In an interesting June 11, 2014 Financial Times article entitled “Spain’s Renewal Must Include Governance Improvements” (here), financial journalist and commentator Tony Barber identifies corporate governance issues that he believes Spanish companies have been slow to address. According to Barber, while there may be historical explanations for many of the long-standing corporate governance practices in Spain, Spanish companies’ increasingly international shareholder base will require the companies to meet higher governance standards.
Barber acknowledges that corporate governance practices at Spanish companies have improved since the CNMV, the national financial market regulator, published a non-binding code of good governance in 2006. But progress has been slow and “some of the biggest, most internationally active Spanish companies can certainly do better.” According to Barber, the current government has plans to update the 2006 code. It has also sent a bill to parliament that will increase shareholders’ control over executive pay, strengthen the voice of minority shareholders and address potential conflicts of interest.
Barber identifies four additional governance issues that, in his view, many Spanish companies need to address. First, he says that “too many combine the roles of chairman and chief executive in one person.” Second, the boards are often “too old and universally old.” Third, many boards are too large. And finally, “some boards contain too few credible independent directors.” Among other things, these practices allow the concentration of power in one person’s hands.
The current board practices of many large Spanish companies “have deep roots in Spanish business culture.” This culture is a lingering vestige of practices during the Franco era, when Spain “remained in most respects a self-enclosed world, dominated by a handful of mighty financiers and industrialists.”
These old habits die hard, even though in a wide variety of industries Spanish companies “stride the globe” and even though foreign investors hold roughly 40 percent of the equity of the companies in Madrid’s blue-chip Ibex-35 index. Even companies like Banco Santander that have started to make changes still have boards that are almost exclusively Spanish. Even after adding former U.S. banking regulator Sheila Bair to its board in January, the bank’s 16-person board consists of 14 Spaniards, a Chilean and Bair. Three board members belong to one all-powerful family.
Barber contends that “national as well as gender-diversity is something that Spanish companies need to get to grips with.” Even when Spanish companies select foreign directors, they tend to turn first to Spanish-speaking countries. Barber comments that “it stretches credulity to suggest that such appointments reflect a meticulously conducted search for the best candidate. “
To underscore the importance of these issues for Spanish companies, Barber cites as an example the recent decision of Pemex, the Mexican national oil company, to sell most of its 9.2 percent investment in Repsol, the Spanish energy group. Among other things, Pemex cited Repsol’s governance practices as a reason for the sale. While not meaning to suggest that Pemex’s views on governance represent some sort of a standard, Barber said that “there is no doubt that international investors would welcome higher standards at some of Spain’s best known companies.”
Barber closes his article with a reference to the recent abdication of King Juan Carlos, noting that “modern Spain is embarking on a project of national renewal that calls for brave decisions in difficult times.” Improving corporate governance “will form part of the contribution of Spanish business to this task.”
The practices and the resistance to reform in Spain may be best understood by reference to the country’s particular history, but many of the concerns are not unique. Other countries have their own versions of many of these issues. Just the same, it is interesting to consider this country-level perspective on corporate governance practices