ADVOCACY
ADVOCACY
Summer 2016 / Issue 50
Overexposed : Excessive Board Member Disclosure Rules
O
n May 28th , 2015 , Macedonian Parliament adopted a number of amendments to the Company Law . An amendment made to Article 384 requires that the annual reports of public companies in Macedonia include details of the global employment- and / or Board service-related earnings ( salary , other remuneration , bonuses , insurance and other rights ) of each member of their executive & non-executive boards , management boards and supervisory boards .
While government efforts to further enhance the protection of minority investors are commendable , the amendments made to Article 384 far exceed what is necessary and reasonable to achieve this goal . In fact , this new requirement could negatively impact internationalized companies working in the country as it seems to lack legal legitimacy and differs from global best practices . AmCham communicated its position based on feedback from over 15 organizations to the Ministry of Economy ( MoE ) and others in May , including the following arguments :
Compensation details are generally not public information . Many companies consider management compensation and benefits packages as a trade secret , meaning their disclosure in another company ’ s annual report ( as required by article 384 ) could result in negative repercussions for both the individual and the company / group .
The EU Shareholder Rights Directive does not require the disclosure of global compensation details , nor are we aware of another country in Europe that does .
The obligation to release the earnings from other companies may discourage foreign experts from serving on the managing bodies of companies in Macedonia , thus reducing the country ’ s appeal as an FDI destination .
Information provided by foreign , non-Executive Board members on any earnings outside the company cannot be verified by company authorities or shareholders . Yet , article 384 requires Executive Board members and shareholders to sign and accept the validity of these data , as with all contents of the annual report .
There is no evidence that measure increased the amount of useful information available to minority investors . The proponents of the amendments stated that “ the changes were made in line with Doing Business 2015 report ”, however that report doesn ’ t recommend such provisions . Moreover , the Doing Business 2016 report , doesn ’ t mention this change as a positive development in the Company Law . 1
On June 21st 2016 , AmCham received MoE ’ s response and a few weeks later , the Constitutional Court decided not to review Article 384 ( in response to an initiative independent of AmCham ) 2 . The MoE response to AmCham ’ s position and the Constitutional Court ruling were virtually identical . The key arguments were that :
Board members ’ privacy is not violated by the measure because companies should not disclose sensitive Board member details to uninvolved third parties ;
Individuals that do not want to divulge their global compensation details can simply NOT serve on the Board ;
18 other countries require disclosure of information on whether Board members are members of management structures in other companies , as well as information on their primary employment .
Unfortunately , the first argument directly contradicts Company Law article 388-b , which states that public-listed companies must publish online all documents and materials that will be reviewed at meetings of their shareholder assemblies . In other words , it is impossible to limit the distribution of the annual report to shareholders . The second argument seems to welcome a narrowing of those willing and able to serve on Macedonian boards , dismissing any potentially negative impacts of such a trend . Finally , the 18 countries cited by both institutions do not require Board members to disclose their global salary / compensation details .
Neither the MoE nor the Constitutional Court demonstrated how disclosing Board members ’ global compensation details to the general public is a legitimate , appropriate and necessary part of protecting shareholders from damaging interested party transactions . In our view , requiring Board members to disclose the existence of an employment , Board service and / or consulting relationship with other organizations is sufficient .
1
Doing Business 2016 report - http :// www . doingbusiness . org / reforms / overview / economy / macedonia-fyr
2
Constitutional Court Decision - http :// www . ustavensud . mk / domino / WEBSUD . nsf
14 AMCHAM MAGAZINE