The Law of capital companies (Ley de Sociedades de capital – LSC) regulates notable aspects of the board of directors of listed companies. It would be very interesting to apply those measures to non-listed companies in order to improve its functionality and to reduce responsibilities.

1. Board of Directors Composition

    1.1. Directors

The directors are divided into executive directors, proprietary directors and independent directors (Article. 529 duodecies):

  1. Executive members are those who perform functions of management, regardless of the legal nature of the links they have with the company.
  2. Proprietary directors are those who keep a share ownership in the company of equal or greater value to the legally established or by decision of the partners. Proprietary directors are also those who were appointed due to their shareholder condition (or their representatives) even if they do not have the referred share ownership value.
  3. Independent directors: They are chosen according to their profession ability, financial solvency and experience (This issue will be discussed below).

The board of director’s members of a listed company will be appointed by the general shareholder´s meeting, except in the cases of appointment by the board of directors through co-optation to fill vacancies.

The appointment proposal or re-appointment of the board of director´s members (independent directors) is carried out by the appointment and remuneration committee, in all other cases, the same board of directors will assume this work (article 529 decies LSC).

The term of the position of the director appointed will be established by the Company statues which may not exceed four years. It is possible to re-appoint the directors once or more within the same maximum periods (article. 529 undecies LSC).

In addition to being impartial, the board of directors must be balanced in their gender and regional composition. A balanced representation is defined as one in which the members of both should neither exceed 60% nor be less than 40% (DA 1ª Organic Law 3/2007 on effective equality of women and men [1].

1.2. The Chairman

The chairman of the board of directors will be appointed by the board of director´s members acting on a report of the appointment and remuneration committee.

The chairman position may be limited in the company statutes separating this position to the executive director position.

When the abovementioned positions (chairmanship and chief executive officer) are held by the same person, the subsequent requirements should be followed (article. 529 septies LSC). Separation of positions:

  • The chairman appointment will require at least two-thirds of the members of the board to have voted in favour thereof.
  • The appointment of a coordinator (one of the independent directors) with the abstention of the executive directors
  • The coordinator director will be entitled to request the calling of board director’s meeting or the inclusion of new items on the agenda and to lead, if it is the case, the periodic assessment on the performance of the chairman of the Board of Directors.

2. Internal organization and functioning

The board of directors must to:

  • To approve its internal operating regulation, to publish it on the corporate website, to register it in the Commercial Register and to include it in the CNMV web page (article 528 y 529 LSC).
  • The Committee has the option of setting up at least two consultative commissions: The audit committee and the appointment and remuneration committee. [2] (article. 529 terdecies LSC).
  • To carry out a yearly performance appraisal of both the Board and its commissions and to draw up an action plan to remedy the shortcomings identified. (529 nonies LSC).
  • To perform its statutory duties of diligence and loyalty (articles 225 a 229 LSC).

One of the most important aspects of the Law of capital companies reform made by the Law 31/2014, is the inclusion of the theory “business judgement rule” (art. 226 LSC)[3] which consists in the liability exemption on the basis of decisions taken under the company´s strategy criteria and fulfilling all the requirements resulting from the duty of diligence (“duty of care”), as we can see, the directors are not directly responsible for entrepreneurial risks.

3. Special mention to independent directors

It is recommended the inclusion of independent directors in all types of entities. The independent directors are not linked to the management team and they don’t have control shares either. They are distinguished in keeping with their experience, competence and position. The inclusion of an independent director may bring a new point of view to the board of directors, improving its perform.

¿What is the added value of an independent director?

To examine with proper impartiality carried out by the directors of the company, therefore, it is recommended a number of independent directors from at least a half of the total members [4].

The independent directors are capable of adapting to the legal issues of the company easily. They can stimulate others members of the board of directors. Other benefits that the inclusion of independent members provides:

  • Specialized expertise.
  • Cultural experience and leadership.
  • Objective opinion. Not a politic one.
  • Mediator, neutrality and coach business.
  • Negotiation, compensation, incentives and executive agreements.
  • Credibility and reputation.
  • Ability to resolve conflicts.


Step by step, the more balanced composition for the board of directors of a listed company have been showed. Regarding the importance of the board of directors, it is absolutely necessary a stable composition to reach efficiency. The inclusion or the increase of the number of independent members will favours the company causing the increase of investors trust. Given the above, it is concluded that non-listed companies must include progressively this potential improvements into its corporate governance.

 [1] The article 75 of the organic Law 3/2007, March 22th, on effective equality of women and men provides women’s participation in the board of directors of the commercial companies: “the societies (…) shall endeavor to include in its board of directors a number of women which allows to reach balance between women and men (…)”.

[2] One of its features is the legal ban of the executive members and it is compulsory to be moderated by an independent director (article 529 quaterdecies LSC).

[3] Which means, the inclusion of a new duty’s theory (thereby, liability) of the directors. In that sense, the duty of care is made more flexible and the duty of loyalty takes more relevance.

[4] Good Governance Code of Listed Companies (CNMV, February of 2015).

Jose María Dutilh

Jose María Dutilh

Socio Director de la Firma de Abogados LeQuid, especializada en Derecho de los Negocios y de las Empresas Sociales, estoy plenamente convencido de que el desarrollo empresarial rentable y eficiente no sólo es compatible sino que necesita la ética empresarial. En la actualidad, desde LeQuid colaboro con empresarios que necesitan una segunda oportunidad a través de estos procesos; Apoyo legal en el día a día, Re emprendimiento socialmente responsable, Fusiones y Adquisiciones, Reestructuración y Refinanciación de empresas o Concurso de acreedores entre otros.

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