‘The role of Belgium’s holding companies has not always been negative, but where they block the correct functioning of the board, things must change,’ says Koen de Ryck, managing director of Brussels-based Pragma Consulting, an independent asset management consulting company. ‘A board of directors should represent all shareholders and must have the future of the company at heart.’
The Belgian debate on corporate governance has a rather unique background. And de Ryck is uniquely placed to comment. He is an old hand in the world of asset management and recently represented the views of institutional investors on the Cardon Commission, set up by the Brussels Stock Exchange to develop a code of practice on corporate governance. The commission was named after its chairman, Daniel Cardon, former CEO of Bank Brussel Lambert, and filed its report this January, opening a consultation period of six months. In June, the commission hopes to finalize its code and make non-binding recommendations. Things are stirring in the Belgian corporate governance debate.
And they need a bit of stirring. With private owners reluctant to cede control to outsiders, relatively few companies are listed on the Brussels Stock Exchange. Add to that the weakness of the domestic institutional investment community and you find the focus turning to the power of the big holding companies and the resulting lack of protection for minority shareholders.
Among the modest group of companies that are listed, a few holding companies like Group Brussel Lambert (GBL) and Generale Maatschappij (GM) retain incredible power. The holding companies in effect control a wide range of firms. Many Belgian-listed companies therefore have a so-called ‘shareholder of reference’: a holding that controls enough shares to decide the fate of the company.
The power of the holding companies is diminishing, but much remains to be done to increase the role of the board of directors. And that’s where de Ryck steps in.
‘Some Belgian boards have 25 or even 30 members which makes them totally unworkable,’ he explains. He and his colleagues on the Cardon Commission recommend there should be no more than twelve members on a board with a majority of non-executives. Some of these, says de Ryck, ‘should be independent of the executive management, the dominant shareholders and free from any business or other relationship with the company which could interfere with their independent judgement.’
By this definition, he is trying to curtail the regular practice of putting family members, lawyers and management consultants on the board. He also favors the establishment of formal audit and remuneration committees. Indeed, he believes that the membership of audit committees – on large boards, in particular – should be confined to non-executives with a majority of independent directors.
De Ryck readily admits that the conclusions of the commission are not revolutionary. ‘But we wanted to come up with a report quickly and we all had to compromise to make a common stand possible.’ Compromise was necessary because it would avoid a hard confrontation with the holding companies. De Ryck also believes that making the Brussels Stock Exchange too strict on corporate governance issues could deter many companies from taking a listing. ‘And the Exchange definitely needs more listings.’
He is under no illusion that every listed company will absorb the recommendations or that an improvement in corporate governance alone will solve all the problems of the Brussels Stock Exchange. Still, he hopes that a new trend has been set in motion.
Apart from the Cardon Commission, two other Belgian commissions reported on corporate governance in January: one for the CBF (the regulator of the Belgian financial sector) and one for the VBO, the Belgian employers’ federation. The CBF commission placed a lot of emphasis on the quality of information companies provide to shareholders and outsiders.
‘It is not unusual in Belgium that people can’t agree on one commission with one purpose,’ de Ryck smiles. ‘You might call it a waste of resources. But on the other hand, maybe it’s good that guns are now being fired from three different positions.’
