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The remuneration of board members. Due transparency and the remuneration of executive board members, by Javier Fontcuberta (EDP 06)

Programa de continuidad | Spanish

April 12 OF 2018 from 08:30 AM to 10:00 AM


Directors’ remuneration

The Refresher Programme talk, “Directors’ remuneration. Due transparency and the remuneration of managing directors,” by Javier Fontcuberta (EDP 06), associate professor in the ESADE department of private law, was held on April 12th at ESADEForum.

Prof. Fontcuberta examined ruling 98/2018 dd 26 February 2018 of Spain’s Supreme Court. This ruling differs from the criterion of mercantile registrars by defining by-law clauses regarding the remuneration of the board members of any unlisted sociedad limitada or sociedad anónima.

Fontcuberta began by analysing the background of this ruling because it is not unrelated to other matters. He then examined the Supreme Court ruling in depth, including its strong and weak points, discussed whether more rulings on this subject may be expected in the future, and ended with several useful conclusions and comments.

“Today’s legislative policy fosters transparency in both listed and unlisted companies, and I have no doubt that the same demands must be made of directors, in unlisted companies too. So it seems reasonable to expect company directors to have transparent dealings with shareholders,” said the professor.

In Spanish law, this transparency is reflected by what is known as the statutory reserve, according to which directors’ remuneration must be specified in the by-laws (article 3, LSC (Spanish corporate law)). Stipends must also be specified in writing in keeping with the by-laws. Spanish Act 31/2014 dd December 3rd amended the LSC for better corporate governance, article 249 to be precise, and made it obligatory for companies to sign a contract with their directors.

The General Meeting must determine directors’ maximum annual remuneration. If there is a board of directors, the remuneration must be specified in the contract; and if the remuneration is apportioned, the different functions and responsibilities must be specified.

In this respect, the professor explained that the overlap between LSC articles 217 and 249 is fraught with problems. “According to certain doctrines, these two articles cannot be interpreted together, but separately. One scientific doctrine does, however, uphold the opposite on the basis of complete trust in the director, which suggests that a separate remuneration package could not be allocated. This is the criterion of registrar Luis Fernández del Pozo, for example.”

The Audiencia Nacional, on the other hand, considers that the statutory reserve should only apply to directors’ functions. Article 249 mentions a specific condition, i.e. the remuneration of managing directors. The Audiencia Nacional itself does, however, emphasise that this interpretation is not devoid of doubt.

“In this respect, the Supreme Court has examined the precise wording of the precepts by using historical and political arguments. From a historical viewpoint, all remuneration must be specified in the by-laws. This is, above all, in the interest of the directors themselves because they will then have a solid legal foothold regarding the stipends they are paid. Furthermore, denying shareholders information about directors’ remuneration is a breach of shareholders’ right to information. There is also the connection doctrine, due to executive functions of the board of directors, because boards in Spain have a one-tier system, i.e. it is not possible to differentiate their supervisory and control functions from their management functions. The Supreme Court, therefore, asks what position directors hold in a company. Directors have close connections with shareholders, so why should part of their remuneration be secret? This has negative fallout on the transparency of company management and is a breach of the right to information,” said Fontcuberta.
The Supreme Court has therefore determined that directors’ remuneration must be reflected in a by-law reserve. If they receive stipends the methods of remuneration must be specified – which requires the agreement of the General Meeting – and a contract must be signed. Therefore articles 217 and 249 cannot be interpreted separately.

“The court itself says that the ruling is debatable because it is clear that the remuneration of managing directors does not necessarily fall within a set framework. It must, however, be based on the by-laws: if any item or concept related to remuneration is changed, then the by-laws must be amended,” added the professor.

Fontcuberta thinks it would be reasonable for the Barcelona Mercantile Registry, in keeping with the doctrine they have upheld, to accept by-law clauses that enable alternative methods of remuneration for directors. “But I have not attempted this, nor will I be the first to do so,” he joked.
So far there has been just one ruling in this respect, and it is not yet case law in any respect. The expert therefore recommends following the criterion because a considerable number of judges uphold this doctrine and, in the near future, no other criterion is envisaged.

Javier Fontcuberta emphasised that this ruling does not affect listed companies, “and not all unlisted companies are affected, only those whose board of directors delegates some of its functions to a CEO.”


ESADE Alumni is pleased to announce another talk in their Refresher Programme, “The remuneration of board members. Due transparency and the remuneration of executive board members. Analysis of the Supreme Court ruling dated February 26th 2018”, by Javier Fontcuberta (EDP 06), associate professor in ESADE’s department of private law.

The Supreme Court ruling 98/2018 dd February 26th may change registrars’ usual interpretation insofar as it sets forth byelaw provisions for the remuneration of the board members of unlisted limited companies. It may also lay the foundations for pinpointing possible liability risks.
This talk will examine the background and rationale of said ruling and likewise the new interpretation that it promotes.



Javier Fontcuberta

Javier Fontcuberta (EDP 06) is an associate professor in ESADE’s department of private law. He holds a PhD in law (Universitat Ramon Llull), a bachelor’s degree in law (Universitat de Barcelona), Executive Development Programme (ESADE), certificate of research proficiency (Universitat de Barcelona), P. I. L. (Harvard Law School, Cambridge, Massachusetts, USA), master in corporate legal consulting (Instituto de Empresa) and master in accounting (Escuela de Administración de Empresas de Barcelona). Partner at Cuatrecasas, Gonçalves Pereira and board secretary and legal advisor of several entities. Board secretary of Seda de Barcelona, S. A. from 2009 to 2012. In addition to holding said posts in other companies belonging to Grupo LSB, he also holds or has held some of these positions in companies including Audi Tooling Barcelona, S. L., Gearbox del Prat, S. A., Audi Real Estate, S. L., Volkswagen Group Retail Spain, S. L. and Centro Técnico de SEAT, S. A. Regular speaker on subjects related to Spanish and international business law. Author of the book El contrato de distribución de bienes de consumo y la llamada indemnización por clientela (Ed. Tirant lo Blanch, 2009) and author of the chapter “Derecho de empresa” in El MBA de ESADE (Ed. Planeta,  2010).  He has also written several specialised articles and many articles for the press.