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The France model of corporate governance- Board Functionality

The quality of corporate governance among listed companies in France has improved and even accelerated in recent years. Standards are now at the highest international levels. In particular, they meet or exceed those recommended by the OECD, which together with the European Commission leads development in this area. This code has established priorities concerning the friendly relationship of Board of Directors with the stake holders, flexible functioning of the Board, Seperation of offices of Chairman and Chief Executive Officer, reporting on off-balance sheet items of the Company, comply or explain principles, etc. Companies should either comply with the corporate governance code or make “comply or explain” statements for those provisions they do not adhere to by disclosing the same in their annual report.

Structure of the Board of Directors : Composition, Status and Objectives BOARD OF DIRECTORS: A COLLEGIAL BODY

The Board of Directors is and must remain a collegial body mandated by all shareholders and act at all times in the corporate interest.

Main Missons of Board of Directors:
  • It defines the corporation's strategy.

  • Appoints the executive directors in charge of managing the corporation in line with that strategy.

  • Selects the form of organisation (separation of the offices of Chairman and Chief Executive Officer or combination of such offices).

  • Monitors the management and secures the quality of information provided to shareholders and to the markets, through the accounts or in connection with major transactions.

Flexible functioning of the Board:

The organisation of the Board's work depends upon the size and nature of each firm's business. The Board's organisation and operation are described in the internal rules that it has drawn up, which are published in part or in full on the company's website or in the reference document.

THE BOARD OF DIRECTORS AND THE MARKET Corporations' communications to the market

Each Board can define its own financial disclosure policy but at the same time the Board should ensure that every shareholder should have access to all the relevant information disclosed about the strategy, development model and long-term strategies of the corporation.

Off-balance sheet items and corporate risks
  • The annual report should specify the internal procedures set up to identify and monitor off-balance-sheet commitments, and to evaluate the corporation's material risks.

  • Each company must develop and clarify the information provided to shareholders and investors regarding off-balance-sheet commitments and material risks, and disclose the company’s ratings by financial rating agencies as well as any changes occurred during the financial year.

SEPARATION OF THE OFFICES OF CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER

French law offers an option between a unitary formula (Board of Directors) and a two-tier formula (Supervisory Board and Management Board) for all corporations. In addition, corporations with Boards of Directors have an option between separation of the offices of Chairman and Chief Executive Officer and maintenance of the aggregation of such duties. The law does not favour either formula and allows the Board of Directors to choose between the two forms of exercise of executive management.

The form of organisation selected by the Board must be disclosed in the annual report of the Company.

THE BOARD OF DIRECTORS AND THE GENERAL MEETING OF SHAREHOLDERS

The shareholders' meeting is a decision-making body for the areas stipulated by law; it is also a privileged moment for the company to engage a dialogue with its shareholders. Its sessions must be not only the occasion when the managing bodies report on the corporation's business and on the operation of the Board of Directors and the specialised committees (audit, compensation, etc.), but also an opportunity for a genuine and open dialogue with the shareholders. The Board of Directors must take care not to infringe upon the specific powers of the shareholders' meeting if the transaction that it proposes is such as to modify, in fact or in law, the corporate purpose of the company, which is the very basis of the contract founding the corporation.

Even when no change in the corporate purpose of the company is involved, the Board of Directors must refer the matter to the meeting of shareholders if the transaction relates to a material part of the group's assets or businesses.

MEMBERSHIP OF THE BOARD OF DIRECTORS

A member of the Board of Directors of the Company should have following essential qualites:

  • He or she should care about the corporate interest;

  • He or she should have the ability to judge, in particular, situations, strategies and people, notably based on its experience;

  • He or she should have the capacity to anticipate, enabling the identification of risks and the strategic issues;

  • He or she should be honest, attend regularly, be active and involved.

Women Director on the Board:
  • With regard to the representation of men and women, the objective is that each Board shall reach and maintain a percentage of at least 20% of women within a period of three years and at least 40% of women within a period of six years from the shareholders' meeting of 2010 or from the date of the listing of the company’s shares on a regulated market, whichever is later.

  • When the Board comprises fewer than nine members, the difference at the end of six years between the number of directors of each gender may not be in excess of two.

INDEPENDENT DIRECTORS
  • An independent director has to be non-executive director having no relationship with the corporation, its group or the management of either that may colour his or her judgment.

  • The independent directors should account for half the members of the Board in widelyheld corporations. In controlled companies, independent directors should account for at least one-third of the total strength.

In line with generally accepted European practice, this code states that independent directors should not have links of any kind with the company, its management, or the corporate group to which it belongs Directors representing the employee shareholders and directors representing employees are not taken into account in order to determine these percentages.

Qualification of an independent director should be discussed by the appointment committee and reviewed every year by the Board of Directors prior to publication of the annual report.

DIRECTORS' TRAINING:

Every director appointed on the Board may or may not have specific prior knowledge of the corporation's organisation and activities. The Code provides that the training must be provided to the Director relating to the corporation's specific features, its businesses and its markets.

Conclusion:

Depending on the activity and size of the company, Corporations increasingly seek to enhance the diversity of their boards, particularly through complementarity of competence, but also through internationalization, the french code of Corporate Governance is flexible enough to support such demands of the Corporate Society.

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