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 (such as the French Association of Private Enterprises (AFEP) – Movement of French Enterprises (MEDEF) Code) or in opinions expressed by various professional bodies and associations.

The AFEP-MEDEF Code has become a reference in matters of corporate governance.2

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

Even if corporate governance codes and the opinions 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 opted to use the AFEP-MEDEF Code. The application of the AFEP-MEDEF Code's provisions is monitored by the High Committee on Corporate Governance, which issued its first report in October 20143 and a guide on the application of the AFEP-MEDEF Code in December 2014.4 Since the revision of the AFEP-MEDEF Code in June 2018, the powers of the High Committee on Corporate Governance have been further strengthened by enhancing its ability to use a name-and-shame policy.

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 Stock Market 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. Regulations have been used to restore public confidence, especially after the turmoil created in 2016 by the lack of reaction from the boards of directors of two companies after the shareholders rejected the executives' compensation. This caused the legislator to introduce, in December 2016, a say-on-pay procedure that is both mandatory and binding. This procedure was further strengthened by the Pacte Law, adopted on 11 April 2019, and in November 2019 via an Order transposing into French law the main provisions of Directive 2017/828 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement adopted on 17 May 2017.

Another notable trend is the preference among listed companies for the one-tier governance structure.5 Companies with a one-tier board tend to combine the positions of chair of the board and chief executive officer (CEO) although shareholders and proxy advisers increasingly challenge this practice. As recommended by the AMF6 and the AFEP-MEDEF Code,7 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).8 The AFEP-MEDEF Code provides that lead directors should be independent.9

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 2011,10 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 revised AFEP-MEDEF Code of January 2020 recommends that the board of directors should determine, at the proposal of executive management, 'gender diversity objectives for management bodies', which shall be included in the annual report on corporate governance.11 The Pacte Law reinforces the presence of directors representing employees on the board of directors.

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 40,12 reflecting the growing attention of investors on CSR.

These recent trends are notably reflected in the revised AFEP-MEDEF Code of January 2020, which includes provisions aimed at:

  1. reinforcing the role of the board to promote CSR, long-term value creation and risk prevention, and introducing one or more CSR criteria into executives' compensation;
  2. restricting the conclusion of non-compete agreements with executives;
  3. encouraging shareholders' dialogue with the board;
  4. strengthening directors' ethics regarding conflicts of interest;
  5. increasing the number of directors representing employees; and
  6. extending the requirement for the board to ensure the implementation of a policy of non-discrimination and diversity, notably with regard to the balanced representation of men and women in governing bodies (and not only at the board level).13

As a result of the covid-19 pandemic, most general meetings in 2020 were held behind closed doors and if the situation were to be repeated in 2021, investors and the AMF have asked issuers to improve the procedures enabling shareholders to exercise their rights under similar conditions to those available to them, during physical shareholders' meetings14. Furthermore, in the context of covid-19, executives of a large number of companies have waived a portion of their fixed compensation on the recommendation of the AFEP-MEDEF and investors will assess, in the context of the 2021 say on pay, whether deviations to the compensation policy are balanced and in line with a company's performance and stakeholders' interests.

Corporate leadership

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 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.

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 has continued to rise, from 46 per cent in December 2018 to 46.5 per cent in 2020.

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.17 The AFEP-MEDEF Code also provides that the directors representing employees within a group must sit on the board of the company that takes strategic decisions for the group.

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 made 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.

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.

Remuneration of directors and senior management

Non-executive directors' remuneration consists exclusively of attendance fees. The Pacte Law introduced the possibility of allocating share warrants for company founders (known as BSPCE) to the members of the board of directors and supervisory board.18 Any other remuneration is prohibited, except that resulting from either an employment contract which non-executive directors may otherwise have with the company for separate functions, or a special temporary assignment.

As of 2020, the total amount of attendance fees and its allocation between the directors is subject to the say-on-pay procedure. 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.

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.19 The board must ensure that executives' compensation aims to improve the medium-term and long-term performance and competitiveness of the company, in particular by incorporating one or more criteria relating to social and environmental responsibility.20

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.

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. 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 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 and there is an increasing trend towards the introduction of CSR quantitative criteria.21 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.

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, namely the elements, 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 corporate officers (including any termination or non-compete indemnity).22 In addition, the law provides for a binding ex post vote on the remuneration paid or granted to each corporate officer during the past fiscal year or in connection thereto (binding say-on-pay).23 Payment of variable or exceptional compensation is subject to the approval by the shareholders' meeting, and no payment 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 issued by the shareholders.

There is no longer a cumulative application of the procedure for regulated agreements and the say-on-pay system. Henceforth, commitment to pay a termination fee, non-compete or top hat pensions are only be subject to the say-on-pay system. According to the revised Commercial Code, any amount paid out on a departure (termination fee, pension purposes) must be subject to performance conditions. It also prohibits any payment pursuant to a non-compete undertaking when the executive is able to claim his or her pension rights.

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.24

The AFEP-MEDEF Code further recommends prohibiting any payment pursuant to a non-compete undertaking when an executive is over 65 years old.25 The Code also recommends that a non-compete undertaking should not be entered into at the time the executive leaves when no such clause had previously been stipulated.26

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 to 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.


An audit committee is compulsory in listed companies, the powers of which have been reinforced since the European reform of audit quality. 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)27 and a nomination committee28 (the two may be combined). Members of committees should be non-executives, 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).29 Most companies also have other specialist 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 shareholders' prior approval.

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, but they are encouraged to perform 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 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,30 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.

In companies with a two-tier structure, the same rules apply to members of the management board. Although 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, 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, 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, owing to the influence of the AFEP-MEDEF Code, 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.31 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.

Members of boards of directors are no longer required to hold a specific number of shares, unless such a condition is provided for in a 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.32

Conflicts of interest: 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 participating in the discussions and 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. In addition, 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 and participating in the board meeting), while grounds for approving related-party transactions must be detailed and reassessed 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 this company. 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.33 In accordance with the new Shareholder Rights Directive,34 the Pacte Law provides that information regarding transactions with related parties must be disclosed publicly on listed companies' websites at the latest on the day of their conclusion, and the related party must not participate in the board's discussions or take part in the vote on the relevant resolutions.

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 that 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 continuing information.35

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.

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

Executive Order No. 2017-1162, dated 12 July 2017, reorganised the reporting obligations regarding financial information, internal control and corporate governance, requiring that the information previously contained in the management report should be divided between a new 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 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, and 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.

Although many listed companies used to ask their auditors to prepare specific reports on CSR matters, auditors are now required to check whether the new non-financial statement has been provided (see Sections III.iii and IV.iii).

The reform regarding audit, 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. 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 services36 and enhances the role of the audit committee.

iii Corporate social and environmental responsibility

During the past few years, corporate social and environmental responsibility has been increasingly taken into account in the corporate governance of listed companies.37 Directive 2014/95/EU of the European Parliament, dated 22 October 2015 (transposed into French law by Executive Order No. 2017-1180, dated 19 July 2017), introduced an obligation to disclose non-financial and diversity information for large companies. Henceforth, large companies have to explain the environmental and social risks related to their activities and how they intend to manage those risks through a statement on the non-financial performance to be included in the annual management report. In line with the European recommendations and trends on CSR,38 the AMF published in 2019 its fourth report on corporate, social and environmental responsibility relating to the extra-financial information of listed companies. In 2020, the European Securities and Markets Authority issued a public statement focusing on climate information as one of the priorities of the European supervision.39

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.

Corporate responsibility

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

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.40 Whistle-blowers are granted immunity from criminal liability under certain conditions.41

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 Corporate social responsibility

CSR has been progressively taken into account under French law.42 In particular, French listed companies are obliged to publish data in the statement on non-financial performance to be included in their management reports. Information on how they take into account the social and environmental consequences of their activity, as well as, for some companies, the effects of this activity with respect to human rights and the fight against corruption and tax evasion, must be provided in this report.43 The AFEP-MEDEF Code also provides that the board should ensure that measures are implemented to prevent and detect corruption and influence peddling.44

The AMF also recommends45 that issuers 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.

The revised 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.46 Accordingly, the board should be informed of the main CSR issues,47 and should review financial, legal, operational, social and environmental risks as well as the measures taken to reduce those risks.48 Shareholders and investors should be informed of the significant non-financial issues for the company.49

The Pacte Law also focuses on the sharing of value within companies and on companies' social commitment. The legal definition of 'corporate interest' has been broadened and it is now expressly specified that corporations must be managed in the interests of all stakeholders by considering the social and environmental concerns of its activity. Companies are also able to define in their articles of association the principles that guide their business policy and strategic decisions (the corporate mission).50 The Pacte Law also introduces a new type of company (called a 'company with a mission'), the corporate purpose of which will be defined in the articles of association as the pursuit of social and environmental objectives.


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. 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;
  2. the voting rights attached to preference shares can be suspended or cancelled;
  3. 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 if a party acquires two-thirds or more of a target's outstanding share capital or voting rights through an offer; and
  4. unlisted companies are able to issue preference shares with multiple voting rights.

Powers of shareholders to influence the board

Shareholders' rights regarding corporate governance remain limited, although it can be noted that they have been an increasing influence in France through the introduction of the mandatory say-on-pay. Their only means of action is in exercising 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, which will result in the company being prohibited from paying the relevant corporate officers the variable and exceptional component of their compensation.

When they represent a certain percentage of the share capital, shareholders can propose their own candidates to the shareholders' meeting. In addition, the shareholders' meeting can decide at any time to replace the board. 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.

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 arguing that majority shareholders have committed an abuse of majority, which, if successful, could result in cancellation of a 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 granted only 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 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

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. 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 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 practices as regards exercising voting rights in the sole interest of shareholders and to provide an explanation if they do not exercise these 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

The Sapin II Law has implemented a mandatory and binding regime for the say-on-pay procedure.51 The procedure was further reinforced in November 2019, via an Order transposing into French law the main provisions of the Shareholder Rights Directive.

In light of these developments, proxy agencies have strengthen their pressure on companies through the say-on-pay mechanism.

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,52 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, providing that they must:

  1. explain any instances of non-compliance with their code of conduct;
  2. provide key information about the preparation of their research, advice, voting recommendations, and the prevention and management of any actual or potential conflicts of interest or business relationships that may influence their activities; and
  3. disclose any such information, as the case may be.

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. Further, in October 2018, the AMF issued seven new recommendations to:

  1. better identify shareholders;
  2. improve information provided to shareholders on votes processing;
  3. encourage their effective participation in general meetings; and
  4. promote the modernisation of voting processes.53

Law No. 2019-744, dated 19 July 2019, provides that the majority required for making decisions in shareholders' meetings will be determined only regarding the votes made by shareholders present or represented (e.g., votes expressed do not include those attached to the shares for which the shareholder did not take part in the vote, refrained from voting or made a blank or null and void vote). Accordingly, abstentions and blank or null and void votes are no longer counted as negative votes.

A good practice code has been issued by an association, the Best Practice Principles for Shareholder Voting Research Providers, which provide for general principles to be applied by proxy agencies. Proxy agencies are required to disclose their voting policy and rules governing their approach to analysis and research.

Following the publication in 2019 of various reports on shareholder activism, the AMF published a communication in April 2020 recommending 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.54

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.

The directors also have the right to take measures to frustrate an unsolicited offer, provided that those measures are not against the corporate interests of the target company. As a consequence, the target's board is not required to obtain the prior authorisation of the shareholders 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.

It can 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 if 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 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:

  1. 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 shareholders' meeting, whereas an authority to issue equity securities directly usually requires a two-thirds majority of the votes cast, and only a quorum of 20 per cent on first call and no minimum on second call (instead of 25 and 20 per cent, respectively, in a normal extraordinary general meeting); or
  2. 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 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.55 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 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 strategies to shareholder guides and consultative committees.56

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 prior to shareholders' meetings. This same approach may be taken with proxy advisers, who also often seek meetings with the chair of the remuneration committee. 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.57 In accordance with this recommendation, a large number of listed companies (26 of the 40 companies on the SBF 120 Index examined in 2019 by the AMF in its annual report) have a board member (either the chair or a lead director) who is responsible for discussing with shareholders, in particular with those who are not represented on the board of directors.58

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 resolutions.


During the past few years, investors and proxies have gained some traction in their ability to influence companies and push for more disclosure and diversification.

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 (including CEO, chair, deputy CEO and executive committee members).

In the past few years, shareholder activism has been the subject of intense debate in France. Whereas opinions are divided about the opportunity to amend the legal environment, a consensus seemed to emerge on the relevance of reinforcing shareholder dialogue and transparency. Following the issuance of several reports by the National Assembly and other non-governmental bodies (Club des Juristes, Paris Europlace, etc.), the AMF recommended targeted measures aimed at improving market efficiency and transparency in the context of activist campaigns. These recommendations are likely to lead to a legal reform on shareholder activism in the near future (through both soft law and hard law).

Following the implementation of the Pacte Law, the AMF will now closely monitor the application of the new transparency provisions to proxy advisers operating in France.59

Several listed companies have already decided to adopt a corporate mission (either through an amendment of their by-laws or as a statement included in the universal registration document or on their website).60

Finally, political pressure shall keep bolstering the debate on the sharing of values within companies and on companies' societal commitment. There is no doubt that the obligation for companies to take into account any social and environmental concerns about their activities that ultimately lead the companies to be more accountable to their stakeholders will continue to be watched closely by the market.


1 Didier Martin is a partner at Bredin Prat.

2 The latest report is dated January 2020.

3 High Committee on Corporate Governance 2014 Annual Report. The High Committee issued its seventh report in November 2020.

4 The High Committee issued its fourth updated guide in March 2020.

5 The High Committee on Corporate Governance, 2020 Annual Report (83.8 per cent of the CAC 40-listed companies have such one-tier structure).

6 Financial Markets Authority (AMF), '2016 report on corporate governance and executive compensation in listed companies'.

7 French Association of Private Enterprises (AFEP) – Movement of French Enterprises (MEDEF) Code [AFEP-MEDEF Code], Paragraph 3.2.

8 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.

9 AFEP-MEDEF Code, Paragraph 3.2.

10 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].

11 AFEP-MEDEF Code, Paragraph 7.

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

13 AFEP-MEDEF Code, Paragraphs 1.7 and 7.

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

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 Threshold reduced from 12 to eight by the Pacte Law.

18 See French Commercial Code, Articles L. 225-44 and L. 225-85.

19 AFEP-MEDEF Code, Paragraph 25.2.

20 id., at Paragraph 25.1.1.

21 id., at Paragraph 25.3.2.

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

23 id., at Article L. 22-10-34.

24 AFEP-MEDEF Code, Paragraph 25.5.1. 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).

25 id., at Paragraph 24.4.

26 id., at Paragraph 24.5.

27 id., at Paragraph 18.

28 id., at Paragraph 17.

29 id., at Paragraph 16.1.

30 Court of Cassation, 9 March 2010.

31 The 2020 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.

32 AFEP-MEDEF Code, Paragraph 20.

33 id., at Paragraph 20.

34 Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement, Article 9c.

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

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

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

38 European Commission's Action Plan for a greener and cleaner economy, 2018.

39 European Securities and Markets Authority, 'European common enforcement priorities for 2020 annual financial reports', 28 October 2020.

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

41 French Criminal Code, Article 122-9.

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

43 See French Commercial Code, Article L. 225-102-1, as amended by Executive Order No. 2017-1180 dated 19 July 2017, Law No. 2018-771 of 5 September 2018 'for the freedom to choose one's professional future' and Anti-Fraud Law No. 2018-898 of 23 October 2018.

44 AFEP-MEDEF Code, Paragraph 1.6.

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

46 AFEP-MEDEF Code, Paragraph 1.1.

47 id., at Paragraph 1.4.

48 id., at Paragraph 1.5.

49 id., at Paragraph 4.3.

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

51 French Commercial Code, Articles L. 22-10-8 and L. 22-10-34.

52 See AMF recommendation on risk factors, dated 29 October 2009.

53 AMF Report on shareholders' rights and voting at general meetings, published on 5 October 2018.

54 AMF Report on shareholder activism, April 2020.

55 AFEP-MEDEF Code, Paragraph 14.2.

56 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.

57 AFEP-MEDEF Code, Paragraph 4.4.

58 Speech by Robert Ophèle, AMF chair at Droit & Croissance Conference, 'Corporate governance and shareholders engagement: the new normal conference', 18 October 2019.

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

60 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').

The Law Reviews content