Introduction

Scope of application

Compliance program

Protection of whistleblowers

Audit and sanctions

Rules arising from the Sapin II Law

EU law

French law

Rules derived from competition law

Sapin II Law/Competition

Scope ratione personae

Scope ratione materiae

Scope

Development of plan

Measures included in plan

Inclusion in management report

Vigilance plan

Injunctions

Civil liability

Sanctions

Duty of vigilance (devoir de vigilance)

CSR programs

Reporting

Communication

Reporting and communication

Judicial sanctions

Risk to reputation, strategy and stability

Corporate Social Responsability (CSR)

Middlenext Code

IFA Corpus

AFEP - MEDEF Code

Types

Principles of governance

Principles incorporating CSR values

Principles

Comply or explain

Binding force

Private codes of conduct

Compliance

The industry codes are a set of recommendations and guidelines, the adoption of which is the result of a unilateral decision by the undertaking. Depending on the sector in which they operate, undertakings are free to adhere or not to the principles set out in codes drawn up by professional organizations. At first sight, these codes are not binding. However, most private codes are based on the “com …

The industry codes are a set of recommendations and guidelines, the adoption of which is the result of a unilateral decision by the undertaking. Depending on the sector in which they operate, undertakings are free to adhere or not to the principles set out in codes drawn up by professional organizations. At first sight, these codes are not binding. However, most private codes are based on the “comply or explain” principle. In accordance with this principle, an undertaking that voluntarily refers to a corporate governance code must apply its provisions. It may only depart from the code if it provides clear and specific reasons for doing so.

This principle, which stems from Directive No 2006/46 of 14 June 2006 , was introduced into French law by Law No 2008-649 of 3 July 2008  and was incorporated into Article L. 225-37-4, 8° of the Commercial Code, applicable to single-tier undertakings and, by reference to Article L. 225-68, to dual-tier undertakings. Since Ordinance 2023-1142 of 6 December 2023, and its Implementing Decree 2023-1394 of 30 December 2023, the principle has only been set out in Article L. 22-10-10 of the Commercial Code. It stipulates that, in companies whose shares are traded on a regulated market, the corporate governance report presented to the Annual General Meeting by the Board of Directors, and attached to the management report, must contain, where the undertaking voluntarily refers to a corporate governance code drawn up by organizations representing companies, information on the provisions that have been disregarded and the reasons why, as well as the place where this code can be consulted, or, in the absence of such reference to a code, the reasons why it has decided not to refer to it and, where appropriate, the rules adopted in addition to the requirements laid down by law. Private bodies that draw up codes of conduct also refer to the “apply or explain” principle.

Moreover, the AFEP-MEDEF Code  stipulates that listed companies referring to the code are required to give a precise account, in their corporate governance report, of the application of its recommendations, and to provide an explanation when they disregard any of them. The explanation to be provided when a recommendation is not applied must be understandable, relevant and detailed. It must be substantiated and adapted to the specific situation of the undertaking, and indicate persuasively why this specificity justifies the deviation. It must indicate what alternative measures, if any, have been adopted, and describe the actions that will make it possible to maintain compliance with the objective pursued by the relevant provision of the code. Where a company intends to implement in the future a recommendation which it has provisionally set aside, it should indicate the date on which this temporary situation will come to an end. It is also recommended that undertakings indicate in a specific heading or table the recommendations they do not apply, together with the relevant explanations.

In order to ensure the effectiveness of the measures, the AFEP and MEDEF created a Higher Committee for Corporate Governance (HCGE - Haut Comité de gouvernement d'entreprise) in October 2013. Its mission is to oversee the implementation of the corporate governance code for listed undertakings that refer to it, and to ensure the effective application of the fundamental “comply or explain” (in French appliquer ou expliquer) principle. The HCGE may, on the one hand, be consulted by boards of directors or supervisory boards on any provision or interpretation relating to the code, and on the other hand, take up the matter itself when it finds that an undertaking is not applying one of the code's recommendations without sufficient explanation. The HCGE is made up of five competent individuals, who hold or have held corporate office in undertakings referring to the AFEP-MEDEF Code, including the Chairman, and four qualified individuals representing investors, chosen for their expertise in legal or ethical matters. All members are appointed for a three-year term, renewable once.

The Middlenext Code  also refers to the principle, specifying however that the choice between the two options (comply or explain) does not entail any value judgment as to the quality of the governance arrangements put in place within the company. In effect, a good explanation will have exactly the same impact as literal compliance with the code's suggestions, since the Code merely puts forward proposals that may not be appropriate for every undertaking. It adds that to explain in a detailed and relevant manner is equivalent to being compliant.

Directive No 2006/46/EC of the European Parliament and of the Council of 14  June 2006 amending Council Directives 78/660/EEC on the annual accounts  of certain types of companies, 83/349/EEC on consolidated accounts,  86/635/EEC on the annual accounts and consolidated accounts of banks and other financial institutions and 91/674/EEC on the annual accounts and  consolidated accounts of insurance undertakings, OJEU L 224 of 16 August 2006.

Law No 2008-649 of 3 July 2008 containing various provisions adapting company law to Community law, JORF 0155 of 4 July 2008, Art. 26 and 27

AFEP-MEDEF, Code of corporate governance for listed undertakings, Dec. 2022.

Middlenext Governance Code, Issue No. 14, September 2021.

Compliance

147. Comply or explain

Demandez un accès gratuit
au contenu exclusif Livv – juristes d’entreprise

Les notions juridiques connexes

147. Comply or explain

Demandez un accès gratuit au contenu exclusif Livv – juristes d’entreprise

Les notions juridiques connexes

Demandez un accès gratuit
au contenu exclusif Livv – juristes d’entreprise