After a long birthing process, a new corporate code for Portugal has now finally seen the light of day. The code, which operates on a “comply or explain” premise, is structured on two levels: principles and recommendations, where principles provide a basis for the interpretation and implementation of more specific recommendations. The new code will enter into force on January 1, 2018. 

While there have been extensive improvements in Spanish corporate governance regulation in recent years, with legislative amendments and a new corporate governance code published in 2015, developments in neighbouring Portugal have been lagging. The Portuguese Securities Market Commission (“CMVM”) had last revised its corporate governance code in 2013 and the Portuguese Institute of Corporate Governance (“IPCG”) has provided an alternative code since 2014. In March 2016, CMVM and IPCG announced a successor to both codes to be published by IPCG and implemented jointly.  IPCG will monitor the new Code and review its implementation and content, while CMVM enforces the legal compliance and collaborates in any revisions to the code. 

Some of the changes to the 2013 CMVM code, which has widely set the standard for corporate governance in Portugal, include: 

  • Board of directors:  
    • While the 2013 CMVM code did not establish a minimum level of independence for the board, the new code recommends that a majority of the board members should be non-executive directors and at least one-third (minimum two), should be independent.  
    • Requirements for the new members of the board and supervisory bodies should take into consideration general diversity requirements, paying particular attention to gender diversity. The draft version of the code included a recommendation that by 2020 a company should establish and publish a program intending to ensure a balanced gender representation on the board, however, this recommendation did not make the final version of the code.   
    • Also, going forward the board should set up a majority independent nomination committee. 
  • Executive remuneration:  
    • Remuneration policies should include an explanation of how the total remuneration paid complies with the adopted remuneration policy, how it contributes to the long-term performance of the company, and how performance criteria were applied. 
    • Further, while stopping short of recommendation to disclose CEO pay ratio, annual changes in the executive remuneration, performance of the company and average remuneration in terms of the full-time employees during the last five financial years should be presented together to allow comparison. 

The new code also includes principles and recommendations regarding, among others, conflicts of interests, related party transactions, risk management and supervisory functions. 

There is still plenty of work to do on the governance front if Portugal wants to reach the higher European standards and catch up with its larger Iberian neighbour, but perhaps passing the baton from CMVM to IPCG will energise the corporate governance environment in Portugal and allow for more rapid developments in the future. 

Matti is an analyst covering the Southern Europe region.