Corporate Governance Corporate Governance FOREWORD what the VBO/FEB wishes to see! The organisation of the administration and management of companies, January 1998 which is better known under the term 'corporate governance' has to meet the INTRODUCTORY COMMENTS expectations of the shareholders and the requirements of the economic process. The VBO/FEB has recently ratified recommendations within this 1. A company managers group was established in June 1997 by the framework. They were set out by a group of company managers under the chairmanship of Baron Daniel Janssen, Honorary President of the VBO/FEB Management Committee of the Federation of Belgian and Chairman of the Executive Committee of Solvay. They are inspired by Companies (VBO/FEB). the Cadbury Code, produced in the United Kingdom, since that code is internationally well known. They are, however, adapted to the Belgian It is chaired by Baron Daniel Janssen, Chairman of the context. Executive Committee of Solvay and Honorary President of the VBO/FEB. The Vice-President is Luc Santens, the Vice- The recommendations of the VBO/FEB are particularly intended for large Chairman of Santens NV. companies and above all for listed companies. Some of them may, however, also be useful for smaller businesses. Every company must therefore judge, The composition of the group is set out in the appendix. on the basis of its own specific characteristics, which recommendations are best suited to it. This is a non-coercive approach, since the VBO/FEB considers that corporate governance lends itself to self-regulation rather than 2. The group was created to study the principal aspects of governing regulation. and administering companies (corporate governance) and to make recommendations for the benefit of companies. As regards the content of the recommendations, they emphasise the best possible rules and structures in relation to corporate governance: the 3. The VBO/FEB considers that corporate governance lends itself to composition and functioning of the Board of Directors, the role of directors, self-regulation by the business circles involved, rather than reports to be presented etc. legislative intervention which is unable, due to its inflexibility, to cover the diverse range of situations and developments which Just as Molière's "bourgeois gentilhomme" used to speak in prose without necessarily take place in this area. knowing it, companies already apply principles of corporate governance in their daily existence. However, systematising or improving them can help businesses to work more efficiently and promote their development. That is Corporate Governance Corporate Governance 4. The VBO/FEB has used, as the basis for its activities, the "Code of CODE OF BEHAVIOUR best practice" which has been recommended by the Cadbury Committee in the United Kingdom. These recommendations are very authoritative on an international level, and they are the 1. The Board of Directors result of activities which have been carried out at the initiative of Europe's leading stock exchange. The VBO/FEB has 1.1 The Board of Directors, which is a collegiate body, must meet investigated the adaptation of each recommendation in line with at regular intervals and exercise effective control over the the Belgian economic and legal context. company and the activities of its Executive Directors. 5. The VBO/FEB has not made any distinction between the different categories of companies. Some of its recommendations are 1.2 The division of responsibilities between the Board of Directors more specifically intended for large and particularly for listed and the Executive Directors must be clearly defined. If the companies, while the VBO/FEB considers that others could chairmanship of these governing bodies is entrusted to the same have a very helpful influence on the administration of all person, it is necessary to ensure that there are one or more companies and may, therefore, be in the interests of their prominent individuals on the Board of Directors who can form a partners. counterbalance to the influence of the Chairman. 6. The VBO/FEB considers that, as the introduction to the "Cadbury This is because it is necessary to ensure that no-one can Code" states, its recommendations must be adapted in exercise discretionary powers without control. accordance with the specific characteristics of each company, and it must be possible to ignore them if they are not appropriate to the company, particularly if it is small. 1.3 The Board of Directors must include non-executive directors, i.e. directors who do not exercise any leading role in the It therefore asks companies to be guided by those company. They must be sufficiently capable, influential and recommendations which they consider to be most suitable to numerous to assert their point of view and make it count in their specific situation. decisions taken by the Board of Directors. Specifically with regard to listed companies, the Federation recommends that they should indicate in their Annual Report which measures they are applying in the area of corporate governance. Corporate Governance Corporate Governance 1.4 A number of decisions must belong to the exclusive competence shall take the necessary action so that a person is given the task of the Board of Directors, so that the administration and control of monitoring compliance with the procedures in connection of the company remain clearly in the hands of that Board. with the functioning of the Board and the applicable regulations. • Note Apart from its legal powers and powers provided for by the In both cases he can only be replaced by a decision of the Board Articles, and apart from the powers of the General Meeting, itself. the Board of Directors decides on what is covered by its powers. 1.6 The mandate of the directors is for a limited period and is not It is the task of the Board of Directors, on a proposal from automatically extended. the Executive Directors, to determine the strategic objectives of the company and the general policy plan, to appoint the • Note management and to develop structures which will make it The law stipulates, on the one hand, that the duration of the possible to achieve these objectives, to supervise the directors' mandate must not exceed six years and, on the execution of the policy plan and the control of the company, other hand, that they may be re-elected, unless stipulated to and to give the necessary information to the partners. the contrary in the Articles of Association. The Board of Directors also defines the procedures which The obligations, the duration of the mandate and the means have to be followed for transactions which are binding on of remuneration of directors must be announced at the time the company, and it defines the cases when the signature of of their appointment. directors is required. It also defines the procedures which have to be followed if decisions have to be taken between two meetings of the Board of Directors. 1.7 The means of remuneration of directors must be stated in the Annual Report. 1.5 If there is a Secretary of the Board of Directors, the directors • Note must be able to consult with him and call upon his services. The The Annual Report must state the method of remuneration of Secretary of the Board must ensure that the procedures in the directors (fixed amounts, bonuses, variable results-linked relation to the functioning of the Board and the regulations part etc.). which apply to it are complied with. If there is no Secretary of the Board of Directors, that Board Corporate Governance Corporate Governance Large companies in the sense of accounting law are obliged to should not receive pensions by virtue of their mandate. The provide information in the notes to the Annual Accounts on the reason for this is to ensure their independence. total remuneration of the directors. 2.3 Non-executive directors are appointed by the General Meeting on a proposal from the Board of Directors. 2. Non-executive directors • Note 2.1 The non-executive directors must be able to make an According to Belgian law the General Meeting appoints all independent judgement on the company's strategy, performance directors, whether they are executive or not. and resources. A recommendation from them is also required for appointments to certain key posts and for the standards of For non-executive directors, however, this appointment must conduct which the company imposes on itself. take place on a proposal from the Board of Directors. If there is an appointments committee, it should be mostly • Note composed of non-executive directors and chaired by the The Board of Directors defines the appointments which are Chairman of the Board of Directors or by a non-executive within its powers. director. The appointments committee should make proposals to the Board of Directors, on the one hand for the appointment of non-executive directors, and on the other 2.2 The non-executive directors must be sufficiently numerous in hand for appointments to certain key posts. comparison with the executive directors. Some of the non- executive directors may represent the dominant shareholders of the company. 3. The executive directors Certain non-executive directors must be independent of the dominant shareholders and also of the management. They are 3.1 If there is a remuneration committee, it should be exclusively called independent directors. composed of non-executive directors and the remuneration of • Note It is desirable that non-executive directors should not take part in plans in relation to the granting of share options and Corporate Governance Corporate Governance executive directors should be submitted to that committee for an 4.3 The Board of Directors must exercise an audit function. To that opinion. end it may set up an audit committee and determine its composition and mandate. If there is no remuneration committee, the remuneration of executive directors should be submitted to the non-executive directors. • Note If there is an audit committee, it should comply with the following rules: 4. Reports a) It is set up by the Board of Directors, to which it is accountable and to which it must regularly give an 4.1 The responsibilities of the Board of Directors include producing account of its mandate. It meets at least twice each a comprehensive and objective Annual Report on the situation year. of the company each year. b) The composition of the committee is determined by • Note the Board of Directors. This Annual Report and the annual accounts must represent the situation and results of the company and developments It will ensure that the committee includes non- under consideration, as clearly as possible and in numerical executive directors and independent directors in the form. This situation must refer to both successes and sense of recommendation 2.2. failures, in words which are easy to understand. c) The company auditors and, if such exist, the person responsible for the internal audit and the financial 4.2 The Board of Directors must ensure that objective relationships director, should attend the meetings of the committee. are developed with the company auditors, based on the highest degree of professionalism. These meetings are also accessible to all directors who wish to attend. • Note This recommendation is, of course, only applicable in d) The committee should hear the company auditors at companies where there is a company auditor. least once each year, on an occasion when the executive directors are not present. Corporate Governance Corporate Governance e) The committee has the widest investigative powers APPENDIX within its domain and may, by a majority decision, call upon professionals from outside the company and COMPANY MANAGERS GROUP allow them to attend its meetings. «CORPORATE GOVERNANCE» f) The composition of the committee is announced in the Composition Annual Report and the Chairman of the committee replies to the questions which are asked at the Chairman: Baron Daniel Janssen, Honorary President of the General Meeting about the activities of the committee. VBO/FEB and Chairman of the Executive Committee of Solvay Vice-chairman: Luc Santens, Vice-Chairman of Santens N.V. 4.4 The Board of Directors has the task of producing the Annual Accounts and presenting them to the General Meeting. Members : • Luc Bertrand, Director and General Manager of Ackermans & Van Haaren • Note • Sir Paul Buysse, Executive Director of British Tyre This recommendation corresponds to a requirement of and Rubber company law. • Baron Dominique Collinet, Chief Executive Officer of Carmeuse 4.5 The Board of Directors must ensure that an efficient system of • Christian Dumolin, Chairman of Koramic Building internal control is established. Products N.V. • Baron Jean Peterbroeck, Director of Petercam • Thierry Verhaeghe de Naeyer, Chairman of Bekaert N.V. • François Vincke, Secretary-General of PetroFina, Chairman of the Legal Committee of the VBO/FEB Secretary : Guy Keutgen, Director and Secretary-General of the VBO/FEB