Order passed on corporate governance rules

This long-awaited order, expected since the publication of the Sustainable Economy Law (Law 2/2011, of March 4, 2011), focuses on:

• Determining the structure and minimum content of the annual corporate governance reports of listed companies, of savings banks and of other institutions issuing securities admitted for trading on official securities markets.
• Determining the structure and minimum content of the annual remuneration reports in relation to the directors of listed companies and of the board members and members of the control committee of savings banks.
• Implementing the obligations related to the other disclosure instruments of listed companies and savings banks issuing securities admitted for trading on official securities markets.

Moreover, the order provides for the first time in Spanish law a definition of the types of directors (executive, nominee or independent), which matches the definition already included in the Unified Good Governance Code, although with an important new addition in relation to independent directors.

Contents of the annual corporate governance report and annual remuneration report

The Sustainable Economic Law (Law 2/2011) both amended the content of the annual corporate governance report that listed companies, issuers of securities admitted for trading on secondary official markets and savings banks must issue, and introduced the obligation for listed companies and savings banks to publish an annual remuneration report. That law authorized the then Ministry of Economy and Finance (now known as the Ministry of Economy and Competitiveness) or, with that ministry’s express permission, the Spanish Securities Market Commission (CNMV), to determine the contents of both reports. In the absence of that permission, the CNMV, in December 2011, suggested, with respect to the annual corporate governance report, using the forms in force, and allowing the information required by the Sustainable Economy Law to be added in a separate section, and, with respect to the annual remuneration report, using a document setting out the information required by the Sustainable Economy Law.

The order published on Saturday has therefore set the minimum content and structure of the annual corporate governance reports and annual remuneration reports of each of the institutions required to issue them (listed companies, savings banks and issuers of securities admitted for trading), and created the forms for annual remuneration reports.

The CNMV is expected shortly to publish the new annual corporate governance report forms and the annual remuneration report form.

Other disclosure instruments

The order has amended the information that listed companies must include on their websites, mainly to require them to include their annual remuneration report and financial information for five fiscal years. It also determines the information that must be included on the websites of Spanish savings banks.

Types of directors

In the definitions of the types of directors included in the order, executive and nominee directors have been defined on the same terms as in the Unified Good Governance Code.

The biggest change is in the definition of independent directors, which states that directors who have held office uninterruptedly for more than twelve years cannot be classed as independent. A transitional period has been established in which: (i) independent directors who, as of June 30, 2013, have been in office for longer than 12 years, will not lose their status as independent directors until the end of their current mandate; and (ii) in the annual corporate governance report for 2013, directors who in that fiscal year have been in office for longer than twelve years can continue to be classed as independent.

The order came into force on the day following the date of its publication, although the obligations in relation to annual corporate governance reports and annual remuneration reports contained in the order will not apply to the fiscal years that had already commenced on January 1, 2012.