Proposition 52K1471

Projet de loi instituant notamment un comité d'audit dans les sociétés cotées et dans les entreprises financières.

General information ¶

Submitted by

CD&V Leterme Ⅰ

Submission date

Oct. 14, 2008

Official page

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Status

Adopted

Requirement

Simple

Subjects

EC Directive audit investment company stock-exchange transaction central bank firm governed by commercial law credit institution insurance company

Voting ¶

Voted to adopt

CD&V Vooruit LE PS | SP Open Vld N-VA LDD MR FN VB

Abstained from voting

Groen Ecolo

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Discussion ¶

Nov. 27, 2008 | Plenary session (Chamber of representatives)

Full source

The draft law examined by our committee was intended to transpose Articles 38, 41 and 42 of the European Parliament Directive or, more precisely, a part of that Directive. This Directive should have been transposed by 29 June 2008. As stated above, Belgium has been instructed to do what is necessary. The Government responded to the Commission’s request on 17 September 2008.

It is worth clarifying that the report to the King, deposited with this bill, indicated that the purpose of the directive and its transposition into domestic law was to restore the credibility of financial information in the context of scandals that have affected companies in the past. It was at least predictive. It should be recalled that by obliging entities of public interest to set up an audit committee, the directive was intended to increase the guarantees for the preparation of high-quality financial information, thereby enhancing public confidence in the sincerity and completeness of the financial information. By “entities of public interest” we mean listed companies.

We were told that the government worked together with the CBFA and the National Bank and consulted various stakeholders in the sector (FEB, IRE, Royal Federation of Notaries).

by Mr. Brotcorne, author of the proposal, recalled that he also wanted, within the framework of this proposal, to ensure better internal control and to ensure that this audit committee can play a fundamental role.

In the committee, the general discussion centred around the objectives of this proposal and this bill. Everyone agreed that it was about restoring public confidence in financial information of institutions, in particular of listed financial institutions. The concern was to ensure that the composition and quality of the audit committee meet criteria of quality and competence: public trust, quality of people. Everyone agreed to say that the maximum guarantees should be ensured.

by Mr. Brotcorne recalled that there were also exceptions, namely SMEs within the meaning of the European definition, and that the category which is exempt from this obligation to gather audit committees was that of listed companies that issued only bonds.

The committee examined an amendment submitted by Ms. Gerkens. It will ⁇ complement me if it intervenes today. It wanted to strengthen the various mechanisms provided in the bill. It wanted, in particular, that the number of independent directors be increased, that they do not cumulate several mandates and that the period of vacancy between the period during which they had possibly exercised an activity within the undertaking and the period during which they were required to sit as independent employees be extended. It also added other conditions affecting incompatibilities, reinforcing them beyond the degrees provided in the bill. She also wished that these directors could not exercise more than two consecutive mandates within the same company. The exchange of views was courteous and each expounded his point of view, expressing the fact that the number of independent administrators was not very important at the moment and that it was actually appropriate not to expand the structures too much because the risks of diluting the responsibilities.

Finally, the committee examined Ms. Gerkens’ amendments and rejected them.

All articles were adopted by 10 votes for and one abstention.

Mr. Speaker, I also had a report on behalf of the Finance Committee, but I refer to what has just been said. The Finance Committee was filed because the project extended to financial and insurance companies. What Mr. Mr. just said. George also applies to our own work.

I am pleased that the Government has decided to transpose into Belgian law a European Directive in respect of which it was already very late. For my part, at the beginning of this legislature, I had filed a text aiming to provide a legal basis for these audit committees because it was time to stop their compositions, their missions and their means even if nothing prevents, and still does not prevent today, the establishment of such committees within the company on a voluntary basis.

Why did I want to create these audit committees?

In order to strengthen the credibility of the accounts that companies write, put on the public square and give to the knowledge of different stakeholders, it was really necessary that this information be transparent, of quality and objective.

To do this, it was necessary that these audit committees should be composed of at least certain elements or independent representatives. At the time, dear colleagues, the development of my bill began as follows: "In the face of financial scandals highlighted in the U.S. but also international press, the reaction of U.S. investors was to question, in a general way, the quality of accounting information published by companies listed on one of the multiple stock exchanges."

As the rapporteur said, this was predictive in that we know, for a few weeks, how little credit there was to give to this information. I therefore look forward to the adoption of this text by our Parliament in the minutes that follow, because it seems to me that it is probably one of the first pieces of a much larger puzzle that must restore this credibility and which, by restoring it, will also strengthen or restore the necessary confidence that citizens and ⁇ must have in financial institutions in the broad sense.

I am therefore delighted and welcome the imminent adoption of this text by our House.

Mr. Speaker, Mr. Ministers, Dear colleagues, after the screaming failure of good conduct instruments, such as the now sadly famous Lippens code, after the errors of institutions that caused the terrible financial crisis, this project is obviously of great relevance.

Indeed, the project that we are going to vote today is part of, a little by chance it is true, the need to revise the entire architecture of the companies as well as the structures of internal and external control of them. In fact, it is more coincidence than a first response to the crisis of the banking and financial sector that brings us this project today, since it was elaborated long before the crisis.

This project is, in fact, the completion of the transposition of a directive. It requires companies to set up an audit committee within the management body, in order to strengthen both the solidity of financial reporting and the public’s confidence in such information. In addition, the audit committee must consist of at least one independent administrator.

Under its technical appearance, this project is a first step towards the end of pure and hard self-regulation, expensive to many in this country, large corporations and market ideologists at the forefront.

This is a first step that, however, is worthy of greeting, especially when one holds back to what the Fortis decision revealed: not only is self-regulation insufficient but, more surprisingly, it can harm the interests of both third parties and shareholders.

By adopting its own code of good governance, Fortis has created legitimate expectations in the head of many people. It was suggested that administrators were bound by the rules of good governance that they themselves had given themselves to follow. The mere existence of these rules has misled many people as to their rights and duties towards the bank. This is the particularity of the rules of good governance. When everything goes well, their usefulness limits to aesthetics; when things become complicated, they appear as useless, when they are not harmful.

Forcing today companies to set up an audit committee with at least one independent administrator within their management body is, I said, a first step, but we must continue on this path. I know that the government will soon present to us another project that will this time be related to remuneration and the famous golden parachutes. For my group, these are whole sections of good governance codes, such as Lippens or others, which must now and urgently be flooded into the texts of law and which, for the rest, must at least seriously engage the responsibility of administrators and management in general.

It is in this spirit that my group has submitted a bill proposing to incorporate a whole series of principles into the Corporate Code. These principles relate to remuneration (e.g. limiting the variable part to 30% of the fixed part), improved publicity of the transactions carried out on the company’s securities by the managers of companies, the obligation to impose a vote of the general meeting of shareholders on all elements of the remuneration and other direct and indirect benefits of top managers, the obligation for the company to ensure that all means and information are available in particular on the company’s website to enable shareholders to exercise their rights, the extension of the concept of the company’s social interest currently limited to shareholders only to other stakeholders.

In this context and awaiting the continuation of these important debates, my group will vote for this project which, as I have already said, is a first step in the right direction.

Mr. Speaker, dear colleagues, this bill is obviously important given the difficulties we have encountered in recent years in connection with a series of scandals that testify to a significant and serious absence or lack of controls in the management of listed companies.

Nevertheless, I believe that this project should have gone further; that is why I submitted amendments. Before explaining the various provisions envisaged, I would have wanted to ask a question to the Minister of Justice who does not listen to me!

Mr. Minister, during the committee work, I introduced amendments to strengthen the criteria for determining that an administrator is independent, but also to increase the number of independent administrators in listed companies and in banks and insurance companies covered by this project.

Your representative informed us that you will submit a bill to strengthen the so-called corporate governance code, including the integration of the content of the Lippens code and other provisions.

Can you tell us when this project will be submitted to us?

The Government has already approved the preliminary draft, which is currently submitted to the State Council. This is a project developed in parallel with the project concerning the golden parachutes. It provides for the establishment in these companies of a remuneration committee with a number of independent managers. This committee will be called to make a report on the management remuneration policy that will have to be approved by the General Assembly. This draft also provides for the indication of the code of "corporate governance" that the company must respect and which must be included in the annual report presented at the general meeting. I repeat that the preliminary draft has already been approved by the government. The bill will soon be submitted to this Assembly.

Mr. Minister, I thank you for this answer.

I will allow myself to present my amendments in a more detailed way; even if they are not accepted today in this bill – what I think – they could be debated and inspired the next, much more general, project concerning the governance of these companies, addressed in a wider way than only through the audit committee.

The first reinforcement we saw was to impose in a listed company a minimum number of three independent managers. Why introduce this amendment? In a company, various instances – in this case an audit committee will require an independent administrator, and if I hear the minister, a remuneration committee and other bodies – will also need to include at least one independent administrator. Therefore, it is not superfluous to require a minimum number of three independent directors in a company.

Another argument, constituting one of the few elements that I had found positive in the way that Mr. Lippens had presented his code, which is that beyond the independence of the directors, despite all quite relative, the important thing is to have several of them and to impose on them to expose their analysis or their agreement with regard to the activities of the company in relation to others, in such a way as to obligate each other to intervene and to decipher exactly the situation, in order to be brought to properly assume its responsibilities.

During the discussions, several members and even the Minister’s representative acknowledged the relevance of imposing this minimum number of three directors, but nevertheless suggested that this provision appears higher in the hierarchy of laws, therefore rather in the Code of Companies. I hope it will be included in the bill that will come to us soon.

Another provision I wanted to introduce was to make it more clear what is expected of an independent administrator. The provisions I propose do not come from nowhere. When we worked on bills relating to "corporate governance", in the early 2000s, we introduced provisions aimed at avoiding conflicts of interest in the head of persons carrying out tasks of control, verification of accounts of listed companies.

If we want independent administrators, we must strictly define in the law what these words mean, which is not the case with this bill in our opinion. In order to be able to freely judge the operation and management of a company, it is important for us to meet the following criteria: no longer have management or management functions of the company for five years; not be bound in the first degree to persons exercising a management mandate of that company, therefore not the spouse, not the children; no mandates or cross-functions between the company from which the independent administrator comes and that in which he exercises his mandate; limit the number of successive mandates to eight years or two mandates because it would be difficult after so many years to claim independent administrator and bring a new look; not hold a share in the company exceeding what we define as the maximum; finally, not having been associated with a salary or external auditor of the company for the last five years.

These provisions were considered too severe. I would like these provisions to be analyzed in favor of the upcoming project, which will be wider. If we set up independent administrators in a whole range of organs and their independence does not allow sufficient distance, we will experience the same disasters as today: these people will not be able to assume their responsibilities.

One of the issues that have arisen is the lack of people able to assume this role as an independent administrator. At least that is what is said and thought on the political side and maybe some managers of large corporations. If this is the case, we are obliged to train administrators so that they are able to assume these functions, to expand the range of administrators among which we can make a choice.

I consider that at present, the number of so-called independent directors who sit in the boards and committees of listed companies in our country, and especially the most important ones, is limited to a small circle of people who have been trained in the same schools. They are mutual administrators in their companies and their ability to interpell and compel each other to fulfill their role properly is no longer guaranteed. What happened at Fortis seems to me to be a good example of this situation!

As policymakers, we must put in place tools that will allow us to have enough independent administrators only to dare to strictly define what is meant by “independent administrator”. We need to organize real control tools in the management of companies.

For Mrs. Deom as well as for my other colleagues, I hope that, during the discussion of the project that will come from the government, we will be able to continue the work that was started in committee from our bill. Madame Deom, these will also allow you to look at your proposal, in order to truly strengthen these rules of transparency and transmission of information towards the weakest shareholders, that is, those who naturally and spontaneously have the least access to information.

I truly hope that our commission will continue this work and that we will dare to go far enough, at least far enough to join the muscled statements that were made at the time when the disaster in our banks was discovered. This has led us to significantly review management and transparency, both in terms of management and information. However, over the course of days and weeks, we realize that the demands and the scale of reforms are decreasing.

Mr. Speaker, I hope to be able to come back in a few months to tell you that my requests and concerns of the Ecolo-Groen group! They will be presented as part of the project that the government will present to us.