On March 18 2010 the Senate approved the new Corporate Governance Act, which had already been approved by the Chamber of Deputies. The new act will be published in the Official Gazette shortly.
New corporate governance rules apply to publicly quoted companies and some state-owned companies, such as the Belgian Post and Belgium's national railway company. The act aims to strengthen the corporate governance of these companies, especially in terms of remuneration controls. It also contains new rules on individuals who are banned from acting as company directors in the banking and finance sector (eg, following bankruptcy or a criminal conviction).
The main features of the new act are as follows:
- Company directors must now include a corporate governance statement in the annual report that explains the company's corporate governance policy and highlights any differences from the Corporate Governance Code - this is known as the 'comply or explain' rule.
- Each annual report must contain a remuneration report explaining the company's remuneration policy and providing details of the remuneration packages of the company's directors and senior managers, including the exact amount of the chief executive officer's salary package. The remuneration report must be submitted separately for approval by the general shareholders' meeting.
- The remuneration report must be prepared by a remuneration committee established by the board of directors. The act contains specific rules on the composition and functioning of the committee and requires that a majority of its members be independent.
- The act forces companies to change the variable portion of their senior managers' salary packages (including bonuses) to reflect a more long-term corporate focus. Only 50% of the variable portion of a salary package can be linked to performance in the previous year. At least 25% of the variable portion must relate to performance over a minimum of two years, with at least another 25% relating to performance over a minimum of three years (unless the general shareholders' meeting decides otherwise). These time-linked rules will apply only if the variable portion of the salary package amounts to more than 25% of the total salary package. Shares and stock options granted to senior managers cannot be acquired or exercised within three years of receipt.
- The general shareholders' meeting must approve in advance any variable remuneration that the board of directors wishes to award to independent directors. The works council must be informed of any such awards; it is entitled to comment on them in the general meeting and, among other things, may recommend that they be approved or rejected.
- 'Golden parachutes' are capped at the equivalent of 18 months' total salary (including variable salary). If the board of directors wishes to award a higher amount, it must obtain the prior approval of the general shareholders' meeting and must inform the works council which, as in the case of awards to independent directors, can make recommendations.
- The new act also introduces rules on individuals who are banned from acting as director in the banking and finance sector (eg, following bankruptcy or a criminal conviction). The new rules distinguish between bankruptcies due to economic circumstances and bankruptcies due to fraud or other crimes. The new act provides for more severe penalties for directors who are found guilty of crimes such as fraud, abuse of trust and money laundering, but reduces penalties for directors acting in good faith who find themselves unintentionally involved in a bankruptcy.
