In France, most business organisations are incorporated in the form of companies with distinct legal personality.
French law distinguishes between civil companies, governed by civil laws exclusively, and commercial companies, governed by civil and commercial laws. Civil companies may operate only a limited list of activities, which are deemed civil by nature (eg, agriculture, liberal activities, real estate), while commercial companies may operate any type of activities, including civil activities.
There are three main differences between civil companies and commercial companies:
These differences explain that civil companies are far less common than commercial companies, and limited to specific uses. For this reason, they will be excluded from this study.
The corporate forms applicable to commercial companies are numerous and can be classified into two categories: limited liability companies and unlimited liability companies. Unlimited liability companies are rare and used for extremely specific transactions, so they will be also excluded from this study.
Among limited liability companies, the most common corporate forms are:
Corporate governance requirements are derived from laws and regulations, recommendations and internal rules set forth by companies themselves.
Laws and Regulations
The French Commercial Code (Code de commerce) and, to a lesser extent, the French Monetary and Financial Code (Code monétaire et financier) contain the majority of corporate governance rules and requirements.
European Union directives and regulations, such as the Shareholder Rights Directive II of 17 May 2017, or the Directive on improving the gender balance among directors of listed companies dated 23 November 2022, also comprise a set of corporate governance requirements applicable to French companies. Requirements issued from EU directives shall be incorporated into French law in order to be enforceable, whereas requirements issued from EU regulations are directly applicable to French companies.
Listed companies are subject to additional recommendations issued by corporate governance codes, to which they must refer (or explain why they decided not to), such as the AFEP-MEDEF Code, intended for large, listed companies, and the MiddleNext Code intended for small and medium-sized listed companies.
They must also take into consideration recommendations issued by the Haut Comité au Gouvernement d’Entreprise (HCGE) – a special committee appointed to follow the implementation of the AFEP-MEDEF Code and interpret its recommendations – and by the French Financial Markets Authority (AMF).
To a lesser extent, listed companies may also take into account the voting policies issued by proxy advisors (Proxinvest, ISS), as they are followed by a majority of investors and give guidance on satisfactory governance policies for investors.
Finally, companies may adopt internal rules, such as by-laws, board internal regulations, codes of ethics or of conduct which set forth specific corporate governance rules and requirements.
Listed companies are subject to additional mandatory corporate governance requirements and recommendations.
First of all, only three corporate forms are authorised to trade their shares on a regulated market: SA, Societas Europaea (SE) and partnerships limited by shares (société en commandite par actions or “SCA”).
Listed companies are subject to other mandatory corporate governance requirements:
Listed companies are also subject to various recommendations, including:
Recommendations applicable to listed companies mostly derive from corporate governance codes. Although these codes are deemed to be non-binding (soft law), listed companies choosing not to follow their recommendations must publicly explain why and justify their choice to the market (comply or explain principle). In addition, companies choosing not to follow recommendations issued by the AMF may be named in the AMF corporate governance report for not complying with its recommendation.
Green Shareholder Activism and “Say on Climate”
Shareholder activism is increasingly focusing on ESG and climate-related issues. As a matter of fact, since 2020, activist investors have started to request issuers operating in high-impact sectors (energy, building industry) to consult their shareholders on their climate strategy, on the say-on-pay model. If most motions proposals submitted in 2020 and 2021 were rejected by the board of directors or disapproved at the general meeting, issuers have taken into account this new issue and included related consultative resolutions at the 2023 general meetings. In this context, the AMF published, in March 2023, a press release encouraging listed companies to submit “say on climate” resolutions for shareholders’ approval every year.
Expansion of Multiple Voting Rights Shares
French corporate law has long abandoned the rule “1 share = 1 vote”. Multiple voting right shares may be issued by all commercial companies although the use of these shares is still restricted for listed companies. Listed companies may only issue double voting right shares to long-term shareholders; other multiple voting rights are prohibited.
However, the French legislature is anticipating a change is this restriction to encourage more companies to go public. In line with the EU new Listing Act proposal, and based on a report from Legal High Committee for Financial Markets of Paris (HCJP), France is contemplating to authorise non-listed companies to keep their already-issued multiple voting rights shares when going public.
Extra-Financial Reporting and CSRD Directive
Please refer to 2.2 Environmental, Social and Governance (ESG) Considerations.
ESG and Strategy
The board of directors is entrusted with the definition of the strategy of the company. In doing so, the board is legally bound to take into account social and environmental issues.
Corporate governance codes increase, year after year, their recommendations towards a better consideration of climate and environment protection-related issues, with the recommendations to create an ESG committee, in charge of investigating ESG matters, the enhanced training of directors or the increase of ESG performance criteria as part of executives’ compensation schemes.
Pressure to increase climate strategy reporting to shareholders is in constant evolution (please refer to 2.1 Hot Topics in Corporate Governance).
Corporate Duty of Care
Since 2017, large French companies have been subject to due diligence obligations to identify any risks and prevent any violations of human rights and fundamental freedoms, or severe abuses of human health and safety and of the environment, resulting from their activities as well as those of their subsidiaries, suppliers and subcontractors. These companies must establish a vigilance plan and a report on their effective implementation, to be included in the annual report.
The European Union has recently adopted similar obligations applicable to EU limited liability companies of substantial size and economic power or with business in defined high-impact sectors.
Raison D’être and Mission-Driven Companies
In 2019, the Pacte Act introduced two optional tools into French corporate law designed for companies intending to redirect their focus on their role in society, beyond their economic performance: the concept of raison d’être (core purpose) as well as the status of mission-driven company.
The raison d’être determines the orientation of a company’s business and defines its identity and vocation, beyond its commercial purpose. Therefore, a company adopting a raison d’être makes the choice to define the ethical standards according to which its activities will be conducted. Companies adopting a raison d’être are free to define it more or less precisely. One can observe that there is a great deal of variation in the level of precision and relevance of the chosen raison d’être, which has an impact on the effectiveness of this tool in terms of creating new ethical standards: the more generic the raison d’être, the less likely it is to clarify the standards binding the company.
The Pacte Act also allows French companies complying with stricter requirements to be labelled as mission-driven companies. This status may be granted to companies choosing to adopt – in addition to a raison d’être – strong commitments towards environmental, ethical and/or social concerns. These commitments are submitted to the general meeting of shareholders and included in the bylaws. Compliance with these commitments is assessed regularly by a mission committee, comprising at least one employee and usually representatives of other stakeholders. Failure to comply with the mission or the commitments not only entails the withdrawal of the status, but could also lead to liability claims against the directors and the company.
Extra-Financial Reporting and CSRD Directive
French listed companies and other large companies are subject to extra-financial reporting obligations in the form of a non-financial performance declaration (DPEF). These requirements will be drastically extended starting in 2025 with the entry into force of the Corporate Sustainability Reporting Directive (CSRD) of 14 December 2022. This directive provides for the substitution of a new extended reporting on sustainability to the previous DPEF, in order to include information on environmental, social and governance issues. The reporting requirements will by based on a double materiality principle: sustainability matters that affect the company as well as the impacts of the company on sustainability matters.
In addition, the scope of companies covered by the CSRD will also be significantly increased to include small and medium-sized companies by 2027.
There are three main functions involved in the governance and management of French companies:
Deliberative functions are always delegated to the shareholders of the company. Depending on the corporate form, the shareholders are mandatorily convened in general meetings (SA, SARL) or may be consulted in other ways (SAS).
In elaborate forms of companies, specific bodies are responsible for supervising management, whereas in other forms of companies, management control is left to the shareholders.
In SA with a one-tier board system, the board of directors (conseil d’administration) is a hybrid corporate body as it is in charge of supervisory functions over corporate officers, as well as certain management functions (please see below). In SA with a two-tier board system, most supervisory functions are exercised by the supervisory board.
In other corporate forms (SAS, SARL), supervisory functions are performed, in a more limited way, directly by the shareholders and no dedicated corporate body is provided by law. However, the shareholders may decide, in SAS, to create specific corporate bodies and entrust them with supervisory powers.
The management functions include the definition and implementation of the company’s strategy and the representation of the company towards third parties. Depending on the corporate form of the company, management functions are exercised by individuals or collegiate bodies.
SA may be structed pursuant to a one-tier board or a two-tier board system, at the shareholders’ discretion. This choice must be registered in the by-laws.
In SA with a one-tier board system, the management functions are split between the board of directors (conseil d’administration), which members are appointed by the shareholders, the chairman of the board of directors, appointed by the board among the directors, and the CEO (directeur général), also appointed by the board of directors. The board of directors may also decide to name a single person to act as chairman and CEO (président-directeur général). The board of directors, upon request of the CEO, may appoint one or more deputy CEOs to assist the CEO and delegate management powers to them.
In SA with a two-tier board system, the management functions are entrusted to the executive board (directoire), appointed by the supervisory board. Members of the executive board are not allowed to be part of the supervisory board.
In SAS, the law entrusts the chairman (président) with all management functions. The chairman may be a natural or a legal person. The shareholders are free to provide for additional corporate bodies in the bylaws, entrusted with limited management functions.
SARL are managed by one or more managing directors (gérants), as the case may be convened in a management board (conseil de gérance). The managing directors are natural persons.
The powers and types of decisions made by the corporate bodies differ depending on the corporate form of the company.
Please refer to 5.2 Role of Shareholders in Company Management for a description of the shareholders’ decision-making powers.
In one-tier board systems, the board of directors is competent to determine the strategic orientations of the company’s business and ensure their implementation within the limits of the company’s interest and taking into consideration social and environmental issues. In particular, the board of directors:
The powers of the board of directors shall be exercised within the limits of the power granted by laws to the general meeting of shareholders.
The CEO and the deputy CEOs, if any, are in charge of the day-to-day management of the company, within the limits of the corporate object of the company and the board of directors’ and the general meeting’s powers. Via-à-vis third parties, the CEO has the broadest powers to represent the company and act on its behalf.
In two-tier board systems, the supervisory board is responsible for the supervision of the management and the preservation of the company’s long-term interest. Therefore, the supervisory board:
Unlike the board of directors, the supervisory board is not entitled to make management decisions.
The executive board is in charge of the strategy of the company and its day-to-day management, within the limits of the general meeting’s powers. The chairman of the executive board has broadest powers to represent the company towards third parties.
The chairman of the SAS is the only mandatory management body of the company, and is therefore entrusted with the broadest powers to manage the company and represent it towards third parties, within the limits of the shareholders’ powers.
The shareholders may set other corporate bodies to assist or supervise the chairman. Internally, the chairman’s powers shall be limited by specific powers granted to these corporate bodies. Those limits may however be enforced towards third parties only if it is proved that they had knowledge of such limitations.
In the SARL, each of the managing directors has the broadest powers to manage the company and represent it towards third parties, within the limits of the corporate purpose and shareholders’ powers. The shareholders may decide to limit the managing directors’ powers in the by-laws and require prior authorisation from the shareholders for material management decisions.
The role and powers of the shareholders are described in 5.2 Role of Shareholders in Company Management.
The applicable decision-making process depends on the nature of the corporate body. Please refer to 5.3 Shareholder Meetings for the shareholders’ decision-making processes.
Collegiate management and/or supervisory bodies meet periodically on pre-defined agenda. Meetings are called by the chairman and the convening process is freely determined in the by-laws or other internal rules, if any. For the adoption of defined decisions, such as the approval of annual or interim accounts, the statutory auditors (if any) must be given notice of the meeting. In companies with at least 50 employees, members of the social and economic committee (comité social et économique) may also attend the meetings in an advisory capacity.
In SA, the board of directors may also implement specialised committees whose role is to issue opinions on matters submitted by the board and falling into their competence area. In this case, the board of directors will be convened after the relevant committee and will make decisions based on the committee’s opinion.
Decisions are made by voting and the majority and quorum rules are defined by law or in the internal documentation of the company. By exception, and if so provided for in the bylaws, collegiate bodies may adopt decisions by written consultation, without any meeting. Decisions are registered in minutes – drafted by an external secretary or by a member of the corporate body, executed by the chairman of the meeting and usually at least one other member of the body.
French law does not dictate any decision-making process for non-collegiate corporate bodies, although it is recommended that material management decisions are registered in writing. In addition, the by-laws or other internal rules may enforce voluntary decision-making processes.
As mentioned in 3.1 Bodies or Functions Involved in Governance and Management, SA may be structured pursuant to a one-tier board or a two-tier board system.
Given the relative scarcity of the two-tier board system, 4.1 Board Structure to 4.11 Disclosure of Payments to Directors/Officers will only deal with one-tier board SA.
SA boards of directors are composed of three to 18 directors, including the chairman of the board. The shareholders appoint the directors, which may be natural or legal persons. In the latter case, they must appoint a permanent representative to the board.
Regulations and recommendations apply to the selection of directors:
The board of directors may set up specialised committees (audit committee, compensation committee, ESG committee) whose role is to issue opinions on matters submitted by the board in order to improve the effectiveness of the board. Specialised committees have consultative powers only and do not substitute for the board. Audit committees are mandatory for companies whose shares are admitted to trading on a regulated market.
The shareholders may also appoint censors to the board of directors, with an advisory role only.
In SAS, the structure of the board – if the shareholders decided to voluntarily set up such collegiate body – is freely set in the by-laws or any internal rules adopted by the shareholders, if any.
There is no board of directors in SARL, as the management is exclusively performed by its manager(s).
The board of directors is a collegiate body. As a principle, the directors collectively exercise the functions assigned to the board and they do not have any individual powers, except for the chairman of the board.
However, the board of directors may grant specific assignments to individual directors, in order to improve the corporate governance of the company and facilitate the board’s mission.
Directors may be assigned, given their skills and experience, to one or more specialised committees to help assessing specific matters (please refer to 4.1 Board Structure).
Also, the board of directors may appoint a lead director chosen from among the independent directors to play a mediating role between the board of directors and the shareholders and improve shareholder dialogue. Lead directors are strongly recommended by the AFEP-MEDEF Code in controlled listed companies.
The chairman of the board has a distinct role: they are in charge of organising and directing the work of the board of directors and reporting to the general meeting. The chairman ensures the proper functioning of the company’s bodies and that the directors are able to fulfil their duties.
Various regulations and recommendations apply to the selection of directors and the composition of the board.
Directors are appointed and may be dismissed without cause by the general meeting of shareholders. Given that the agenda of the general meeting it set by the board of directors, shareholders are allowed to vote on the appointment and dismissal of one or more directors even if these decisions were not registered in the agenda. When a seat at the board of directors becomes vacant, the board of directors is entitled to provisionally appoint a new director to fill the vacancy, subject to ratification by the next general meeting.
The chairman of the board, whether they assume the CEO’s position or not, is appointed from the directors of the board and must be an individual. The chairman is dismissed without cause by the board of directors. If the chairman is dismissed from their role as director by the shareholders, the chairman is automatically dismissed from their chairmanship and, as the case may be, CEO position.
If the chairman does not assume the CEO’s position, the CEO is appointed by the board of directors. Deputy CEOs may also be appointed by the board of directors upon proposal from the CEO. The CEO and deputy CEOs may be dismissed at any time by the board of directors. However, in the absence of a cause (juste motif), the CEO and deputy CEOs may claim damages.
The chairman is appointed and dismissed in accordance with the by-laws or internal rules of the company.
The managing directors of the SARL are appointed and dismissed by the general meeting.
There are no requirements concerning the independence of directors in non-listed companies.
With respect to companies, the securities of which are admitted to trading on a regulated market, the French Commercial Code indirectly requires the appointment of independent directors, since the audit committee must include at least one director deemed independent according to criteria specified and made public by the board of directors.
Also, the corporate governance codes recommend that a sizable proportion of directors be independent. Hence, the AFEP-MEDEF Code recommends that 50% of directors be independent in not-controlled companies, and 33% in controlled companies.
The corporate governance codes set up a list of criteria for the assessment of the independence of directors. The board of directors shall use those criteria to determine which directors are independents, it being understood that even if all criteria are not met, the board remains free to deem a director independent if it is otherwise justified.
Corporate officers and directors must act in accordance with the best corporate interest of the company, with the additional requirement provided by the Pacte Act of 2019 to “take into consideration” social and environmental issues when making their decisions.
Pursuant to an amendment to the French Commercial Code introduced in March 2022, cultural and sporting concerns are also elements to be considered by directors in deciding the company’s orientation. Unexpectedly adopted by the French Parliament, the maintenance of such provision is not ensured.
The scope of directors’ duties is also to be further expanded under the draft directive on Corporate Sustainability Due Diligence, even though some proposals have been already integrated into French law.
Directors must act in accordance with the best corporate interest of the company, which generally overlaps with that of the shareholders, but it is not systematic. In this respect, directors and the board are becoming increasingly pivotal in the implementation of new ethics standards in corporate strategy, with new or renewed interests to be taken into consideration (employees, other stakeholders, etc) when assessing the situation vis-à-vis the corporate interest of the company they manage.
According to the circumstances, a breach of director’s duties may be enforced by the following parties:
It is important to point out that unless one of the directors is solely responsible, directors’ liability is collective, given the collegial nature of the board. Lastly, the recognition of directors’ liability under French law is not that common.
In France, directors and officers can be held liable for criminal and civil charges.
Regarding criminal liability, they would be liable for any criminal infringement such as misappropriation of corporate assets, distribution of fictitious dividends or publication of inaccurate annual accounts.
Directors and officers can also be civilly liable if they commit breach of laws and regulations applicable to the company (breach of the articles of association or internal regulations). In addition, mismanagement by directors and officers can be a liability cause if they act contrary to the corporate interest of the company. Mismanagement ranges from negligence to fraud.
In addition, directors and officers can also face administrative and tax liability; for example, in case they infringe the AMF securities law-related regulations, the authority is able to pronounce financial sanctions. In the same way, fraudulent acts or breaches of tax obligations can lead to financial sanctions.
Their liability cannot be restricted or limited on a contractual basis. However, it can be excluded in case the directors and officers demonstrate they acted with a legitimate lack of awareness of a wrongful act or if they show they were in opposition to the decision at stake.
Usually, the company offers insurance to the directors and officers that covers specific defence and investigation costs or damages.
In the case of SA, the directors’ and officers’ compensation approval process differs, depending on whether or not the company is listed.
In non-listed SA, the general meeting of shareholders must approve the aggregate amount of the compensation to be paid to the board of directors, as a whole. Then, the allocation of this amount between the directors is decided by the board of directors itself. The board of directors also has exclusive authority to set forth the CEO’s compensation scheme and authorise any payment made to it, without any prior approval required from the shareholders.
CEO’s compensation schemes generally include a fixed and a variable portion, the latter being paid upon achievement of targets set by the board.
Listed SA must comply with the say-on-pay procedure (please refer to 1.3 Corporate Governance Requirements for Companies With Publicly Traded Shares). Under this regulation, the directors’ and officers’ compensation schemes are subject to a double approval process from the shareholders:
A rejection of the ex-ante vote or of the ex-post vote by the shareholders entails severe consequences:
Compensation schemes of listed companies’ officers are also subject to various rules and recommendations, including from corporate governance codes (with for instance increasing recommendation to consider ESG criteria for variable compensation).
In SAS, the conditions for the compensation of the chairman and members of the board (if any) are set in the by-laws.
The compensation of the managing directors of the SARL is approved by the shareholders.
Listed companies must disclose any such compensation in a complete and transparent manner in their Universal Registration Document. This disclosure must provide the total compensation, fixed, variable and exceptional, and benefits of any kind attributed or paid to all corporate officers in the last year.
The company and its shareholders are legally bound by the by-laws, which constitute the company’s internal regulations. As far as shareholders are concerned, this set of rules, mainly driven by applicable laws of the French Commercial Code, states their specific rights within the company. For instance, their right to vote, their right to perceive dividends or their right to information about business and management matters.
In SAS, the importance of the by-laws is even more significant since the relationship between the company and its shareholders mainly relies on them; the SAS corporate form being little regulated by law provisions.
As a general principle, shareholders are not meant to be in charge of the day-to-day management of the company, which is delegated to the corporate officers.
That being said, shareholders are entitled to have an important role in the making of certain decisions – ie, all matters attributed to the general meeting by laws and the articles of association. For example, the approval of the annual accounts, the appointment and removal of corporate officers and statutory auditors, the amendment of the articles of association or the dissolution of the company.
Besides this “typical” involvement, shareholders now play a more important role as they are increasingly solicited on the management of the company’s activity and administration. For example, shareholders are now consulted on the remuneration of executives (say on pay) and can also be consulted on the company's action and influence on climate issues (say on climate).
No Interference in the Exercise of Executive Functions
Nonetheless, shareholders are not meant to have a direct role in the everyday management of the company, this being reserved to the executive officers who have broad powers to represent the company towards third parties. Therefore, shareholders must refrain from interfering in the executive officer’s area of responsibility, otherwise courts may consider such a behaviour as a de facto exercise of executive functions, which is unlawful.
Ordinary General Meetings
At least once a year, within six months of the end of the financial year, an annual ordinary general meeting of the shareholders must be convened in order to vote on the annual accounts and consolidated accounts, the distribution of dividends and, in listed companies, the compensation of the board members and the executive officers (please refer to 1.3 Corporate Governance Requirements for Companies With Publicly Traded Shares).
Under the annual ordinary general meeting, shareholders usually also vote on the appointment or removal of board members, the appointment of the statutory auditors, the related-party transactions and any decision other than those reserved to the extraordinary general meeting of shareholders.
Extraordinary General Meetings
The extraordinary general meeting is competent to approve amendments to the company’s articles of association, any changes to the share capital, mergers and spin-offs and the early dissolution of the company.
Shareholders’ general meetings are convened by the board or any person designated in the articles of association to do so. Notice for holding meetings must be given at least 15 days in advance in SA and SARL. However, listed companies or companies whose shares are not all held in registered form are required, at least 35 days before the meeting, to publish a notice of the meeting in the Bulletin of Mandatory Legal Announcements (Bulletin des annonces légales obligatoires). The notice of the meeting must contain certain mandatory information.
The quorums and majorities required for the validity of meetings vary depending on the ordinary or extraordinary nature of the decision submitted to the shareholders, the corporate form of the company and the provisions of the articles of association.
In SA for instance, adopting an ordinary decision requires a quorum of at least one-fifth of the voting shares on first convocation, no quorum is required on second convocation, and a simple majority of the voting shares of the shareholders present or represented.
The adoption of extraordinary decisions requires a quorum of at least a quarter of the voting shares on first convocation, one-fifth on second convocation, and a two-thirds majority of the voting shares of the shareholders present or represented.
However, it should be noted that increasing the shareholders’ commitments towards the company requires a unanimous decision of all the shareholders.
In general, shareholder meetings are held physically at the registered office or any location specified in the notice of the meeting but can also be held remotely or by written consultation if the articles of association provide for it.
Executive officers and/or directors who violate applicable laws and regulations, the articles of association or are otherwise at fault in their management, are individually or jointly liable towards the company. In this case, one or more shareholders may bring a legal action against the executive officers and directors for damages suffered by the company (action ut singuli). The resulting damages will be paid to the company.
In addition, if the shareholders have suffered personal losses separate from those suffered by the company, executive officers and directors will also be liable to those shareholders (please refer to 4.9 Other Bases for Claims/Enforcement against Directors/Officers).
Following the Transparency Directive providing for the harmonisation of transparency requirements across the European Union, French securities laws impose certain strict filing and disclosure requirements to which prospective shareholders in publicly traded companies should pay particular attention.
Such reporting obligations fall primarily within the mandatory disclosure of major shareholdings. The French Commercial Code thus requires the disclosure within four trading days to the issuer and to the AMF of any holding of shares or voting rights when the percentage of such shares or voting rights reaches, exceeds or falls below the following thresholds (whether through open market purchases, negotiated transactions or otherwise): 5%, 10%, 15%, 20%, 25%, 30%, one-third, 50%, two-thirds, 90% or 95%. The AMF then publishes this information. Issuers’ by-laws may also impose additional disclosure requirements – even below the 5% statutory threshold – for thresholds of not less than 0.5%.
In addition, upon crossing the thresholds of 10%, 15%, 20% and 25% of the capital or voting rights, the relevant shareholder must also inform the company and the AMF, within five trading days, of its objectives for the following six-month period in a statement of intent (déclaration d’intention). In the event of a change in intent within the six-month period following the statement of intent that was originally filed, a new statement must be issued promptly to the company and the AMF and made public under the same conditions. The six-month period is reset with this new statement.
Companies are required to file various documents relating to their accounts for the previous financial year with the registrar of the commercial court. This filing must be made within one month of the approval of the annual accounts by the annual ordinary general meeting, or two months if the filing is made by electronic means.
The filing covers the following documents:
Specific Complementary Filings for Listed Companies
Listed companies are also required to publish and file with the AMF:
In addition, listed companies have the option of publishing quarterly or interim financial information at their discretion. If they choose to publish such financial information, the AMF recommends that the publication be presented with a commentary designed to clarify the relevant financial information and thus enable investors to better understand the company’s situation.
Corporate Governance Report
SA and SCA are required to draw up a report on their corporate governance, which is attached to the management report. For listed companies, this report is usually incorporated in the Universal Registration Document.
Corporate Governance Codes
The corporate governance report of listed companies is required to specify, among other things, the corporate governance code applied by the company. In France, the most widely used corporate governance code is the Afep-Medef Code. If the company chooses not to comply with a specific provision of the corporate governance code, it must explain how it departs from it and why, in accordance with the comply-or-explain principle (please refer to 1.3 Corporate Governance Requirements for Companies With Publicly Traded Shares). Companies can also choose to refer to the corporate governance code drawn up by Middlenext, which is intended for medium-sized companies listed in Paris.
Any updates to the constitutive documents during the life of the company must be filed with the companies registry. These updates and their related corporate documents are publicly available and include amendments to the articles of association, changes to executive officers and board composition, transfers of the registered office, changes to the share capital and statutory auditors.
The financial reports mentioned in 6.1 Financial Reporting are also required to be filed with the companies registry.
In case of failure to comply with the filing obligations, companies or their officers, in the event the failure constitutes a fault separate of their functions, may be exposed to civil and criminal fines.
The appointment of an external auditor by the shareholders’ ordinary general meeting becomes mandatory if, at the end of the financial year, the company exceeds at least two of the following thresholds:
Auditors are subject to certain requirements regarding their independence, which prohibits them from having any personal, financial or professional relationships that are incompatible with the functions of an auditor.
In addition, any commercial activity or paid employment of the auditor for the benefit of the company whose accounts they audit is prohibited in order to preserve the auditor’s independence.
Besides the duty of diligence a director must respect, listed companies are required to describe their internal control and risk management procedures in their annual report. They are also legally required to set up an audit committee composed of board members, which must at least include one independent member with specific expertise in financial or accounting matters.
The audit committee is responsible for monitoring the effectiveness of the internal control and risk management systems and of the internal audit on procedures relating to the preparation and processing of financial and non-financial accounting information.
In addition, the audit committee regularly meets with the heads of internal audit and risk control and gives an opinion on the organisation of their departments.
The French corporate governance environment has been recently subject to profound changes, and will continue to significantly evolve as a result of:
Implementation of a New European ESG Reporting Framework
The European Green Deal has resulted, and will continue to result, in the adoption of new ESG-related regulations. The ambition of this strategic plan requires a more detailed, standardised and structured framework for ESG reporting and disclosure to ensure clear, reliable and comparable information among companies and industries. The objective is to place ESG information on the same level as financial information. EU Directive No 2022/2464 on corporate sustainability reporting (CSRD), EU Regulation No 2020/852 on the establishment of a framework to facilitate sustainable investment (the “Taxonomy Regulation”) and EU Regulation No 2019/2088 on sustainable finance disclosure (SFDR) as well as the upcoming corporate sustainability due diligence directive (CSDD) (for which the European Commission adopted a proposal in February 2022) are key pillars of this plan. Ensuring that the ESG-related information published by the in-scope companies is actually comparable will be one of the key challenges of this new regulatory framework.
The CSRD significantly strengthens the existing rules introduced by EU Directive No 2014/95 relating to the disclosure of non-financial and diversity information by large companies. It requires in-scope companies to disclose information pursuant to a double materiality principle; ie, sustainability matters that affect the company as well as the impacts of the company on sustainability matters. These companies will have to apply the European Sustainability Reporting Standards (ESRS) which are intended to improve the quality and comparability of the information disclosed.
The CSRD will progressively apply and extend the EU’s sustainability reporting requirements to all large EU companies and most EU companies listed on a regulated market as well as to certain non-EU companies listed on an EU-regulated market and/or meeting certain criteria, as follows: as from 2025 (with respect to reporting related to the financial year 2024) for companies already subject to EU Directive No 2014/95; as from 2026 (with respect to the financial year 2025) for large companies not already subject to EU Directive No 2014/95; and as from 2027 (with respect to the financial year 2026) for small and medium-sized companies. According to the European Commission, this will lead to an expansion of the in-scope companies from approximately 11,000 entities under EU Directive No 2014/95 to approximately 49,000 entities under the CSRD.
These entities will also have to comply with the Taxonomy Regulation which is now effective and is intended to provide for an EU common classification system to identify economic activities considered as sustainable. Pursuant to Article 8 of this regulation, for the first time in 2022 (with respect to reporting related to the financial year 2021), in-scope listed companies, credit institutions and insurance companies were required to publish indicators measuring the scope of their activities/investments eligible for the Taxonomy (without considering whether these activities/investments are effectively aligned with the Taxonomy criteria). In 2023, non-financial companies have to publish full reporting on the alignment of their activities with the Taxonomy, while financial companies will have to do so only in 2024.
The regulatory framework of the Taxonomy will continue to evolve since the European Commission has for now prioritised the classification of activities covering primarily two climate-related objectives (adaptation and mitigation) and will progressively extend the Taxonomy to a larger scope of economic activities and define sustainability criteria for the other four environmental objectives (marine resources, circular economy, pollution and biodiversity).
The information to be published under the Taxonomy Regulation has been identified by the ESMA as one of its priorities in relation to the preparation of annual reports. In November 2022, the AMF issued an important report on the first year of application of the Taxonomy reporting obligations by French issuers, which contains important guidelines as the issuers face unprecedented challenges to obtain, articulate and present some of the required information; the AMF will continue to closely monitor the completeness and the comparability of the information disclosed by the issuers. Interestingly, in the aforementioned report, the AMF noted that most French issuers already made significant efforts to comply with the Taxonomy Regulation, with a significant number of them having even anticipated certain reporting obligations not yet applicable.
Increasing Consideration of ESG Matters in the Board of Directors’ Organisation
The strengthening of ESG-related obligations has consequences in the organisation of French boards of directors. In 2023, almost 75% of the SBF 120 (ie, the index of the 120 largest companies listed on Euronext Paris) French-listed companies have set up a committee dedicated to ESG matters (compared to 50% in 2019).
Alongside the customary specialised committees (eg, audit, compensation, nomination, and/or investment committees), this committee’s role is to participate in the development of the company’s ESG strategy and to evaluate its implementation. This role is even more important now that the AFEP-MEDEF code (issued by the Association Française des Entreprises Privées (AFEP) and the Mouvement des Entreprises de France (MEDEF)) was revised in December 2022 to expressly recommend that the board of directors of any French listed company referring thereto determines a long-term ESG strategy, including with respect to climate for which precise objectives shall be set for different, relevant time horizons.
In 2022, the AMF annual corporate governance report also pointed out the increasing attention to the competence of board members in ESG matters, with the definition of specific competence criteria and the introduction of regular training. The AMF also mentioned as a good practice the appointment of a lead board member specialised in ESG matters.
Continuing Pressure of Shareholder Activism
Shareholder activism was not unusually high in France in 2022. However, after a certain slowdown following the pandemic period, shareholder activism is expected to be more frequent in France, which is often in the top three EU targeted countries.
Over the last three years, large, listed companies have been targeted (eg, Danone, Lagardère, Saint-Gobain, Atos and Ipsos), and certain activist campaigns have led to important changes; eg, CEO and other executive officers (Danone) or corporate form (Lagardère was converted from an SCA into an SA).
Recent activism campaigns (eg, Casino, Lagardère, Pernod Ricard, SCOR, TotalEnergies, Unibail-Rodamco-Westfield, Danone, Vivendi, Saint-Gobain, Atos and Ipsos) have raised public and legal debates, in particular with respect to the accuracy of the disseminated public information and the right for the company to respond publicly, the need for a regular dialogue between boards and shareholders, the potential risks of massive short-selling strategies and the potential infringement of certain resolutions submitted by shareholders on the powers and authority of the board (in particular its authority to determine the company’s ESG strategy).
Over the last three years, the Finance Commission of the French Parliament, as well as several highly regarded organisations (including Paris Europlace, the MEDEF and the AFEP) and think tanks (including a dedicated working group of the Club des Juristes chaired by the former president of the AMF) have issued reports and recommendations in connection with shareholder activism. Key debates include whether increased mandatory regulations or additional soft law recommendations and best practices are needed and whether the existing regulations provide for a level playing field for the activists and the targeted issuers.
In April 2020, the AMF issued its report on shareholder activism. In line with the approach generally prevailing in France, the AMF considers that “the active involvement of shareholders in the life of listed companies is a necessary condition for their proper functioning and sound governance. […] the challenge therefore is not how to prevent activism, but how to set limits and make sure that it is able to control excesses”. Considering that (i) the legal framework applicable to shareholder activism derives mainly from EU regulations, and (ii) no major changes to the current French legal framework are required, the AMF proposed, inter alia, to:
The dynamism of shareholder activism is also largely fuelled by the growing impact and consideration for ESG-related issues, which results in new purposes and protagonists of activist campaigns. Listed companies now regularly face activist campaigns relating to ESG issues, which are presented in specific proposals and no longer exclusively carried out by “traditional” activist investors but also by NGOs, specialised funds, etc, using procedures similar to those of traditional activist campaigns.
Development of “Say-on-Climate” Resolutions
So-called say-on-climate resolutions (ie, resolutions put on the agenda of a shareholder general meeting by the board or certain shareholders and relating to the company’s environmental strategy or policy) are becoming more frequent. Institutional investors and proxy advisors are following this matter with growing attention; Institutional Shareholder Services (ISS) and Proxinvest have integrated it for the first time into their 2022 French voting policy.
More and more boards of directors are spontaneously submitting their own say-on-climate resolution to the general meeting, sometimes as a way to pre-empt any activist attempt in this respect. In 2022, the general meetings of 11 SBF 120 companies (including TotalEnergies, EDF, Engie, Amundi and Carrefour) were consulted on say-on-climate resolutions presented by their boards of directors.
However, activists take advantage of all legal means provided by French corporate law to influence company strategies by submitting their own say-on-climate resolutions, thereby creating tensions with the boards of directors and executive management of the targeted companies.
In 2023, 16 shareholders of Engie filed a request to include a climate resolution on the agenda of the shareholder general meeting to amend the articles of association and provide for the organisation of a vote every three years on the climate strategy and every year on the progress of its implementation. This resolution was ultimately defeated after the board of directors called for a vote against it.
In 2022, the board of directors of TotalEnergies submitted its own climate-related resolution to the general meeting and refused to submit a say-on-climate resolution presented by activist investors in order to amend the articles of association and provide that the management report submitted to the general meeting shall set forth the company’s strategy to align its activities with the objectives of the Paris Agreement.
Such requests by activists for ESG strategy-related resolutions have raised legal debates on the principle of hierarchy of the decision-making bodies within French companies (ie, whether the shareholders would infringe on the legal powers and authority of the board to determine the company’s ESG strategy).
Given the importance of the matters at stake, numerous calls have been made to introduce a legal say-on-climate regime in the same manner as the legal say-on-pay regime was introduced a few years ago. The French Treasury has set up a dedicated working group within the Haut Comité Juridique de la Place Financière de Paris (HCJP) to consider this reform. In its report of January 2023, the HCJP concluded that no legislative or regulatory modification is necessary to allow the development of climate-related resolutions but encouraged the adoption of soft law recommendations to provide for the principle of such resolutions and their general framework.
In March 2023, the AMF invited listed companies to reinforce their communication regarding their climate strategy to their shareholders without awaiting the full implementation of the CSRD’s framework and to present it during each general meeting by including the related items on the agenda for debate. It also considered that it would be appropriate, in due course and under conditions to be defined by law, for this information to be submitted to shareholders for formal approval, in the same manner as the annual financial statements.
Executive Compensation Under Continuous Scrutiny
Listed companies have been subject to increasingly stringent mandatory obligations and soft law recommendations with respect to the compensation of their board members and senior executive officers (chairman of the board, chief executive officer, deputy-chief executive officers, management board members and, for SCAs, general managers), including the say-on-pay rules, pursuant to which:
Despite the successful implementation of this detailed legal framework, the matter of executive compensation remains subject to close scrutiny and concerns by the investors and proxy advisors and regularly gives rise to debates. As an example, in 2022, the announcement of the compensation package of Carlos Tavares, CEO of Stellantis, raised significant public debates in the economic and legal communities, and France President Emmanuel Macron even described this remuneration as “excessive” and called for new European regulation on the compensation of large companies’ senior executives.
According to Proxinvest, between 2014 and 2021, the compensation of the senior executive officers increased by 83.8%.
Inclusion of ESG Performance Criteria in Executive Compensation
As noted by the AMF in its 2022 Corporate Governance report, there is also a trend towards the integration of ESG performance criteria in the determination of the senior executive officers’ compensation. According to the November 2022 barometer of the Institut Français des Administrateurs (IFA), 95% of the CAC 40 companies have now integrated at least one climate criteria into the annual variable short-term and/or long-term compensation of their senior executive officers.
This trend is in line with the latest version of the AFEP-MEDEF code published in November 2022, pursuant to which the variable compensation of the CEO of any French-listed company referring thereto shall be based on several ESG performance criteria (including at least one climate-related criteria).
Extension of Gender Equality Obligations to Top Management
In France, since 2011, the legislative framework resulting from Law No 2011-103 of 27 January 2011 on the balanced representation of women and men on boards of directors and supervisory boards (loi Copé Zimmermann) provides that, in listed and large companies, the proportion of board members of each gender may not be less than 40%.
At the European level, a new directive on gender balance on corporate boards was adopted in November 2022. By 2026, listed or large companies will need to ensure that the under-represented gender represents at least 40% of the non-executive directors or 33% of all the directors. Although French quotas remain higher than those of the European directive, the latter will have an impact on certain companies listed in France but whose registered offices are abroad and to which French law on gender equality is therefore not applicable (eg, Airbus).
The obligations for equal representation of each gender have also been recently extended by French Law to the top senior management of large companies.
The AFEP-MEDEF Code already recommended that the board of directors determines gender diversity objectives for the top senior management; these objectives and the progress on the achievement thereof shall be publicly described in the annual report.
In December 2021, the French legislature passed a new law requiring a minimum representation of each gender in executive officer positions (cadres dirigeants) and executive or similar committees for all French companies employing at least 1,000 employees. The proportion of each gender shall be at least 30% as from 1 March 2026 and 40% as from 1 March 2029.
In 2022, the average proportion of women in executive committees of the SBF 120 companies was 27,41%, an increase of 2% over the previous year, but still below the minimum proportion required by law as from 2026 (30%).
Potential Introduction of Multiple Voting Rights in Listed Companies
Multiple voting shares in French listed companies are currently prohibited (only double voting rights are authorised and strictly regulated).
However, in September 2022, the HCJP expressed a favourable opinion on the introduction into French law of multiple voting rights in listed companies for a temporary period after their IPO and subject to certain restrictions (beneficiaries, maximum number, duration, shareholder resolutions to which the multiple voting rights might apply).
Such a proposal is inspired by the United States model and reflects the need to safeguard the competitiveness of the Paris financial centre (following the introduction of multiple voting rights on the London Stock Exchange) and the willingness to attract founders of high-growth companies to list their companies on the Paris regulated market.
At the European level, the adoption of the European Commission’s proposal for a directive on multiple vote share structures in companies that seek the admission to trading of their shares on an SME growth market is expected in the course of 2023.