Argentina’s National Securities Commission, the CNV, recently published this Resolution modifying the criteria and requirements governing the condition of independent board members. This applies to securities issuers and is part of a growing regulatory trend to increase the number of independent board members and board committee members.

Here, we should note that Act 26,831 obliges bodies listed on capital markets to have an audit committee made up of three or more board members, the majority of whom must be independent. The Corporate Governance Code, meanwhile, makes a series of recommendations about the structure and composition of the Board: so, for example, the number of external and independent members should represent a significant proportion of the governing body; the majority of the members of the Remuneration & Appointments committee must be independent.

In passing this General Resolution, the CNV is redefining the definition of independent director, adapting it to internationally accepted criteria and contributing to make the corporate governance standards of the institutions under its supervision more robust.

Independent Directors

The Resolution establishes that directors whose main material relationship with the issuer is their role in the organ of governance will be considered independent. They will be appointed on the basis of their professional career, suitability, skillset, independent thinking, economic independence and absence of vested interests, and will perform their functions objectively and impartially.

A director will not be considered independent if one or more of the following circumstances concur:

• They are also a director of the monitoring institution or of another entity that belongs to the same economic group* at the time of their appointment, or if they have stepped down from such a post within 3 years immediately before the new appointment.
• They have a link with the institution or the shareholders who own, directly or indirectly, a significant** stake in the same, or links to institutions that also have such a stake, or if they have had links to them in dependent relationships at some point in the previous 3 years.
• They have a professional relationship, work for a company or belong to a professional association that has a regular, permanent professional relationship, of a significant volume of business with, or if they receive remuneration or fees, other than those they receive as a director, from the institution or its major shareholders, or from companies with the same shareholders; during the 3 years prior to their appointment as director.
• They own, directly or indirectly, a significant stake in the institution or in a company that has a significant stake in the institution.
• They directly or indirectly sell and/or supply goods and/or services other than those listed in section c), on a regular basis or in significant volumes to the institution or to its major shareholders, for sums other than what they receive for their post as director; during the 3 years prior to their appointment.
• They have been a director, manager, company secretary or CEO of non-profit organizations that have received funds, for amounts higher than those stipulated in section I) of article 12, section I) of UIF resolution 30/2011 [in Spanish] and its amendments, from the company, its parent company and other companies in the same group, or from the CEOs of any of these.
• They receive some form of payment, including participation in plans or stock option schemes, from the company or other companies in the same group, other than the remuneration received for their duties as board member, except for the dividends to which they are entitled in their capacity as shareholder, pursuant to the stipulations in paragraphs d) and e).
• They have been a director in the institution, its parent company or another company belonging to the same economic group, for more than 10 years. The category of “independent” will be restored after at least 3 years have elapsed since they left their Director’s post.
• They are the spouse or legally recognised couple, related by family up to the third degree of consanguinity or second degree of affinity, of Directors of the institution’s board who are themselves not classified as independent.

The Resolution stipulates that a board member finding themselves in any of the above circumstances after their appointment should notify the institution immediately; the latter will report this to the Commission and other supervisory authorities.

Capital Market

As well as the circumstances covered above, the Resolution adds that, in the case of capital markets, a director will be understood as not meeting the conditions required to be independent when:

• They are a member of the Board or the supervisory body of one or more companies active in trading, settlement & clearing and/or transferable securities broking, members of the respective market, or they have a dependent relationship with agents who are members of this market
• They are the owner, directly or indirectly, of a significant participation in one or more of the companies listed in paragraph a) above, that are members of this market

In summary, with these amendments, the Resolution ensures that regulated companies have more robust boards of directors, who guarantee that these firms are properly run and can thus be trusted by their shareholders and stakeholders.

* “Economic group” as defined in section e) paragraph 3, article 5 of Chapter V of heading II of the REGULATIONS (N.T. 2013 and modifications).