Flanders' administration started 2019 with a new Administration Decree. Since 1 January 2019, the provisions regarding the organisation of the Flemish Government and corporate governance in the public sector have been codified in one single decree. Henceforth, Title III of the Administration Decree of 7 December 2018 determines the organisational provisions for the Flemish administration. We zoom in on a couple of new provisions regarding the structure and corporate governance of the Flemish Government and the legal entities under it. The new control mechanism for foreign investments stands out the most.
New: a control mechanism for foreign investments to safeguard Flemish strategic interests
The Administration Decree introduces a control mechanism for foreign investments to safeguard the strategic interests of the Flemish Region and the Flemish Community.
The mechanism applies to legal acts of the Flemish administration (including e.g. public external autonomous agencies and the Flemish investment companies), the local authorities (including e.g. the autonomous agencies) and institutions created with the specific purpose of meeting needs of general interest, which have legal personality, and for which an institution falling within the scope of the new provision either (i) provides more than half of the financing of the institution, or (ii) has more than half of the votes on the board of directors, or (iii) exercises control over the management of the institution.
If a legal act of an institution as described above results in foreign natural or legal persons acquiring a participation ("zeggenschap") in or control ("beslissingsmacht") of that institution and this threatens the strategic interests of the Flemish Community or the Flemish Region, the Flemish Government can annul the act or declare its consequences void. The Flemish Government can only apply its annulment power if it proves that it tried to safeguard the strategic interests in consent with the institution concerned.
Among the many questions that arise, what stands out is that the provision applies not only to investors outside the EU but also to European investors. Moreover, there is no threshold for when the mechanism applies. As the provision only applies to acts of an institution to the extent that they have consequences in that same institution, this cannot apply to the transfer of shares (except, potentially, the sale of the institution's own shares), even though such acts typically lead to changes of control. The mechanism can, however, apply to potential capital increases. Finally, the scope for "institutions that meet needs of general interest" may lead to questions of interpretation.
We would point out that things are changing in this field at the European level as well. In February, the European Parliament approved, at first reading, a proposal for a regulation establishing a framework for the screening of foreign direct investments into the European Union.
Codification
The Administration Decree codifies the previous provisions of the Framework Decree of 18 July 2003 ("Kaderdecreet Bestuurlijk Beleid"), the decree of 22 November 2013 regarding corporate governance in the Flemish Public Sector and the decree of 13 July 2007 on the promotion of more balanced participation of women and men in advisory and management bodies of the Flemish administration.
With regard to the content, the Administration Decree does not lead to any upheaval regarding the organisation of the Flemish State-owned enterprises. The substantive modifications were implemented earlier in the term of the current Government and were included in the Administration Decree. The provisions of the Corporate Governance decree and the decree on balanced participation were almost literally copied into the Administration Decree.
The Flemish administration is still composed of homogenous policy areas with departments, internal autonomous agencies (with or without legal personality), (public and private) external autonomous agencies, and advisory and policy councils. For the departments and the internal and external agencies, the principles remain mostly unchanged. Certain provisions were not retained, but this was due to previous comments made by the Council of State regarding the competence of the decretal legislator rather than any change of policy. The Administration Decree does not deal with the other types of organisation that exist within the administration.
Regarding corporate governance, the entities that fall within the scope of that section of the decree still need to ensure that at least one-third of their directors are independent directors, and the board of directors needs to draft a deontological code for its members. These entities must also have a deontological code for their personnel and protection for whistleblowers. The "minister president" norm for the remuneration of personnel and members of the board remains applicable. With regard to the balanced participation of women and men, it remains a rule that no more than two-thirds of the members with voting rights may be of the same gender. A new provision is that the rules regarding publication of remuneration details are broadened to include the leading official and the director-general, as well as the members of the management board.
The previous obligation for the Flemish Government to report to the Flemish Parliament shifts towards an obligation to publish certain documents (e.g. articles of association and business plans) on a central website. This obligation is limited to the departments and the internal and the external agencies. However, and despite the fact that there is no explicit obligation to this effect, the Flemish administration announced, in the answer to one of the questions raised by the Council of State, that it will continue endeavouring to complete the publication of all documents on the website https://wegwijs.vlaanderen.be/#/organisations.
Less corporate governance?
The scope of the provisions regarding corporate governance is restricted in two respects.
The provisions regarding corporate governance for entities which are considered to be part of the Flemish administration by virtue of falling under ESA code 13.12 only apply if the Flemish Region, the Flemish Community, the internal autonomous agencies with legal personality, the external autonomous agencies or their direct or indirect subsidiaries hold at least half of the votes at the general meeting. According to the decretal legislator, this restriction is in line with the Government Agreement.
Furthermore, the obligations to nominate independent directors will no longer apply to subsidiaries if the Flemish Region or the Flemish Community do not directly hold at least half of the votes at the general meeting. The explanatory memorandum indicates that the legislator feared that the nomination of independent directors would raise pressure within the subsidiaries to apply a policy differing from the strategy of the parent company, notwithstanding the fact that the parent company is accountable for the use of all resources.
Increased attention required concerning the exact scope of application of all provisions of the Administration Decree
The decretal legislator indicated that one of the major goals of the Administration Decree was to align the scope of the different regulations. We observe, as did the Council of State, that the decretal legislator has not achieved this – admittedly very ambitious – goal.
It will therefore be important, with respect to all sections of the Administration Decree (including those not dealing with the structure and organisation of the Flemish administration), to check the exact personal scope in order to assess whether the entity falls within the scope of the rules. The Administration Decree has changed the scope of several provisions and new exceptions have been introduced. Thus, it is not easy to draw up general guidelines in this regard.