Spanish Unified Code: Corporate Governance for Listed Firms

Posted on May 12, 2025 in Law & Jurisprudence

Context and Development of the Unified Code

The need for a Unified Code (UC) arose from several developments following the Olivencia Report (1998) and the Aldama Report (2003), as well as related legislative changes. These domestic factors necessitated a new report.

Key international drivers included:

  • European Union (EU): Publication of various proposals and recommendations on specific corporate governance issues, such as the remuneration of directors in listed companies.
  • Bank for International Settlements (BIS): Formulation and adoption of recommendations on the governance of financial institutions in 2006.
  • Organisation for Economic Co-operation and Development (OECD): Publication of a review of its 1999 Principles of Corporate Governance in 2004.

Nationally, it was considered necessary to harmonize and update the recommendations from the Olivencia (1998) and Aldama (2003) reports, as well as provide additional details and clarifications on points deemed necessary.

Therefore, in July 2005, the government created a working group, formed in September 2005 and chaired by Manuel Conthe. Interested parties from both the private sector (e.g., statutory auditors) and the public sector were represented. The work of this commission resulted in the publication on May 19, 2006, of the report by the special working group on the corporate governance of listed companies, often referred to as the Unified Code or Conthe Report.

Target Audience and Content

The Unified Code (UC) contains recommendations for various audiences and serves as a code of good governance:

  1. Listed Companies: It’s a code of good governance directed at companies whose shares are listed, applicable from the financial year ending December 31, 2007.
  2. Government, CNMV, and Institutions: It includes additional recommendations specifically addressed to them.

Voluntary Nature and Disclosure (‘Comply or Explain’)

Spanish listed companies must state in their annual corporate governance report the degree to which they comply with the Unified Code’s recommendations, or explain any non-compliance (the ‘comply or explain’ principle).

It is worth noting that some recommendations from previous reports, initially voluntary, have become mandatory through incorporation into legal regulations.

Binding Definitions

Listed companies are free to follow the good governance recommendations or not. However, if they claim to comply with a specific recommendation (e.g., regarding independent directors), they must adhere to the definitions used in the Conthe Report. For example, a company cannot classify a director as ‘independent’ if they do not meet the minimum conditions established in the code.

Market Evaluation

It is up to the market to assess the explanations provided by listed companies regarding their level of compliance with the recommendations.

Generality and Proportionality

The code is designed for all listed companies. However, some recommendations might be inappropriate or too costly for smaller companies. If this occurs, the company should explain the reasons and any alternative measures taken in its report.

Board Size

The code states that the board of directors should be adequately sized to perform its functions effectively. Its size should be no less than 5 and no more than 15 members.

Board Composition

External directors must constitute a broad majority on the board. The number of executive directors should be the minimum necessary, considering the company’s complexity. It is recommended that independent directors represent at least one-third of the total board members.

Board Committees

The code addresses board committees:

  • Executive Committee (Optional): A support body to which the board can delegate certain executive functions. Its creation is voluntary.
  • Supervisory and Control Committees (Mandatory): Support bodies for the board’s administrative duties. These must include:
    • Audit Committee
    • Nomination Committee
    • Remuneration Committee
    These committees must be composed exclusively of external directors, with a minimum of 3 members, and chaired by an independent director. A compliance committee may also be established.

Director Classifications

The code defines different types of directors:

  • Executive Directors: Those who perform senior management functions or are employees of the company or its group.
  • Proprietary Directors (‘Dominicales’): Those who hold a significant shareholding or represent significant shareholders, even if their personal stake is smaller. This includes representatives of significant shareholders. Note: These conditions extend to equivalent relationships, spouses, or second-degree relatives of significant shareholders.
  • Independent Directors: Those appointed based on their personal and professional capabilities, who can perform their duties without being constrained by relationships with the company, its significant shareholders, or its executives. The code lists several specific circumstances disqualifying a director from being independent (e.g., being the spouse of a chief executive or senior manager of the entity).