Whilst UK companies have adopted the practice of measuring improvements in corporate governance according to the “Comply or Explain” principle, it is surprising to see that French companies, or rather their boards of directors, have so far been unable to incorporate this notion into their shareholder relations.
The latest telling example is that of Pernod-Ricard, whose Board of Directors has qualified one of its members, Anders Narvinger, as an independent director despite the fact that a number of shareholders have called for his status to be reviewed. This is not a question of quibbling over the definition of “independent director” (although this is a frequent hot potato!) but a principle that basically boils down to common sense.
A large number of reports and corporate governance codes, including the AFEP-MEDEF Code, provide definitions whereby a director is qualified as “non-independent” if he or she has been an employee or officer of the company or one of its subsidiaries over the course of the last five years: this definition applies to Mr Narvinger. The AFEP-MEDEF report states that the Board of Directors may choose not to apply this criterion, provided that they explain the reasons for this decision to the shareholders so as to enable open discussion on the merits of “complying or explaining”. Let us not forget that Mr Pierre Pringuet, Vice-Chairman and CEO of Pernod-Ricard, also happens to be the chairman of the AFEP!
However, Pernod-Ricard has provided no explanation of this matter, either in its annual report or in the general meeting in which the shareholders submitted a written question.
This raises the question: how can shareholders trust directors who fail to comply with a commitment made by a company that has agreed to abide by a corporate governance code?
This issue, which might be regarded by some as a “minor” one, highlights a real anomaly in the relationship between Pernod-Ricard’s Board of Directors and its shareholders and throws up the question, all too familiar in France, of whether the directors represent the interests of ALL the shareholders, or just some of them.
At a time when the French are showing very lukewarm interest in buying shares in their own companies, it is essential that French company directors make an effort to represent the interests of all of their shareholders and to explain, clearly and transparently, the reasons why they have not applied the recommendations of a governance code to which they have decided to adhere.
The “Comply or Explain” rule is thus an essential tool for building a constructive relationship between a company and its shareholders, by involving them indirectly in board discussions on the aforementioned corporate governance issues, which are so important for preserving investor confidence.
Olivier de Guerre
Chairman of PhiTrust Active Investors