Tuesday, May 10, 2005


Corporate affairs

Spain's Comisión Nacional del Mercado de Valores (National Commission on the Stock Market) or CNMV, which regulates the Spanish stock market, is putting in some new disclosure rules for corporations. Beginning in July, according to Leslie Crawford of the Financial Times, corporate directors will be required to report transactions that—
affect spouses, children, parents, siblings and other "persons with whom directors hold analogous affectionate bonds". Most analysts have interpreted this to mean lovers.

The organization representing corporate boardrooms doesn't like it—

The Institute of Board Directors, a lobby group for encouraging best practises in Spain's board rooms [right!], says the guidelines on "affectionate relationships" are unprecedented. The Institute is in favour of measures that improve transparency, but questions whether requiring board members to disclose related party transactions with lovers is not going "a little too far".

The CNMV responds that it is only producing regulations to conform with a 2002 financial transparency law "by spelling out who ought to be included in related party transactions."

The Spanish disclosure rules are thought to be the most comprehensive in the world. But the CNMV says it is important that legislation on good corporate governance remain up to date with "new forms of human relationships" to avoid conflicts of interests that might affect companies and their shareholders.

And the corporations offer the obligatory red herring—

The guidelines have caused alarm in business circles as they may infringe the right to privacy of directors. "We would have to compile a database with the relatives1 and sentimental partners of our board members, and I doubt we could do this without the consent of the interested parties," says the legal counsel of a leading Spanish bank.

The requirement of full disclosure says nothing about "compiling a database of relatives and sentimental partners." If a corporation does this, it is the corporation that is "infringing the privacy" of its directors, not the government. It is sufficient that the directors be alerted to the guidelines (which I'm sure they figured out long ago).

American investors, take note.


1 Many American corporations acquire this information routinely at the time of application for employment. No concerns about privacy that I've heard recently. [back]

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