Koumentakis

Tag: Board members

  • The Remuneration Report of the members of the Board of Directors of SAs

    The Remuneration Report of the members of the Board of Directors of SAs

    The issue of remuneration of Board members has been repeatedly addressed in the context of our articles. And so has the conflict of interests of the latter with the SA for this reason; the related risks for the SA; the relevant interest of the company, the shareholders and, of course, the beneficiaries- and clearly the third parties: investors and banks. We have already noted that transparency issues and the need for shareholders to participate in the approval of remuneration are pursued through the “say on pay” principle (including: Articles 9a and 9b of Directive 2007/36 / EC, as amended by Directive 2017/828 / EU). Based on this principle, the remuneration of the members of the Board of Directors should be defined in such a way that the shareholders are able to express an opinion. Given the above, our national legislator re-approached the specific issue with the law on SAs (: Law 4548/2018). It brought, on the one hand, some changes in the procedure and the conditions for granting remuneration to the members of the Board of Directors on the basis of their organic relationship (: Societe Anonyme: Remuneration of the Members of the BoD). It incorporated, on the other hand, two important tools for the transformation of the above principle into national law: (a) the Remuneration Policy and (b) the Remuneration Report. We will then deal with the latter.

     

    Legislative Framework – The distinction of Remuneration Policy from the Remuneration Report

    The issues related to the Remuneration Policy and the Remuneration Report are regulated in the provisions of articles 110-112 of Law 4548/2018. In this way, the provisions of Articles 9a and 9b of the aforementioned Directive 2007/36 / EC-as in force are incorporated into Greek law.

    The two, in particular, tools aim at the transparency and the participation of the shareholders in the issue of the formation of the remuneration of the members of the Board of Directors. Mandatory for listed SAs. Optional for the others. The Remuneration Report retains its independence from the Remuneration Policy, however, it is inextricably linked to the latter. In any case, these are distinct texts, which present two main differences:

    (a) The Remuneration Policy is the means of structuring the strategy of the SA regarding the granting of remuneration to the members of the Board of Directors. It promotes, in this context, its sustainability and long-term interests. In this way, it addresses the future. On the other hand, the Remuneration Report is a comprehensive overview of the total remuneration granted per board member for the previous financial year. It concerns, that is, the previous year and is of  an accounting character.

    (b) Regarding the Remuneration Policy, the shareholders’ vote is binding. On the other hand, their vote on the Remuneration Report has an advisory character.

     

    Subjective and objective scope

    The Remuneration Report is drafted collectively by the Board of Directors of the SA (: article 96 §2 law 4548/2018). The responsibility they bear in case of any violation of the provisions regarding the Remuneration Report is also collective (: article 112 §6 b). Therefore, the members of the Board are responsible in cases of violation based on the provision of article 102 of law 4548/2018. They also bear criminal responsibility, based on the provision of article 179 §3 law 4548/2018.

    The Remuneration Report must include the complete overview of the remuneration of the members of the Board of Directors, which were foreseen to be paid by the Remuneration Policy of the previous financial year (: article 112 §1 law 4548/2018). This is a fact, regardless of whether the latter (: members of the Board of Directors) are newer, older, executive, non-executive or independent. The recording must be made, in each case, in a clear and comprehensible manner. However, its subjective field may occupy other persons as well. When, for example, by statutory regulation, the application of the provisions for the Remuneration Policy and Report is extended to the executives, as they are regulated by the International Accounting Standards (article 24 §9). The latter, in this case, will refer to the payments of the specific persons as well.

    The concept of remuneration, in the context of the Remuneration Report, is conceptually identical to that of the Remuneration Policy. In other words: the Remuneration Report includes the total remuneration granted (or still owed) to the members of the Board of Directors in their organic capacity and position. The Remuneration Report is not interested in other fees. Such as, for example, those that are due, in a special relationship deriving from an employment, mandate, independent services or works contract [int .: Societe Anonyme: Contracts with Members of the BoD for the Provision of (Additional) Services].

     

    Content

    The minimum content of the Remuneration Report is provided in the provision of article 112 §2, law 4548/2018. At the same time, the European Commission has adopted a targeted consultation with guidelines for the standard presentation of the information contained in the earnings report. The final guidelines are still pending.

    The content of the Remuneration Report concerns the remuneration of each member of the Board separately. It basically includes: (a) the total remuneration paid as well as the way the manner it was paid was in accordance with the approved Remuneration Policy; (b) the annual change in remuneration, the performance of the company and the average remuneration of employees, excluding executives, during the last five years. The Remuneration Report also mentions: (c) any remuneration of any kind coming from any company belonging to the same group; (d) participation in equity schemes; (e) the options exercised; (f) information on the possibility of reclaiming remuneration; (g) the circumstances under which derogations from the remuneration report may have taken place, in accordance with the provisions of Article 110 §6 (inadvertently in Article 112 §2 f.g. reference is made to the repealed §7).

     

    The advisory vote of the shareholders

    The shareholders vote (in the context of the ordinary General Assembly with the relevant item on the agenda) on the remuneration report of the last financial year. Their vote, however, is advisory. This means that the shareholders’ decision does not bind the SA, although the voting is mandatory. The Board, however, has an additional obligation regarding the outcome of this vote. Specifically, it “… must explain in the next Remuneration Report the way in which the above result of the vote was taken into account…” (art. 112 §3 Law 4548/2018). It is concluded, therefore, that the SA may not take into account the above result at all, as long as it explains the way it worked in the next Remuneration Report that it will submit to the General Assembly.

     

    Publicity Formalities and Personal Data

    The Remuneration Report is subject to specific publicity formalities. The SA, however, must also post the Remuneration Report on its website, immediately after the relevant vote of the General Assembly. This posting must be for a period of ten years (article 112 §4 of Law 4548/2018). The period of posting can exceed the ten years, in case it no longer includes personal data of the members of the Board.

    We therefore confirm that the provisions of Law 4548/2018 are intertwined (and) in this case, with the requirements of Regulation 679/2016 / EC for the Protection of Personal Data. As already mentioned, the Remuneration Report refers individually to each member of the Board. This means that their personal data are being processed. The legal basis of this processing is the provision of article 112 §5 of law 4548/2018. The purpose of the processing in this provision is defined as the increase of transparency “… regarding the remuneration of the members of the Board of Directors, with the aim of strengthening the accountability of the members and the supervision of the shareholders on these remunerations”. However, the special categories of personal data according to article 9 §1 of the Regulation are explicitly excluded from the above processing and the Remuneration Report. These are the personal data that reveal “… racial or ethnic origin, political views, religious or philosophical beliefs or participation in a trade union, as well as the processing of genetic data, biometric data for the purpose of unambiguous identification of health or data relating to the sexual life of a natural person or sexual orientation “. In case, for example, that the granting of an allowance depends on any illness of the member of the Board of Directors, the Remuneration Report should include only the amount of this allowance. The cause must not be mentioned.

     

    Judicial review and the possibility of reducing salaries

    In the case of the Remuneration Report, the provision of article 109 §7 of Law 4548/2018 applies to the possibility of reducing remuneration after the issuance of a court decision. Such a reduction may take place in cases where there was a substantial change in the conditions under which the Remuneration Policy was approved and it was not revised (article 110 §2 law 4548/2018). This is, essentially, a judicial review of the Remuneration Policy. The application to the competent court, in this case, is exercised within an exclusive period of two (2) months from the voting on the Remuneration Report.

    The compliance review with the approved Remuneration Policy of the SA is carried out by the Remuneration Report. It would not be possible, after all, to approve remuneration for the members of the Board of Directors (and / or specific executives) without providing a compliance review.

     

    The obligation to prepare a Remuneration Report (for the review of the approved Remuneration Policy) is borne, as we mentioned in the introduction, by companies with shares listed on a regulated market. They both contribute to increasing corporate transparency and strengthening the (necessary) corporate governance. The accountability of the members of the Board of Directors and the supervision of the shareholders on their salaries is strengthened. They therefore promote the interests of the company and its shareholders. They make the companies that adopt them more transparent (and, therefore, attractive for investors).

    Therefore, their adoption by all companies is desirable.

    Even by the non-listed ones.-

     

     

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (April 11, 2021).

     

    Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

  • Societe Anonyme: Contracts with Members of the Board for the Provision of (Additional) Services

    Societe Anonyme: Contracts with Members of the Board for the Provision of (Additional) Services

    The Board of Directors of the Société Anonyme is its body, which is responsible for its management and representation. Its existence is provided and its operation is governed by law (basically: articles 77-115 law 4548/18). It acts, in principle, collectively. The principle of collective action, however, is not without its exceptions; it is therefore subject to divergence. The Board of Directors is, by its nature – as already mentioned, an instrument of the SA. Its members, as members of a collective body, are considered to be linked, respectively, with an organic relationship with the SA. The relationship of the Board member with the SA is twofold. It is distinguished (: “theory of separation”) into external-organic and internal-subjective. We will be concerned at this time with the provision of additional services to the SA by the member of the Board of Directors, regardless of their organic position and relationship: on the basis of a “special relationship”. By contracts, indicatively, of employment, works, independent services or mandate.

     

    The special relationship between board member and SA

    We often find, in practice, that the members of the Board of Directors provide additional services to the SA – especially in the context of the family SA. These are services that go beyond the narrow confines of its administration – as defined by law. They are, in other words, outside the framework of the narrowly defined duties of the members of the Board of Directors (as members, ie, of the specific body of the SA). These services are provided in the context of a “special relationship” (: article 109 par. 3 law 4548/2018). This specific relationship may include, for example, the type of contracts of employment, works, independent services or mandate. In any case, the correct legal characterization of this special relationship is (also) left, as we have already analyzed, to the judgement of the courts.

    With special reference to the specific (“special”) relationship, the legislator explicitly confirms the possibility of concluding such contracts, in order to remove any (possibly existing) relevant doubts. And even more: it demonstrates their difference (of these contracts and relationships) from the relationship that connects the members of the Board of Directors with the company due to their election or appointment. It confirms, in other words, that these are parallel relationships. Also: completely distinct relationships-based on their content.

     

    The content of the special relationship

    The content of the parallel (and special) contractual relationship that can be concluded by the member of the Board is, as already mentioned, the provision of (any) additional services. Its content is contrasted, in this way, with the content of the organic relationship that connects the SA with the member of its Board of Directors. The (organic) relationship that is determined by the law or the articles of association of the SA.

    The content of the specific, additional, services (and the related special relationship and contract) may be, inter alia, that of the legal, financial or technical consultant. The most common: the provision of services of an executive that usually results from a contract of employment concluded by the member of the Board of Directors with the SA.

    The difficulty of distinguishing the two relationships and qualities (member of the Board of Directors vs employee / provider of services in the SA) depends on their scope and content. This distinction turns out to be easier when the member simply participates in the Board of Directors, without being individually in charge of exercising (organic) power of administration, management and / or representation. On the contrary, when the member of the Board acts as a substitute body, that is, when the powers of the Board have been transferred in whole or in part, the distinction does not seem easy. In fact, in cases where the content of the special legal relationship concerns the management of the company and not just a field of action, the difficulties of discrimination are multiplied.

    The distinction, however, of the individual, aforementioned, relations seems absolutely necessary. This is because the regulations reserved by Law 4548/2018 on the conclusion and operation of the special relationship that connects the SA with the member of its Board of Directors, are different from those that govern their organic position (as a member of the Board).

     

    The special relationship as a transaction of the SA with a related party

    The members of the Board of Directors are included in those that the law identifies as parties related to the SA (:”parties”). The SA’s transactions with related parties are now regulated in articles 99-101 of law 4548/2018 (as they replaced the well-known article 23a of law 2190/1920). These are transactions with those parties who, due to their position, are likely to influence the content of these transactions based on their own interest. It was therefore deemed necessary to provide a regulatory framework aimed at protecting the SA. The above transactions reasonably include the conclusion of any special relationship (indicatively: employment, works, independent services or mandate contract) of the SA with a member of its Board.

     

    The conditions for concluding a special contract with related parties

    For the valid conclusion of a contract of the SA with related parties (and in this case, a special employment, works, independent services or mandate contract with members of the Board) the observance of a series of procedural rules and publicity rules is necessary (articles 100 and 101 of Law 4548/2018 ). These rules, in the light of the conclusion of a special contract of a member of the Board of Directors with a non-listed SA, are analyzed below:

    (a) The granting of a license

    In General

    According to paragraph 1 of article 100 of law 4548/2018: “the license to establish a transaction of the company with a related party or to provide collateral and guarantees to third parties in favor of the related party … is provided by a decision of the Board of Directors…”. The license granted is valid for a period of six months.

    The license must be special (article 99 of law 4548/2018). This means that the conclusion of the special contract should be included in the agenda of the meeting of the Board. In addition: its content (especially its financial object and its duration) must be submitted to the decision of the body responsible for granting the license (indicatively: 1990/2018 Court of Appeal of Thessaloniki).

    The Board of Directors is the competent body for issuing the license. In fact, the possibility of further assignment of the specific competence is explicitly excluded (article 100 par. 2 law 4548/2018). This provision of the legislator introduces an innovation in relation to the previous regime, which granted competence to the General Assembly (article 23a of law 2120/1920). In the justifications of the specific choice of the legislator, the fastest and simplest control procedure by the BoD is considered. In addition, the Board, due to its managerial powers, is considered the most appropriate body of the SA to recognize the benefit or not of the conclusion of contracts (as such: the contract of employment, works, independent services or mandate).

    The competence of the General Assembly at the request of shareholders

    In the event that the Board of Directors grants permission for the conclusion of a special relationship between the SA and a member of its BoD, it is obliged to announce its decision to the General Commercial Registry. Within ten (10) days from this announcement, shareholders of the SA representing 1/20 of the capital are entitled to request the convening of a General Assembly, in order for the latter to make a decision on the issue of granting a license. In fact, it is possible to (statutorily) reduce this percentage.

    Any transaction with an affiliated person, for which permission has been granted by the Board of Directors, is considered valid from the beginning, but it is subject to suspensory condition. In other words, either the aforementioned ten-day deadline must pass without any actions taken or the decisive responsibility is assumed by the General Assembly due to a request of 1/20 of the shareholders of the SA. In the latter case, the license for the transaction must ultimately be granted by the General Assembly. This license is not granted if shareholders representing 1/3 of the share capital object (article 100 §5 of law 4548/18-as in force, after modification of the initial wording of the provision, which provided for non-participation of related parties in the formation of a quorum and majority, after our own public intervention).

    The competence of the General Assembly in the absence of a quorum of the General Assembly

    As we have analyzed in our previous articles, the law deprives a member of the Board of Directors of the right to vote on issues in which a conflict of interests arises between them (or the related parties) and the SA. Such a case is the conclusion of a special relationship between the member of the Board of Directors and the SA. Therefore, the other members of the Board of Directors make the necessary relevant decision. However, the exclusion from the voting may concern so many members that the remaining ones do not form a quorum. In this case, the remaining members (regardless of their number) are responsible for convening the General Assembly (to make a decision on granting permission to enter into a special relationship).

     

    (b) Adherence to the publicity process

    In order to complete the process of granting a license for the conclusion of a special contract of the SA with a member of the Board of Directors, it is required to observe the publicity provided by law. In particular, according to article 101 of law 4548/2018: “The Board of Directors announces the issuance of a license for the preparation of a transaction either by itself or by the General Assembly, as well as the expiration of the deadline of paragraph 3 of Article 100 (ie the above mentioned ten-day deadline) …”. This announcement is submitted to publicity (: posting in the General Commercial Registry) before the completion of the transaction. At the same time, paragraph 2 of the same article sets out the minimum content that the above announcement must have.

     

    Exceptions to the obligation to issue a license

    The case of current transactions

    The obligation to grant a license is redundant in the event that the transaction (in this case the contract of the SA with the member of its Board of Directors) falls under the current transactions. Current transactions are defined, in article 99 §3 a’ of law 4548/2018, as “… those that are normal in relation to the operations and the object of the business activity of the company, in terms of their type and size and are concluded under market conditions”. In addition, according to the case law formulated under the pre-existing legal regime, a current transaction means “… that which, by its object, falls under the contracts drawn up in the context of the company’s day-to-day operations, ie whose terms are the usual terms of the contracts the company enters into with other traders. ” (1245/2018 Supreme Court).

     

    The case of the pre-existing contract

    A different case of exclusion from the licensing process is that in which a member of the Board of Directors is associated with the SA with a contract of employment, works, independent services or mandate, concluded before their election (or appointment) (1364/1990 Supreme Court, 21/2019 Single Member Court of First Instance of Volos). An issue, however, arises when the pre-existing contract is amended, after the election / appointment of the member of the Board of Directors (: eg. increase of the agreed fees). Depending on the content of the amended terms of these contracts (of employment, works, independent services or mandate), their prior approval by the competent body may be necessary.

     

    The remuneration of the members of the BoD on the basis of their special relationship / contract

    The members of the Board of Directors who have concluded an employment, works, independent services or mandate contract with the SA are, reasonably, entitled to receive remuneration – precisely on the basis of that contract. The specific remuneration is granted cumulatively with the (possible) remuneration received by the member of the BoD due to his / her organic position (ie, as a member of the BoD). These are fees which, although coming from the same SA and going to the same person, have different legal treatment. Thus, the fee from the special relationship / contract does not require prior regulation by law or the articles of association. It does not require its approval by the General Assembly (109 §1, Law 4548/2018) – in contrast to the remuneration that may be granted under the organic position. In fact, the law (article 109 §3, law 4548/2018) explicitly excludes the remuneration agreed on the basis of the special contract from the procedure and the conditions for granting remuneration to the members of the Board of directors of article 109 of law 4548/2018.

     

    Each member of the Board may, therefore, have a second capacity within the SA: the one that connects them with an additional relationship (employment, works, independent services or mandate) with the company. The two properties / legal relations (organic and special) are (and must remain) completely distinct. The first (organic) is governed, exclusively, by the mandatory provisions of the Law of Société Anonymes. On the contrary, the regulatory framework of the second (special) relationship is additionally governed by Civil (or Labor) Law regulations-depending on the contractual type which is chosen each time (mainly on the basis of tax and insurance advantages) and to which, in the end, it falls under.

    However, the separation of the qualities of the shareholder, the member of the Board of Directors and the employee / provider of services in the SA is important for a number of other reasons. Some of them have already occupied us in our articles (including: the need to separate the fees and finances of the entrepreneur / board member from the company’s fund, the use of the facilities provided by the law on SAs in terms of liquidity from businessmen / members of the Board).

    However, the separation of the above-mentioned qualities seems necessary on the basis of alignment with the (not typically necessary for non-listed companies, but substantially absolutely necessary) corporate governance rules.

    Rules necessary for the transition to the new era ˙ to the next day.-

    Stavros Koumentakis
    Managing Partner

     

    P.S. A brief version of this article has been published in MAKEDONIA Newspaper (March 14, 2021).

     

    Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

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