Governance codes: French regulator seeks role in overseeing boards

When France got its first code of corporate governance in 1995, it came with a conscious sense of "I guess we have to". That was three years after the Cadbury Code in the UK had begun to articulate a notion of good governance. The Vienot Code three years later told French companies that they ought to take some similar actions because "international investors" – for which you can read "British" – were expecting it. Nonetheless, the attitude in France hasn't been exactly a warm embrace of the principles of stronger boards. What has persisted even through Vienot II in 1999 and the Bouton Report of 2002 has been what one regulator now calls a case of French "peculiarism". Jean-Pierre Jouyet, chairman of the French securities regulator AMF, told a conference: "I am convinced that the market regulator has an irreplaceable role to play in designing a corporate governance model to which we should aspire." For a notion of what might be on the way, consider these ideas:

• Limits of volunteerism: Jouyet suggested that the voluntary nature of the main provisions has been shown to be less than adequate. The main code in France is a creation of AFEP and MEDEF, the federations of largest enterprises and the employers, which gained statutory backing in 2008. But Jouyet said: "the limitations of this method of drafting governance principles have recently become apparent." Recent progress on boardroom diversity came only after pressure from the regulator and parliament, which raises questions about the limits of voluntarism.
• A stakeholder view: "It never ceases to amaze me that shareholders – both institutions and minorities – are called on to express their views by voting at annual general meetings, whereas their representatives are not invited to sit on the working groups that take part in preparing the governance framework," he said. So watch out for a change in direction.
• Diversity: Leave gender and ethnicity to the side for the moment. Jouyet started his discussion of diversity in this way: "Our boards of directors are too inbred: 98 people hold 43 per cent of the directorships in major French companies." Yes, boards need more women, minorities and foreigners, he said. But the implication here is that they could do with more Frenchmen, too. The AMF may well put limits on multiple board mandates.
• Independence: The existing code asks companies to consider whether outside directors are independent of management and other ties that might influence their judgement. Jouyet acknowledged that this is a tough area to judge, and having the right skills and knowledge might well compromise independence. "It is therefore up to AFEP and MEDEF to clarify their thinking on the definition of independence and skills," he said. "And it is up to companies to explain how they interpret these concepts when choosing their board of directors."
• CEO duality: It is time, Jouyet asserted, to stop the "to-ing and fro-ing" about combining the role of chairman and CEO. But he added that the AMF doesn't plan to prescribe one model as the only way to proceed.

The speech didn't make clear precisely how the AMF might proceed. And Jouyet is only one of the members of its executive, so there's still a debate to be had. But be clear: The debate has started.

Source document: The Jouyet speech is a seven-page pdf file in English.