Greece has taken a positive step to improve the management of its listed businesses with a new corporate governance law (4706/2020). The law incorporates the European Union’s shareholder rights directive of 2017 and sets out to reproduce best practice in corporate governance, therefore stimulating competitiveness and growth.
The law applies to companies whose shares or other securities are listed on the Athens Stock Exchange or other regulated markets in Greece. It will come into force on 18 July 2021.
More accountability for boards
The board remains the key player in the Greek corporate governance regime. The new law requires a company’s board to monitor that regime, assess its effectiveness every three years, and ensure that the internal control system is sufficient and effective.
The adoption and implementation of a corporate governance code (which must be compiled by an approved entity, foreign or domestic) is now mandatory, although the choice of code is up to the board.
Also for the first time, companies must draw up and implement an AGM-approved suitability policy for directors, to help ensure the appointment of only the most appropriate candidates.
Minimum representation for women
Individuals responsible for loss-making transactions between the company (and/or other non-listed companies) and any related parties are excluded from directorships, and women must now have a minimum 25% representation on the board.
The existing board composition of executive, non-executive and independent directors has been retained. Executive directors are responsible for implementing the board’s strategy, while non-executive and independent directors will supervise executives and must be immediately informed (in writing) of any major corporate events that are taking place.
The new law provides, for the first time, for an internal control unit with extensive responsibilities, whose members – including its head – may not be board directors
Focus on committees
The chairman of the board will usually be elected from the category of independent directors, whose role and independence have been strengthened.
Two new board committees have been established – for remuneration and board nominations. They may not be merged into a single committee, and both must have a majority of independent directors as members.
The audit committee has also been modified, although its principal role remains the supervision of the company’s internal control systems, the monitoring of the statutory audit of the financial statements, and the auditing of the selection and independence of the statutory auditors. It must have at least three members, most of whom (as well as the chairman) must be independent non-executive directors.
Other highlights
The board must draw up the company’s charter. Although this is not new, the content has become more demanding. The statutory auditor must confirm its existence and its updated content in the audit report.
The new law provides, for the first time, for an internal control unit with extensive responsibilities, whose members, including its head, may not be board directors. The unit’s head is proposed by the audit committee and appointed by the board of directors.
The company must also set up a shareholder service unit and a corporate announcements unit, and provide information about them on its website, as well as details about board candidates.
There are specific provisions for the disposal, within two years, of more than 51% of total company assets. AGM approval (by an increased quorum and majority) is required for such disposals.
The use to which any extra capital funds raised are put must be identified by the board in a report to the AGM. Any change to the use of such funding that affects more than 20% of the total funds will require approval by three-quarters of the directors and a majority of an increased quorum at an AGM.
Penalties for violating the new law are heavy and potentially catastrophic, with a fine of up to €3m (compared with €1m under the previous law) or up to 5% of company turnover, whichever is smaller. The penalties may also be imposed on the directors personally.
