Last week AFEP, the French Association of Large Companies, and MEDEF, the Movement of the Enterprises of France, released an updated version of their corporate governance code, which is followed by virtually all large- and mid-cap companies domiciled in France. The changes provide a snapshot of the French market, reflecting increased investor interest in engagement and ESG issues — and increased political pressure on the role of companies in society today (please scroll to the bottom for a list of the main changes).

Public Consultation, Private Creation

This is the fourth revision of the AFEP-MEDEF code in just five years. Many of the changes this time around deal with the integration of environmental and social factors into governance and remuneration structures, as well as the mechanism by which shareholders may engage with boards, both of which have been a focus of recent shareholder interest.

The process under which these revisions were made, however, has not been the subject of universal acclaim. While public consultation on the proposed revisions opened in late February for a six-week period, many investors felt a tad miffed that they had been excluded from the drafting process itself, with one calling it a missed opportunity. Even the UN’s Principles for Responsible Investment (PRI), while commending the prominence given to non-financial issues, was critical of the decision to shut investors out of the drafting process.

This is perhaps underscored by the close resemblance between the proposed text in February and the final text published last week. Ironically, the most significant change made to the proposed text occurred long after the closure of the consultation period, when an uproar around former Carrefour CEO Georges Plassat’s remuneration left AFEP and MEDEF scrambling to tighten their language around non-competition agreements.

The Hard Case for Soft Law

The revision to the code, with its pointed focus on social and environmental issues, is widely acknowledged as an attempt to head off potentially more forceful legislative changes being discussed in the context of the “loi Pacte”. Among other things, the law proposes widening the purpose of the corporation beyond simply making a profit to also take account of a wider societal and environmental role. Proponents of the code are hoping that the prominence of such language in this “soft law” code will be a sufficient peace offering to avoid heavy-handed regulation.

Questions have been raised, though, about whether it goes far enough. While few would dispute the positive nature of the above changes, they are at the same time reflective of market practice already fairly well-established in France, and are unlikely to modify corporate behaviour in any significant way. CSR-related metrics are already present in a large number of executive compensation plans – about 80% of French blue-chips during the 2018 proxy season – while 25 of the 35 French-domiciled companies of the CAC 40 had a board-level committee overseeing environmental and social issues.

Likewise for employee representatives on the board. The proposition to have them sit on the board is based on a stated desire to ensure representation and influence for employees where strategic decisions are being made. Yet this too is largely reflective of existing practice, with all bar four of France’s large-cap companies having employee representatives on their primary board. As such, the provision may not be sufficient to deter lawmakers from lowering the minimum board size at which two employee representatives must be appointed from 12 to 8. Other measures that would go further have also been mooted.

On the subject of gender diversity, AFEP and MEDEF have looked inward. As standard bearers, the organisations have themselves been criticised for including only one woman on their seven-member High Committee, which oversees implementation of the code’s recommendations. In order to ensure greater balance, the size of the committee will be expanded to nine members, and the existing requirement for members to have held executive office has been dropped. This relates to a wider problem across French companies. Legally-binding gender quotas are already in place for the boards of publicly-listed companies, requiring each gender to hold at least 40% of board seats. However France has faced the familiar problem of an upswing of female presence in the boardroom not being matched by a significant increase in the C-suite.

The new code, then, is an attempt to adapt to a new investment and regulatory landscape, and to push companies to take account of their responsibilities to wider society, not just to shareholders. Its backers have called it one of the most demanding corporate governance codes in the world. Whether Emmanuel Macron, the great reformer, and his economy minister Bruno Le Maire will consider it demanding enough, though, remains to be seen.

Summary of Primary Changes

The Board

  • The board should aim to promote long-term value creation in considering the social and environmental issues linked to a company’s business activities. Corporate social and environmental responsibility is explicitly mentioned as an issue of which directors must remain informed.
  • The role of “lead director” must only be filled by an independent director. The Code now recognises that such a role is particularly relevant where the positions of CEO and chair of the board have been combined.
  • Employee board representatives should be appointed within the company that applies the corporate governance code.
  • The responsibility for handling shareholders seeking to engage with the board, notably on the subject of corporate governance, should fall to the board chair or lead independent director.


  • Criteria related to corporate social and environmental responsibility should be integrated into executive compensation packages.
  • Executives who are retiring or are over the age of 65 should not be eligible to receive payments under a non-compete agreement. In addition, non-compete agreements should not be concluded at the moment of an executive’s departure if there was no previous clause existing (previously the code simply sought reasons where this was the case). Payments under such an agreement should be staggered over its duration.
  • Supplementary pension plans instituted after publication of the updated code should be subject to performance conditions.


  • The executive officers should put in place a diversity and non-discrimination policy, which should address the issue of balanced representation of men and women in the company’s leadership bodies.
  • Companies should have a system in place to detect and prevent corruption and influence peddling
  • The High Committee on corporate governance will ensure the actual implementation of comply or explain, and will now name and shame companies who fail to respond to overtures from the committee within two months of their communication.

Emmet is an analyst covering the French market.