New Belgian law on corporate governance

On 18 March 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 Belgian State Gazette soon.

The new corporate governance rules apply to publicly-quoted companies and some state-owned companies such as the Belgian Post and the Belgian Railways. The Act should strengthen the corporate governance of these companies, especially in terms of remuneration controls. The Act also contains some new rules on individuals who are banned from acting as a company Director in the banking and finance sector (e.g. following bankruptcy or a criminal conviction).

The main features of the new Act are:

1. Company Directors must now include a corporate governance statement in the annual report which explains the company’s corporate governance policy, and highlights any differences from the Belgian Corporate Governance Code (the so-called “comply or explain rule”).
2. Each annual report must also 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. The exact amount of the CEO’s salary package must be included. The remuneration report must be separately submitted for approval by the general meeting of shareholders.
3. The remuneration report must be prepared by a remuneration committee set up by the Board of Directors. The Act contains specific rules for the composition and functioning of the remuneration committee. The majority of its members must be independent.
4. The Act forces companies to change the variable portion of the salary packages of the senior managers (including bonuses) to focus more on the long term. Only 50% of the variable portion of the salary packages can be linked to performance in the previous year. At least 25% of the variable portion of the salary packages must cover performance over a minimum of the previous two years, and at least another 25% must cover performance over a minimum of the previous three years (unless the general meeting of shareholders 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 the senior managers can only be acquired or exercised a minimum of three years after they are received. The general meeting of shareholders must approve in advance any variable remuneration the Board of Directors awards to independent Directors. The Works Council must be informed of any such awards, and may comment on them to the general meeting of shareholders, including making a recommendation as to whether they should be approved or not.
5. So-called “golden parachutes” (compensation packages paid to senior managers who are asked to leave the company) are limited to a maximum of the equivalent of 18 months’ total salary (including variable salary). Should the Board of Directors wish to award a higher amount, it must gain the prior approval of the general meeting of shareholders, and must inform the Works Council, who is entitled to make comments to the general meeting of shareholders, including making a recommendation as to whether the higher amount should be approved or not.
6. These new corporate governance rules only apply to publicly-quoted companies and some state-owned companies. The new Act also provides new rules on individuals who are banned from acting as a Director in the banking and finance sector (e.g. 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 specifies harsher penalties against Directors found guilty of crimes such as fraud, abuse of trust or money laundering, while at the same time reducing the penalties for Directors acting in good faith who find themselves unintentionally involved in a bankruptcy.