Incoming reform of the capital companies law and corporate governance regulations in Spain


Financier Worldwide Magazine

June 2014 Issue

June 2014 Issue

In December 2013 the Spanish government approved a draft law to reform the Law on Capital Companies (2010) (LCC) based on a report put forward by a committee of experts that worked for several months alongside the National Securities Commission (CNMV), the body regulating the stock and bond markets in Spain.

There are also plans to update the Code of Good Governance for Listed Companies from 2006. The Code will still rest on the principle of ‘comply or explain’ but the LCC reform constitutes a further step in the process to expand on mandatory regulations in the sphere of business organisation, which was traditionally left to the free will of the shareholders and directors of commercial companies.

The reforms are focused on listed companies and the date for the entry into force is 1 January 2015. They are moderate reforms, the scope of which is essentially technical. Most of the content involves program-related rules or regulations setting out practices that companies already implement. Certain aspects of the reform are incoherent due to their adoption of compromise-based solutions. For instance, challenging corporate resolutions is restricted to 0.1 percent of the share capital. However, at the same time, new grounds for challenge are envisaged and terms have been extended for bringing actions. In this regard, the proposed regulation steers away from other European systems that limit the scope for challenges of corporate resolutions. Other aspects contain significant loopholes, and controversial issues re-emerge which may lead to problems; for instance, certain undetermined legal concepts of company law are not clarified (e.g., ‘social interest’, ‘public policy doctrine’, ‘conflict of interest’, ‘transactional conflict vs. positional conflict’, ‘relevant violation’, ‘non-essential violation’, ‘duty of loyalty’, etc.), thereby missing an opportunity to settle the intense, traditional doctrine and jurisprudence-based debates on these issues.

Even so, as with any broad reform of the LCC, Spanish companies must prepare to adapt. Some of these are multinational companies operating in the foremost financial markets of the world with affiliated and investee companies subject to the legislation of other European countries, the US and other states.

The reform highlights the urgency for listed companies to update their corporate governance systems, which affects their articles of association and the regulations for implementation. In relation to articles of association, it will be necessary to introduce the new mandatory regulations for certain aspects, i.e., majorities for validly adopting resolutions, percentages for exercising minority rights, shareholders’ right to information, regulating conflicts of interest involving partners, challenging resolutions, terms for the appointment and responsibility of board members, resolutions of the board of directors that cannot be delegated, the board’s system of operation and the board member remuneration policy.

The regulations governing general meetings should be reviewed to bring them in line with the new articles of association. The draft law establishes any violation of the regulations governing general meetings as grounds for challenging resolutions, bringing about a change of paradigm. As a result, it is vital to review the content of such regulations to avoid an abusive exercise of the right to challenge or of bringing legal actions in an opportunistic manner. It will also be necessary to review the regulations of the boards of directors and, if applicable, those governing their committees, in order to bring them in line with the new regulations and the amended articles of association.

Listed companies should also address their corporate websites, the instruments affecting the rights of shareholders in general meetings (including online shareholders’ forum and shareholders’ associations ), the annual corporate governance report and the report on board member remuneration.

This reform process should be extended to incorporate new demands for internal regulation in terms of compliance stemming from the criminal liability system applicable to legal entities implemented in the reform of the Criminal Code of 2010 – which is also currently in the midst of a reform process – and, in the case of banks, the imperative regulations established for the sector.

Shareholders’ general meetings

More active participation is sought from shareholders in control over the governing body, especially with regard to the remuneration policy for directors and specific management authority. It will be incumbent on the general meeting to dispense with certain prohibitions or limitations applicable to board members’ conflicts of interests. Minority shareholders are further empowered to exercise minority rights in listed companies: the percentage has been reduced from 5 percent of the share capital to 3 percent.

In the process for adopting resolutions, as a general rule, the majority needed for adopting resolutions is a majority formed by half plus one of the votes present and represented, excluding abstentions and blank votes.

One dubious reform is the introduction of the ‘abuse of majority’, as it is called – and the related classification of the ‘personal benefit’ of the majority as a concept running counter to the social interest – as grounds for challenging corporate resolutions, even if the shareholders’ equity is not adversely affected.

The occasional clarification is introduced in relation to vote delegation chains in general meetings but not regarding the identification of the beneficial owner and the control of trustee shareholders.

Board of directors

General authority to oversee administration and the direct duty of management are non-delegable tasks of the board of directors.

The principle of ‘protection of entrepreneurial discretion’ is acknowledged: the standard for diligence is deemed as fulfilled in strategic and business-related decisions – the business judgement rule – when a board member acts in a bona fide manner without personal interest, having sufficient information and in the context of a suitable procedure.

The reform does not address the legal situation of proprietary board members – that is, board members representing the shares of substantial shareholders, a significant role in Spain that is a non-executive category of board member but one that cannot be classed precisely as an independent board member.

It is stipulated that board members should act with the diligence of an organised entrepreneur taking into consideration the nature of the position and the duties attributed to each member”, which points to the definition of a scope that differs from the duty of diligence adapted to the functions specific to each board member, which may affect legal actions linked to liability.

The subjective scope of responsibility is extended to the de facto director, which may give rise to problems in the distribution of responsibilities among the boards of directors of the parent company and subsidiaries of group companies, especially in the international sphere.

A new incorporation is the mandatory requirement of an independent coordinating member (lead director) when the chairman holds the position of chief executive. In such cases, to appoint a chairman a resolution is required from the board of directors which must be adopted with a supermajority, and the position of lead director is imposed rather than being merely recommended as it was in the Unified Code.

Directors’ remuneration

Levels of information and control regarding remuneration for directors have been increased. Specifically, it is stipulated that the maximum sum of annual remuneration for all directors must compulsorily be approved by the general meeting so that it can subsequently be appropriated pursuant to a resolution from the board of directors.

The remuneration policy shall be subject to approval by a general meeting at least every three years. Any amendment will require prior approval of the meeting and no payment may be made for the exercise or termination of the position of board member or for the performance of executive duties if it does not fall in line with the remuneration policy.

Every year, the report on remuneration will be submitted to an advisory vote by the annual general meeting. Nonetheless – and here lies the main development – if the report is rejected by the general meeting, it will be necessary to review the remuneration policy which shall be submitted for approval in the next general meeting to be held.

With this reform, along with the regulations passed in relation to banks and investment service firms, Spanish law in relation to remuneration for directors and chief executives of listed companies will become one of the most developed pieces of legislation in terms of the transparency and monitoring of remuneration.


Rafael Mateu de Ros is a partner and María Ángeles Alcalá Díaz is of counsel at Ramón y Cajal Abogados. Mr Mateu de Ros can be contacted on +34 91 576 19 00 or by email: Ms Alcalá can be contacted on +34 91 576 19 00 or by email:

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Rafael Mateu de Ros and María Ángeles Alcalá Díaz

Ramón y Cajal Abogados

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