After the recent introduction of the new Code of Companies and Associations, the new Belgian Corporate Governance Code 2020 was presented on 9 May 2019. The 2020 Code contains corporate governance rules for Belgian listed companies.

A coherent and relevant code, adapted to regulatory, academic and societal changes

Since the publication of the previous Corporate Governance Code in 2009, the corporate governance framework has undergone considerable changes at the Belgian, European and international level.

In the first place, the Code of Companies and Associations introduces significant changes to the governance of listed companies. One example is the possibility of setting up a two-tier structure, with a supervisory board distinct from the management board. In order to align soft law with hard law, a parallel adaptation of the Corporate Governance Code was inevitable.

At the societal level, the demand for transparency has continued to grow. At the academic level, too, additional insights have been gained over the past ten years on good governance of listed companies.

A revision of the Belgian corporate governance framework was necessary for it to remain coherent and relevant. The Corporate Governance Committee, chaired by Thomas Leysen, commenced these activities in 2016, and presented the result on 9 May 2019. The 2020 Code expressly attaches great importance to a long-term vision.

Ten general principles, further detailed in concrete provisions

Like its predecessors, the 2020 Code is structured under a number of principles, considered as essential pillars of good governance. Listed companies are expected to comply with them at all times.

Each principle is elaborated in a number of more detailed provisions which serve as a recommendation for its effective implementation. All provisions are subject to the "comply or explain" principle: companies are expected to comply with all provisions unless they provide an adequate explanation for deviating from a provision. The company should report on these explanations in the Corporate Governance Statement, a specific section of the annual report. The Corporate Governance Committee will monitor the quality of the reported explanations on an annual basis and, if necessary, will inform the company if the explanation is insufficiently convincing.

The most striking features of the 2020 Code

Explicit and informed choice of governance structure – Under the new Code of Companies and Associations, listed companies are able to choose between two governance models: the one-tier structure, where the decision-making power lies with the board of directors, or the two-tier structure, where the management board exercises all operational powers and the supervisory board is responsible for general policy and strategy. The 2020 Code requires companies to make an explicit and informed decision about which governance model is most appropriate for them. At least once every five years, the board (board of directors or supervisory board respectively) should review whether the chosen governance structure is still appropriate, and if not, it should propose a new governance structure to the general meeting.

More attention to the respective roles and responsibilities of the board and the executive management – The 2020 Code is more explicit about this and puts more emphasis on sustainable value creation for the company. The board is required to define the strategy and the company's culture, to constructively challenge the executive management, and to provide a succession plan for the CEO and the other members of the executive management. The Code further specifies that the formulation of the company's strategy should not be delegated to a separate permanent "strategic" committee. Finally, the Code clarifies the way in which the board and the executive management should interact with each other.

A more diverse and balanced board – While the 2009 Code already focused on gender diversity within the board, the 2020 Code goes one step further. For example, the 2020 Code requires the board to be sufficiently diverse in terms of expertise, skills, background and age. The board will therefore have to attach even greater importance to the selection of board member candidates.

Board members and executives become shareholders – The 2020 Code focuses on sustainable value creation and constant attention to the legitimate interests of all stakeholders. This emphasis on the long term also extends to the remuneration policy, which seeks to align the personal interests of board members and executives with the interests of long-term shareholders. Members of the executive management are required to hold a minimum number of shares during their term of office. As for non-executive board members, part of their remuneration should be paid out in shares, which should be held until one year after they leave the board and at least three years after the moment of the award.

More attention to the reference shareholder – Significant or controlling shareholders, and in particular the board members appointed upon their proposal, should ensure that the shareholder's interests and intentions are sufficiently clear and are communicated to the board in a timely manner. Finally, the board should also debate whether it would be appropriate to enter into a relationship agreement with the reference shareholder, but without there being an absolute obligation to actually enter into such an agreement.

Awareness of conflicts of interest – The 2020 Code is stricter on conflicts of interest compared to both the 2009 Code and the Code of Companies and Associations. Board members should be attentive not only to their own conflicts of interest, but also to the conflicts of interest that may arise between the company and the reference shareholder by whom they were proposed. In the event of a substantial conflict of interest, the board should consider immediate communication on the procedure followed, the most important considerations and the conclusions, rather than waiting for the next annual report as provided by law.

Modified specific independence criteria – The current specific independence criteria are maintained in the 2020 Code but will undergo some minor changes. For example, the criterion of a maximum of three mandates as a non-executive is abolished; however, the maximum term of 12 years is maintained. Where the Code of Companies and Associations also contains a general independence criterion, a candidate for board membership who meets the specific criteria of the 2020 Code is presumed to be independent until proven otherwise. If a candidate does not meet the specific criteria, the general meeting can still appoint the candidate as an independent board member on the basis of the general criterion.

Applicable in principle as from financial year 2020

The 2020 Code applies to financial years with a closing date of 1 January 2020 onwards, unless the company concerned has already voluntarily adapted its articles of association to the Code of Companies and Associations before that date. A company that opts for early application of the Code of Companies and Associations will therefore have to apply the 2020 Code immediately.

The first monitoring study by the Corporate Governance Committee on compliance with the 2020 Code will be carried out in 2021.