SAMENVATTING GOVERNANCE
24-25
N. HOUTHAEVE (DELOITTE)
&
PROF. ANN GAEREMYNCK (KU LEUVEN)
1
, Session 1: Introduction to Corporate Governance
1) Introduction to Corporate Governance
• Milton Friedman (1970):
◦ Article: “The social responsibility of business is to increase its profits.”
◦ Triggered by debate on independent directors at General Motors.
◦ View: companies should focus only on profit maximization → shareholders decide
what to do with profits.
◦ Narrow, shareholder-only perspective.
• Corporate scandals (1980s–1990s):
◦ Guinness: inflated share price to outbid competitor during acquisition.
◦ BCCI (bank): money laundering.
◦ Polly Peck: CEO self-enrichment.
◦ Result: public confidence in companies declined → pressure to reform
governance.
• Cadbury Report (UK, 1992):
◦ First widely recognized definition of corporate governance.
◦ “Holding the balance between economic and social goals and between individual
and communal goals.”
◦ Governance framework should:
▪ Encourage efficient resource use.
▪ Require accountability for stewardship.
▪ Align interests of individuals, corporations, and society.
2
,Why Corporate Governance Matters
• Companies must balance shareholders’ interests with stakeholders’ interests
(employees, suppliers, customers, public).
• Example: family business:
◦ Some family members want profits distributed regularly (dividends).
◦ Others want profits reinvested for long-term growth.
◦ Governance helps balance both perspectives → e.g. through a family charter
(rules about ownership, dividends, succession).
Definitions of Corporate Governance
• Belgian CG Code (2009):
◦ Set of rules and behaviours on how companies are managed and controlled.
◦ Seeks balance between leadership, entrepreneurship, performance ↔ control
and compliance.
◦ Embedded in values: integrity, transparency, proper supervision, accountability.
◦ In practice: avoids conflicts of interest, monitors risks, prevents abuse of power.
• OECD definition:
◦ Corporate governance = how you run the business while considering different
stakeholders’ interests.
• Key idea: It’s not about “what” the company does, but about “how” it is governed.
Core Principles of Good Governance
• Balance: between shareholders and wider stakeholders.
• Common sense: avoid misuse of power, unauthorized risk-taking.
• Checks and balances: mechanisms of monitoring, oversight, transparency.
• Agency problem: arises when management acts in its own interest instead of the
company’s or shareholders’.
3
, Regulation – From Soft Law to Hard Law
• Originally, governance was based on recommendations (“soft law”) → many companies
ignored them.
• Over time, elements became mandatory in law (“hard law”):
◦ Annual report must include governance disclosures.
◦ Gender quota on boards.
◦ Rules on remuneration and audit committees.
• Still uses “comply or explain”: companies must either follow the Code or explain why they
deviate.
• Belgian legislation timeline:
◦ 2002: Law on auditor independence.
◦ 2004: Code Lippens
◦ 2005: Code Buysse I (family & non-listed companies).
◦ 2008: Law on Audit Committees.
◦ 2009: Belgian CG Code 2009
◦ Code Buysse II
◦ 2010: Law on remuneration & good governance + Shareholder’s rights act
◦ 2011: Law on gender quota
◦ 2017: Code Buysse III
◦ 2019: New Companies Code + New Belgian CG Code 2020.
The Belgian Corporate Governance Code 2020
• Third version, replacing 2009 Code.
• Principle-based: 10 principles, fewer detailed provisions (more flexibility, less formality).
• Comply or explain remains the foundation → but explanations must be detailed and
credible.
4
24-25
N. HOUTHAEVE (DELOITTE)
&
PROF. ANN GAEREMYNCK (KU LEUVEN)
1
, Session 1: Introduction to Corporate Governance
1) Introduction to Corporate Governance
• Milton Friedman (1970):
◦ Article: “The social responsibility of business is to increase its profits.”
◦ Triggered by debate on independent directors at General Motors.
◦ View: companies should focus only on profit maximization → shareholders decide
what to do with profits.
◦ Narrow, shareholder-only perspective.
• Corporate scandals (1980s–1990s):
◦ Guinness: inflated share price to outbid competitor during acquisition.
◦ BCCI (bank): money laundering.
◦ Polly Peck: CEO self-enrichment.
◦ Result: public confidence in companies declined → pressure to reform
governance.
• Cadbury Report (UK, 1992):
◦ First widely recognized definition of corporate governance.
◦ “Holding the balance between economic and social goals and between individual
and communal goals.”
◦ Governance framework should:
▪ Encourage efficient resource use.
▪ Require accountability for stewardship.
▪ Align interests of individuals, corporations, and society.
2
,Why Corporate Governance Matters
• Companies must balance shareholders’ interests with stakeholders’ interests
(employees, suppliers, customers, public).
• Example: family business:
◦ Some family members want profits distributed regularly (dividends).
◦ Others want profits reinvested for long-term growth.
◦ Governance helps balance both perspectives → e.g. through a family charter
(rules about ownership, dividends, succession).
Definitions of Corporate Governance
• Belgian CG Code (2009):
◦ Set of rules and behaviours on how companies are managed and controlled.
◦ Seeks balance between leadership, entrepreneurship, performance ↔ control
and compliance.
◦ Embedded in values: integrity, transparency, proper supervision, accountability.
◦ In practice: avoids conflicts of interest, monitors risks, prevents abuse of power.
• OECD definition:
◦ Corporate governance = how you run the business while considering different
stakeholders’ interests.
• Key idea: It’s not about “what” the company does, but about “how” it is governed.
Core Principles of Good Governance
• Balance: between shareholders and wider stakeholders.
• Common sense: avoid misuse of power, unauthorized risk-taking.
• Checks and balances: mechanisms of monitoring, oversight, transparency.
• Agency problem: arises when management acts in its own interest instead of the
company’s or shareholders’.
3
, Regulation – From Soft Law to Hard Law
• Originally, governance was based on recommendations (“soft law”) → many companies
ignored them.
• Over time, elements became mandatory in law (“hard law”):
◦ Annual report must include governance disclosures.
◦ Gender quota on boards.
◦ Rules on remuneration and audit committees.
• Still uses “comply or explain”: companies must either follow the Code or explain why they
deviate.
• Belgian legislation timeline:
◦ 2002: Law on auditor independence.
◦ 2004: Code Lippens
◦ 2005: Code Buysse I (family & non-listed companies).
◦ 2008: Law on Audit Committees.
◦ 2009: Belgian CG Code 2009
◦ Code Buysse II
◦ 2010: Law on remuneration & good governance + Shareholder’s rights act
◦ 2011: Law on gender quota
◦ 2017: Code Buysse III
◦ 2019: New Companies Code + New Belgian CG Code 2020.
The Belgian Corporate Governance Code 2020
• Third version, replacing 2009 Code.
• Principle-based: 10 principles, fewer detailed provisions (more flexibility, less formality).
• Comply or explain remains the foundation → but explanations must be detailed and
credible.
4
