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Vigeo Eiris News - 04/07/2013

AFEP-MEDEF issue a revised Corporate Governance Code of listed companies

On 16 June 2013, after a consultation of stakeholders, the Association Française des Entreprises Privées (AFEP) and the Mouvement des Entreprises de France (MEDEF) released a reviewed version of corporate governance code for listed companies. These new recommendations address topical issues including the remuneration of executive, the directorship of employee representatives (administrateurs salariés) and the way of monitoring and implementing the provisions of the Code.


With regard to executive remuneration, a topic increasingly under scrutiny of investors and of the public opinion, the Code introduces new transparency requirements, as well as a new provision on severance payment (indemnités de depart) and non-compete fees (Indemnités de non-concurrence) which jointly cannot exceed two years compensation (base salary plus variable part). But the new key innovation in this field  is the introduction of the so-called ‘say-on-pay’ principle, whereby the shareholders are asked to express an advisory vote on the compensation of their executives. The say-on-pay is becoming a common principle in many countries: in the UK it is mandatory since 2003, while in the US it is since 2010. In few countries, as in Netherlands since 2004, the required shareholder vote is not only advisory, but binding. This stricter requirement may also be introduced soon in other countries: steps in this direction have been recently announced in UK and Spain, but a proposal was also made in 2012 at the European level. But either consultative or binding, the requirement for a shareholder vote on remuneration plans forces companies to increase the transparency and soundness of their compensation policies. As demonstrated by the recent “shareholder springs”, a negative shareholder vote on the remuneration plan is a signal of a lack of confidence in the management and may significantly influence the public perception of a company, eroding its corporate reputation.

An additional development of the AFEP/MEDEF Code is the full recognition of the role of employee representatives, whose rights, obligations and responsibilities are now equalized to those of shareholders’ elected Directors. AFEP/MEDEF also recommends the presence of employee representatives in the Remuneration Committee. These elements are particularly significant also in the light of the France’s new legislative framework passed in May 2013, which extended the requirement for the presence of employee representatives at Board level to private companies with more than 5,000 employees in France (or 10,000 or more worldwide). This means that in the future – in addition to state-owned and privatised companies, already covered by the previous legislation – all large private companies will have at least one employee representative acting as Director, two if the Board is composed by more than 12 members. The new recommendations of AFEP/MEDEF are in line with Vigeo’s new rating model of Corporate Governance, which will assess the companies’ integration of stakeholders’ expectations in their decision making process.

A further element of novelty is represented by the way of implementing and monitoring the Code. The new version of the Code, in fact, reinforces the ‘Comply or Explain’ principle, a regulatory approach (typical of the UK Corporate Governance Code, which adopted it since early ‘90) that consents companies to depart from the recommendations as long as they clearly explain the reasons for doing so. The main advantage of this model it to make Corporate Governance guidelines adaptable and applicable to companies with very different features (including the size, sectors and shareholding structures), avoiding a “one size fits all” view, but at the same time challenging companies on their corporate governance practices by setting clear benchmarks and principles to be met. However, as highlighted by EU Commission in its Green Paper of 2011, the ‘Comply or Explain’ model is much more effective if monitoring bodies are “authorised to check whether the available information (in particular, the explanations) is sufficiently informative and comprehensive”. That is exactly why the revised AFEP/MEDEF code introduced, for the first time in Europe, the establishment of an independent monitoring body, the Haut Comité de gouvernement d’entreprise, which will ensure the correct implementation of the Code and the presence of sufficient explanations in case of deviations. The companies will have to indicate the deviations in a specific table in the Annual Report and describe the alternative measures adopted.

Keywords : ESG, France