Independent Directors of Listed Companies

The Resolution published in the Official Gazette on November 22, 2017 redefines the independence criteria regarding directors. For this purpose, it followed the Guidelines of the Corporate Governance Principles of the Organisation for Economic Cooperation and Development (OECD), the definition proposed by the International Finance Corporation (IFC) and the criteria used in other jurisdictions such as Brazil, Chile, Mexico, Peru, Spain and the United States.

Likewise, the Resolution modifies the independence criteria defined under Section 11 of Chapter III of Title II of the N.T. 2013 and their amendments (the “Rules”).

To begin with, the Resolution establishes as a general criterion that a director will be “independent” when his or her principal material relationship with the issuing company is the seat he or she holds on the board of directors of such company. Furthermore, the Resolution provides that to be appointed, his or her professional experience, suitability, qualified knowledge, and independence of criteria, of economy and of interests will be taken into consideration and whether he or she can perform his or her responsibilities objectively and impartially.

The Resolution also modifies and details the actual independence criteria establishing that a director is not independent if one or several of the following circumstances are met:

1. He or she is also, either at the time of his or her election or has been during the immediately preceding three years, a member of the board of directors of the parent company or another company of the same economic group of the issuing company.
2. He or she is linked, either directly or indirectly, to the issuing company or to shareholders that have “significant holdings” therein or to companies in which they have “significant holdings”, or if he or she has been linked to them under a dependent relationship in the last three years.
3. He or she has a professional relationship or is part of a company or professional association that maintains regular professional relationships of relevant nature and volume with, or receives compensations or fees (other than the ones corresponding to the functions performed on the board of directors) of, the issuing company or its shareholders that have, directly or indirectly, "significant holdings" or companies in which they have "significant holdings", during the last three years prior to the appointment as director.
4. He or she directly or indirectly holds 5% or more of shares with voting rights and/or of the issuing company’s share capital or of any company that has “significant holdings” in it.
5. He or she usually sells or provides goods and/or services of a relevant nature and volume, either directly or indirectly, to the issuing company or its shareholders that have, directly or indirectly, “significant holdings” for amounts substantially higher than those received as compensation for the performance of their functions, during the last three years prior to the appointment.
6. He or she is a spouse or a legally recognized partner, relative up to the third degree of consanguinity or second degree of affinity or maintains a friendship, evidenced through known facts, with individuals who would not meet the independence requirements if they were members of the board of directors. 

Additionally, the Resolution introduces new restrictions to be taken into consideration to determine that a director is not independent:

7. He or she has been director, manager or chief executive of non-profit organizations that have received amounts higher to those described under subsection l) of section 12 of UIF resolution No. 30/2011 (currently ARS 400,000), its parent company or another company of the same economic group, as well as the chief executives of any of them.
8. He or she receives any payment, including the participation in stock option plans, by the issuing company or those of the same economic group, other than the fees for the performance of his or her functions, except the corresponding to shareholder´s dividends for holdings that do not fall within the scope of (ii) above and compensation for the provision of goods and/or services that do not fall under the scope of (v) above.
9. He or she has been director for more than ten years in the issuing company, its parent company or another company of the same economic group. After a minimum of three years since the end of his or her position as director, he or she becomes an independent director again. 

The director has to immediately inform the issuing company if any of the previous circumstances are met after his or her appointment, and the issuing company has to inform this to the CNV and to the stock markets in which its securities are listed in the three following working days since the event occurred or since it was known.

For the purposes of the directors' independence criteria, "significant holdings" will refer to those persons who hold shares representing at least 5% of the share capital and/or votes, or a lower amount when they have the right to elect one or more directors by a class of shares or hold agreements with other shareholders regarding the government and administration of the company, or of its parent company.

The Resolution also establishes the duty to indicate in the report at the end of each fiscal year and in the Corporate Governance Code, the list of members of the company's board of directors, specifying whether each member is independent. The report must inform the number of executive, administrative and managerial positions exercised by each of the board members in the issuing company or in any other entity that is subject or not to the control of the CNV.

In the case of a stock exchange or over the counter market there are two additional circumstances in which the directors will not be considered independent:

1. When he or she is a member of the administrative or supervisory body of one or more companies that are securities brokers, dealers or agents of the relevant stock exchange or over the counter market or are under dependency relationship of agents that are members of these;
2. When he or she is, either directly or indirectly, owner of significant holdings in one or more companies that are a securities brokers, dealers or agents of the relevant stock exchange or over the counter market.

In conclusion, the Resolution provides higher requirements for a director to be considered independent which must be considered in future appointments.

Opinions and proposals may be made through the website of the CNV, www.cnv.gob.ar, within  fifteen working days following the publication of the Resolution. The deadline for this period is December 16, 2017. The CNV may incorporate changes to the final terms of the Resolution based on comments received.