On June 26, 2020 the Spanish National Securities Market Commission (Comisión Nacional del Mercado de Valores or “CNMV”) published some amendments to the Spanish Good Governance Code of Listed Companies (the “Code”). CNMV outlined four main issues that would be addressed in this revision of the Code: i) gender diversity, ii) non-financial information and sustainability, iii) management of reputational and other non-financial risks, and iv) clarification of some aspects related to the remuneration.

The following are some of the key changes made to the Code:

  • The previous code recommended that boards achieve a 30% gender balance by 2020. This percentage is now increased to 40% of the board by 2022. Glass Lewis values the importance of board diversity, and the new recommendation will increase the pressure for many Spanish boards that are still lagging behind in terms of gender balance. While the recommendation also states that companies should promote female presence in senior management, the Code remains vague and no detailed recommendations are made in terms of disclosure of set objectives or progress made in promotion of women in senior management and executive pipeline.
  • Further, the Code adds the supervision and evaluation of non-financial information within the competencies of the audit committee, which should include members with experience managing non-financial risks. With regard to reputational risks, and in view of some recent alleged irregular practices in Spanish market, a director must inform the board about any situation affecting the director that may harm the company’s reputation, thus allowing the board to analyse the situation earlier and to adopt appropriate measures without waiting for the courts to take formal action. Also, a framework for prevention of corruption and management of related risks should be included in corporate policies. With these amendments the Spanish regulation related to disclosure and management of non-financial risks remains ahead of many other European countries.
  • When it comes to remuneration, the Code recommends that the remuneration report should provide information on the fulfilment of performance conditions related to variable awards. Whether this clarification will lead to improved disclosure of performance targets in Spanish markets remains to be seen. Further, companies are recommended to consider the incorporation of malus clauses into variable remuneration schemes, and equity awards should be subject to a minimum holding period of three years, unless the executive director already holds shares worth two times their base salary. Also, in a change that potentially impacts many Spanish companies, the Code clarifies that the maximum severance payout of two years’ total remuneration includes all indemnities resulting from the end of contractual relationship, such as amounts deriving from non-consolidated long-term post-employment benefits and post-contractual non-competition agreements.
  • CNMV also considered the impact that COVID-19 pandemic has had on this year’s general meetings, and recommends that companies should have mechanisms allowing the exercise of voting rights through electronic means, and in the case of large cap companies, also allow online attendance and active participation in the general meeting.

Overall, while no sweeping changes to the Code were made at this time, Spain’s governance reform that gained momentum in mid-2010s remains on a positive path, and the amendments address some of the questions raised by shareholders in recent years.