Reports and Spanish Legislation on Corporate Governance.

Spain has, in the recent years, shyly embraced Corporate Governance initiatives. The Spanish path on Corporate Governance, started with the publication of a report by the Círculo de Empresarios, a Spanish association of businessmen, on November 12th 1996. The report showed, by subject, a series of ideas and proposals for a better running of Boards of Directors.

Within the plan of liberalization measures adopted by the Council of Ministers on 21.2.1997, the Government agreed the creation of a Special Commission for the study of Ethical Code of the Boards of Directors of the Companies.On February 26th 1998, the Commission published a report, which is now known as "The Olivencia Report", which included the analysis of problems affecting Spanish stock companies, which remedies should be settled, and an Ethical Code of Good Governance, which summarizes some recommendations.

Some years later, the Council of Ministers approved the establishment of a special commission, fostering transparency and security in markets and listed companies, which was formally founded on September 4th 2002, under the chairmanship of Mr Enrique de Aldama y Miñón, which published its report on January 1st 2003, known as the "Aldama Report". The Aldama Report follows the line of the Olivencia Code, essentially endorsing the philosophy of the rule of law, self-regulation of markets and maximum transparency. Some of the recommendations included in the referred reports, have been included in Spanish legislation, by:

- Law 44/2002, Financial Law:

  1. Listed companies must have audit committees, formed by a majority of independent non-executive directors.
  2. Relevant information on listed companies
  3. Rules of conduct for directors and employees of stock market related entities, in reference to insider trading information, and the prohibition to distort the establishment of prices.

- Law 26/2003, Law on Transparency of Listed Companies, modifies the Stock Market Law 24/1988, to reinforce transparency in public listed companies:

  1. Creates new control mechanisms to increase security and transparency in the markets.
  2. Introduces some amendments to RDL 1564/1989, dated December 22nd Law for Incorporated Corporations, -applicable not only to listed companies, but to all incorporated corporations-, affecting the casting of votes and representation in the shareholders general meeting, and the shareholder's right to information, as well as the duties of diligence, faithfulness and loyalty of directors, together with its liability regime.
  3. Within the strict scope of the incorporated listed companies, establishing a series of obligations, such as adoption of rules of procedure for the board of directors; the director´s conflict of interest and obligation not to vote at a shareholders general meeting, when he has made a public request for representation if such conflict of interest exists; Corporate Governance annual report and information through a mandatory corporate web site informing about it.

The failure to meet the above said obligations, makes it a punishable offense under the regime of the Law.

In July 2005, the government of Spain set up a Special Working Group to advise the National Securities Market Commission (CNMV) in harmonizing and updating the Olivencia and Aldama reports.

In its 2006 Report on the Good Governance of Listed Companies, update the Olivencia and Aldama Reports' recommendations, the Special Working Group took into account international recommendations, including the Organization for Economic Co-operation and Development (OECD) Principles of Corporate Governance.

In May 2006, the Special Working Group, approved the proposal for a Unified Code on Good Corporate Governance, which included EU Recommendation 2005/162/EC, dated February 15th 2005 on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board; and Recommendation 2004/913/EC dated December 14th 2004, fostering an appropriate regime for the remuneration of directors of listed companies.

The Unified Code on Good Corporate Governance, establishes recommendations on size and structure of the board of directors; publication of Board remuneration in annual reports, directors´ independence; publication of the companies´ audited financial statements, in their public offering prospectuses when they issue securities, as well as in their listing prospectuses when a security is admitted to trading on a regulated market.

The transposition of the EU Market Abuse Directive No. 2003/6/EC was completed in November 2005 with the approval of Spanish RD 1333/2005 on Insider Information and Price Manipulation.

The EU Directive No. 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC, was incorporated into Spanish legislation through the RD 1310/2005, on Public Offering of Securities.

Furthermore, RD 1362/2007 transposed both the EU Takeover Bids Directive No. 2004/25/EC and the EU Transparency Directive No. 2004/109/EC, on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC.

Furthermore, the Spanish government has adopted the new Spanish Generally Accepted Accounting Principles or GAAP (Plan General de Contabilidad), effective as of January 1st 2008, based on International Financial Reporting Standards (IFRSs). The Spanish GAAP issued by the Institute of Accounting and Auditing (ICAC) -an independent entity to implement EU accounting principles and policies in Spain- apply to individual companies and unlisted consolidated groups.

Listed consolidated groups are subject to IFRSs and unlisted groups may use IFRSs since 2005.The CNMV also issues Circulars that provide additional reporting obligations for listed companies.

Cuidemos el Medio Ambiente.

Este documento ha sido entregado en formato electrónico a fin de evitar su impresión en papel. Por favor, antes de imprimir, piense bien si es estrictamente necesario.

Mireia Ferré


Barcelona, 28th September 2009



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