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Key questions

Anne Navez, President of Votre-Administrateur, answers frankly and with no taboos several questions which today stimulate debate on company governance and the role of the independent director.

1) Is the exercise of a mandate an activity which takes up a lot of time?

Yes, a good independent director must invest time in the activity. In order to understand the evolution of governance in our companies and its impact on the role of independent director, let us briefly recall the evolution of the global context of the last 15 years : the evolution of the economic situation, its globalization and increasing hardening, the growing complexity of markets, and particularly the financial markets; all of these have considerably increased the weight of decisions.

Decisions which henceforth must be taken quickly, or even urgently, which inevitably (and unfortunately) gives priority to short-term stakes above the long term. This evolution has thus been accompanied by an increase in the level of risks associated with the decisions, which in turn means there is a need for sound and robust governance in order to face them with serenity.

At the same time, the evolution of regulations and of the constraints linked in particular to the scandals which have appeared over the past years (Enron, Parmalat, Madoff) has called into question existing models of governance in companies, which in turn has made the function of independent director more complex, because more circumscribed and controlled. The role of the independent director can no longer be one of fictitious functions; it requires on the part of the independent director genuine legitimacy in actions. This legitimacy is gained through competences – know-how, abilities and exemplary behavior which begins with the time spent on the function (taking time to understand the company and the stakes, attending all board meetings, studying current files upstream of decisions, training on new subjects etc.).

Without being totally categorical, it is frequently said that at least 10 days of work per year are necessary for a classic administrator’s mandate. This number can, however, be higher in the case of presence on a specialized committee or in a dynamic company context (international development, takeover etc.).

2) What do you think of so-called “directors of convenience”?

Although it is normal to be shocked and to regret that such a practice is still unfortunately common, we must keep in mind that the function of independent director is not professionalized, and that progress on this subject – choice of directors according to their competences and experience, specialized training leading to qualifications, best practices – are very recent. It is thus to be hoped that this practice is now outdated, and that in future it will be possible simply and confidently to call on independent directors who are qualified, available and involved, in order that they might exercise their role with benevolence but without favor.

This is the whole aim of the mission Votre-Administrateur has chosen for itself.

3) What do you reply to those who say that governance is a subject which only really concerns large groups?

I reply that not only is that false, but that I invite all other organizations (small companies, associations, foundations) to focus on their governance. As an example, for a business which is just starting up, setting up a board can appear irrelevant or very anticipatory; it is not in fact so, on the contrary. A company which is starting up must be able to develop rapidly to be sure that it will still exist in the months and years following its creation. A board is perfectly within its role when it accompanies the decisions of the top management and allows the latter to have its strategy challenged and verified. What is irrelevant is to believe that an independent director automatically receives financial compensation.

To end, I will illustrate my comments by drawing on the report of the MEDEF, which as early as June 2003 considered company governance as contributing its own added value, and SMEs as indeed being concerned.

4) Do you think that setting up a board within a company causes a loss of power for its management?

Although I do not think so, on the other hand I am aware that this belief is one of the biggest brakes which deprives companies of boards and thus of efficient governance. Once again, the board of directors, and the directors who make it up, are not there to dictate their conduct to the top management; they are there to bring their expert’s eye, their personal experience of situations and their objectivity, in order to accompany the head of the company in his future projects. As the proverb says, “forewarned is forearmed”.

5) There is a lot of talk about favoritism towards family or network within boards, do you believe this is unavoidable?

No, I do not think so. However, and this goes back to the question on directors of convenience, I think that the sooner the professionalization of the independent director’s function becomes a reality, the sooner the market of governance will organize itself, and the sooner these practices will tend to decrease and disappear.

6) What are the main qualities required to be an independent director? Is competence the only imperative?

Nothing can replace competence in the independent director’s role. For all that, competence alone is not sufficient. In this function there is as much know-how to master as there are life skills to show. (link to independent director’s role)

7) Can someone be an independent director if they don’t yet have grey hair?

If the question is just to ask if an independent director must necessarily be a middle-aged man, clearly the answer is no. Within Votre-Administrateur we encourage social and professional diversity to enrich boards; however, if we are ready to interpret “grey hair” as meaning vast and rich experience, then of course I will temper my answer. As I have already said, an independent director is a person, be it man or woman, of experience.

8) What can you say on the subject of the number of corporate mandates held?

Holding an independent director’s mandate requires real availability, and an involvement which can be substantial depending on the companies concerned and their context; it is thus logical that the holding of multiple mandates should be regulated. The law allows one person to hold up to 5 external mandates simultaneously, the AFEP-MEDEF code recommends a maximum of 5 too, the Middlenext code 4, and L’IFA 3 mandates in listed companies.

Here again regulations only target one category of companies, for it only concerns public limited companies with their headquarters in French territory, and intra-group mandates are not counted.

We could question the effective contribution of an independent director with a professional activity, who has a seat for example on the board of 3 listed French companies, 2 overseas companies, in 5 subsidiaries of the group and in 4 unlisted companies. Do the math yourself…

The subject of multiple mandates is one which must evolve, and unfortunately this will be through regulations if the players cannot discipline themselves.

9) What is the legal responsibility of an independent director?

To be an independent director is a serious responsibility. The director is both individually and also jointly and severally responsible towards third parties and the company. His/her public liability can be engaged if he/she has committed a fault which causes prejudice.

He/she may incur criminal liability in the case of serious offences such as insider dealing, publishing accounts which do not reflect the true situation, and bad faith leading to actions which go against the interest of the company.

10) In your opinion, what are the advantages of the Copé Zimmermann law?

It is a pity to talk about women before talking about individual competences; parity is a vast debate. Having said that, in my view the Zimmermann Copé law exists because companies were incapable of promoting women to independent director positions. I see this law as a booster to accelerate the process of parity for boards of directors and, I hope, in other governing bodies. The hope is that companies will go beyond imposed quotas of their own accord, when they realize that parity is a source of enrichment for businesses.
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It is to be noted that this law does not concern all companies (link). Companies which are aware of the stakes, and of the advantages of diversity for their business, open their boards to women at national and international levels. This is truly an added value for the company, and one of the added values of Votre-Administrateur is to propose worthy candidates to companies.

11) What is the remuneration of an independent director?

An independent director does not receive a salary, but may be paid director’s fees.

The range can be quite wide, depending whether we are looking at CAC40 companies or small businesses (insert range).

What would appear abnormal to me would be not to pay a minimum fee to directors, because their work and involvement are real, and in addition they have a legal responsibility.

12) Must an independent director have insurance cover?

Yes, a director must have civil and criminal cover. I recommend that all directors check the company has insurance. If this is not the case, the independent director can take out personal insurance.

 

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