i Sources of law, regulation and best practice

Corporate governance rules are mainly set out in statutory provisions contained in the French Commercial Code and in recommendations contained in corporate governance codes (such as the French Association of Private Enterprises (AFEP) – Movement of French Enterprises (MEDEF) Code) – or in positions expressed by various professional bodies and associations.

Indeed, the AFEP-MEDEF Code has become a reference in matters of corporate governance. It is based on recommendations issued over the past 21 years and sets the corporate governance standards for listed companies.

ii Enforcement of the listed company regime

Besides compulsory rules, the implementation of corporate governance principles is also monitored by the French Financial Markets Authority (AMF), which publishes an annual report assessing corporate governance practices and executive directors’ compensation in listed companies.

Moreover, although corporate governance codes and the positions expressed by professional bodies or associations do not have any legal authority and are considered to be ‘soft law’, these rules are generally applied by companies. This can be explained by market pressure, since compliance with these rules is a criterion used by proxy advisers in their recommendations on how to vote on shareholders’ resolutions. Almost all large listed companies have selected the AFEP-MEDEF Code and, since its amendment in June 2013, application of the AFEP-MEDEF Code’s provisions has been monitored by the High Committee for Corporate Governance, which issued its first annual report in October 2014,2 and a guide on the application of the AFEP-MEDEF Code in December 2014.3

iii Recent developments of the corporate governance regime

In 2016, three years after the ‘say-on-pay’ procedure was added to the AFEP-MEDEF Code – and although the average rate of approval by shareholders of say-on-pay resolutions has increased from 86.7 per cent in 2015 to 90.6 per cent in 2016 for CAC40-listed companies – shareholders voted against executives’ compensation for the first time, in two companies. The decisions to reject the relevant resolutions were justified not only by the high level of remuneration granted, but also by the poor quality and insufficiency of the information provided. These negative votes and the subsequent lack of reaction from the boards of directors of the companies concerned gave rise to much debate, notably regarding the consultative nature of the say-on-pay vote, and caused the legislator to introduce, in December 2016, a say-on-pay procedure that is both mandatory and binding (see Section V.iii, infra).

Further progress has also been made in the revised AFEP-MEDEF Code of November 2016, in particular with provisions aimed at reinforcing the role of the strategy committee in listed companies, improving directors’ independence, increasing the role of corporate social responsibility (CSR) – especially concerning the environment – and laying down or clarifying the principles that apply to executive compensation (the new code now provides that the quantifiable criteria for variable remuneration must be preponderant).

In 2016, the absence of whistle-blowing procedures per se in French law led the legislator to implement a regime to protect whistle-blowers (see Section IV.ii, infra).

On 17 June 2016, new EU rules on statutory audits aiming at improving audit quality and restoring investor confidence in financial information became applicable in France.4

iv Distinctive aspects of the corporate governance regime in France

Corporate governance in France has changed considerably during the past 17 years as a result of the increase of foreign shareholdings in CAC 40-listed companies. Regulations have also been used to address market failures and restore public confidence, in particular regarding executive compensation.

In core areas, such as director independence and board committees, the French corporate governance regime is converging with existing best practices. Differences in governance structures can still be found, although the one-tier system is prevalent in France, with approximately 85 per cent of major listed companies adopting this structure.

v Recent trends

The practice of extra-financial analysis and rating has developed considerably to enable investors to include extra-financial performance of companies in their investment criteria. Extra-financial analysis organisations assess companies’ sustainable development policies to evaluate how listed companies take into account environmental, social and governance issues.

Although extra-financial analysis organisations are not regulated, a Voluntary Quality Standard for Corporate Sustainability and Responsibility Research5 has been drawn up, setting out guidelines, rules and commitments regarding the transparency, accountability and verifiability of the processes involved in extra-financial analysis. The AFEP-MEDEF Code now takes into account information on non-financial issues (see Section IV.iii, infra) while Directive 2014/95/EU dated 22 October 2015, which will soon be transposed into French law, introduced an obligation to disclose non-financial and diversity information for large companies (see Section III.iii, infra).

The level of disclosure of financial information has been increasing, particularly regarding remuneration policy, under pressure from shareholders and proxy advisers, and after several controversies concerning executive compensation and severance packages.

Another notable trend is the preference among listed companies for the one-tier governance structure (i.e., with a single board of directors).6 Companies with a one-tier board tend to combine the positions of chair of the board and CEO. An increasing number (42.9 per cent) of CAC 40-listed companies have appointed a lead director, notably to counterbalance the concentration of power in the CEO’s hands (when he or she is also the chair of the board).7 The AFEP-MEDEF Code now provides that lead directors should be independent directors.8


i Board structure and practices

Listed companies in France may have either a one-tier governance structure comprising a board of directors in charge of the company’s general management together with a CEO (who may or may not be a director) who is the legal representative of the company; or a two-tier structure comprising a management board, whose chair is the legal representative of the company, and a supervisory board that supervises the management board and must not interfere in the management of the company.

ii Composition of the board

Under the one-tier system, the board of directors is composed of a minimum of three and a maximum of 18 members. Under the two-tier system, the supervisory board is also composed of between three and 18 members.

The percentage of women on the boards of CAC 40-listed companies has continued to rise, reaching 36.4 per cent as of December 2015, to comply with French law, according to which, by 2017, there should not be less than 40 per cent of women (or men) on boards of directors or on supervisory boards.

While French law does not provide for specific details concerning the presence of independent directors, corporate governance codes strongly recommend the appointment of a certain proportion of independent members. According to the AFEP-MEDEF Code, independent directors should account for half of the members of the board in widely held corporations that do not have controlling shareholders. In other corporations, at least one-third of the board should be composed of independent directors.9

Election of board members representing employee shareholders is an obligation in state-controlled companies, in listed companies where the employees hold more than 3 per cent of the share capital10 and in companies that employ, jointly with their subsidiaries, more than 1,000 employees in France or more than 5,000 employees worldwide, except for those that already have employee representatives on their board.11 There should be one employee shareholder representative on any board with fewer than 12 members and two on boards with more than 12 members.12

Representation and management of the company

In companies with a one-tier structure, the board of directors decides whether the management of the company is carried out by the chair of the board or by a separate CEO. The CEO has the broadest powers to represent the company and act on its behalf in all circumstances. Limitations on the CEO’s powers can be set out in the articles of association or decided by the board, but are not enforceable against third parties.

In companies with a two-tier structure, the management board is vested with the broadest powers to act in any circumstances on behalf of the company, which is represented by the chair of the management board.

Legal responsibilities of the board

In companies with a one-tier structure, the board of directors is responsible for determining the corporate strategy and supervising its implementation. It is also responsible for controlling the management of the company, for appointing and removing the chair, CEO and deputy CEOs and determining their remuneration, and for convening the shareholders’ meetings.

In companies with a two-tier structure, the supervisory board supervises the management board and carries out the verifications and inspections it considers appropriate. The supervisory board also has specific attributions, which are similar to those attributed to the board of directors.

Delegation of board responsibilities

Decisions taken by the board of directors are collective decisions and cannot be delegated to one or more specific directors or to third parties.

The board of directors or supervisory board may give specific mandates to certain members to study identified issues.

Separation of roles of CEO and chair

The chair organises the work of the board of directors and chairs the meetings. He or she also ensures that the different decision-making bodies of the company operate properly. Although it is not expressly specified as being one of his or her responsibilities, the chair can communicate directly with shareholders but will remain bound by an absolute duty of confidentiality and is thus prohibited from disclosing privileged information.

Remuneration of directors and senior management

Non-executive directors’ remuneration consists exclusively of attendance fees. Any other remuneration is prohibited, except that resulting from either an employment contract non-executive directors may otherwise have with the company for separate functions, or a special temporary assignment. The shareholders’ meeting decides the total amount of the attendance fees, but the board determines the amount allocated to each director. In accordance with the ‘duty of care’ imposed on board members, which requires assiduity and involvement, these fees usually include a variable portion that depends on attendance at board meetings and, as the case may be, committee meetings. Non-executive members may not be granted shares or share options free of charge.

Executives’ remuneration generally includes fixed and variable components and stock options or performance shares, or both. The AFEP-MEDEF Code provides that variable remuneration must be capped at a specific percentage of the fixed part, and that the chair of the board should not receive any variable remuneration, stock options or performance shares.13

When determining the overall compensation of an executive, the board of directors takes into account all components such as bonuses, stock options, performance shares, directors’ attendance fees and pension schemes.

While it is recommended that the fixed part of the remuneration is reassessed only every three years, variable remuneration and stock options or free share awards should reward both short-term and medium-term performance. Quantitative performance criteria must be simple, objective, measurable and coherent with the corporate strategy and not solely determined by stock price. Four main categories of quantitative criteria can be identified: financial ratios (notably return on capital employed), revenue growth (as well as free cash flow, operating profit, and earnings before interest, tax, depreciation and amortisation growth), increases in the share price and performance in comparison with the company’s main competitors. It also provides that quantitative performance criteria do not necessarily have to be financial criteria.14 Furthermore, the AFEP-MEDEF Code recommends that a specific cap be set for qualitative criteria.

Benchmarking with other companies operating in the same market is common, although proxy advisers tend to consider that it is not a sufficient justification.

Executives’ remuneration is decided by the board of directors or supervisory board on the recommendation of the remuneration committee. Shareholders have a consultative vote on the remuneration (see Section V.iii, infra). If the shareholders vote against the relevant resolution, the board must deliberate on the issue and publish a press release explaining its decision despite the result of the vote.

Top-hat pension plans and any commitment by a listed company to pay a termination fee to a director in the event that he or she ceases to be a director are subject to the procedure for related-party transactions, and are subject to shareholder approval upon renewal of the relevant directors’ terms of office. Also, the pension amounts paid out must be linked to performance conditions, and the increase in the amount of the beneficiaries’ rights must be capped. The French Commercial Code also prohibits remuneration, indemnities and any other kind of benefits to be paid in the event of termination of a director’s term of office, if they are not subject to conditions based on performance.

The AFEP-MEDEF Code recommends capping termination fees at a maximum of two years’ annual fixed and variable compensation, taking into account the non-compete compensation and any potential severance payment due as a result of the termination of the employment agreement if any.15


An audit committee is compulsory in listed companies, and their powers have been reinforced following the European reform of audit quality, which entered into force in France on 17 June 2016. The AFEP-MEDEF Code also recommends the creation of a remuneration committee (headed by an independent director and with one member being an employee representative)16 and a nomination committee (the two may be combined). Members of committees should be non-executives and a majority of the members should be independent (two-thirds in an audit committee, which must include a member with accounting and finance skills). Most companies also have other specialised committees dedicated to strategy, internal control, CSR, ethics, science and technology, and risks.

Board and company practice in takeovers

During a takeover bid, the board of directors may adopt any provisions to thwart the takeover, without shareholder approval, subject to the powers expressly granted to general meetings and with due regard to the company’s corporate interests. However, companies may amend their articles of association (with the shareholders’ approval) to opt out of the ability to adopt anti-takeover measures without prior shareholder approval.

iii Directors
Role and involvement of outside directors

The AFEP-MEDEF Code emphasises the importance of having a significant proportion of outside directors (or independent directors) on the board to improve the quality of proceedings. Outside directors have the same rights as other directors, but they are encouraged to play an active role and protect themselves against possible liability.

Legal duties and best practice

Directors principally have the legal duty to act in the best interests of the company and to be ‘diligent’. Pursuant to case law, other specific duties, such as the duty of loyalty or the duty of care, are also incumbent upon directors.

Civil liability

In companies with a one-tier structure, the chair of the board, CEO and members of the board of directors can be held liable in relation to the company, shareholders or third parties for any breach of laws, regulations or the company’s articles of association, as well as wrongful acts of management by directors in carrying out their duties. Breach of the duty of loyalty is also recognised by case law.

If a wrongful act is committed, the CEO and directors may only be held liable if it can be proved that a loss has been suffered and that there is a direct causal link between the loss and the wrongful conduct. This civil action may be brought:

  • a by the company, either acting directly through its legal representatives, or through a derivative action called an ut singuli action, which is exercised by a shareholder acting on behalf of the company; or
  • b by a third party (e.g., creditors or employees) or shareholders (who are distinct from third parties), if the loss suffered is distinct from that suffered by the company. Whereas actions brought by third parties require that the wrongful act be deemed to be unrelated to the directors’ duties (traditionally defined as wilful misconduct that is particularly serious and incompatible with the normal exercise of duties), actions brought by shareholders, following a decision of the French Supreme Court,17 do not require that this condition be met.

In the case of insolvency of a company, directors who have committed acts of mismanagement can be held liable for all or part of the company’s debts.

In companies with a two-tier structure, the same rules apply to members of the management board. While members of the supervisory board cannot be held liable for mismanagement, they can be held liable for negligent or tortious acts committed in the performance of their duties, and may be held civilly liable for criminal offences committed by members of the management board if, although aware of the offences, they did not report them to the general meeting.

Criminal liability

The chair of the board, CEO, members of the board of directors or members of the management board and the supervisory board can be sentenced to five years’ imprisonment or ordered to pay a fine of €375,000, or both, for having:

  • a distributed sham dividends in the absence or on the basis of false inventories;
  • b published or presented to the shareholders annual accounts not providing, for each financial year, a fair representation of the results of the operations; or
  • c directly or indirectly used the company’s assets, in bad faith, in a way that they know is contrary to the interests of the company, for personal purposes.
Appointment and term of office of directors

Members of the board of directors or supervisory board are appointed by the ordinary general meeting of the shareholders. Under certain circumstances, the board of directors may appoint new members by co-optation, subject to the shareholders’ meeting subsequently ratifying the appointments.

Directors are appointed for a term set out in the articles of association, up to a maximum of six years (four years in the two-tier system). In practice, because of the influence of the AFEP-MEDEF Code, the four-year term of office is prevalent. Re-election is possible, and 92.4 per cent of the companies listed on the SBF Index rotate renewal of the terms of office to avoid replacement of all directors at the same time. The office of members of the board of directors can in any event be terminated upon a decision by a shareholders’ meeting at any time, without specific reason (ad nutum).

Specific requirements include:

  • a In the absence of an express provision in the articles of association, directors over 70 may not represent more than one-third of the members of the board.
  • b Employees may be appointed as board directors only if their employment contract corresponds to actual duties performed for the company and as long as the employee-director remains in a position of subordination in relation to the company. The number of directors with an employment contract cannot exceed one-third of the entire board.
  • c To guarantee the availability of directors, French law prohibits members of boards of directors or supervisory boards of listed companies from simultaneously holding more than five directorships.18 The AFEP-MEDEF Code now recommends setting this limit at three directorships for executive directors. Furthermore, a recent order dated 20 February 2014 provides that executives of credit institutions and investment companies cannot hold more than three offices as executive director and more than four offices as board member.

Members of boards of directors are no longer required to hold a specific number of shares, unless this condition is provided for in the company’s articles of association. The AFEP-MEDEF Code, however, provides that directors should be shareholders and hold a fairly significant number of shares fixed by the articles of association or the board’s internal rules.

Conflicts of interest of directors

French law and corporate governance codes require that directors must inform the board of directors of any conflicts of interest, whether actual or potential, and should abstain from voting on such matters.

Under French law there are also some prohibitions or specific procedures for related-party transactions, which can create a conflict of interest: directors are prohibited from contracting loans from the company or arranging for the company to act as guarantor in respect of their obligations. Also, to be valid, any significant transaction between the company and one of its executives or directors, a direct or indirect shareholder holding more than 10 per cent, or another company having executives or directors in common, must receive prior authorisation from the board (without the directors concerned voting), while grounds for approving related-party transactions must be detailed and re-assessed annually. Related-party transactions entered into between a parent company and a wholly owned subsidiary are no longer subject to the authorisation procedure. Finally, specific information must be given to shareholders regarding agreements entered into between a subsidiary of a company and a director or major shareholder of the parent company. The AFEP-MEDEF Code provides that the internal rules of the board should set out provision on the prevention and management of conflicts of interest.19

The auditors present a report on the authorised transactions to the shareholders’ meeting, and the shareholders vote on them. If a transaction is not approved by the shareholders, the interested party and the directors can be held liable for any adverse consequences of the transaction for the company.


i Financial reporting and accountability

Reporting of financial information required by French law for listed companies is subject to regulations that distinguish between ‘periodic information’ and ‘ongoing information’.

Periodic information is information provided by listed companies at regular intervals. Most notably, this includes the requirement to disclose an annual financial report, a half-yearly report and quarterly financial information.

Ongoing information is information published by listed companies to notify the public without delay of all information likely to have a material impact on the share price. It also includes disclosures related to the crossing of thresholds or share transactions carried out by an issuer’s executives or board members.

Compliance with corporate governance is mentioned in the report on internal control, risk management and the preparation and organisation of the board’s work, which is issued by the chair of the board every year.

ii Auditors’ role, authority and independence

External auditors are required to audit the company’s accounting documents and check whether the accounting principles applied in the company comply with the applicable accounting standards. They certify that the annual or consolidated accounts give a true and fair view of the financial situation of the company. They draft a general report on the accounts, as well as special reports on specific corporate transactions (share capital increases, contributions in kind, related-party transactions, etc.), which are presented to the annual general meeting of the shareholders.

They are also required to draft a report on internal control and risk management, in which they present their observations on the report prepared by the chair on internal control and risk management. Many listed companies also ask their auditors to prepare specific reports on corporate social responsibility matters. The reform regarding auditing, which transposed Directive 2014/56/EU, was adopted in France on 17 June 2016. It features mandatory statutory auditor rotation and enhanced transparency and reporting requirements by audit firms (including a detailed report to shareholders, a report intended for the audit committee and a report for the authorities on any irregularities). It also establishes a list of non-audit services that cannot be provided by the statutory auditor or audit firm to the audited entity, imposes limitations on the fees charged for non-audit services20 and enhances the role of the audit committee.

iii Corporate social and environmental responsibility (CSR)

Over the past few years, CSR has been increasingly taken into account in the corporate governance of listed companies.21 As no reference guide regarding this matter existed, in 2014 the MEDEF issued its first guide on CSR initiatives to support the sharing of best practices.22 Furthermore, the government issued a report on CSR,23 providing advice to reinforce the involvement of companies in CSR issues, and launched a CSR Platform, a think-tank supervised by the French Prime Minister. In November 2013, in the context of a draft European Directive24 suggesting that non-financial reporting should be mandatory, the AMF issued its first report25 on how listed companies disclose information on CSR. It concluded that, even though efforts had been made, there was still room for improvement, and issued a series of recommendations. Directive 2014/95/EU of the European Parliament dated 22 October 2015 introduced an obligation to disclose non-financial and diversity information for large companies. The upcoming transposition of this text will require changes to French legislation by making disclosure of this information mandatory for large companies. In the future, companies will have to explain the environmental and social risks related to their activities and how they intend to manage these risks.


i Risk management

French listed companies must set up a special risk committee, known as the ‘audit and risks committee’, which is responsible for issues relating to internal control and risk management.

ii Compliance policies and whistle-blowing

Prior to the entry into force of the ‘Sapin II Law’ dated 11 December 2016, there were no whistle-blowing procedures per se in French law, even if several rules provided for alert procedures in, for example, the fields of labour law (in cases of discrimination or harassment) and banking (in cases of money laundering suspicions). External auditors are also required to inform the board of any irregularities found during their audit.

The Sapin II Law, in addition to this patchwork of different regimes, has introduced legal protection for whistle-blowers, in both public and private organisations, for any alerts in any field when there is a threat to public interest.26 Whistle-blowers are granted immunity from criminal liability under certain conditions.27

iii Corporate social responsibility

Corporate social responsibility has been progressively taken into account under French law.28

In particular, French listed companies are obliged to publish data in their management report ‘on the way they take account of the social and environmental consequences of their activity as well as on the company’s undertakings in favour of sustainable development and the fight against discrimination and the promotion of diversity’.29 They should also mention any non-financial key performance indicators, if applicable.30

The AMF also recommends31 that French listed companies draw up a list of the types of industrial and environmental risks and provide a description of material risks to which they are exposed as a result of their business activities and characteristics.

CSR was specifically introduced into the AFEP-MEDEF Code in the update of November 2016. The AFEP-MEDEF Code now provides that the board of directors should be informed of the main CSR issues regarding the company,32 and that the shareholders and investors should be informed of the significant non-financial issues for the company.33


i Shareholder rights and powers
Equality of voting rights

The French Commercial Code lays down a principle of proportionality of voting rights, according to which voting rights attached to capital or dividend shares must be in proportion to the share of the capital they represent. However, it provides for the following exceptions:

  • a shares that are fully paid up and that have been registered in the name of the same shareholder for at least two years are automatically granted double voting rights, unless the articles of association provide otherwise following a shareholder decision. (Nonetheless, it appears that a large number of companies have opted out and maintained the ‘one share one vote’ principle, in accordance with proxy advisers’ recommendations);
  • b the voting rights attached to preference shares can be suspended or cancelled; and
  • c limitation of voting rights – for example, a potential target’s articles of association may include a provision limiting the number of votes that may be exercised by a single shareholder, regardless of the number of shares held. Under AMF rules, however, these voting right limitations will be inoperative where a party acquires two-thirds or more of a target’s outstanding share capital or voting rights through an offer.
Powers of shareholders to influence the board

Shareholders’ rights regarding corporate governance are in practice very limited. Their only means of action is in exercising their voting rights at shareholders’ meetings on the appointment or dismissal of board directors and on related-party transactions. They may also express their opinion regarding directors’ compensation by casting an advisory vote at the general meeting. When they represent a certain percentage of the share capital, they can propose their own candidates to the shareholders’ meeting. In addition, the shareholders’ meeting can decide at any time to replace the board. The shareholders may also put questions to the board on corporate governance matters, which the board must answer at the shareholders’ meeting or request, in court, the appointment of an expert who will present a report on a specific transaction. Finally, decisions or actions of the company violating mandatory provisions relating to remuneration and related-party transactions may be cancelled at the request of a shareholder.

Decisions reserved to shareholders

Decisions reserved to shareholders are those that fall within the ambit of the ordinary or extraordinary general meetings of the shareholders. Ordinary general meetings of the shareholders may notably decide on the approval of the annual accounts, appointment and dismissal of directors or members of the supervisory board, appointment of auditors, approval of related-party transactions, etc. Extraordinary general meetings of the shareholders can amend the articles of association of the company and decide, inter alia, to increase or reduce the share capital.

Rights of dissenting shareholders

Dissenting minority shareholders may bring a claim arguing that majority shareholders have committed an abuse of majority that, if successful, could result in cancellation of the decision and the award of damages. This cause of action requires that two cumulative conditions be met: the decision must have been taken with the sole purpose of favouring the members of the majority to the detriment of minority shareholders, and it must be contrary to the company’s corporate interests.

Benefits for long-term shareholders

Besides automatic double voting rights, which are only granted to shareholders evidencing that they have held their registered shares for at least two years, listed companies may grant loyal shareholders increased dividends, also known as ‘loyalty dividends’. French law provides that payment of these loyalty dividends also requires that the shares have been held for more than two years. In addition, the dividends may not be more than 10 per cent higher than ordinary dividends, and the relevant shares must represent, for a particular shareholder, no more than 0.5 per cent of the company’s capital.

Board decisions subject to shareholder approval

Related-party agreements are subject to shareholder approval, as are all decisions that fall within the scope of the ordinary or extraordinary general meetings of the shareholders.

Also, the AMF recommends that listed companies organise a consultative vote of the shareholders prior to making any disposal of a significant asset. In addition, to better supervise all major asset disposals, the AMF requests more detailed reporting from shareholders and recommends that best practices be followed to demonstrate that the transactions are in accordance with the corporate interest.

ii Shareholders’ duties and responsibilities
Controlling shareholders’ duties and liability

Pursuant to the AFEP-MEDEF Code, controlling shareholders must take particular care to avoid possible conflicts of interest, ensure transparency of the information provided to the market and equitably take all interests into account. They may be held personally liable if they use their votes in their own interest to the detriment of other shareholders and the company (majority abuse).

Institutional investors’ duties and best practice

The AFEP-MEDEF Code does not specifically address the issue of institutional investors. There is a separate governance code for asset managers, containing recommendations on voting at shareholders’ meetings of the companies in which the funds are invested, and reporting on such voting. In addition, the AMF has recently required that asset management companies report to shareholders and unit holders of collective investment schemes about their practices as regards exercising voting rights in the sole interest of shareholders and to provide an explanation if they do not exercise these rights.

There is no code of best practice for shareholders.

iii Shareholder activism
Say on pay

In response to recent corporate scandals, the Sapin II Law has implemented a new mandatory and binding regime for the say-on-pay procedure.34

Shareholders will now be required to approve ex ante, annually, the compensation policy (i.e., the principles and criteria for setting, allocating and granting the fixed, variable and exceptional components of the total compensation and benefits of any kind attributable to the chairman of the board and to executive officers).35 If the shareholders’ meeting does not approve the compensation policy for a given year, the principles and criteria previously approved shall continue to apply, and the board must submit a new proposal at the next shareholders’ meeting. In addition to the approval of the compensation policy ex ante, the new law also provides for a binding vote ex post on the remuneration granted (binding say on pay).36 Payment of variable or exceptional compensation shall be made conditional upon approval by the shareholders’ meeting and no payment may take place prior to the shareholders’ approval.

The regime adopted by France goes beyond the proposal for a directive amending Directive 2007/36/EC on shareholder rights.

Proxy battles

Shareholders of French listed companies can appoint any person as proxy, thus giving rise to an increase in the use of professional proxy solicitors.

Professional proxy solicitors must disclose their voting policy. On 18 March 2011, the AMF published a specific recommendation,37 which notably urges proxy advisers to issue voting policies in a transparent manner, communicate with listed companies, submit draft reports to the relevant company for review and take measures to avoid conflicts of interest.

Since a report issued on 19 February 2010, the European Securities and Markets Authority (ESMA) also recommends that proxy advisers issue a code of conduct regarding conflicts of interest, transparency and communication with the shareholders. In March 2014, six proxy advisers made public their ‘Best Practice Principles for Shareholder Voting Research and Analysis’.38

iv Takeover defences
Shareholder and voting rights plans, and similar measures

A French company may first try to identify its shareholding by providing in its articles of association an obligation to disclose any interests over 0.5 per cent in its share capital or a right to request certain information from the central securities depository (Euroclear France) as to the identity of its shareholders and the size of their shareholdings.

Also, articles of association may include a provision limiting the number of votes that may be exercised by a single shareholder. This limitation will, however, be suspended for the duration of the first shareholders’ meeting following completion of the offer, provided that the offeror has acquired at least two-thirds of the target’s shares in the offer.

Also, the directors have the right to take measures to frustrate an unsolicited offer, provided that the measures are not against the corporate interests of the target company. As a consequence, the target’s board is not required to obtain the shareholders’ prior authorisation before implementing a sale or acquisition of strategic assets, the sale of a block of treasury stocks to a ‘white knight’ or arranging a counter-offer.

By way of derogation, the company’s articles of association may impose an obligation of neutrality on the management of the target during offer periods.

Notably, proxy advisers and institutional investors recommend voting (1) for the implementation of statutory limitations preventing the board from putting defensive measures in place, and (2) against financial authorisations that are not suspended in the event that an offer is filed.

French law also permits equity warrants to be issued during an offer period. The warrants may be issued free of charge to all shareholders of the target prior to the closing of the offer and may entitle the holders to subscribe for new shares on preferential terms.

This issuance can be authorised by the shareholders:

  • a either during the offer to allow the target to defend a hostile bid (in which case the shareholders’ authorisation only requires a simple majority of votes cast at a shareholder meeting, whereas an authority to issue equity securities directly usually requires a two-thirds majority vote of the votes cast; and only a quorum of 20 per cent on first call and no minimum on second call (instead of 25 per cent and 20 per cent in a normal extraordinary general meeting); or
  • b in advance, in view of a potential offer, by way of delegation given by the shareholders to the board of directors that can be used during an offer period.
White-knight defence

There should be no legal objection to a target board seeking a third party (a ‘white knight’) to make a competing offer for the target. Theoretically, a target could alternatively issue new shares to a third-party ‘friendly’ shareholder. However, such an issue would generally require specific shareholder approval and therefore the tactic would, in practice, be unusual.

When arranging for a white-knight defence, the target’s board of directors must comply with the company’s interest and ensure that it does not infringe on the principle of free interplay of bids and counterbids and maintains a level playing field.

Staggered boards

The AFEP-MEDEF Code recommends to avoid replacement of the board as a whole but enhance a smooth replacement of directors.39 As a result, French companies commonly use staggered boards.

Efficiency of staggered boards as a takeover defence under French law is limited, as the general meeting of the shareholders may dismiss directors at any time and without cause.

v Contact with shareholders
Mandatory and best-practice reporting to all shareholders

Listed companies have developed various communication practices that differ for individual shareholders or financial investors.

Financial communication tools (specific sections of the company’s website, financial publicity, publication of a shareholders’ letter, shareholders’ guides and even custodial services) and club and advisory committees are generally used to maintain contact with individual shareholders. To assist listed companies, notably in the use of social media as a means of sharing information, the AMF has published several recommendations and created briefing sheets covering usage and best practices in different areas, ranging from online and social media strategy to shareholder guides and consultative committees.40

Telephone or individual meetings, road shows, conferences organised by brokerage firms, analysts’ and investors’ days, and on-site visits are used to communicate with institutional and financial investors.

Selective meetings and communications, circumstances of meetings with individual shareholders

It is customary for investor relations services to organise meetings or conference calls with large shareholders prior to shareholders’ meetings. This same approach may be taken with proxy advisers, who also often seek meetings with the chairman of the remuneration committee. These meetings allow shareholders to be fully informed before voting. The AFEP-MEDEF Code provides that where there is a lead director, he or she can be in charge of relations with shareholders.41

Individual meetings may also be organised regularly between senior executives, the investor relations department and analysts and investors. For investors, one-on-one meetings provide an opportunity to assess the vision that senior managers have for their company, their analysis of the competitive environment, market trends, etc.

Executives should, of course, be especially careful not to disclose privileged information, in particular in view of the entry into force on 3 July 2016 of Regulation (EU) 596/2014 on market abuse, which, among other things, widens the scope of regulation regarding market soundings and raises the amount of the penalties.

Listed companies generally have ‘quiet periods’ preceding the release of the company’s annual, half-yearly and quarterly financial information, during which they must refrain from any contact with analysts and investors.

Information received by shareholders before shareholders’ meetings

Shareholders are informed of the date of the meeting 35 days in advance. Companies make certain documents available on their websites at least 21 days before the meeting. These documents must include a summary statement of the company’s situation and its annual financial statements, the draft resolutions, etc.


The emergence of the following trends has become apparent in French corporate governance regulation.

Although the say-on-pay procedure provided for by the AFEP-MEDEF Code has been criticised for its inefficiency in influencing the level of executive remuneration, it has improved the quality of the information disclosed by French listed companies in connection with their remuneration policies for the future. Proxy advisers continue to show an increased interest in the performance criteria in connection with variable and equity compensation, as well as the definition of the qualitative criteria used by companies,42 encouraging them to disclose the expected level of achievement of the quantitative targets. It is not clear yet if the new say-on-pay procedure will have a direct effect on the level of executive remuneration, and, pending publication of an implementation decree, there is still considerable uncertainty regarding the exact scope of the ex ante and ex post shareholder vote, which should be clarified in the coming years.

The AMF and the AFEP-MEDEF Code also recommend greater transparency on the remuneration paid to executives upon leaving the company (executives’ termination fees). As the AMF has pointed out several companies in its annual report on corporate governance, it is likely that the departure of executives will now be subject to greater transparency.

The rules relating to the role of proxy advisers have been improved to allow the orderly development of shareholder activism and proxy fighting. Although the ESMA still entrusts proxy advisers with the task of issuing a code of conduct, it released a call for evidence on the impact of the Best Practice Principles to determine whether this approach is satisfactory. The ESMA finds that the industry is moving in the right direction but encourages the industry group to address in the coming months the areas it has identified for improvement.43

The introduction of CSR into the AFEP-MEDEF Code and the AMF’s recommendations on the subject should also lead French listed companies to discuss CSR matters more frequently within their boards. This could be reflected in the increasing number of CSR committees and the inclusion of this component in executives’ compensation.

Finally, a proposal for a directive amending Directive 2007/36/EC on shareholder rights and Directive 2013/34/EU on corporate governance aims at overcoming short-term approaches in corporate governance. The proposal focuses on four specific issues apart from the say-on-pay procedure: fostering the long-term engagement of shareholders, facilitating transmission of information regarding shareholding composition, encouraging transparency on related-party agreements and improving the reliability of proxy advisers. On 16 December 2016, the EU’s Permanent Representatives Committee adopted an agreement on the text of the future Directive.


1 Didier Martin is a partner at Bredin Prat.

2 ‘High Committee for Corporate Governance Annual Report 2014’. The High Committee for Corporate Governance issued its third annual report in October 2016.

3 ‘Application Guide for the AFEP-MEDEF Corporate Governance Code of Listed Corporations of June 2013’. The High Committee for Corporate Governance issued its second guide in December 2016.

4 French executive order No. 2016-315 dated 17 March 2016 relating to audit quality.

5 The initiative is promoted by the Association for Independent CSR Research and approved by the European Commission.

6 AMF, ‘2015 Report on Corporate Governance and Compensation of Executives of Listed Companies’ (85 per cent of the sampled companies have this one-tier structure).

7 Prerogatives commonly attributed to the lead independent director include communication with shareholders of the company not represented on the board, prevention of conflicts of interest, evaluation of directors’ performance and remuneration, coordination of the independent directors’ activities and coordination of the work of board committees.

8 Paragraph 6.3 of the AFEP-MEDEF Code as revised in November 2016.

9 Paragraph 8.3 of the AFEP-MEDEF Code.

10 Article L 225-23 of the French Commercial Code.

11 Article L 225-27-1 of the French Commercial Code. A 2015 law has lowered the threshold above which the board should include employee representatives from 5,000 to 1,000 employees in France and from 10,000 to 5,000 employees worldwide.

12 Article L 225-27-1 II, L 225-79-2 II and L 226-5-1 of the French Commercial Code.

13 Paragraph 24.2 of the AFEP-MEDEF Code.

14 Paragraph 24.3.2 of the AFEP-MEDEF Code.

15 Paragraph 24.5.1 of the AFEP-MEDEF Code. Pursuant to a decree dated 27 July 2012, public sector executives’ remuneration was capped at €450,000 per year (i.e., 20 times the average of the lowest wages in public sector companies).

16 Paragraph 17 of the AFEP-MEDEF Code.

17 Court of Cassation, 9 March 2010.

18 The 2016 AFEP-MEDEF Code provides that an executive director should not hold more than two other directorships in listed corporations, including foreign corporations, not affiliated with his or her group. He or she must also seek the opinion of the board before accepting a new directorship in a listed corporation. Furthermore, a non-exclusive director should not hold more than four other directorships in listed corporations, including foreign corporations, not affiliated with his or her group.

19 Paragraph 19 of the AFEP-MEDEF Code.

20 Non-audit services are capped at 70 per cent of annual fees.

21 For example, CSR committees have been created.

22 ‘Guide on Sectoral CSR Initiatives’, dated 8 October 2014. The second edition of the guide was published on 18 July 2016.

23 See the report entitled ‘Organisations’ responsibility and performance’ dated 13 June 2013.

24 Draft directive dated 16 April 2013 of the European Commission.

25 The AMF published its third report in November 2016.

26 Except for medical secrecy, legal privilege and intelligence and national security secrets.

27 Article 122-9 of the French Criminal Code.

28 See Law No. 2001-420, dated 15 May 2001.

29 See Article L 225-102-1 C.com, as amended by Law No. 2011-672, dated 16 June 2011.

30 See Ordinance No. 2004-1382, dated 22 December 2004.

31 See AMF Recommendation on risk factors, dated 29 October 2009.

32 Paragraph 3.1 of the AFEP-MEDEF Code.

33 Paragraph 4.2 of the AFEP-MEDEF Code.

34 Article L 225-102-1-1 of the French Commercial Code.

35 Article L 225-37-2 of the French Commercial Code.

36 Article L 225-100 of the French Commercial Code.

37 See AMF Recommendation on risk factors, dated 29 October 2009.

38 Glass, Lewis & Co, Institutional Shareholder Services Inc, Manifest Information Services Ltd, PIRC Ltd and Proxinvest, and IVOX GmbH, which has been recently acquired by Glass, Lewis & Co.

39 Paragraph 13 of the AFEP-MEDEF Code.

40 AMF Recommendation 2014-15 for listed companies on communication using their websites and social media; AMF Recommendation 2015-09 on ‘Communication by companies aimed at promoting their securities to individual investors’; and AMF, ‘Study on communication practices among listed companies’, December 2015.

41 Paragraph 6.3 of the AFEP-MEDEF Code.

42 In 2016, ISS for the first time introduced a quantitative pay-for-performance assessment for the largest European companies.

43 See ESMA, ‘Call for Evidence: Impact of the Best Practice Principles for Providers of Shareholder Voting Research and Analysis’, June 2015, and ‘Report: Follow-up on the development of the Best Practice Principles for Providers of Shareholder Voting Research and Analysis’, December 2015.