The Statutory Duty of Discretion of Board Members | France

Under French corporate law, any director of a société anonyme has a statutory duty of “discretion” with respect to any confidential information designated as such by the chairman of the board. This statutory duty of discretion is without prejudice, and actually in addition, to the restrictions on the communication and/or use of inside information relating to any listed company as well as to more specific non-disclosure obligations such as trade secrets-related regulation.

An individual or a legal entity may be appointed as director of a company, provided that if a legal entity is appointed it shall designate an individual to represent it at the board. In addition, it is not unusual for significant shareholders willing to be represented at the board to propose the designation as director of an individual (eg, a senior executive officer of the shareholder) instead of that of the shareholder themself.

Since the statutory duty of discretion has material consequences on the organisation of board meetings and on the communication between the directors and the shareholders they formally represent at the board, or with whom they have close business relationships (and only rare judicial decisions address such specific scope), this has given rise to numerous debates among the French business and legal community, including in the context of certain high profile disputes between listed companies and their directors and shareholders.

The Autorité des marchés financiers (AMF) (the French financial markets regulator) recently asked the Haut Comité Juridique de la Place Financière de Paris (HCJP), a highly regarded think thank chaired by the former president of the AMF, to issue a report on the scope and extent of this duty. The HCJP issued its report in December 2022. Key questions include:

Acknowledging that there is no unanimous opinion on these key questions in the legal community, the HCJP called for certain modifications and clarifications to the French statutory provisions. The likely upcoming modifications to French corporate law on this topic will be monitored closely by companies and the corporate governance institutions.

Despite the aforementioned legal uncertainties, it is advisable for any director to consider that the duty of discretion is actually an obligation of confidentiality, and that this obligation applies to any information and materials discussed at the board (including the preparatory information package and the debates and decisions of the board). This approach is in line with the initial intention of the legislature, the corporate governance guides applicable to French listed companies (ie, the AFEP-MEDEF Code and the Middlenext Code) and the vast majority of the internal regulations of the boards of such companies.

The most complicated issue concerns whether or not an individual director may communicate board information to the shareholder that they represent or with whom they have close business relationships. In its report, the HCJP considers that the individual director shall be regarded as being authorised to communicate this information to the shareholder in any situation where the legal entity shareholder has been nominated as director and the individual is merely formally representing such shareholder at the board.

The HCJP also considers that French corporate law should be modified to authorise an individual director having been appointed directly at the board to communicate this information to the shareholder with whom they have specific close business relationships. It is worth noting that in the past, the Haut Comité de Gouvernement d’Entreprise (HCGE) (in charge of monitoring the application of the AFEP-MEDEF Code) and the Association Nationale des Sociétés par Actions (another highly regarded legal think thank) issued dissenting opinions.

In any case, it is generally considered advisable, as suggested by the HCGE, that the internal regulation of the board of the company provides for clear, specific provisions to clarify the duty of confidentiality expected from the directors and, in particular, clarify under which conditions the directors may communicate board information to certain shareholders; unfortunately, many internal regulations of the French SBF 120 listed companies have not yet done so.