Amendments to the Greek Corporate Governance Law (Law 3016/2002): the emerging framework

International developments in the field of corporate governance, in conjunction with notable governance failures in Greek companies whose securities are admitted to trading on a regulated market (“listed companies”), which have been identified as one of the reasons of the Greek capital market's underperformance during the last several years, prompted the Hellenic Capital Market Commission (HCMC), as the authority in charge of overseeing these companies, to lead the institutional efforts for the revision of Corporate Governance Law ((Law 3016/2002) Gov. Gazette A’ 110/17.05.2002)).

Against this backdrop, the revised Corporate Governance Law is expected to go through the regular legislative procedure in Q1 2020. The new Law, when enacted, will bring about significant changes in the corporate governance arrangements of the Greek listed companies, in addition to other major legislative changes that had a bearing on the governance landscape of Sociétés Anonymes ((i.e. Law 4548/2018 (Gov. Gazette Α’ 104/13.06.2018)).

Law 3016/2002 laid down fundamental corporate governance obligations for listed companies and was intended to force transparency and investors’ confidence. The main obligations introduced by Law 3016/2002 are related to the composition of the Board of Directors (BoD), non-executive directors’ remuneration, internal audit function, and share capital increase. The Hellenic Capital Market Commission is entrusted with the power to impose administrative sanctions in case of certain provisions’ breaches.  

The main changes that the revised Law is expected to bring about are as follows:

•                    Major changes are introduced in relation to BoD composition. More specifically, the independence criteria for independent non-executive Board members will be tightened leading to a larger number of cases falling within “relation of dependence” scope. In addition, the number of independent directors is expected not to be lower than one third (1/3) of the total number of Board members. Furthermore, the revised Law will set forth a number of safeguards for the participation of independent non-executive directors in Board meetings – especially for significant agenda items.

•                    The introduction of a Nomination and Remuneration Committee at BoD level, whose members will be independent so that the committee can be more efficient by operating on a truly independent basis.

•                    The strengthening of the powers of the internal audit function (in addition to those already in force by Law 4449/2017 (Gov. Gazette A’ 7 / 24.01.2017) and Regulation (EU) No 537/2014 (Audit Regulation).

•                    Extension of the scope of sanctions regime, which will become stricter covering more provisions of the revised Law.

•                    The reform of BoD Members' replacement procedures, based on detailed rules, will address the problems that arose with the way in which several BoD members (executive, non-executive, and independent) were replaced in practice.

•                    The contents of the company’s Internal Regulation are expanded covering a wide range of topics, such as the company’s remuneration policy (Arts. 110 and 111 of Law 4548/2018), information on the internal control system’s assessment, information on compliance, ethics, conflicts of interest and anti-bribery management, nomination criteria for BoD members, etc.

•                    Additional transparency requirements are also introduced; in the event of unauthorized disclosure by a third party, which could have a significant effect on the price of relevant financial instruments, the company will be required to confirm the truth and accuracy of this information or, conversely, should the relevant information be false or inaccurate, deny it.

Of great interest will also be the stance of the Greek legislator on the combination of the roles of the Chairperson of the Board and the Chief Executive, taking into account that good governance practices dictate (in particular for larger companies) that the responsibilities of the Chairperson should be clearly distinguished from those of the Chief Executive, or, where a company chooses to combine the above roles, the Board should appoint an independent Vice-Chairperson from among its independent Board members.

The aforementioned changes, which are subject to their formal enactment by the Hellenic Parliament, will have a considerable impact on listed companies’ internal governance arrangements. To this end, in-scope companies should adopt a holistic approach; corporate governance changes set out in the revised Law should be viewed in conjunction with the related provisions of Law 4548/2018 (in particular those transposing Directive (EU) 2017/828 (Shareholder Rights Directive)), the new audit legislation (Law 4449/2017 and Regulation (EU) No 537/2014, and, existing best practices (e.g. Hellenic Corporate Governance Code).

Most importantly, the new governance arrangements to be put in place by companies should not only be limited to developing or updating the required documentation (e.g. Corporate Governance Code, Committees’ Charters, Internal Regulation, relevant policies & procedures, and reports). Besides, emphasis should be placed on the formulation of governance rules, principles and controls that, in addition to being appropriate for the specific circumstances prevailing in each company within the bounds of applicable legislation, will strive for closer engagement with the investors, and improvement of business competitiveness both in terms of internal organizational effectiveness and in terms of lower cost of capital. A suitable adjustment to the new regime will unlock further value for companies’ shareholders (and stakeholders in general).

Lastly, sound corporate governance practices can also play a beneficial role in non-listed companies’ evolution, including start-up companies, companies with one shareholder who is also the manager of the company, family-owned businesses, consortia and subsidiaries of listed companies. Some of the tangible benefits of the adoption of good governance arrangements are as follows:

•                    Improvement of company’s funding prospects, as the ensuing transparency regarding everything of interest to investors, will command a lower risk premium, therefore lowering the cost of capital and equity.

•                    Reinforcement of a company’s reputation and brand awareness.

•                    More effective decision-making through the establishment of a clear delineation of roles between owners and management.

•                    More effective internal controls system through risk management and compliance practices that ensure that the company addresses potential fraud and malpractices and operates efficiently in terms of people, processes, technology and information.

Overall, good corporate governance builds trust and predictability, hence generating comfort to investors – a consideration manifest in the ESG requirements (Environmental, Social, Governance) of a growing number of investors across the world. Besides, corporate governance is one of the key considerations for a company contemplating listing.

 Νικόλαος Μουσάς: Οι αλλαγές στον νόμο για την εταιρική διακυβέρνηση

This memo is aimed at providing general information and does not constitute a comprehensive analysis of the matters set out herein or legal advice.