Order ECC/461/2013 Determining the Content and Structure of the Annual Corporate Governance Report, Annual Remuneration Report, and Other Disclosure Instruments for Listed Companies and Savings Banks

OFFICIAL STATE GAZETTE No. 71 Saturday, March 23, 2013 Sec. I. Page 22957 I. GENERAL PROVISIONS MINISTRY OF ECONOMY AND COMPETITIVENESS 3212 Order ECC/461/2013, of March 20, determining the content and structure of the annual corporate governance report, the annual remuneration report, and other disclosure instruments of listed joint-stock companies, savings banks, and other entities issuing securities admitted to trading on official securities markets. (Modified by Order ECC/2515/2013, of December 26, and by Order ECC/2575/2015, of November 30).

Corporate governance regulations have undergone substantial evolution in recent years, both at the Community level and within the national scope. Their relevance and utility in ensuring the proper functioning of markets have led public authorities to increase and refine existing obligations in this matter, which has included, among other actions, the approval of the Unified Code of Good Governance for listed joint-stock companies.

Both Law 2/2011, of March 4, on the Sustainable Economy, and Royal Decree-Law 11/2010, of July 9, on governing bodies and other aspects of the legal regime of Savings Banks, have proceeded to modify the existing legal regime, imposing new corporate governance obligations on listed joint-stock companies and savings banks, respectively.

The approval of these norms entails the need to review currently existing regulatory provisions in order to adapt them to the new obligations introduced by legislation, which constitutes the main purpose of this ministerial order.

This review primarily affects listed joint-stock companies and savings banks, without prejudice to the fact that provisions are also included regarding other entities issuing securities admitted to trading on official securities markets.

Regarding listed joint-stock companies, Law 2/2011, of March 4, on the Sustainable Economy, has reformed Law 24/1988, of July 28, on the Securities Market, carrying out the repeal of its Article 116, which contained regulations on the annual corporate governance report of listed joint-stock companies, as well as the incorporation of a new Chapter VI titled "On the Annual Corporate Governance Report." This new chapter consists of two articles, 61 bis and 61 ter, which contain provisions relating to the annual corporate governance report and the annual remuneration report of directors, respectively.

The already repealed Article 116 of Law 24/1988, of July 28, was developed by Order ECO/3722/2003, of December 26, on the annual corporate governance report and other disclosure instruments of listed joint-stock companies and other entities, which specified the structure the annual report should have.

The repeal of Article 116 of Law 24/1988, of July 28, as well as the approval of the Unified Code of Good Governance, makes it necessary to adapt Order ECO/3722/2003, of December 26, to the new existing regulations.

Articles 61 bis and ter of Law 24/1988, of July 28, allow for the regulatory development of these provisions to be carried out by the Minister of Economy and Competitiveness or, with prior authorization from the Minister, by the National Securities Market Commission (CNMV).

Regarding savings banks, Royal Decree-Law 11/2010, of July 9, on governing bodies and other aspects of the legal regime of Savings Banks, introduces a new Article 31 bis into Law 31/1985, of August 2, on the Regulation of Basic Rules on Governing Bodies of Savings Banks, concerning the corporate governance report, which replaces the previous wording.

The development of the previously existing regulations was carried out by Order ECO/354/2004, of February 17, on the Annual Corporate Governance Report and other information of Savings Banks issuing securities admitted to trading on Official Securities Markets.

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Article 31 bis of Law 31/1985, of August 2, empowers the Ministry of Economy and Competitiveness to determine the content and structure of the annual corporate governance report of savings banks, and, with its express authorization, the National Securities Market Commission in the case of savings banks issuing securities admitted to trading on official securities markets.

Taking the above into account, and in order to better organize the subject matter, the regulations developing the obligations relating to the corporate governance report of both listed joint-stock companies and savings banks and other entities are grouped into a single ministerial order.

For its part, Article 61 ter of Law 24/1988, of July 28, in the wording given by Law 2/2011, of March 4, provides that savings banks must prepare an annual report on the remuneration of the members of the board of directors and the supervisory board, so that with this order, the information obligations regarding this matter are developed jointly for listed joint-stock companies and savings banks.

However, the regulation contained in this order is not limited to provisions relating to listed joint-stock companies and savings banks, as it must be recalled that the third additional provision of Law 26/2003, of July 17, modifying Law 24/1988, of July 28, and the consolidated text of the Joint-Stock Companies Act approved by Royal Legislative Decree 1564/1989, of December 22, with the aim of strengthening the transparency of listed joint-stock companies, refers to the corporate governance report of other entities issuing securities traded on official securities markets, which was developed by Order ECO/3722/2003, of December 26, on corporate governance of listed companies.

As long as the third additional provision maintains its wording, its development is also incorporated into this ministerial order in terms similar to those previously existing.

Finally, this ministerial order, in line with what is provided in Order ECO/3722/2003, of December 26, contains a provision relating to the disclosure instruments and relevant information of listed companies and savings banks, in accordance with what is provided in Article 82, paragraphs 5 and 2, of Law 24/1988, of July 28, as well as in Article 539, paragraphs 3 and 5 of Royal Legislative Decree 1/2010, of July 2, approving the consolidated text of the Capital Companies Act. Under this authority, the obligation to publish relevant information on the website is developed.

Regarding the structure of the order, the norm consists of thirteen articles grouped into four chapters. The first includes general provisions, introducing a principle of transparency that will inform the disclosure duties developed in the order. The second chapter refers to the annual corporate governance report of listed joint-stock companies, savings banks, and other entities.

Regarding listed joint-stock companies, the existing scheme in the previous order is maintained, although the elements that must form part of the minimum content of the corporate governance report are expanded by incorporating information on securities not traded on a regulated Community market, information relating to the rules applicable to the modification of the company's bylaws, restrictions on the transferability of securities, and any restriction on the right to vote, among other aspects.

Regarding savings banks, the order maintains much of the content of the previous order, although there are relevant novelties, the main one being that, from now on, the corporate governance report must be prepared by all savings banks, and not only by those that have issued securities admitted to trading on official securities markets, as was collected in Law 26/2003, of July 17.

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Likewise, a reference is introduced into the order, in accordance with Royal Decree-Law 11/2010, of July 9, to the different commissions, such as the remuneration and appointments commission or the social work commission, which, in accordance with savings bank regulations, form part of the structure of these entities, as well as provisions relating to conflicts of interest and the description of the main characteristics of internal control systems and risk management.

It should be highlighted that an express obligation to report on measures that entities may have adopted, where applicable, to promote the inclusion of female directors on boards of directors has been introduced in the articles of this order. These provisions do not impose an obligation to adopt such measures, but simply to communicate whether the entity has opted to adopt them or not, and if so, to describe them.

Chapter III refers to the annual remuneration report of directors of listed joint-stock companies and savings banks. This chapter develops what is provided in Article 61 ter of Law 2/2011, of March 4, and contains provisions on the structure and content that the annual remuneration report of directors of listed joint-stock companies and savings banks must have.

Like the corporate governance report, the annual remuneration report will be considered a relevant fact and must be submitted to the National Securities Market Commission.

The aim of this order is to have transparent information on the remuneration of directors, regardless of the form it takes, and on how companies and savings banks link remuneration policy to the long-term proper functioning of the company.

Chapter IV of the ministerial order contains a provision relating to the disclosure instruments of listed companies and savings banks, indicating the relevant information that must be included on their websites.

Finally, the ministerial order includes an additional provision relating to the corporate governance and remuneration reports of savings banks that do not issue securities admitted to trading on official securities markets and savings banks that carry out their business as a credit entity through a banking entity, three transitional provisions, one repealing provision, and three final provisions, one of which establishes a regulatory authorization for the National Securities Market Commission to detail what is established in the order.

By virtue thereof, in accordance with the Council of State, I order:

CHAPTER I General Provisions

Article 1. Purpose. This order has the following purpose: a) Determine the structure and minimum content of the annual corporate governance report of listed joint-stock companies, and of savings banks and other entities issuing securities admitted to trading on official securities markets. b) Determine the structure and minimum content of the annual remuneration report of directors of listed joint-stock companies and of the members of the board of directors and the supervisory board of savings banks. c) Develop the obligations relating to other disclosure instruments of listed joint-stock companies and savings banks issuing securities admitted to trading on official securities markets.

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Article 2. Principle of informative transparency. The information to be included in the annual corporate governance report and in the annual remuneration report of the entities obliged by this order must be clear, complete, and truthful, and may not include information that could mislead or confuse the investor in order to form a well-founded judgment of the entity.

Article 3. Method of submission of the annual corporate governance report and the annual remuneration report. For dissemination, the annual corporate governance report and the remuneration report shall be submitted electronically through the CIFRADOC/CNMV system or another similar system established by the CNMV, where applicable.

However, and at the request of the company or issuing entity, the CNMV may exceptionally authorize, for justified causes, that the annual corporate governance report and the annual remuneration report be submitted in paper format and in the model appropriate in accordance with what is established by the CNMV.

Article 4. Responsibility for the annual corporate governance report and the annual remuneration report. The responsibility for the preparation and content of the information in the annual corporate governance report and the annual remuneration report lies with the governing body of the entity.

CHAPTER II Annual Corporate Governance Report of Listed Joint-Stock Companies, Savings Banks, and Other Entities

Article 5. Annual Corporate Governance Report of Listed Joint-Stock Companies. The annual corporate governance report shall have the following minimum content:

1. Ownership structure of the company. Within this heading, the following information shall be included at least: a) Identity of shareholders holding significant participations, direct, indirect, or by virtue of agreements or arrangements between shareholders, in accordance with what is established in Royal Decree 1362/2007, of October 19, developing Law 24/1988, of July 28, on the Securities Market, regarding transparency requirements relating to information on issuers whose securities are admitted to trading on an official secondary market or another regulated market of the European Union, along with the respective shareholding percentages held by each holder of significant participations.

In any case, both the legal ownership of the shares and the voting rights enjoyed by virtue of any title shall be taken into account.

b) Relationships of a family, commercial, contractual, or corporate nature that exist between the holders of significant participations and the company, or between the holders of significant participations among themselves, to the extent that they are known by the company, unless they are of little relevance or derive from the ordinary course of business.

c) Form of representation on the board by shareholders with significant participations.

d) Identification of the shareholdings held by members of the board of directors in the listed company, both in aggregate and individually.

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In any case, both the legal ownership of the shares and the voting rights enjoyed by virtue of any title shall be taken into account.

e) Indication of the existence of shareholders' agreements communicated to the company itself and to the National Securities Market Commission and, where applicable, deposited in the Commercial Register, specifying the identity of the shareholders linked by the agreement and the content thereof subject to communication, publication, and registration.

f) Information on securities not traded on a regulated Community market, indicating, where applicable, the different classes of shares and, for each class of shares, the rights and obligations conferred.

g) Specification of the percentage of treasury shares held by the company at the end of the last financial year, along with significant variations experienced by the treasury shares, in accordance with what is provided in Royal Decree 1362/2007, of October 19.

h) Any restrictions on the transferability of securities and any restrictions on the right to vote.

In particular, the existence of any type of restrictions that could hinder the takeover of the company through the acquisition of its shares in the market shall be communicated.

2. Functioning of the general meeting and development of its sessions. Within this heading, the following information shall be included at least: data on attendance at the general meeting of the reporting year and previous general meetings, existence of statutory restrictions establishing a minimum number of shares to attend the meeting, as well as the address and mode of access to the company's website for information on corporate governance and shareholders' rights.

The existence of reinforced voting quorums for certain types of decisions, above legal standards, shall also be communicated.

Information relating to the rules applicable to the modification of the company's bylaws.

In particular, the majorities provided for the modification of the bylaws and, where applicable, the rules provided for the protection of shareholders' rights in the modification of the bylaws shall be communicated.

It shall also be indicated whether it has been agreed that certain decisions involving a structural modification of the company be submitted to the approval of the shareholders' general meeting, even if commercial laws do not expressly require it.

3. Structure of the company's administration. Within this heading, the following information shall be included at least:

a) Board of Directors: Composition of the board of directors. It shall reflect the number, identity, and participation in the capital of the members of the board of directors, as well as their status. In any case, it shall be indicated whether the members are executive or non-executive directors, and among non-executive directors, the members who have the status of shareholder directors or independent directors shall be identified, in accordance with the definitions established in this order and, failing that, with the good governance recommendations. Next to the identity of each director, the position or positions held within the board of directors, the board's commissions, and the company's organizational chart, where applicable, shall be indicated.

In the event that a director classified as independent is in the situation described in letters b) or e) of Article 8.4 of this order, a reasoned declaration by the board regarding the reasons why it considers that such director can perform their functions as an independent director shall be included.

The composition of the different commissions of the board of directors shall be indicated, specifying the proportion of shareholder and independent directors comprising them.

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Rules of organization and functioning of the board of directors. The structure of the board of directors, procedures for the selection, appointment, and removal of directors, and of the corresponding commissions with their rules of organization and functioning, competencies reserved by the board for approval, and the existence of delegation of powers to directors or commissions, where applicable, shall be indicated. The existence of the board of directors' regulations and, where applicable, the regulations of the commissions of said board, the location where they are available for consultation, and any modifications made to them shall be indicated.

It shall be indicated whether the board of directors has proceeded in the corresponding year to carry out an evaluation of its activity, indicating in that case to what extent the self-evaluation has led to significant changes in its internal organization and on the procedures applicable to its activities.

b) Members of the board of directors: Remuneration of the members of the board of directors. The total remuneration of the board of directors shall be included. For these purposes, in any case, the amount of salaries, fees, and remuneration of any kind, including in-kind remuneration, accrued during the financial year by the members of the governing body, regardless of their cause, shall be understood to be included within the remuneration, as well as obligations undertaken by the company and rights accumulated by the director regarding pensions or payment of life insurance premiums with respect to former and current members of the governing body.

Indication of directors who have been appointed on behalf of holders of significant participations, or whose appointment has been promoted by holders of significant participations, or linked to shareholders with significant participations, specifying the nature of the relationships linking them to the holders of significant participations.

Indication of the existence and identity of members of the board of directors who are, in turn, members of the board of directors of companies holding significant participations in the listed company. It shall also be indicated the existence and identity of directors who hold positions as administrators or executives in other companies that are part of the group of the listed company.

c) Powers of the members of the board of directors: Information on the powers of the members of the board of directors and, in particular, those relating to the possibility of issuing or repurchasing shares.

d) Significant agreements: Information on significant agreements entered into by the company that enter into force, are modified, or conclude in the event of a change of control of the company resulting from a public takeover bid, and their effects, except where their disclosure would be seriously detrimental to the company. This exception shall not apply when the company is legally obliged to publish this information.

e) Indemnity agreements: Detailed information on agreements between the company and its administrative and management officers or employees that provide for indemnities when they resign or are dismissed without cause, or if the contractual relationship with the company ends due to a public takeover bid or other type of transaction.

f) The annual corporate governance report shall include information relating to the number of female directors comprising the board of directors and its commissions, as well as the status of such female directors; all of this with indication of the evolution of this composition over the last four years.

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