On 24 February 2014, Spain’s National Securities Market Commission (CNMV) published the new Spanish Good Governance Code of Listed Companies, a series of recommendations that are voluntary and subject to the “comply or explain” principle. The main new feature with respect to the previous code is principle 24, which addresses corporate social responsibility (CSR). The main features of Principle 24 are as follows:
- Various types of non-financial risk (e.g. social, environmental, political and reputational) should be covered in the risk control and management policy.
- Matters related to CSR should be reported separately, using internationally-accepted methodologies, to ensure transparency in communication with stakeholders.
- The CSR policy should include commitments on issues relating to: shareholders, employees, clients, suppliers, the environment, society, human rights, fiscal responsibility and business conduct.
Among the 25 principles and 64 recommendations in the new Code, there are other aspects that impinge on CSR. Below is a summary of the main points:
- Promote gender diversity so that, by 2020, at least 30% of Board members are women.
- Publish the “report on CSR policy” on the website sufficiently in advance of the General Meeting of Shareholders.
- While striving to be unbiased, the Board of Directors must seek to balance social and environmental interests with the interests of employees, the supply chain, clients and other stakeholders.
- A Board sub-committee should be in charge of CSR policy, and its functions should be defined.
To assist in drawing up the new Code, a Committee of Experts was created to distinguish between the basic aspects that should become mandatory, which are set out in the Spanish Companies Act (Ley de Sociedades de Capital), and recommendations to be applied voluntarily subject to the “comply or explain” principle.
In this regard, Spanish law allows each company to decide whether or not to implement the corporate governance recommendations but requires that, where they are not applied, the company provide an explanation so that stakeholders have sufficient information to assess the company’s action.
The new Good Governance Code comes at a time when we see a rise in social distrust regarding large Corporations, however, most of the listed companies followed the recommendations in the previous Code and implemented master or strategic plans in the area of CSR.
One of the objectives of the current Code is to reconsider the approach adopted by Boards of Directors vis-à-vis CSR; the “comply or explain” principle is expected to encourage Boards of Directors to improve their performance in terms of transparency, ethics and corporate governance.
What’s next? We will follow up the EU CSR Strategy development, to be delivered later on this year.