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Corporate governance structure

25 Feb 2012

A corporate governance structure is the mechanism put in place to determine the distribution of management and control powers and duties within a company.

While the day-to-day management of a company always vests with its directors (President, CEO, director general), the exercise of their powers and duties should be subject to control.

Such control may be exercised by a supervisory board, whose members are generally appointed by the shareholders, or directly by such shareholders, who will be called to resolve upon certain important decisions to be taken by the directors.

The primary purpose of a corporate governance structure should always be the efficient management of the company. Therefore, in determining such corporate structure, the company's size and activity should be taken into account. A too heavy corporate structure may sometimes prove inefficient and impede the company's development.

Below is an example of a corporate governance structure.

Company Directors (President, Director General, CEO)

The Directors are in charge of the day-to-day management of the Company and are generally the only persons authorized to act on its behalf (i.e., to sign agreements and take all other decisions)

Supervisory Board

The Supervisory Board is generally granted with the righ to approve certain important decisions before they are implemented by the Directors, and the right to receive periodically material financial and business information relating to the Company, as well as to conduct an audit on its activities. The Supervisory Board may in particular be vested with the following rights:

Prior approval rights

Decisions which may be subject to the prior approval of the Supervisory Board may include:

  • determination and modification of the Company's annual budget and business plan
  • approval of the Company's financial statements, modification of accounting methods
  • modification of the Company's activity or strategic orientations
  • Company borrowings in excess of a specified amount
  • reorganization or restructuring of the Company (sale of assets or shareholding participations, winding up of subsidiaries, etc.)
  • build-up transactions
  • issuance of shares or securities
  • distribution of dividends
  • modification of key employment contracts
  • agreements entered into by the company with a director or shareholder
  • etc.

Information and audit rights

The members of the Supervisory Board are generally provided with monthly, quarterly and yearly financial and other material information regarding the Company. They may also have the right to audit the Company's affaires and financial situation periodically.

The members of the Supervisory Board are generally appointed by, and therefore represent the interests of, the shareholders of the Company.

Independent experts may also be appointed as members.

Oversight Committees

Larger corporations may implement, in addition to a Supervisory Board, various controlling or oversight committees to assist the Directors of the Company and/or the Supervisory Board in the exercise of their duties. Such committees may be a committee on compensation, an audit committee, a scientific or R&D committee, etc. Ad hoc committees may also be composed on a case by case basis to follow material litigation or other non-recurrent issues.

Shareholders Assembly

The shareholders of a company generally exercise the ultimate control over its management by appointing and dismissing the Company Directors and Supervisory Board members.

In addition, they alone are authorized to resolve on certain material decisions, such as:

  • issuance of securities
  • approval of annual financial statements
  • dissolution of the company
  • etc.

For certain types of French companies, such as sociétés anonymes (“SA”), a mandatory corporate governance structure is provided for by law.

For other types of companies, in particular for French sociétés par actions simplifiées, the corporate governance structure may be freely determined by its shareholders, subject however to certain mandatory provisions relating to the role of the directors.

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