Articles 1-24 of Law 4706/2020 incorporate into Greek law the provisions of Directive (EU) 2017/828 and introduce new regulations regarding the corporate governance of listed public limited companies (PLCs).

The new provisions set an updated institutional framework for corporate governance and set a one-year deadline for listed companies to adapt to it. Structural changes are foreseen in the composition and functioning of the board of directors, imposing in many cases changes to its members.

Articles 1-24 of Law 4706/2020 incorporate into Greek law the provisions of Directive (EU) 2017/828 and introduce new regulations regarding the corporate governance of listed public limited companies.

The new provisions set an updated institutional framework for corporate governance and set a one-year deadline for listed companies to adapt to it. Structural changes are foreseen in the composition and functioning of the board of directors, imposing in many cases changes to its members.

Among the innovations of the new law is the adoption by companies of a Suitability Policy for the members of the Board of Directors which must contain: a) the principles concerning the selection / replacement / renewal of the term of office of the members of the Board of Directors, b) the criteria for the evaluation of the suitability of the members of the Board of Directors. (in particular: ethical standards, reputation, knowledge, skills, independence of judgement, experience in the performance of duties); and (c) the provision of diversity criteria for the selection of board members.

The Securities and Exchange Commission published on 18-09-2020 Circular No. 60, which sets out the Guidelines for the formulation of the Suitability Policy.

Among the criteria introduced by the new law with regard to the selection of Board members are sufficient gender representation of more than 25% of the total number of Board members and the non-engagement of a member (or candidate) in loss-making transactions of a company with related parties.

Composition of the Board of Directors

The members of the Board of Directors are divided into executive, non-executive and independent non-executive members. The independent non-executive members shall not be less than one third (1/3) of the total number of members and, in any case, shall not be less than two (2).

In order to ensure the validity of the Board’s decisions when discussing matters relating to the preparation of the Company’s financial statements or matters requiring a decision by the General Meeting with an increased quorum and majority, the new law requires the mandatory participation of the independent non-executive members of the Board. In such cases, at least two (2) independent non-executive members must be present.

An innovation introduced by the new regulations is that the President of the Board must be a non-executive member. If the Board appoints one of its executive members as Chairman, then the Vice-Chairman must come from the non-executive members.

Conditions for the qualification of the members of the Board of Directors as independent non-executive directors

New conditions are introduced for the qualification of the members of the Board of Directors as independent non-executive directors:

Independent non-executive members must during their term of duty:

Not directly or indirectly hold more than 0.5% of the voting rights of the share capital; and

Be free from financial, business, family or other types of dependence on the Company.

A dependency relationship exists in particular:

  1. When the member of the Board of Directors receives any significant remuneration or benefits or bonuses, permanent pension scheme benefits, even deferred benefits from the Company, or from an affiliate of the Company. The criteria on the basis of which the concept of significant remuneration or benefit is defined in the Company’s remuneration policy.
  2. When the member or a person with close relations with the member, maintains or has maintained during the last 3 financial years prior to his/her nomination, a business relationship with the Company or a person affiliated with the Company or a shareholder who directly or indirectly holds a stake equal to or greater than ten percent (10%) of the Company’s share capital, if this relationship affects or may affect the business activity of either the Company or a member of the Board of Directors or a person with close relations with the Board of Directors. Such a relationship exists in particular where the person is an important supplier or important customer of the Company.
  3. When the member or the person, who has close ties with the member: c.a) has served as a member of the Board of Directors of the Company or its affiliated company for more than nine (9) financial years cumulatively at the time of his/her election, c.b) has served as a director or had an employment or project or service or paid mandate relationship with the Company or its affiliated company during the period of the last 3 financial years prior to his/her appointment, c. c) is related by blood or marriage up to the second degree, or is the spouse or partner equivalent to a spouse, of a member of the Board of Directors or a senior executive officer or shareholder, with a shareholding equal to or exceeding 10% of the share capital of the Company or a company affiliated with it, c.d) has been appointed by a designated shareholder of the Company, in accordance with the Articles of Association, as provided for in Article 79 of Law No. 4548/2018, c.e) represents shareholders who directly or indirectly hold a percentage equal to or higher than 5% of the voting rights in the General Meeting of Shareholders of the Company during his/her term of office, without written instructions, c.f) has carried out a mandatory audit in the Company or in a Company affiliated with it, either through a company or himself/herself or a relative up to the second degree by blood or marriage, or his/her spouse, during the last 3 financial years prior to his/her appointment, c.g) is an executive member of another Company, in the Board of Directors of which an executive member of the Company participates as a non-executive member.

The Board itself is required to check whether the above conditions are fulfilled, on an annual basis and in any case before the publication of the annual financial report, which includes a relevant finding.

In application of the above, many listed companies will have to replace board members, in particular due to the completion of their maximum nine-year cumulative term of duty.

One of the innovations introduced by the new law is that independent non-executive directors submit, jointly or individually, reports and reports to the company’s general meeting of shareholders, independently of the reports submitted by the board of directors collectively.

Remuneration and Nomination Committees

The new law provides for the establishment of a Remuneration Committee and a Nomination Committee, whose functions may be integrated into one committee. The committees shall have at least three members and shall consist of non-executive members of the Board of Directors. At least two of their members shall be independent non-executive directors and, in any case, they shall constitute a majority of the members of each committee.

Companies are required to draft the Rules of Procedure for the Committees by July 2021.

The Remuneration Committee: a) makes proposals to the Board of Directors regarding the remuneration policy submitted to the General Meeting for approval; b) makes proposals to the Board of Directors regarding the remuneration of persons falling within the scope of the remuneration policy and regarding the remuneration of the Company’s executives, in particular the head of the internal audit unit; c) examines the information included in the final draft of the annual remuneration report, providing its opinion to the Board of Directors before the 4548/2018.

The Nominations Committee shall identify and propose to the Board persons suitable for membership of the Board, on the basis of a procedure provided for in its rules of procedure.

The Company’s Rules of Procedure (Article 14 of Law 4706/2020):

The new law on corporate governance updates the information that must be contained in the Company’s Operating Regulations and requires the preparation of such regulations for the Company’s significant subsidiaries as well.

The key elements that the Operating Regulation must contain, include:

  1. The organizational structure, the objects of the units, the committees of the company.
  2. Indication of the main features of the Internal Control System.
  3. The process of recruitment and evaluation of senior management.
  4. The compliance procedure for persons performing managerial functions and persons closely associated with them.
  5. The procedure for the disclosure of the existence of any dependency relationships of independent non-executive directors.
  6. The compliance procedure in relation to related party transactions.
  7. The policies and procedures for the prevention and management of conflicts of interest.
  8. The Company’s policies and procedures for compliance with the laws and regulations governing the Company’s organization and operation, as well as its activities.
  9. The procedure for the management of privileged information and proper public information.
  10. The policy and procedure for conducting periodic evaluation of the Internal Control System.
  11. The policy of training of the members of the Board of Directors, the managers, as well as other executives of the Company, in risk management, regulatory compliance and information systems.
  12. The sustainable development policy followed by the Company.

By the decision of the Board of Directors of the Hellenic Capital Market Commission (1/891/30.09.2020) on “Specializations of paragraph j of par. 3 and para. 4 of Article 14, Evaluation of the Internal Control System (ICS) and the Implementation of the provisions on Corporate Governance (CG) of Law No. 4706/2020”, published in Government Gazette B’ 4556/15.10.2020, defines the time, procedure, periodicity and any other specific issue necessary regarding the evaluation of the Internal Control System of companies, as well as the characteristics of the persons who will carry out the evaluation, which may be natural persons, legal entities or associations of persons.

The Operating Regulations of each company falling under the provisions of Law No. 4706/2020, should contain at least (a) the policy for the evaluation of the Internal Audit System and (b) the procedure for its evaluation. The evaluation objects include (i) the control environment, which includes the integrity, ethical values and conduct of the management, the organizational structure, the structure, organization and functioning of the Board of Directors, corporate responsibility and human resources, (ii) risk management, (iii) the control mechanisms and safeguards, (iv) the information and communication system, (v) the monitoring of the internal control system, (vi) the review of the organization and operation of the company’s internal audit unit and the company’s compliance with the regulations.

The Evaluator prepares an evaluation report, which is submitted to the Audit Committee and to the Board of Directors of the company, and a summary thereof is submitted by the company within three (3) months from the reporting date to the Hellenic Capital Market Commission.

The evaluation of the internal control system should be carried out periodically, every three years, while according to the decision of the Board of Directors of the Securities and Exchange Commission No. 1/891/30.09.2020, the first evaluation should have a reference date of 31.12.2021 and should be completed by 31 March 2022.

Article 15 of the Law introduces new regulations regarding the Company’s Internal Audit Unit.

The Internal Audit Unit:

  1. Monitor, control and evaluate
  2. the implementation of the operating rules and the internal control system,
  3. the quality assurance mechanisms,
  4. the corporate governance mechanisms; and
  5. compliance with the commitments contained in the Company’s prospectuses and business plans regarding the use of funds raised on the regulated market.
  6. It shall prepare reports to the audited entities with findings in relation to the matters referred to in (a) above, the risks arising from them and the proposals for improvement, if any. These reports shall be submitted quarterly to the Audit Committee.
  7. It shall submit reports to the Audit Committee at least every three (3) months, which the Audit Committee shall present and submit together with its comments to the Board of Directors.

The head of the unit must attend the General Meetings, provide any information requested by the Securities and Exchange Commission, cooperate with it and facilitate in every possible way the work of monitoring, control and supervision by it. The SEC may introduce guidelines on matters relating to best practices or internal control standards.

Adoption of a Code of Corporate Governance

Among the innovations of the new law is the mandatory adoption of a code of corporate governance, which has been prepared by a reputable body.

Although the adoption of a Code of Corporate Governance is mandatory, the law does not require the choice of a specific Code.

As part of the Board’s obligations, with a view to informing shareholders, the Board must:

  1. Post on the Company’s website 20 days prior to the AGM, information on each candidate for the Board, and in particular:
  2. The justification of the candidate’s proposal.
  3. The detailed curriculum vitae of the candidate member.
  4. The determination of the eligibility criteria of the candidate Board members, in accordance with the Company’s eligibility policy, and, in the case of an independent Board member, the fulfilment of the requirements of article 9 of Law No. 4706/2020.
  5. To make a corporate governance statement, in accordance with article 152 of Law No. 4548/2018, with reference to the suitability policy, the activities of the committees of article 10 of the law. 4706/20, the biographies of the members of the Board of Directors and of the Company’s senior managers, information on the participation of the members of the Board of Directors in its meetings and in the meetings of the committees under Article 10 of the new law, and information on the number of shares held by each member of the Board of Directors and each senior manager in the Company.

New regulations are introduced in respect of the Shareholders’ Service Unit (Article 19) and the Corporate Communications Unit (Article 20), for which it allows them to operate as a single unit.

The new law introduces specific provisions for share capital increases by cash payment or bond issue and changes to the use of raised capital (Article 22).

The above also applies to cases of a bond issue by public offer and publication of a prospectus.

A further safeguard is introduced, that deviations in the use of the funds raised in relation to the use of the funds provided for in the prospectus and in the resolutions of the General Meeting or the Board of Directors, exceeding 20% of the total funds raised, are implemented only with prior decisions of the Board of Directors taken by a majority of 3/4 of its members and approval of the General Meeting convened for this purpose, with an increased quorum and majority. In fact, the above deviations may not be decided before six months have elapsed since the completion of the fund-raising, except in exceptional cases of force majeure or unforeseen circumstances duly justified at the General Meeting.

Similarly, Article 23 of Law No. 4706/2020 introduces additional guarantees for the disposal of the Company’s assets:

The decision of the General Meeting on the disposal of its assets, which take place within a period of two (2) years, through one or more transactions, and the value of which (in aggregate) represents more than 51% of the total value of the Company’s assets, shall be taken by an increased quorum and majority, in accordance with the provisions of article 130 of Law no. 4548/2018.

The new law introduces in Article 24 significant sanctions, which are imposed by the Securities and Exchange Commission, both on companies and on the individual offenders.

Penalties start with a reprimand, but can reach a fine of up to three (3) million euros to the Company and, in any case, up to five percent (5%) of its total annual turnover. Similarly, penalties on natural persons start with a reprimand and can reach up to a fine of up to three (3) million euros to members of the Board of Directors or other natural or legal persons falling within the scope of the law.

The recent decision 1A/890/18.9.2020 of the Board of Directors of the Hellenic Capital Market Commission specifies the system for determining, calculating and measuring the amount of penalties per violation, imposed under article 24 of the Law. 4706/2020. For the assessment of the fine, the gravity of the violation, the impact of the violation on the proper functioning of the market, the risk of causing damage to the interests of investors and minority shareholders of the Company, the degree of culpability are taken into account, the measures taken by the offender to remove the infringement in the future, the degree of cooperation with the Securities and Exchange Commission during the investigation and control stage, the needs of specific and general prevention and the possible repeat offences of Articles 1 to 23.

The network of new provisions, which imposes a series of changes and adjustments on listed companies, de facto leads to an introspection of companies, in order to make use of the interim period until 18.07.2021, the deadline for compliance with the new law, and to make all the structural changes imposed. It is again noted that, especially the evaluation of the Internal Control System, must be completed by 31.03.2022, with an audit reporting date of 31.12.2021.

It is certain that the Boards of Directors, Internal Audit Committees, Internal Auditors, Statutory Auditors and legal departments of listed companies will have a particular workload in the coming period in order to comply with the new provisions in a timely manner and on time.