed primarily at companies with their head office in Belgium whose shares are traded on an regulated market («listed companies»).
The Code shall include principles, recommendations and, where necessary, more specific regulations which the companies concerned must apply through self-regulation.
2. General Guidelines
To carry out its work and draw up the aforementioned Code of Best Practice, the Committee must bear in mind the following general guidelines:
- The Code shall take account of the current framework of company law in Belgium. However, this should not undermine the Committee's ability, where necessary, to formulate proposals that would provide an organised framework for or would facilitate implementing and monitoring recommendations.
- The Code shall be principle-based rather than rule-based. Where it is felt that 'rules' should be drawn up to explain and clearly understand the principles contained in the Code, the Committee will ensure that such rules are compatible with the specific requirements of the respective companies. It is vital that the Code of Best Practice becomes a benchmark for the companies involved that they can use to define and apply their own system of governance bearing in mind changes in their size, their stage of development, their shareholder structure, the complexity of the risks associated with their activities, and their management practices.
- The Code must take into account developments in corporate governance outside Belgium, especially in European countries.
- The Code is aimed at listed companies, but the principles contained in it will, either in whole or in part, also serve as a point of reference for, notably, non-listed companies.
- The Code shall cover areas pertaining to corporate governance such as those set out below (see the section entitled 'Areas covered by the Code of Best Practice').
- The Code shall not deal with specific subject areas that are already covered by other Codes and which apply to professional market parties such as auditors, mutual funds, analysts, credit institutions and insurance companies.
- The Committee shall also draw up recommendations on a process and, where necessary, a structure for updating the Code of Best Practice.
3. Areas covered by the Code of Best Practice
The Code of Best Practice shall cover the following main areas but the Committee may introduce other areas it deems relevant:
- role and operation of the board of directors, a collegial body
(mission, organisational structure);
- balanced and independent nature of the board of directors
(composition, number of non-executive and independent directors, definition of the criteria for independence, conflicts of interest);
- appointment of directors
(procedure, presence of an appointing committee, availability of directors, holding more than one office);
- chairman of the board
(role within the board and relations with directors and management);
- training for directors
(training for directors at the start of and during their directorship, a variety of director profiles, distributing information within the company);
- performance evaluation
(procedure for evaluating the performance of the board of directors, of committees and of individual directors);
- re-election of directors
(procedure, maximum term, shareholder information);
- remuneration for directors and managers
(linked to performance or time worked, conditions on awarding and exercising options or other assets, severance pay, composition, operation and powers of the remuneration committee, approval by shareholders of long-term profit-sharing plans);
- board committees
(composition, role, powers, operation, relations with the board of directors);
- financial reporting/auditing
(role and responsibilities of directors, auditors, internal audit, monitoring systems and processes);
- management organisation
(management committee, delegations, interaction with the board of directors);
- shareholder relations
(role of the general meeting, dialogue with institutional investors, relations with controlling shareholders);
- annual report
(summary of information to be included in the annual corporate governance report such as detailed in the points above).
4. Timetable
The Committee is scheduled to complete its work by the end of 2004 at the latest.
The Committee shall submit a draft Code of Best Practice in good time for public consultation and shall ensure that there is sufficient time available to approve and edit the final text.
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