In France, the fight against the great scourges that are corruption, misappropriation of public funds and more generally white-collar crime has led to the emergence of non-governmental organisations (NGOs), constituted in the form of associations, who play the role of public accusers, a role traditionally held by the state prosecutor but without being subject to the same rules of procedure or conduct.

Similar to the state prosecutor, they are involved in prosecutions and, more generally, in trials in France.

French lawmakers were previously reluctant to share (with those private organisations) the state prosecutor’s monopoly in representing the public interest, and it was not until 1972 that they authorised various associations to act and/or to intervene in criminal cases to help sanction offences were they are not directly the victim.

Noting this reluctance, the criminal division of the French Cour de Cassation has often adopted a surprisingly extensive interpretation of the French Criminal Procedure Code, and has ruled that the civil actions by those associations are admissible in many cases.

The actions brought by those associations in white-collar crime cases have been welcomed by the media and the public, but have created a certain unease among French legal practitioners. The collective interest that they allegedly defend is hard to distinguish from the public interest. Some authors dispute the legitimacy of these so-called ‘private accusers’, these ‘pseudo-public prosecutors’, these ‘moralists’ that break the state prosecutor’s monopoly and jeopardise criminal proceedings.

Judgments rendered until 2016 reflected the power of pressure groups. One of the most symbolic judgments was in the ‘ill-gotten goods’ case regarding assets held in France by African leaders. The court ruled that Transparency International France could be a civil party in the investigation for misappropriation of public funds, money laundering, misuse of company property, breach of trust and handling stolen goods ‘because of the specific nature of the goal and purpose of its mission’ (Crim, 9 Nov 2010). That decision even encouraged the French law makers to change the law in 2013, introducing a new provision authorising these associations, if provided for in their articles of association, to engage in the fight against corruption (Article 2-23 of the French Criminal Procedure Code, introduced on 6 December 2013).

However, these associations have not limited themselves simply to cases of corruption (the offence that formed the basis of their authorisation to act in legal proceedings). They have gone beyond that authorisation and have intervened in a wide range of areas including political contributions, financing of terrorism and misuse of company property. In 2018, Anticor was involved in 66 cases (Anticor 2018 activity report, page 4). Sherpa – another association aiming to combat corruption, which focuses more on offences outside France – has also been involved in many cases such as VINCI Russia/Qatar, Samsung France and Lafarge.

Faced with this judicial activism, the French Cour de Cassation has toughened its position and has stopped NGOs from acting in proceedings in which they were previously involved but that fell outside of their authorisation to act (Crim, 11 October 2017; Crim, 31 January 2018; Crim, 17 April 2019). This change should be strongly approved, since it makes clear that NGOs cannot under any circumstances act as a substitute for the public prosecutor’s officers in relation to a prosecution.

However, NGOs have identified another area in which they can take action.

The French act of 9 December 2016, known as the Sapin 2 Act, created the CJIP (convention judiciaire d’intérêt public), a French version of a deferred prosecution agreement, allowing the public prosecutor to reach a settlement with a company indicted on counts of corruption, influence peddling, tax fraud, money laundering and any related offence. A CJIP, which cannot be formed with natural persons, has the effect of ending the criminal proceedings if the company indicted fulfils its obligations under the agreement, including the payment of a public interest fine (which cannot exceed 30% of the company’s average annual revenue). To date, seven CJIPs have been signed. However, certain anti-corruption associations are using these agreements (published online) to initiate criminal proceedings against the executives of the companies involved, when the public prosecutor has decided not to prosecute.

Abrupt changes in approach and contradictions in case law, such as those described in this article, are a well-known feature of the French criminal justice system. Currently, France’s highest court seems determined to curtail the NGOs’ powers in relation to criminal proceedings. As a result, companies should not hesitate to oppose to unlawful actions brought by these organisations and to seek their exclusion from criminal proceedings.

The authors of this article obtained the precedent-setting rulings that excluded Anticor from the Bygmalion case in 2018 and Sherpa from the Lafarge case in 2019.

After 40 years of economic reforms and intense development in China, the economic landscape has matured. Foreign investment legislation in China sits on the cusp of a new era, in which reforms will pave the way for significant improvement, including corporate governance in foreign entities. Although, today foreign companies in China still face challenges in implementing the correct corporate governance to maintain control of a foreign entity and generate a profitable business.

The challenges

Semantic differences

Firstly, the definition of corporate governance in China differs from the concept formed in Anglo-Saxon jurisdictions. The definition of corporate governance, according to Black’s Dictionary, is applying policies, proper implementation and continuous monitoring. Typically done through or by the organisation’s governing body (a group of officers or persons having ultimate control). In Chinese, corporate governance is composed of the characters 治 zhì 理 lì . The character 治 zhì means utilisation and is constructed by the characters of water (left), and opening (right), which denotes to the original meaning 治 zhì 水 shuì, the utilisation of water. The second character 理 lì means reason. Corporate governance in Chinese could be defined as utilisation of the people through the application of reason. Such semantic differences between the definition indicates potential issues in how corporate governance is applied and perceived in Chinese culture. As result, control of the foreign entity can be easily lost – if a foreign shareholder does not fully comprehend how to implement correct corporate governance.

Legislation

Secondly, there are potential issues in the legislation of corporate governance. Currently, there are conflicts between the main legislation body, the Company Law of the People’s Republic of China (Company Law), and the three foreign investment enterprise laws (FIE Laws).

Although, the Company Law states ‘where foreign investment laws have conflicting provisions, such provisions shall prevail’. This, in theory, requires foreign entities to primarily adhere to relevant foreign investment enterprise laws. However, in practice such provisions can result in conflicts. For example, under the Company Law, there is a two-tiered governing body consisting of the board of shareholders as the highest governing authority, who make the major decisions and the board of directors managing the daily operations upon the resolutions of board of shareholders. Meanwhile in an equity joint venture (EJV) under the Sino-foreign Equity Joint Venture Law the highest governing authority is the board of directors. As directors in EJVs hold significant influence in the company and foreign shareholders may reside abroad, may entrust an individual as a director, how can corporate governance be established and maintained in the interest of the foreign shareholder?

Moving forward, such conflicts are theoretically resolved with the implementation of the Foreign Investment Law of the People’s Republic of China (FIL) effective from 1 January 2020. With the implementation of the new FIL, old FIL laws are abolished and all foreign entities are unified under the Company Law and Partnership Enterprise Law, thus all entities shall adhere to same provisions. However, under the current Company Law, corporate governance provisions centre on statutory procedures and the duties and liabilities of the governing body. With no clear provisions to ensure the foreign entity is governed in the interest of the foreign shareholder(s), the issue remains the same as before.

The practical solutions

Establishing correct corporate governance in China centres on activating several unwritten and unseen instruments. These are practical solutions which safeguard against losing control. Corporate governance can be implemented and maintained in the interest of foreign shareholders in both within overall governing body and within the management of employees – it is a matter of activating unseen instruments.

Appointment of key individuals

In many cases, foreign shareholders reside abroad and the governance of the entity is left to ‘trusted’ key individuals acting as directors, supervisors, legal representative and senior officers, according to the Company Law. Therefore, it is essential for the shareholders to consider such appointments in the initial stage of the investment and established them in the articles of association. Without this first step, a resolution of the board of directors is required to remove and appoint a new individual. Therefore, where the board of directors does represent the interests of the foreign shareholders, this procedure could be problematic and result in a dead-lock.

Internal policies

While the labour contract governs the labour relationship between the employee and employer, an internal company policies establishes the fundamental provisions to manage the daily routine, responsibilities and obligations of the employee. Under labour law and contract law of the People’s Republic of China, an employee handbook provisioning the company policies is required for employees. Staff adhere to the employee handbook upon accepting the job. Therefore, the internal company policies serve as a legal basis for the senior officers and board of directors to correctly manage according to the resolutions of the shareholders, as well ensure employees adhere to management. Without such policies, the company may face difficulties in labour disputes, as what is deemed as reasonable conduct may become a subjective matter.

Furthermore, foreign shareholders often face challenges in related foreign laws, in the jurisdiction of their headquarters, which affect the Chinese subsidiary. Specifically, foreign laws may stipulate work safety requirements for any foreign employees dispatched to the Chinese subsidiary, otherwise, the headquarters shall be liable in their jurisdiction. Hence, the Chinese subsidiary may face conflicts in Chinese law when applying foreign law. A practical approach is to transform such legal requirements into internal company policies, avoiding arising conflicts or legal liabilities in Chinese law.

In China, incorporating a foreign entity is easy and with the upcoming reforms, it will be even easier. The challenge is to maintain control of the foreign entity through correct corporate governance. Recent legislation reforms signify a stronger legal framework for foreign investment. However, sustaining a profitable business in China means maintaining corporate governance through implementation of practical, but unseen apparatus in the company.

Corporate governance is slowly but surely being implemented in Indonesia. The typical form of corporate/business organisation in Indonesia is a limited liability company, but other forms are available, including co-operatives, representative offices and partnerships.

But since the limited liability company is by far the most common form of corporate organisation, in principle, corporate governance is governed by Law No 40 of 2007 regarding limited liability companies (the Company Law). Article 4 of the Company Law states that the applicability of the Company Law does not detract from the obligation of companies to comply with the principles of corporate governance. It should also be noted that the principles of corporate governance only apply to limited liability companies, and these principles differ depending on whether the company is a public or private entity.

Corporate governance for certain types of companies and businesses is further regulated by the Financial Services Authority (Otoritas Jasa Keuangan or OJK). The OJK regulates corporate governance requirements for the insurance and capital markets sectors, issuers and public companies.

National Committee on Governance

Interestingly, the Co-ordinating Ministry for Economic Affairs established the National Committee on Governance (NGC) in 2004 through Co-ordinating Ministry for Economic Affairs Decree No KEP-49/M.EKON/11/TAHUN 2004. This decree was amended by Co-ordinating Ministry for Economic Affairs Decree No KEP-14/M.EKON/03/Year 2008. The stated aim of the NGC is to formulate, promote and facilitate the implementation and enforcement of the Indonesian Code of Good Corporate Governance (the GCG Code).

The GCG Code was first published in 2006. It must be noted that the GCG Code is not a legal instrument and as such does not have binding force on corporations in Indonesia. The GCG Code serves as a model that provides recommendations on the implementation of corporate governance in companies.

Aside from government regulations, internal corporate documents such as the company’s articles of association, company regulation and company code of ethics are also used as tools of corporate governance.

Handling corporate documents

One of the main regulations relevant to corporate governance in Indonesia, apart from the Company Law, is Law No 8 of 1997 regarding corporate documents dated 24 March 1997 (the Corporate Documents Law). The Corporate Documents Law is further implemented by Government Regulation No 87 of 1999 regarding procedures for the delivery and destruction of corporate documents dated 13 October 1999 (GR 87 of 1999) and Government Regulation No 88 of 1999 regarding procedures for transferring corporate documents to microfilm or other media and legalisation dated 13 October 1999 (GR 88 of 1999).

The Corporate Documents Law defines corporates as any form of business that continually engages in its business to achieve profit, carried out by individuals, legal entities or non-legal entities, established and domiciled in Indonesia. The same law defines corporate documents as data, records and/or statements made and/or received by the corporate in conducting its activities, either written on paper or another form of media that can be seen, read or heard.

Corporate documents consist of financial documents and other documents. The law further regulates that financial documents are notes, bookkeeping and supporting data related to financial administration evidencing the rights, liabilities and business activities of a corporate. Other documents are data or other written documents containing statements valuable to the corporate though not directly related to financial documents.

A corporate is mandated to maintain records consisting of an annual balance sheet, annual profit and lost statement, accounts, daily journal, and other records consisting of a statement concerning the rights, liabilities and other matters related to its business activities. The records shall be made using the Latin alphabet, Arabic numerals, Indonesian rupiah currency, and the Indonesian language, unless the corporate obtains Minister of Finance approval to prepare the records in another language.

These documents shall be signed by the authorised representatives of the corporate concerned. Unless stipulated otherwise, these documents must be made at the latest six months after the end of the financial year of the concerned business.

It is interesting that even though the Corporate Documents Law was introduced in 1997, it introduced the means for using media other than paper for corporate documents. Hence, the implementing regulation that provides procedures for keeping records using media other than paper. The law cautions the management of companies to consider the use of original documents that must be kept due to their benefit to the company or national benefit. Another consideration is that if the management converts documents into microfilm or other media, the issue of evidentiary value requires the management to keep the original documents in hard copy, not only in electronic form.

The Corporate Documents Law and GR 87 of 1999 provide that the transfer of corporate documents to other media must follow the procedures provided in these regulations, including the requirement of legalisation. Note, however, that even though the process is called legalisation, it does not require the services of a notary public. The legalisation process under the regulations provides that authorised representative of the company shall make the minutes of conversion of the corporate documents into other media. The minutes shall contain the place, date, month and year of legalisation, a statement that the corporate documents converted into microfilm or other media are true and correct copies, and the names and signatures of the authorised representatives.

It should be noted that the records, financial reports and other financial administrative documents must be retained for ten years as of the end of the financial year of the concerned company.

Another interesting fact from these regulations is that if corporate documents are deemed to have ‘historical value’, the company is required to deliver such corporate documents to the National Archives.

GR 87 of 1999 further regulates that if it is necessary to destroy corporate documents, such destruction must use the procedures provided in the implementing regulation.

The Corporate Documents Law and its implementing regulations add to the functionality of corporate governance practices in Indonesia.

This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user’s own risk. You should contact a lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK.

In Mexico, corporate governance best practices have been part of the business environment for the last 20 years. Since 1999, following the OECD Principles (which in turn used the recommendations of the Cadbury Report to varying degrees), the first voluntary Mexican Best Corporate Practices Code (CMPC), issued by the Mexican Business Co-ordinator Council was published. However, the compliance of CMPC is only mandatory for listed companies pursuant to the General Provisions Applicable to Issuers of the Securities Market.

Corporate governance matters’ regulation and operational rules regarding companies in general (other than those listed on the Stock Exchange and depending on their specific nature), are governed by: (i) the General Law of Business Companies (LGSM) and (ii) the Securities Market Law (LMV).

In recent years, Mexican multinational companies, non-profit organisations and private family-owned entities have made significant efforts to introduce strong focus on governance and reaching stability, although there is still a long way to go compared to the leading countries in the world.

Mexico, as an emerging market, lacks strong corporate governance practices mainly due to: (i) centralised ownership; (ii) business cartelisation; (iii) insufficient regulation on accounting requirements; (iv) information transparency; and (v) a relatively limited number of securities market transactions.

By analysing the structure and corporate governance regime of several Mexican multinational companies through the six main corporate governance aspects (ie, average number of directors, independent membership, average age, educational background, corporate structure and investor voting rights), it is possible to get a better understanding on the matter as of this date.

Average number of directors

Board conformation is a wide interest area for investors, due to its strong relationship to shareholder representation and the strategic role they play in the company. To become an agile and efficient board, shareholders have to consider the company’s size and maturity to define the right number of directors. On average, there are 12 directors on Mexican boards, compared to an average of 14 in Germany. However, some of Germany´s biggest companies only have seven directors on their boards, which shows that board composition can vary depending on the relevant company’s specific needs and principal-agent relationships.

Independent membership

Independent board members are known for assisting companies to avoid conflicts of interest and incentivise a better decision-making policy by contributing an external and a unbiased opinion. Even though the LMV requires a minimum of 25% independent directors in public companies, these corporations have almost 50% of independent directors in their boards. However, in countries such as Finland, Denmark and Germany, the percentage is approximately 80%.

Directors’ average age

In Mexico, a directors’ average age is 59, while the average age of the chairman is 58. CEOs’ average age is around 50 years old.

Comparing these numbers with some of the most advanced European countries, directors’ average age in Mexico is close to that in countries such as Germany (58) or Finland (59).

Educational background

One quarter of companies’ directors in Mexico are engineers, followed by 20% that are business administrators, of which 45% studied industry-specific programmes. Other common graduate and postgraduate degrees include accounting, economy, law and finance majors.

Board committees – structure and composition

Mexico’s best corporate governance practices simply recommend companies consolidate their corporate governance with an audit committee, whereas in other countries regulations make these committees mandatory (including some others, such as the compensation committee or the nominating and governance committee).

According to Deloitte’s Best Corporate Governance Practices Study, involving a wide range of Mexican SMEs, 66% have an audit committee, 56% a finance committee and 44% a risk committee.

Investor voting rights

As mentioned above, Mexico has enacted (mainly for listed companies) operational rules that define important interventions and influences of the shareholders in a company’s decision-making through corporate governance, such as director elections, auditor selection, shareholders rights, and board structures. However, these important issues are not widely practised in non-regulated companies. In Mexico, shareholders vote on a fewer number of corporate issues compared with some other countries.

Conclusion

Mexico has worked through the years to become one of the strongest countries in America in corporate governance matters, starting with the first CMPC to the latest legal amendments in 2018. From a legal point of view, Mexico has developed a mandatory framework for publicly listed companies with requirements that contribute to a safer and more attractive market, with policies particularly focused on establishing and implementing several mechanisms to avoid liabilities from a civil, commercial, tax or criminal standpoint. Furthermore, the CMPC addresses with more detail the complementary elements of corporate governance, encourages investment and develops a more stable and trustworthy economy.

When analysing Mexico’s current position, we need to think creatively about incentives that may foster the inclusion of non-regulated companies into corporate governance, by showing that such controls and mechanisms will generate value to investors and shareholders in the long term. Mexico has a long way to go. However, there are some political changes that can shape the business and compliance environment in the country (mainly from a tax and regulatory perspective).

With a large number of family-owned businesses, Mexico can become a governance world leader in matters such as institutionalisation guidelines, better decision-making procedures, and an adequate wealth management and succession planning.

Finally, trendy topics such as gender equality, workers’ union representation, remediation of conflicts of interest, anti-discrimination, anti-money laundering, transparency, and governmental-independence rules, are becoming highly relevant for shaping the corporate governance structures in Mexico in the near future.

Two-key principle

The opportunity to appoint two or more directors in a company, who exercise their authority jointly or severally, has been available in many foreign jurisdictions for a long time.

However, until 2014 Russian law stuck to the approach that only one person may hold the position of CEO and be indicated as CEO in the state register of legal entities (the register). This restrictive approach led to some difficulties for joint ventures with international investors and subsidiaries of foreign companies who were used to the ‘two-key’ principle in their home jurisdictions and tried to implement the same approach in Russia.

As part of corporate law reform, amendments to the Russian Civil Code set up legal grounds for the appointment of two or more people as CEOs with joint or separate powers. Unfortunately, the legislation on the registration of legal entities had not provided a technical procedure for recording the joint or separate powers of respective CEOs in the register. In 2015, The Supreme Court of the Russian Federation provided clarification, according to which, if the register contains information about two or more directors of a company, it is presumed that each director is entitled to act independently. This clarification had de facto nullified all the positive effects from the introduction of the two-key principle in the Russian Civil Code.

On 1 September 2020, new laws amending the procedure of registering legal entities will come into force. These amendments introduced the possibility to record information about the joint or separate powers of each director in the register. Anyone can easily obtain an extract from the register for any company. If the information in such an extract shows that the directors can act only jointly, third parties will no longer be able to refer to their lack of knowledge about the joint nature of the directors’ authority.

These amendments have completed the introduction of the two-key principle for Russian companies. This new opportunity will be used not only by foreign, but also by Russian, investors.

Liability of company management

Most Russian small and medium legal entities are managed by one director who, as a rule, acts as the sole executive body. Establishing a board of directors is mandatory only for public companies, ie joint-stock companies whose shares can be acquired by an unlimited number of persons. Given the extensive powers of a sole director, it is important to regulate their liability for possible damages caused to the company.

Russian law declares that company directors shall act reasonably and in good faith. A company and its shareholders, acting in the interests of the company, are entitled to claim damages (both direct loss and lost profit) caused to the company by the unreasonable or bad faith conduct of their directors.

Before 2014, there were only a few successful cases related to the recovery of damages from directors. After the Russian Supreme Court clarified some difficult issues concerning the application of management liability in 2013 and further legislative changes in 2014, the number of shareholder claims against company directors increased significantly. It is worth mentioning that even if a particular act causing damage to a company was duly approved by the shareholders’ meeting or the board of directors, a director is not automatically released from liability.

The imbalance between the value of company assets and the personal assets of directors, as well as the practicalities of enforcing damage claims against directors, are the biggest hindrances. Even if a court awards compensation to a company, most directors will not be able to pay that compensation due to a lack of personal assets. Considering the high risk of personal liability, in a tricky situation most directors prefer to refrain from making decisions for which they can be held liable in the future. This situation does not help companies whose business is based on daily high-risk decisions.

Shareholders of private companies (ie companies that are not public joint-stock companies) are entitled to limit director liability for unreasonable (but not for bad faith) behaviour. However, the practical application of such limitations is not widespread in Russian companies, mostly because of the absence of strict criteria for distinguishing unreasonable behaviour from bad faith behaviour. It also remains unclear in which corporate documents the limitation of director liability for unreasonable actions should be stipulated: in a charter or in the form of an agreement between the shareholders and the director. Limitation of director liability for bad faith behaviour is prohibited both in public and private companies.

Issues related to excessive director liability could be solved by directors’ and officers’ liability insurance (D&O). The Corporate Governance Code – approved by the Russian Central Bank in 2014 as a set of rules recommended to be applied to public joint-stock companies – contains the recommendation to insure the liability of members of the board of directors and company management.

Use of D&O insurance is still not common practice in Russian companies. As a rule, such insurance is used only by subsidiaries of foreign companies for which D&O insurance is mandatory at the global level. The low popularity of D&O insurance in Russia can be explained by the fact that the general provisions on insurance contained in the Russian Civil Code cannot directly be applied to the responsibility of directors, and special regulation for D&O insurance has not yet been adopted. Russian law prohibits the insurance of the risks of administrative or criminal liability of directors. Such insurance is considered as insurance of illegal interest, which is prohibited by law. On the other hand, insurance of the director’s liability for causing damage to their company is allowed under Russian law.

The clear regulation of D&O insurance is a necessary step for reasonable allocation of the risk between shareholders and directors of Russian legal entities. Otherwise, the interests of both directors and shareholders will be insufficiently protected.