The 2009 Belgian Code on Corporate Governance: major amendments


On March 12, 2009, the second edition of the Belgian Code on Corporate Governance was published (the “2009 Code”), superseding and replacing the first edition, that was issued in 2004. The 2009 Code applies to companies incorporated in Belgium whose shares are admitted to trading on a regulated market. Generally, the 2009 Code applies to the financial years beginning on or after January 1 2009; the provisions regarding executive remuneration apply to contractual arrangements entered into after July 1 2009.

The 2009 Code was issued in order to take into account the changing legal environment since its first edition, against the background of the financial crisis. The nature and structure of the 2009 Code remain unchanged. Major amendments to the first edition are the recommendations regarding executive remuneration, the separation of the role of the Chairman of the Board of Directors and the Chief Executive Officer (“CEO”) and the emphasis on the monitoring role of the Board of Directors.

Nature and structure of the 2009 Code

Just like the first edition, the 2009 Code is “soft law”, i.e. complementary to Belgian law. No provision of the 2009 Code may be interpreted as derogating from Belgian law.

The 2009 Code contains nine principles or “pillars” of good corporate governance, relating to, amongst other things, the company’s governance structure and the appointment and evaluation of board members. Each principle is followed by a number of provisions, which are recommendations on how to apply the principle. Listed companies are expected to comply with the provisions or explain why, taking into account their specific situation, they do not (i.e. the ‘comply or explain’ principle). Some provisions are supplemented with explanatory guidelines. However, the obligation to ‘comply or explain’ does not apply to these guidelines.

Recommendations regarding executive remuneration

The 2009 Code stresses in a new, general provision that no individual should decide his/her own remuneration. In the first edition, this provision only applied to executive managers. The principal distinction between the remuneration of non-executive and executive staff remains unchanged: non-executive directors should not be entitled to performance-related remuneration (although this happens in practice), executive directors and managers, on the contrary, are eligible for performance-related remuneration, such as bonuses, stock-related long-term incentive schemes, fringe benefits or pension benefits. Such schemes (but not the grant of share-based benefits under a scheme to individuals) require the prior approval of the shareholders.

The 2009 Code also provides detailed guidelines on the transparency of executive remuneration and the main features of executive’s contracts. The principle holding that “the company shall remunerate directors and executive managers fairly and responsibly”, was amended accordingly.

The 2009 Code introduces the ‘remuneration report’ as an additional part of the Corporate Governance Statement that each listed company must include in the annual management report of its Board of Directors. This report should contain the criteria for the evaluation of performance achieved against targets as well as the term of evaluation, in such a way that it does not disclose any confidential information regarding the company’s strategy. The remuneration of non-executive directors must be disclosed on an individual basis. The remuneration of executive directors and executive managers may be done on a global basis, except for the remuneration of the CEO and the number and key features of share options, etc.

Brand new in the 2009 Code are the provisions regarding severance pay awarded in the event of early termination (so-called ‘golden parachutes’). In that respect, the 2009 Code distinguishes ‘basic remuneration’ (i.e. the monthly remuneration paid in the last month before termination) from ‘variable remuneration’, which is contractually determined and based on variable compensation effectively paid during the contract.

Severance pay should be limited to twelve months’ basic and variable remuneration. In exceptional circumstances, a severance pay of eighteen months’ basic and variable remuneration can be awarded. Such exceptional circumstances must be specified in the contract, require a justification by the Board of Directors and a recommendation by the remuneration committee. Examples of exceptional circumstances are departures because of a merger, a change of control or a change of strategy. Termination rights that already exist within the company and the years of service in a previous position may also be taken into account.

Moreover, the contract with the departing CEO or executive manager should specify that the severance package will neither take account of variable remuneration nor exceed twelve months’ basic remuneration, if the performance criteria referred to in the contract were not met.

Separation of the roles of the Chairman of the Board of Directors and CEO

The concern that the Chairman of the board and the CEO should not be the same individual, has an Anglo-Saxon origin. The basic idea is that the Chairman runs the board and the CEO runs the business. The separation of roles is essential for a proper functioning of corporate governance. The Chairman should be in a position to hold the CEO accountable to the board. This requires a minimum distance. Therefore, there should be a clear division of responsibilities at the head of the company between the running of the board and executive responsibility for the running of the company’s business. This division of responsibilities should be clearly established, set out in writing and agreed by the Board of Directors.

The first edition of the Belgian Code on Corporate Governance contained a guideline according to which the chairman should establish a “close relationship” with the CEO, providing support and advice, while fully respecting the executive responsibilities of the CEO. In the 2009 Code, that guideline became a provision, falling within the scope of the ‘comply or explain’ principle.

The provision of the first edition that “the board appoints its own chairman” was replaced by a new provision according to which the board should appoint its chairman on the basis of his/her knowledge, skills, experience and mediation strength. The provision further states that, if the board envisages appointing a former CEO as chairman, it should carefully consider the positive and negative aspects in favour of such a decision and disclose in the Corporate Governance Statement why such appointment is in the best interest of the company.

Monitoring role of the Board of Directors

The authors of the 2009 Code wanted the Belgian Code on Corporate Governance to provide more detailed guidelines on the task of the board in relation to risk management, internal control, “whistle blowing” etc.

Pursuant to Provision 1.3 (as amended) of the 2009 Code, the Board of Directors should at least, with respect to its monitoring responsibilities:

review executive management performance and the realisation of the company’s strategy;
monitor and review the effectiveness of the board’s committees;
take all necessary measures to ensure the integrity and timely disclosure  of the company’s financial statements and other material financial and non-financial information disclosed to the shareholders and potential shareholders;
approve a framework of internal control and risk management set up by the executive management;
review the implementation of this framework, taking into account the review made by the audit committee;
supervise the performance of the statutory and/or registered auditor and supervise the internal audit function, taking into account the review made by the audit committee;
describe the main features of the company’s internal control and risk management systems, to be disclosed in the Corporate Governance Statement.

The 2009 Code missed the opportunity to elaborate explicitly on the role of the board in structural changes and changes of control.


The 2009 Code deals extensively with the concerns raised during the public consultations held in October – November 2007 and in July – September 2008. In particular, the clear and elaborated provisions regarding severance pay are welcome additions to the first edition of the Belgian Code of Corporate Governance. However, the 2009 Code does not contain clear guidance on the duties of shareholders. Therefore, it might be worthwhile for a third edition to elaborate on the behaviour of shareholders and the potential abuse of shareholder rights.