4.3.2 What is the background of corporate governance in the country under review?

The Belgian corporate governance debate started rather late and was triggered by the fact that the international capital markets required more transparency. Belgium had not experienced major corporate scandals (Van der Elst 2008, p. 2), hence the debate was strongly market-driven. Being a strong insider-controlled system, Belgium had to become more market-orientated and defend its competitive position on the capital markets (Solomon 2007, p. 198) (De Wulf, Levrau et al. 1999, p. 36). After two previous minor attempts,1 three codes were simultaneously drafted by three different commissions in 1998.2 Research performed on the compliance with these codes showed that a comprehensive approach was necessary to make companies actually comply with the recommendations and present a corporate governance chapter in their annual report (Van der Elst 2008, p. 7). Apart from self-regulation, legislative initiatives were also taken in Belgium. The Commission De Grauwe (under the chairmanship of Professor De Grauwe), established by the government, addressed several corporate governance issues needing to be improved by legislation (Van der Elst 2008, p. 8). In the midst of the major corporate collapses, Enron and Worldcom, and in Belgium Sabena and Lernout & Hauspie), De Grauwe's report was followed by the Corporate Governance Act of April 2001. This Corporate Governance Act was enacted on 2 August 2002 and modified the Code on Companies, assessing topics such as the executive committee, conflicts of interests, independence of the auditor and transparency of shareholders' interests (Belgisch Staatsblad 2002, 3655536676). The act's aim was to regain the trust of investors in Belgian listed companies and to establish a more balanced operation of the corporations in general (Byttebier, François et al. 2004, p. 47). In reaction to the EU Company Law Action Plan a new Belgian corporate governance commission was established in January 2004, initiated by the Banking Finance and Insurance Commission, the Belgian Federation of Enterprises (Verbond van Belgische Ondernemingen - the VBO) and Euronext. The commission consisted of representatives of the above organisations, industrialists and academic scholars and was chaired by Maurice Lippens. After a consultation document was published in June 2004, the Belgian Corporate Governance Code was issued in December 2004. As discussed further below, the contents of this code were strongly influenced by the British Cadbury Report, the French Vienot Code and the Dutch Peters Recommendations (Van der Elst 2008, p. 2) (De Wulf, Levrau et al. 1999, p. 37). In 2007 the corporate governance committee, after a consultation period, restarted its activities to publish the latest code in 2008. Over fifty provisions were changed to improve clarity or for more fundamental reasons (Van der Elst 2008, p. 34). Fundamental changes concerned the fact that the principles were no longer mandatory rules, but pillars for developing good corporate governance, a dialogue was promoted to encourage shareholder participation, the provisions on the remuneration report were amended further and the separation of the role of the chairman and the CEO was arranged (Van der Elst 2008, p. 34).

The code is applicable to companies incorporated in Belgium whose shares are admitted to trading on the regulated market (Euronext Brussels) and can function as a reference frame for other companies3 (Belgian Code 2009, Preamble). The Belgian corporate governance committee defines corporate governance as: "a set of rules and behaviours which determine how companies are managed and controlled. A good corporate governance model will achieve its goal by setting a proper balance between leadership, entrepreneurship and performance on the one hand, and control as well as conformity with this set of rules on the other hand (Belgian Code 2009, Preamble).

The objective of the code is to support long-term value creation. "Good corporate governance can lead to the creation of wealth, not only for shareholders but also for all other stakeholders and "good governance based on transparency and accountability should reinforce the confidence ofinvestors and financiers in companies and will benefit other stakeholders (Belgian Code 2009, Preamble) (Van der Elst 2006, p. 4). Hence, a relatively short corporate governance history in Belgium and, although strongly influenced from abroad, based on an insider-controlled system.