By Kostas V. Botopoulos
Lawyer, Dr. of Constitutional Law, former Chair of the Hellenic Capital Markets Commission, Partner at Lambadarios Law Firm
A new law on the “corporate governance of societies anonymes, modern capital markets and implementation of EU Directive 2017/828” has been enacted in Greece (Law 4706/2020), within which Articles 1 to 24 replace longstanding Law 3016/2002 on corporate governance of listed companies. Although the new provisions bring no revolutionary changes, the general thrust is welcome and some of the modifications important.
The most salient new provisions vis-à-vis the existing corporate government framework are the following:
• An “adequacy (internal fit-and-proper) policy” for the members of the Board of Directors is introduced, containing specific criteria for such members (Art para 1)
• The rule of “adequate representation of both sexes” is established (Art 3 para 1, b), meaning than at least 25% of Board members must be women
• A “system” of corporate governance is established (Art 4 para 1 and 13 para 1), comprising a nexus of rules and practices covering explicitly internal control mechanisms, conflict of interest prevention, communication with the public and remuneration policy, but extending to every corporate area including the financial situation of the company: the Board of Directors is rendered directly responsible for the financial situation of the company, including expressing a view on the company’ s “going concern” (Art 4 and 23)
• Two new compulsory Committees are added: the Remuneration Committee (Art 10 and 11) and the Candidates Committee (Art 10 and 12).
• The obligation for every company to adopt a Corporate Governance Code is formally enshrined (Art 17).
• Two new units are rendered compulsory –the Unit for Shareholders’ Service (Art 20) and the Unit for Company Declarations (Art 21).
• 3 important new rules pertaining to sanctions are established: sanctions shall be applicable for any deviation from the whole of the corporate governance framework, including cases of conflicts of interests, which were left outside the sanctioning regime of law 3016/2002; the regime becomes stricter, since the financial sanctions may amount to 3 million euros (instead of 1) or 7% of a company’s yearly earnings (Art 24 para 1, a); legal persons, and not only physical person as in the former regime, are liable to be sanctioned for breaches of the law (Art 24 para 1, b).
Less in-depth but also significant are the following changes:
• Reorganisation and strengthening of the Board of Directors: a thorough delineation of the powers and obligations of the various categories of Board members -executive, non-executive, independent (Art 6 and 7); for decisions taken on the basis of a qualified quorum and majority the presence of at least two independent members is required (Art 5 para 3), though the minimum number of independent members in the Board remains 2, instead of 3, as was proposed in the draft law; for qualification of a Board member as “independent” two cumulative conditions shall apply: such persons must not possess, either directly or indirectly, more than 0,5% of the shares of the company it shall serve as Board member and must also be not linked to such company by any financial, business, family or other ties; a requirement of an at least yearly verification of the independence criteria is also introduced (Art 10).
• More minimum requirements are provided for the Internal Regulation of each company. The most important new provisions deal with the prevention of conflicts of interests, the compliance function, prevention and information about inside information, a periodic evaluation of the internal control mechanism, an educational policy for company personnel, the possibility/encouragement for a company to put into place a “green policy” (Art 15).
• The Internal Control “Service” is upgraded to “Unit”, with more independence and better specification of duties (Article 15 para 1 and 16).
The Greek legislator unfortunately did not find the courage to prohibit that the Chairman of the Board of a listed company acts at the same time as its CEO, or to make mandatory that the Chair is an independent member, or to upgrade the number of independent members required for every Board, or to give real effect to the notion of proportionality, especially concerning the treatment of smaller companies –in all those areas the solutions given are a patchwork. On the other hand, the new framework contains much needed improvements, most notably in the fields of representation, adequacy for managerial positions and transparency.
All in all, it is obvious that the success of the new framework shall be judged on the basis of the impact it will have on the change of the governance culture of the Greek companies and their more efficient operation.
