The Flemish Decree on Corporate Governance in the Flemish Public Sector of 22 November 2013 (the "Corporate Governance Decree") was published on 9 January 2014. This Decree contains new rules of corporate governance for Flemish agencies and other (government) entities, both companies and other type of entities. The new rules concern the composition of the board of directors, including conflicts of interest on the board, the position of the government commissioner, a code of conduct for personnel, and the remuneration of directors and personnel. The legislator made some peculiar choices, both substantively and from the viewpoint of legislative technique. As a result, we expect that the new Decree will give rise to numerous questions of interpretation.
Scope of application ratione personae
First, the Corporate Governance Decree applies to the Flemish agencies and government entities subject to the Framework Decree of 18 July 2003 ("Kaderdecreet Bestuurlijk Beleid"): departments, internal independent agencies, with or without legal personality ("IVA"), and publicly or privately structured external independent agencies ("EVA"). Furthermore, the Secretariats of the Strategic Advisory Councils, a number of individually specified so-called "Eigen Vermogens" and the following four Flemish public institutions with a sui generis regime also fall within the scope of the Decree: VRT, the "Vlaamse Maatschappij voor Watervoorziening" (the "Watergroep"), the "Universitair Ziekenhuis Gent" and the "Vlaams Fonds voor de Letteren".
In addition to these traditional government entities, the Decree also applies to (i) companies, and (ii) non-profit organisations which qualify as public institutions under article 9 of the Special Act on the Reform of the Belgian Institutions (excluding universities and schools of higher education) – in both cases, however, only if they are considered to be part of the Flemish government by virtue of falling under ESA code 13.12 (e.g. VVM De Lijn). An overview of the companies and non-profit organisations concerned can be found on the website of the National Bank of Belgium (http://www.nbb.be/doc/dq/shs/Code-1312.pdf).
For government companies falling under the sectorial ESA code 11001 (e.g. NV/SA Aquafin), the Decree is not directly applicable. Representatives of the Flemish government in such companies are directed to pursue compliance with the provisions of the Decree by means of their position and voting behaviour in the general assembly. Such companies are therefore not included in the following analysis.
Care needs to be taken to avoid becoming confused by this broad scope ratione personae. As explained below, the rules do not apply equally to all of the aforementioned entities. For example, departments and IVAs are not subject to the new rules set out under the first three headings below. In fact, only the provisions on remuneration apply – rather theoretically – to them.
Independent directors and conflicts of interest on the board of directors
The Decree requires at least one-third of the voting members of the board of directors to be independent directors, appointed from lists of two candidates per mandate upon the proposal of the board of directors after an open call for candidates, followed by a comparative selection procedure. Depending on the government entity involved, the independent directors are appointed by the Flemish government or the general assembly. They can only be dismissed for "serious cause" and only upon a proposal by the board of directors.
The operationalisation of the independence test is likely to prove challenging. To give just one example: The Decree stipulates that "the corporate governance code for listed companies" must "guide" the way in which independence is ascertained. This is clearly a peculiar way of formulating a legal rule, even apart from the fact that the Flemish legislator apparently lost sight of the existence of independence criteria in article 526ter of the Companies Code.
In order to prevent conflicts of interest on the board of directors, from now on directors will need to present an overview of their other mandates and activities at the time of their appointment, as well as reporting any subsequent changes thereto. In addition, a rule on conflicts of interest has been included in the Decree, inspired by the regime for listed companies set out in article 523 of the Companies Code. Directors having a direct or indirect interest of a patrimonial nature which conflicts with a decision or transaction within the powers of the board of directors may not participate in the discussion, nor in the voting on that decision or transaction. The other elements of the regime of article 523 of the Companies Code, relating to transparency and justification, were not incorporated in the Decree.
Finally, the board of directors must establish a deontological code of conduct for its members.
At a stroke, the Decree has modified the rules relating to the board in quite a number of government companies and entities, without however going to the trouble of actually making the corresponding amendments to the constitutive decrees organising these entities. It is to be hoped that this work will follow soon. The current situation is clearly a recipe for confusion and legal uncertainty. The "Kaderdecreet Bestuurlijk Beleid" has already been adjusted in certain respects.
The foregoing rules only apply to the EVAs, the four aforementioned sui generis public institutions, and the companies and non-profit organisations which are part of the Flemish government by virtue of code 13.12.
The statute of government commissioner
The Corporate Governance Decree establishes the conditions which candidates must fulfil to be eligible for the function of government commissioner. It does so in terms of availability, experience and expertise, absence of criminal convictions, and absence of functional or personal conflicts of interest and incompatibilities with other mandates or offices.
In addition, it explicitly grants the government commissioner a right to information, subject to a duty of confidentiality. It is stressed that the relationship between the government commissioner and the Flemish government must be based on trust, in the absence of which the Flemish government can end the commissioner's mandate at any time. Finally, the Decree requires a biannual evaluation of the government commissioner based on the function description and competence profile established by the competent Minister at the time the government commissioner is appointed.
These rules, too, only apply to the government entities mentioned in the previous section. Logically, they only apply insofar as the decree organising the entity concerned provides for the appointment of a government commissioner.
Code of conduct for personnel
As a result of the Decree, all entities falling within the scope of the Corporate Governance Decree, with the exception of the departments and the IVAs, must establish a deontological code of conduct for their personnel. In addition, the EVAs, the Secretariats of the Strategic Advisory Councils and the Flemish public institutions have to create protection for "whistle-blowers", i.e. members of the personnel who, while doing their jobs, have noticed and reported negligence, abuse or criminal offences within the entity where they are employed.
Remuneration of directors and personnel
In line with the spirit of the times, the Corporate Governance Decree sets out new rules concerning the remuneration of directors and/or personnel. These rules relate to:
- the amount of annual remuneration, which, in principle, is limited to that of the minister-president of the Flemish government (the so-called "minister-president norm");
- the composition of the remuneration package, which cannot consist of shares or share options, and for which the variable part (i) may never amount to more than 20% of the annual salary (including mandate allowance), and (ii) must be fixed taking into account long-term perspectives and the realisation of financial and non-financial objectives;
- a prohibition on paying out remuneration of personnel to a management company (a principle that has already been enacted at the federal level with the Act of 19 December 2012 on Remuneration as a Natural Person of Employees and Mandate-holders of Institutions of Public Utility, Autonomous Public Enterprises and Entities in which the State directly or indirectly exercises a Dominant Influence, with the proviso that the Flemish prohibition only applies to members of the personnel and thus not, for example, to remuneration received as a director);
- "golden parachutes", the components of which are now fixed by law and the amount of which is capped at one year's fixed salary, unless labour law prescribes a higher amount;
- supplementary pension schemes, which may not be more beneficial than the scheme applicable to ministers of the Flemish government;
- transparency of the remuneration paid to members of the board of directors, which must be published in the annual report of the entity concerned and, in the case of some government entities, notified to the Flemish government.
Transitional provision
The Corporate Governance Decree provides for a transitional regime with respect to the composition of the boards of directors. This must be aligned with the Decree at the time of the first renewal of the mandates and at the latest by 1 July 2018. As far as the provisions on remuneration are concerned, the Decree stipulates that members of the personnel and directors keep the financial terms of employment they enjoyed at the date of entry into force of the Decree (i.e. 19 January 2014), even after subsequent renewal of their mandate.