French president François Hollande said on 17 May that he may legislate to make shareholder votes on executive pay binding company boards continue to ignore shareholders’ recommendations. “I've been told there is a code of good conduct. If it's not applied there will be consequences,” Hollande said on Europe 1 radio. “If this council does not react firmly, the first decision will be to make general (shareholder) assembly decisions binding.” Prime Minister Manuel Valls said on 19 May that companies should be forced to abide by votes on pay. “We've tried asking companies to show responsibility,” Valls said on RTL radio. "It's clear that this hasn't been heeded, so now we must legislate."

The next day, 20 May, the two French business associations responsible for the code of corporate governance in France, AFEP and MEDEF, announced a revision to the code that took into account the work of the Haut Comité de Gouvernement d’Entreprise (HCGE). The HCGE has been in place for three years and has oversight of the application of the governance code’s recommendations. AFEP MEDEF said in a press release that HCGE had demonstrated its effectiveness in a number of cases and that it had acted as an advisor to businesses, answering their questions, but had also monitored compliance with the code.

The revisions to the code were made in three areas.

"Say on Pay" becomes mandatory

A negative vote by shareholders will require the board to adopt amendments to the remuneration awarded for that fiscal year or for future pay

Remuneration: transparency requirement strengthened

The performance metrics for variable remuneration should be stringent, transparent, and aligned with the long-term interests of the company.

Motivation behind departure decisions and terms and conditions of departing executives

The code has two strong principles regarding the conditions under which an executive who leaves a company:

Remuneration must be conditional on the achievement of performance criteria (failure must not be rewarded)

The board of directors must make public the reasoning behind its decisions.

For the first time AFEP and MEDEF are conducting a public consultation on these changes to the governance code. This consultation will last for six weeks from the 24 May, and comments can be made here. The revised code will be implemented at the beginning of September this year.

The changes are widely seen as attempts by AFEP MEDEF to avoid legislation, and were in part inspired by the controversy over Renault CEO, Carlos Ghosn’s (pictured above) €7.2 million remuneration in 2015 which received a non-binding majority vote against it in April this year. His total package included €1.23 million in base salary, €1.78 million in variable pay and a further €4.18 million in deferred bonuses and stock. AFEP and MEDEF say that the new code revisions will require company boards to take account of rejection votes and offer changes to or revisions of pay within a few weeks, as well as reporting back to shareholders at the next annual general meeting. The code revisions do not require managers’ pay to be cut following a rejection vote, but leaves the final decision to the board. Renault’s board declined to make any changes to Ghosn’s pay, but that may change.

The HCGE, which was set up to oversee the AFEP-MEDEF code, told Renault on 19 May, that it needed to make "significant changes" to its pay practices. “The High Committee considers that the spirit of the AFEP-MEDEF guidelines and the principles of shareholder democracy require that the board, after consulting with its principal shareholders in order to better understand their concerns, should introduce significant revisions to remuneration policy based on the recommendations that HCGE has formulated," said the HCGE in a statement.

It remains to be seen whether these pre-emptive moves will be enough to head off further legislation.

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