The Corporate Governance Review: France

Overview of governance regime

Corporate governance rules are mainly set out in statutory provisions contained in the French Commercial Code and in recommendations contained in corporate governance codes (AFEP-MEDEF Code2 for large companies or MiddleNext Code for smaller issuers). Companies referring to a corporate governance code are required to disclose the provisions of such code that are not complied with and to explain the reasons (comply or explain).

The implementation of non-binding corporate governance principles is monitored by the Financial Markets Authority (AMF), which publishes an annual report assessing corporate governance practices and executive officers' compensation in listed companies. The application of the AFEP-MEDEF Code's provisions is also evaluated by the High Committee on Corporate Governance, which issues an annual report where it applies a name-and-shame policy and a guide on the application of each version of the AFEP-MEDEF Code.

Corporate governance in France has changed considerably during the past two decades as a result of the increased number of foreign shareholders in companies listed on the CAC 40 Index.

With respect to executive compensation, France now stands as one of the European countries with the most extensive range of requirements. The level of disclosure has been continuously increasing in recent years under the pressure of shareholders and proxy advisers, and after several controversies concerning executive compensation and severance packages. Hence, since December 2016, the Commercial Code provides for a mandatory and binding say-on-pay procedure.3

Another notable trend is the preference among listed companies for the one-tier governance structure.4 Companies with a one-tier board now tend to separate the positions of chair of the board and chief executive officer (CEO). Also, as recommended by the AMF5 and encouraged by the AFEP-MEDEF Code,6 the majority of CAC 40-listed companies have appointed a lead director 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 provides that lead directors should be independent.8

In other areas, such as director independence, diversity of the board composition and board committees, the French corporate governance regime continues to converge with existing best practice. Gender diversity in corporate bodies has been the target of various reforms since 2011,9 which have introduced, in particular, the obligation (1) of a minimum proportion (set at 40 per cent) of members of each gender on boards of directors and supervisory boards and (2) for companies to ensure more gender equality in the process of selection of executive officers. The Pacte Law reinforces the presence of directors representing employees on the board of directors. Further, the recent Rixain Law created an obligation for all company with more than 1,000 employees to have at least 30 per cent of each gender among all senior executives and all management bodies, applicable as of 1 March 2026 (this minimum threshold being raised to 40 per cent in 2029).

There has also been increased focus on corporate and social responsibility (CSR) in recent years. The practice of extra-financial analyses and rating has developed considerably to enable investors to include the extra-financial performance of companies in their investment criteria, and both law and soft law have been amended to increase the level of disclosure made with respect to environmental, social and governance issues. In 2020, investors submitted external shareholders' resolutions to strengthen climate objectives on the agenda of general meetings of two issuers within the CAC 40 (the 'say on climate').10 In 2021, three issuers voluntarily submitted their climate plan to their general meeting, which in each case were adopted at a large majority.

Considering the stewardship policies of large institutional shareholders toward CSR, we expect several companies to carefully assess their non-financial risks and performance and to potentially adopt climate plans that could be presented for approval by shareholders in 2022.11

As in the 2020 and 2021 AGM seasons and in light of the recent evolution of the covid-19 pandemic, Parliament adopted a new law in January 2022 authorising the government to set temporary measures to adapt the organisation of general meetings (which largely took place behind closed door in the two past years). In 2020, issuers were asked to improve the procedures enabling shareholders to exercise their rights under similar conditions to those available during physical shareholders' meetings.12 Applying such recommendations, in 2021 several issuers allowed their shareholders to ask questions remotely during the meeting through special ad hoc platforms and all CAC 40 companies proposed a live and recorded broadcast of their shareholders' meeting.13

Corporate leadership

i Board structure and practices

Structure

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 and 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.

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 (i.e., with a management board and a supervisory board), the supervisory board is also composed of between three and 18 members and the management board comprises between two14 and five members (seven for companies whose listed are listed on a regulated market).

As a statutory requirement to have no fewer than 40 per cent of women15 (or men) on boards of directors or on supervisory boards as of 1 January 2017, the percentage of women on the boards of CAC 40-listed companies stabilised at about 46.5 per cent in 2021.

Although 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 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.16

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 capital 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. There should be one employee shareholder representative on any board with fewer than eight members and two on boards with more than eight members.

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, guided by the company's corporate interest, is responsible for determining the corporate strategy and supervising its implementation and, in doing so, it must take into consideration the social and environmental issues related to its activity. 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 made by the board of directors are collective decisions and cannot be delegated to one or more specific directors or to third parties.

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

The role of the 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.

It is specified that in 75 per cent of companies with a chair/CEO combined position, an independent lead director has been appointed.17

Remuneration of directors and executive officers

In principle, non-executive directors' remuneration consists exclusively of attendance fees.

The amount of attendance fees and its allocation between the directors is subject to the say-on-pay procedure. These fees usually include a variable portion that depends on attendance at board meetings.

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 non-executive chair of the board should not receive any variable remuneration, stock options or performance shares.18

Although 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. They typically include financial metrics and ratios as well as absolute and relative share price performance in comparison with the company's peers. There is an increasing trend towards the introduction of CSR quantitative criteria.19 Executives' remuneration is decided by the board of directors (or supervisory board in companies with a two-tier system) on the recommendation of the board's remuneration committee.

France provides for a say-on-pay mechanism with both ex ante and ex post approval by the shareholders.

Through the ex ante vote, shareholders are required to approve the compensation policy (principles and criteria of the fixed, variable and exceptional components of the total compensation and any termination or non-compete indemnity).20 In addition, the law provides for a binding ex post vote of the shareholders' meeting on the remuneration paid or granted to each corporate officer during the past fiscal year or in connection thereto (binding say on pay)21 and no payment (including termination fee, non-compete or top-hat pensions) may take place if shareholders did not approve the relevant resolution. In addition, board members are prevented from receiving their attendance fees if a negative vote is made by the shareholders.

In addition, any amount paid out on a departure (termination fee, top-hat pension) must be subject to performance conditions.

The AFEP-MEDEF Code recommends capping termination fees at a maximum of two years' annual fixed and variable compensation.22

Issuers are also required to provide a ratio comparing the compensation of the chair of the board of directors and of each executive corporate officer with the average and median compensation on a full-time-equivalent basis of employees within the group and the evolution of this ratio in the previous five financial years.

Committees

An audit committee is compulsory in listed companies, and its powers have been reinforced since the European reform of audit quality. Members of the committee should be non-executive directors, and a majority of members should be independent (two-thirds in an audit committee, which must be composed of members with accounting and finance skills).23 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)24 and a nomination committee25 (the two may be combined). Most companies also have other specialist committees dedicated to strategy or other specific matters. Especially, in 2021, almost two-thirds of SBF 120 companies had a committee in charge of CSR matters (compared with 25 per cent in 2015).

ii 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.

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 and the duty of care, are also incumbent upon directors.

Civil liability

In companies with a one-tier structure, the chair of the board, the 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 be held liable only if it can be proved that a loss has been suffered, and that there is a direct causal link between that loss and the wrongful conduct. This civil action may be brought by:

  1. the company, either directly acting 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
  2. by a third party (e.g., creditor or employee) 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 do not require, following a decision of the French Supreme Court,26 that such a condition be met.

In the event 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.

Criminal liability

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

  1. distributed sham dividends in the absence or on the basis of false inventories;
  2. published or presented to the shareholders annual accounts not providing, for each financial year, a fair representation of the results of the operations; or
  3. 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 (death, resignation, etc), the board of directors may appoint new members by co-option, 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, the four-year term of office is prevalent. Re-election is possible, and almost all the companies listed on the SBF-120 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 a specific reason (ad nutum).

Specific requirements include the following:

  1. in the absence of an express provision in the articles of association, directors over 70 years old may not represent more than one-third of the members of the board;
  2. employees may be appointed as board directors only if their employment contract corresponds to actual duties performed for the company and for 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; and
  3. 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. The AFEP-MEDEF Code recommends setting this limit at three directorships for executive directors. Furthermore, executives of credit institutions and investment companies cannot hold more than three offices as executive director and more than four offices as board member.

Conflicts of interest: directors

Corporate governance codes require that directors inform the board of directors of any conflicts of interest, whether actual or potential, and should abstain from participating in the discussions and voting on such matters. The AFEP-MEDEF Code provides that the internal rules of the board should set out provisions on the prevention and management of conflicts of interest.27

Under French law, there are also some prohibitions or specific procedures for related-party transactions: directors are prohibited from contracting loans from the company or arranging for the company to act as guarantor in respect of their obligations. In addition, to be valid, any related-party transaction (i.e. directly or indirectly with executive's directors, or shareholders holding more than 10 per cent) must receive prior authorisation from the board (without the directors concerned voting and participating in the board meeting). Information regarding transactions with related parties must be disclosed publicly on listed companies' websites at the latest on the day of their conclusion. Last, the shareholders are invited to ratify the agreement upon publication of the auditor's report. If a transaction is not approved by the shareholders, the interested party and the directors can be held liable for any adverse consequences of that transaction for the company.

Disclosure

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 continuing information.28

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, depending on the company's existing practice, quarterly financial information.

Continuing information is information published by listed companies to notify the public without delay of all precise information likely to have a material effect on the share price.

The annual reporting obligations regarding financial information, internal control and corporate governance are divided between the corporate governance report and the management report.

ii Auditors' role, authority and independence

External auditors are required to audit a company's accounting documents and check whether the accounting principles applied in the company comply with the applicable accounting standards. They draft a general report on the accounts, and special reports on specific corporate matters.

Also, auditors are required to check whether the non-financial statement has been provided (see Section III.iii).

French law, based on Directive 2014/56/EU, imposes a mandatory statutory auditor rotation and enhances transparency and reporting requirements by audit firms. 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 services29 and enhances the role of the audit committee.

iii Non-financial disclosure

During the past few years, corporate social and environmental responsibility has been increasingly taken into account in the corporate governance of listed companies.30 Directive 2014/95/EU of the European Parliament (Non-Financial Reporting Directive – NFRD), dated 22 October 2014 (transposed into French law by Executive Order No. 2017-1180, dated 19 July 2017), introduced an obligation to disclose non-financial information for large companies. Henceforth, large companies have to explain, through a statement on the non-financial performance to be included in the annual management report, the environmental and social risks related to their activities and how they intend to manage those risks. Companies subject to the NFRD will also be required to disclose, as of 1 January 2022, information on the proportion of their business activities that can be considered 'sustainable' within the meaning of the EU Taxonomy Regulation of June 2020 ((EU) No. 2020/852).

In addition, on 21 April 2021, the European Commission published a proposal for a Corporate Sustainability Reporting Directive (CSRD), which would replace the NFRD. The aim of the proposed directive is to enhance and harmonise the sustainability information disclosed by companies.

Also, French Law No. 2017-399 dated 27 March 2017, introduced the obligation for companies employing at least 5,000 employees in France or at least 10,000 employees worldwide to develop and enact annual vigilance plans detailing steps taken to detect risks and prevent serious violations with respect to human rights and fundamental freedoms, and the health and safety of persons and the environment, that result from activities of the company and of its subsidiaries, suppliers and subcontractors. A directive with similar provisions is currently being discussed at the European Union.

Corporate social responsibility / ESG

i Risk management

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

ii Compliance policies and whistle-blowing

The Sapin II Law 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 the public interest.31 Whistle-blowers are granted immunity from criminal liability under certain conditions.32

Several rules also provide for alert procedures in, for example, the fields of labour law (in cases of discrimination or harassment) and banking (when there is a suspicion of money laundering). External auditors are also required to inform the board of any irregularities found during their audit.

iii Organisation of the company and corporate social responsibility

CSR has been progressively taken into account under French law.33 It is now expressly specified that all corporations must be managed in the corporate interest and consider the social and environmental concerns of their activity.

Companies are also able to define a corporate purpose (raison d'être) in their articles of association, defined as the principles that guide their business policy and strategic decisions.34 Several listed companies have already decided to adopt a purpose (either through an amendment to their by-laws or as a statement included in the universal registration document or on their website).35 In addition, the Pacte Law introduces mission-driven companies, which include in their articles of association a mission with social and environmental objectives. A report issuing recommendations to companies defining a purpose and mission-driven company was published recently.36

As an illustration of this general framework, the AFEP-MEDEF Code provides that a board of directors should endeavour to promote long-term value creation by a company by considering the social and environmental aspects of the company's activities.37 In addition, investors' and proxy advisers' stewardship and voting policy requests the board to be increasingly involved in the identification, management and mitigation of non-financial risks. Hence, the board should be informed of significant non-financial issues for the company.38

Finally, the AFEP-MEDEF Code provides that the board should ensure that measures are implemented to prevent and detect corruption and influence-peddling.39

Shareholders

i Shareholder rights and powers

Equality of voting rights

The 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 also provides for the following exceptions:

  1. 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 decision by shareholders. A large number of companies have opted out in accordance with proxy advisers' recommendations;
  2. the voting rights attached to preference shares can be suspended or cancelled; and
  3. limitation of voting rights: for example, a company'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 if 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 remain limited, although they have gained an increasing influence in France through the introduction of the mandatory say on pay. Shareholders would exercise their voting rights at shareholders' meetings on the appointment or dismissal of board directors, on related-party transactions and on rejecting say-on-pay resolutions.

The AMF also recommends issuers to organise a permanent dialogue with their shareholders. Hence, shareholders can enter in contact with the company's chair or lead director and express their views.40

When they represent a certain percentage of the share capital, shareholders can propose resolutions to the shareholders' meeting, including by requesting the appointment of their own candidates. Recently, shareholders have also requested non-binding votes on environmental matters (say on climate) and it can be expected that such demands will expand to other topics in the future.41 In addition, the shareholders' meeting can decide at any time to replace the board. Shareholders may also ask the board questions, 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.

Decisions reserved to shareholders

Decisions reserved to shareholders are those that fall within the ambit of the ordinary or extraordinary general meetings of shareholders. Ordinary general meetings of shareholders may decide, notably, on, inter alia, the approval of the annual accounts, appointment and dismissal of directors or members of the supervisory board, appointment of auditors and approval of related-party transactions. Extraordinary general meetings of 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 requesting that a decision be voided (if the conditions are met). If they suffered personal prejudice caused by the actions of the executive officers, they can also seek to obtain damages.

Finally, they could argue that majority shareholders, if any, have committed an abuse of majority, which, if successful, could also result in cancellation of a decision and the award of damages.

In French law, shareholders do not benefit from a sell-out right when they oppose a specific decision.

Benefits for long-term shareholders

Besides automatic double voting rights described above, listed companies may grant loyal shareholders increased dividends, also known as loyalty dividends. French law provides that payment of loyalty dividends also requires that the shares have been held for more than two years. In addition, loyalty 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

As described above, 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 shareholders.

The AMF also recommends that listed companies organise a consultative vote of the shareholders prior to making any disposal of a significant asset. The AMF requests more detailed reporting to demonstrate that the transactions are in accordance with the corporate interest.

ii Shareholder 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 the voting. In addition, the AMF has required that asset management companies report to shareholders and unit holders of collective investment schemes about their voting rights.

The Pacte Law aims to transpose the Shareholder Rights Directive as regards the encouragement of long-term shareholder engagement, and provides that institutional investors and asset managers will have to disclose their engagement policy describing how they integrate shareholder engagement into their investment strategy, and disclose key information about the performance of their mandates.

iii Shareholder activism

Say on pay

Owing to the implementation of a mandatory and binding say-on-pay regime (see Section II.i), executive officers' compensation is less of a focus for activist investors. However, it remains a focal point for proxy advisers.

Proxy battles

French law provides rules and binding provisions regarding proxy solicitation and proxy advisers. Shareholders of French listed companies can appoint any person as proxy.

Professional proxy solicitors must disclose their voting policy. In addition, on 18 March 2011, the AMF published a specific recommendation,42 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.

In line with European recommendations and trends, the Pacte Law has strengthened regulation of proxy advisers regarding, inter alia, the compliance with their code of conduct and information on the preparation of their work as well as management of conflicts of interest.

However, proxy battles per se are rather rare in France. One example of a shareholders' battle took place at the general meeting of REIT Unibail-Rodamco-Westfield in 2020. A consortium of investors launched a campaign to block a dilutive capital increase and to appoint three representatives to the board. After a successful media campaign, the consortium obtained the rejection of the capital increase and the appointment of their representatives.

Long-term shareholder value

The Shareholder Rights Directive aims to encourage long-term shareholder engagement, in particular by facilitating the identification of shareholders. It enables companies to communicate with their shareholders with a view to facilitating the exercise of shareholder rights. The Pacte Law transposed this set of measures to adapt the French regime with regard to shareholder identification.

Since the adoption of Law No. 2019-744, dated 19 July 2019, abstentions and blank or null and void votes are no longer counted as negative votes.

Following the publication in 2019 of various reports on shareholder activism, the AMF published a communication in April 2020 recommending minor targeted legal reforms aimed at improving market efficiency and transparency and increasing the AMF's means to react in the context of activist campaigns. The authority notably recommended the introduction of further legal thresholds for notification of major holdings, the reinforcement of transparency on short-selling and securities lending, and the introduction of a new power for the AMF to impose a fine in the context of an administrative injunction.43 In 2021, the AMF also modified its guide on continuing information.

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.

In addition, articles of association may include a provision limiting the number of votes that may be exercised by a single shareholder. However, that limitation will 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.

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

An issuance can be authorised by the shareholders either during the offer to allow the target to defend a hostile bid or in advance, in view of a potential offer. However, in practice such resolution is rarely presented to the shareholders.

Board and company practice in takeovers

During a takeover bid, the board of directors may adopt any provisions to thwart a takeover,44 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 shareholders' prior approval.

It can also be noted that proxy advisers and institutional investors recommend voting for the implementation of statutory limitations preventing the board from putting defensive measures in place, and against financial authorisations that are not suspended during a takeover 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 such a 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 the principle of free interplay of bids and counterbids and maintains a level playing field.

Staggered boards

The AFEP-MEDEF Code recommends avoiding replacement of the board as a whole to enhance a smooth replacement of directors.45 As a result, French companies commonly use staggered boards.

The 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 clubs 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 strategies to shareholder guides and consultative committees.46

Telephone or individual meetings, roadshows, 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 and proxy advisers prior to shareholders' meetings. These meetings allow shareholders to be fully informed before voting. The AFEP-MEDEF Code provides that the chair of the board or the lead director, if one has been appointed, will be responsible for the board's relations with the shareholders, particularly with regard to corporate governance aspects.47

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

Listed companies generally have quiet periods preceding the release of their 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 a meeting 35 days in advance. Companies make certain documents available on their websites at least 21 days before the meeting. These documents must include, inter alia, a summary statement of the company's situation and its annual financial statements, and draft shareholders' resolutions.

Outlook

During the past few years, investors and proxies have gained some traction in their ability to influence companies and push for improved ESG practices.

Whereas gender diversity has been successfully implemented in boards of directors and supervisory boards of public listed companies, the regulators are now focusing on the feminisation of executives positions. Following the adoption of the Rixain law, we expect a significant increase in the gender diversity in executive committees of listed companies.

In addition, with the involvement of institutional investors and proxy advisers, there is no doubt that CSR will remain an important part of the 2022 corporate governance framework with potential say on climate votes, increase in ESG/climate criteria for executive remuneration and appointment of ESG experts as directors.

Finally, following recent debate on shareholder activism, the AMF recommended the improvement of shareholder dialogue and identified targeted measures aimed at improving market efficiency and transparency in the context of activist campaigns, but no major regulatory change was deemed necessary. We can therefore expect ESG activism to increase in the coming months or years.

Footnotes

1 Didier Martin is a partner at Bredin Prat.

2 The latest version is dated January 2020.

3 Before that, the procedure was largely non-binding.

4 The High Committee on Corporate Governance, 2021 Annual Report (86.1 per cent of the CAC 40-listed companies have such one-tier structure).

5 Financial Markets Authority (AMF), '2021 report on corporate governance and executive compensation in listed companies'.

6 AFEP-MEDEF Code, Paragraph 3.2.

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

8 AFEP-MEDEF Code, Paragraph 3.2.

9 Copé Zimmerman Law of 27 January 2011, Law No. 2018-771 of 5 September 2018 (the Avenir Law) and the Action Plan for the Growth and Transformation of Businesses (the Pacte Law).

10 AMF, '2020 report on corporate governance and executive compensation in listed companies'.

11 The Forum pour l'Investissement Responsable, a coalition of institutional investors, researchers, academics, sent a letter to every SBF 120 company, requiring for a say on climate vote in 2022.

12 AMF, '2020 report on corporate governance and executive compensation in listed companies'.

13 This chapter does not cover the specific rules applying to financial institutions (banks, insurance companies, etc).

14 Companies with a share capital below €150,000 can have one member.

15 Except for boards composed of more than eight members, for which the gap between the number of men and women should not exceed two.

16 AFEP-MEDEF Code, Paragraph 9.3.

17 Based on the 60 largest French companies of the SBF 120 index. AMF, '2020 report on corporate governance and executive compensation in listed companies'.

18 AFEP-MEDEF Code, Paragraph 25.2.

19 ibid., at Paragraph 25.3.2.

20 French Commercial Code, Article L. 22-10-8.

21 ibid., at Article L. 22-10-34.

22 AFEP-MEDEF Code, Paragraph 25.5.1.

23 ibid., at Paragraph 16.1.

24 ibid., at Paragraph 18.

25 ibid., at Paragraph 17.

26 Court of Cassation, 9 March 2010.

27 ibid., at Paragraph 20.

28 The AMF issued two guides on periodic information (Position-recommendation DOC-2016-05) and ongoing information (Position-recommendation DOC-2016-08).

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

30 For example, corporate social responsibility committees have been created.

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

32 French Criminal Code, Article 122-9.

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

34 In 2020, only six companies listed on the CAC 40 chose to insert a corporate mission in their articles of association (AMF, '2020 report on corporate governance and executive compensation in listed companies').

35 In 2020, resolutions aimed at amending issuers' articles of association to insert a 'corporate mission' were adopted with very high scores, generally exceeding 99 (AMF, '2020 report on corporate governance and executive compensation in listed companies').

36 Rocher Report addressed to the Ministry of Economy, dated 19 October 2021.

37 AFEP-MEDEF Code, Paragraph 1.1.

38 ibid., at Paragraph 4.3.

39 AFEP-MEDEF Code, Paragraph 1.6.

40 AMF, '2021 report on corporate governance and executive compensation in listed companies' and AMF, Guide on ongoing information last revised on 29 April

41 It is specified, however, that the legal validity of such request has not yet been tested by the courts.

42 See AMF recommendation on Proxy voting advisory dated 18 March 2011.

43 AMF Report on shareholder activism, April 2020.

44 For example, a sale or acquisition of strategic assets, the sale of a block of treasury stocks to a white knight or arranging a counter offer.

45 AFEP-MEDEF Code, Paragraph 14.2.

46 AMF Recommendation 2014-15 for listed companies on communication using their websites and social media, now included in the AMF Guide on ongoing information 2016-08; AMF Recommendation 2015-09 on communication by companies aimed at promoting their securities among individual investors, and AMF, 'Study on communication practices among listed companies', December 2015.

47 AFEP-MEDEF Code, Paragraph 4.4.

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