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

Most of the major industry or professional codes devote considerable space to the central issue of the loyalty of directors, in order to ensure that they do not place their own interests ahead of those of the undertaking.
In its summary report , the IFA states that corporate board members must act in good faith in all circumstances, refraining from using, for their personal gain or the gain of anyone else, inside information that they may come into possession of in the course of their duties. They must avoid any conflict between their own interests and those of the undertaking. According to the IFA, a conflict of interest arises from a situation in which a board member privately holds or serves interests that could affect his objectivity in the performance of his duties. The private interest is alien to that of the undertaking. It may be direct, i.e. personal, or indirect, i.e. benefiting close relations. And it may be material or immaterial.

Where a board member encounters a conflict of interest, it may be described as: 
- potential, when a change in the situation, either of the director or his environment, or of the undertaking, could, in the future, create a situation of conflict of interest;

 - perceived or apparent, when the situation of conflict of interest appears to well-informed third parties to be of such a nature as to influence the performance of the board member's duties;

- concrete or real, when the exercise of his/her rights and powers has been or will clearly be influenced by the existence of private interests, in violation of the company's interests.

The IFA draws up a list of board members who appear to be more exposed than others to the risk of conflicts of interest. They include:

- board members expressly appointed by one or more shareholders, in particular under a shareholders' agreement;

- permanent representatives of board members who are “subject to the same conditions and obligations and incur the same civil and criminal liability as if they were board members in their own right" ;

- those who are employees or who represent employee shareholders;

- board members appointed on the basis of their personal status, but who are employees or representatives of an entity with a significant actual or potential business relationship with the undertaking.

The IFA gives recommendations for limiting such conflicts of interest as far as possible, focusing on three key areas: prevention, management and reporting.

The first, preventive step is to identify situations of conflict of interest. The implementation of the duty to disclose potential conflicts of interest must be described in the undertaking's internal regulations and/or the Charter of the Board of Directors. The IFA recommends that a “declaration on honor” be signed on taking office, to be renewed each year, and that a contact person be designated to receive declarations and spontaneous referrals during the year, with a level of independence and authority enabling him or her to decide on the measures to be taken. These conditions may be met by the Chairman of the Board of Directors, the Vice-Chairman, the lead board member or the Appointments and Governance Committee. The secretary of the Board may also be assigned the role of custodian of the declarations and their updating. As regards the frequency and content of declarations, the IFA considers that, as the duty of loyalty applies throughout a board member's agency agreement, including prior to appointment, a declaration of interests should be drawn up as soon as the board member is selected. Then, when the board member takes up his or her duties, a declaration must be made on his or her honor, or simply confirming that their situation has not changed since being selected. The declaration must take into account the various situations likely to give rise to a conflict of interest, rather than being a simple negative confirmation of a general nature. Lastly, a confirmation or update must be drawn up annually by each board member. In addition to the declaration of interests, a declaration is also required under the regulated agreements procedure set out in Articles L. 225-38 et seq. of the Commercial Code, it being remembered that the initiative lies with the board member concerned .

The second step -management, is when the designated person (Chairman, Vice-Chairman or Board Member) or body (Nominations Committee) deals with potential, apparent or actual conflicts of interest. This includes : ensuring that internal control procedures are working properly, in particular the reporting system set up within a group to deal with business ethics and conflicts of interest; providing clear answers to declared situations of conflict; assessing whether the act, which tends to satisfy personal interests, gives the person concerned an advantage and has a detrimental effect on the undertaking; to confirm to the interested party the need, where applicable, to abstain from participating in the discussions and any decisions (abstention from voting) on the deliberations concerned; and to familiarize themselves in advance with information intended for publication concerning agreements (current or regulated), directorships and functions exercised by board members, and the list of related parties. However, it is not responsible for systematically investigating undisclosed situations or secret agreements.

The process concludes with a reporting phase. Firstly, the Chairman of the Board, the Vice-Chairman, the lead board member or the Chairman of the Nominating and Governance Committee must report to the board on their work in identifying and dealing with conflicts of interest. nd then, any decision by the board on the issue of conflicts of interest concerning one or more of the company's board members must be recorded in the minutes, which should mention any abstention from voting by one or more board members, or the fact that the board has decided that there are no conflicts of interest. Legally, the minutes constitute proof of disclosure of the existence of a potential conflict of interest, and represent a safeguard for the board member concerned. Finally, with the same objective of transparency, the Chairman's report on the work of the Board of Directors of a listed company should state that no conflict of interest has been identified or, where applicable, that the detection of such a conflict has given rise to appropriate treatment, without indicating the persons concerned. However, this disclosure could be limited to the number of declarations made, the conflicts of interest revealed and any decisions taken.
The IFA stresses that, in addition to their duty of loyalty and transparency, all board members have a duty of care (“devoir de vigilance”) with regard to situations of conflict of interest which may not be disclosed by their colleagues. To this end, he or she must use the means of information that the company is obliged to make available, without undermining the necessary cohesion of the board by creating a climate of suspicion.

Thus, in the event of the incorporation of a public limited company with a public offering, when the meeting deliberates on the approval of a contribution in kind or the granting of a special benefit, the shares of the contributor or beneficiary are not taken into account for the calculation of the majority . In the event of a conflict of interest, the IFA charter recommends that the board member abstain from taking part in debates and decisions on all matters affected by the conflict. The law also provides for the withdrawal of voting rights in several cases where the exercise of such rights may give rise to a conflict of interest.

The contributor or beneficiary has no voting rights either for himself or as a proxy . Similarly, when a regulated agreement between the undertaking and one of its directors is submitted to the Annual General Meeting for approval, the person concerned may not take part in the vote, and his or her shares are not taken into account when calculating the quorum and majority . Similarly, when the company, within two years of its registration, acquires an asset belonging to a shareholder, the value of which is at least equal to one tenth of the share capital, the vendor is not entitled to vote either for himself or as an agent at the Ordinary General Meeting called to rule on the valuation of the asset . Lastly, the undertaking cannot validly vote with shares it has subscribed, acquired or pledged. Such shares are not taken into account when calculating the quorum .

The Middlenext Code also specifies that it is the responsibility of the Chairman of the Board to assure stakeholders that conflicts of interest do not exist or, if they do, that the persons concerned have either abstained or left the room to avoid any influence on decision-making .

The same concerns are expressed by the AFEP-MEDEF Code. It has been ruled, in application of its principles, that the board members of a company adhering to the AFEP-MEDEF Code, who are also directors of companies likely to benefit, either definitely or potentially, from the industrial and commercial spin-offs of a project submitted to their vote within the first undertaking, are in a situation of conflict of interest, if they have an interest likely to influence or appear to influence their impartiality. In this respect, the court makes some important clarifications. Firstly, it is not necessary, in order to characterize a situation of conflict of interest, for the interests in question to be opposed. In effect, such a situation can be characterized even if the interests of the two undertakings of which the same person is a director are in phase. Secondly, while it is desirable that the member of the board should not take part in the vote, non-compliance with this recommendation is not punishable, especially as a resolution of the Annual General Meeting can only be overturned on the grounds set out in Book II of the Commercial Code, or for breach of contract .

Summary by the IFA's Ethics Committee, Board members and conflicts of interest.

Commercial Code, Art. L. 225-20: “The interested party is required to inform the Board as soon as he is aware of an agreement to which Article L. 225-38 is applicable.”

Commercial Code, Art. 225-40 and L. 225-88.

T. com.  Paris, 7 February 2017, LawLex202300011521JBJ.

143. Personal vs professional interests