Corporate governance in France

Loi sur la sécurité Financière ( LSF)



Listed Companies



Two new laws have recently been passed in France with a view to strengthening the legal position on corporate governance: the NRE law (on new economic regulations) dated 15 May 2001, and the LSF, dated 1 August 2003.



These laws provide the basic framework, specifically targeting transparency and ethics within companies. The regulations include the following:

• Companies whose shares are traded on a regulated market, and any of their subsidiaries, are obliged to publish details of executive pay;
• Publicity on stock options;
• The expansion of the approval procedure for related parties transactions;
• The management committee can intervene in the context of a public offering, and participate in general meetings;
• New limitations on the number of executive mandates for limited companies that can be held by one person;
• Publicity on shareholder agreements;
• The audit profession can no longer be self-regulated, and audit and consulting activities must be kept separate;
• The Chairs of limited companies and firms which are traded on a public market must draw up a report on the conditions governing the preparation and organisation of the work of the Board of Directors and of internal controls procedures;
• Recognition of the right for registered shareholders' associations to bring legal cases;
• In the case of a scrip issue, a portion must be set aside for employees.

The new regulations do not include sanctions under criminal law, but failure to meet certain requirements will have various legal implications. The legislator doubtless felt, quite rightly, that the market would also punish companies which infringed the corporate governance laws.



The French government has chosen to stipulate a legal "minimum service" for corporate governance. In fact, the preparatory work for these laws (the Viénot reports in 1995 and 1999 and the Bouton report in 2002) helped to define the principles of corporate governance more precisely and completely, particularly as regards the role and structure of the Board of Directors. For example, these reports shed a great deal of new light on sensitive subjects:

• issues relating to the balance of power within the Board of Directors, such as, for example, the presence of independent directors;
• the quality of directors and of the work of the Board: selection of directors, committees, etc.
• evaluation of the Board of Directors;
• communications on items not included in the balance sheet, and on the company's risks.

The French market authority (AMF) strongly suggests that companies traded on public markets should implement the recommendations in these reports.



This legal framework fits in with the broad global trend. Some regulations (such as the Chair's report on internal controls) are gradually being implemented in line with the recommendations from the AMF. The recent publication of the OECD's report on corporate governance principles provides more food for thought for the players involved, particularly as regards the integration and protection of shareholders under the law. The French legislator is very aware of this question, and work is in progress to make complete shareholder integration a legal obligation.



The French market was rocked by several scandals in 2003, which helped to raise the legislator's awareness of issues relating to corporate governance and independence of auditors.