Corporate Governance: Board Structure That Protects and Creates Value

Corporate governance is the system of rules, structures, and practices by which a company is directed and controlled, balancing the interests of shareholders, directors, employees, and other stakeholders. In Spain, the legal framework for corporate governance is established by the Companies Act (LSC), particularly Articles 225–241 bis, which define the duties of diligence and loyalty that bind directors and establish the liability regime applicable when those duties are breached. For listed companies, the CNMV's Good Governance Code applies on a comply-or-explain basis and sets standards for board composition, director independence, specialised committees, and remuneration transparency; for non-listed companies, these standards have become the reference applied by private equity investors and financial institutions as a condition for capital or credit.

Corporate governance is not a bureaucratic requirement — it is the architecture that determines how the most important decisions of a company are made, who oversees them, and what mechanisms exist to correct errors before they become crises. When that architecture fails, the consequences extend well beyond the business: directors face personal financial liability, minority shareholders see their rights diluted, and the company loses the confidence of its lenders at the most critical moment.

Why Poor Corporate Governance Generates Personal Liability and Destroys Company Value

The Spanish Companies Act (LSC) establishes a framework of duties that many directors understand only superficially. The duty of diligence under Art. 225 LSC requires acting as a prudent businessperson and making properly informed decisions; the duty of loyalty under Art. 226 LSC demands placing the company’s interests above personal interests; and the liability regime under Arts. 237-241 bis LSC can generate claims against directors from both the company and third parties. These are not theoretical risks: Spanish courts have held directors of mid-sized companies personally liable for breaches that had gone unnoticed for years. Beyond personal liability, governance gaps discovered in a private equity due diligence or M&A process translate directly into valuation discounts. Companies without independent directors, board regulations, or conflict-of-interest policies consistently receive lower multiples — the gap is not subjective, it is a documented risk premium.

Our Corporate Governance Review and Board Architecture Design Process

Our corporate governance advisory begins with a rigorous diagnostic that reveals the gap between formal documentation and the board’s actual practice: composition, operation, decision rules, existing committees, and alignment with the CNMV Good Governance Code. We then design and implement the optimal structure — independent director profiles, specialised audit and remuneration committees, voting and quorum rules, conflict-of-interest policies — and draft the documentation that converts governance intentions into enforceable procedures: board regulations, remuneration policy, code of ethics, and whistleblowing channel. For companies preparing for an IPO or the entry of a financial investor, we accelerate the governance upgrade to close the gaps that sophisticated investors look for before committing capital.

Real Results in Corporate Governance: Liability Protection and Valuation Improvement

• Board regulations, conflict-of-interest policy, and directors’ duty documentation completed before any capital market or PE process begins.
• Independent director selection and onboarding managed from profile design through to appointment.
• Governance documentation package prepared for PE investment or listed company requirements, eliminating the valuation discount associated with governance gaps.
• Director training on Arts. 225-232 LSC duties: informed boards make better decisions and document them correctly, which is the primary defence in any subsequent liability action.
• Annual board effectiveness review maintaining governance quality as ownership, management, and regulatory requirements evolve.

Good corporate governance is the framework that makes effective regulatory compliance possible: it defines who is responsible for each risk area, establishes reporting channels, and supervises that internal controls are functioning. Without a clear governance structure, compliance becomes a formal exercise without real organisational grounding. The family office dimension of governance is particularly important for business-owning families: the same governance principles that apply to listed companies — clear decision rules, independent oversight, transparent reporting — must be adapted to the family business context where emotional and economic interests are intertwined. Our succession planning experts work with the governance team to ensure that family protocol and board design are mutually reinforcing rather than in tension.

Regulatory Framework Governing Corporate Governance in Spain

Corporate governance advisory in Spain operates within a layered regulatory framework combining hard law obligations under the LSC, regulatory codes that apply on a comply-or-explain basis, and increasingly prescriptive EU sustainability reporting requirements:

LSC directors’ duties and liability: Articles 225–241 bis of the Ley de Sociedades de Capital (RDL 1/2010, LSC) establish the core governance obligations. Art. 225 LSC: duty of diligence — directors must act as prudent businesspersons, inform themselves adequately, and make decisions in the company’s best interest. Art. 226 LSC: the business judgement rule (regla de la discrecionalidad empresarial) provides a safe harbour for decisions made in good faith, on the basis of adequate information, and without personal interest — but the conditions for the safe harbour must be formally met and documented. Arts. 228–231 LSC: duty of loyalty — prohibition on self-dealing, use of corporate opportunities, and conflicts of interest. Art. 229 LSC: obligation to declare conflicts of interest. Arts. 237–241 bis LSC: liability regime — social action for liability can be brought by the company, by shareholders holding ≥ 5%, or by creditors when the company is insolvent; individual liability to third parties (Art. 241 LSC) requires breach of a duty that directly and individually damages the third party.

CNMV Code of Good Governance (2020 revision): The Código de Buen Gobierno de las Sociedades Cotizadas applies to Spanish listed companies on a comply-or-explain basis. Key recommendations with direct governance design implications: Recommendation 14 — maximum 4-year director terms for listed companies; Recommendation 17 — at least one-third of board seats for independent directors; Recommendation 33 — audit committee majority independent, chaired by independent director; Recommendation 55 — director remuneration linked to performance metrics. For private equity-backed and large family companies, the Code has become the de facto benchmark for governance quality assessments.

EU Shareholders Rights Directive II (SRD II): Directive 2017/828/EU, transposed into Spanish law via Law 5/2021, strengthens shareholder engagement rights and imposes requirements on institutional investors and asset managers on engagement policy, director remuneration votes, and related-party transaction transparency. For listed companies and those approaching an IPO, SRD II compliance is integral to governance design.

CSRD governance disclosures: The Corporate Sustainability Reporting Directive (CSRD) and ESRS 2 require reporting entities to disclose board and management oversight of sustainability matters, including: governance body composition (ESRS 2 GOV-1), management roles in sustainability (GOV-2), integration of sustainability performance in remuneration (GOV-3), and risk and materiality assessment processes (GOV-4, GOV-5). For Wave 2 companies (≥ 250 employees, reporting on FY2025), governance disclosures are required alongside financial reporting.

Law 2/2023 (Whistleblowing): Law 2/2023 transposing EU Directive 2019/1937 requires companies with ≥ 50 employees and all public entities to implement an internal whistleblowing channel by 1 December 2023. The channel must be managed by an independent person or unit, maintain confidentiality of reporter identity, acknowledge receipt within 7 days, and provide feedback within 3 months. Governance oversight of the channel — typically by the audit committee — is a board responsibility.

Sectors Served in Corporate Governance Advisory

Private equity portfolio companies: PE-backed companies require rapid implementation of the institutional governance framework that fund investors demand. The 100-day governance plan typically includes independent chairman appointment, audit committee establishment, management reporting framework, and board calendar with standing agenda items. Our team has direct experience supporting portfolio company governance upgrades across technology, industrial, healthcare, and consumer sectors.

Listed companies and IPO candidates (BME/Euronext Growth): Listed companies must comply with CNMV Good Governance Code recommendations on a comply-or-explain basis and prepare an Annual Corporate Governance Report (IAGC). Companies preparing for a BME Growth listing face governance requirements that are lighter than the main market but still require formal board composition, audit committee, and related-party transaction policies. We advise from pre-IPO governance readiness through to post-listing annual compliance.

Family-owned businesses (EUR 5M–EUR 200M): Corporate governance for family companies addresses the specific intersection of ownership, family, and management: designing governance structures that protect minority shareholders while preserving founder control, introducing independent directors who add strategic value without diluting family decision-making, and implementing the family protocol as a governance document binding on all family shareholders.

International groups with Spanish subsidiaries: Foreign groups with Spanish operating subsidiaries face governance obligations under both the local LSC framework and their parent jurisdiction. Director appointment, board regulation, conflict-of-interest policy, and the interaction of the Spanish subsidiary board with group governance structures require specialist advisory from advisers who understand both layers.

Professional services and regulated entities: Law firms, audit firms, insurance brokers, and licensed financial entities face sector-specific governance obligations overlaid on the general LSC framework. Audit firms subject to ICAC requirements, investment service companies supervised by CNMV, and insurance intermediaries supervised by DGSFP each have sector-specific governance standards we incorporate into advisory mandates.

Company Size Segmentation

Microenterprises and early-stage companies (under EUR 2M turnover): Foundational governance: clear statutory corporate objectives, documented decision-making authority for executives, basic conflict-of-interest policy, and a shareholders’ agreement (pacto de socios) where there are multiple founders or investors. One-time engagement EUR 3,000–EUR 8,000.

SMEs (EUR 2M–EUR 50M turnover): Formal board regulation (reglamento del consejo), independent director assessment and potential recruitment, audit and remuneration committee design, annual board effectiveness review, and governance documentation package meeting PE due diligence standards. EUR 2,000–EUR 5,000 per month for full governance retainer.

Mid-size and pre-IPO companies (EUR 50M–EUR 500M turnover): Full CNMV Code compliance roadmap, IAGC preparation, SRD II compliance, CSRD governance disclosures, related-party transaction policy, and director remuneration policy design. EUR 5,000–EUR 12,000 per month.

Listed companies: Annual IAGC preparation and verification, CNMV recommendations compliance assessment, shareholder general meeting documentation and advisory vote materials, director remuneration report. Fees by agreement.

Worked Example: PE Entry Governance Upgrade — EUR 35M Industrial Group

A Spanish industrial components manufacturer (EUR 35M turnover, 180 employees) operating through a family holding structure received a term sheet from a mid-market PE fund for a 60% acquisition at EUR 42M enterprise value. The fund’s due diligence flagged five governance gaps: (i) no formal board regulations; (ii) no independent directors; (iii) no audit committee; (iv) related-party transactions between the operating company and a family-owned property vehicle not documented in compliance with Art. 229 LSC; (v) no documented conflict-of-interest policy for the founding CEO.

Our engagement ran 11 weeks in parallel with the PE legal due diligence process:

Week 1–2: governance diagnostic and gap prioritisation. Weeks 3–4: board regulations drafted and adopted by extraordinary general meeting; related-party transaction policy formalised and the three prior-year related-party transactions retrospectively documented. Weeks 5–7: two independent director candidates identified, screened, and presented to the founding family and the PE fund; both appointed by board resolution. Week 8: audit committee established (2 independent members + 1 executive); first committee meeting held with external auditors. Weeks 9–11: conflict-of-interest protocol formalised for CEO; management reporting framework (monthly P&L, KPI dashboard, cash flow model) implemented as a governance deliverable.

Outcome: all five PE due diligence governance findings resolved within the 11-week window. Transaction closed at EUR 42M enterprise value — the governance gaps had been flagged as potentially material to valuation; their resolution prevented a renegotiation that could have reduced the price by EUR 2M–EUR 4M (5%–10%). Annual governance retainer post-closing: EUR 4,500 per month for ongoing compliance and board support.

Five Common Mistakes in Corporate Governance

1. Conflating governance documentation with governance practice. Many companies have board regulations and codes of ethics on paper that bear no relationship to how decisions are actually made. PE due diligence and CNMV supervision both look at practice, not documentation. A 12-year-old board regulation that has never been updated to reflect the company’s current structure is often a liability rather than an asset in a governance review.

2. Not documenting the business judgement rule safe harbour. Art. 226 LSC provides a liability safe harbour for directors who made a business decision in good faith, on the basis of adequate information, and without personal interest. But the safe harbour requires evidence: board minutes must document the information reviewed, the discussion, and the absence of personal interests. Directors who make decisions without recording the basis for them cannot rely on the safe harbour.

3. Under-investing in audit committee independence. Audit committees that consist of executive directors or directors connected to the controlling shareholders do not provide independent financial oversight. In the event of a financial reporting failure or a related-party transaction dispute, the absence of genuinely independent oversight is a critical governance failure that exposes the full board to liability.

4. Implementing a whistleblowing channel without adequate governance. Law 2/2023 requires a channel — but the channel must be independently managed, confidentiality-compliant, and board-supervised. Companies that have appointed an executive assistant to manage their whistleblowing channel, or that have implemented a channel without establishing the governance protocol for handling reports, are formally non-compliant and expose the company to sanctions.

5. Not establishing governance mechanisms before family conflict arises. The time to design dispute resolution mechanisms, buyout clauses, and conflict-of-interest procedures is before a conflict occurs. Once a family dispute or shareholder disagreement has crystallised, the absence of agreed mechanisms forces the parties into expensive litigation. The family protocol and shareholder agreement are significantly more difficult to negotiate under adversarial conditions.

How We Work: Our Corporate Governance Advisory Process

Phase 1 — Governance diagnostic (2–3 weeks): We review all existing governance documentation (corporate statutes, board regulations, committee terms of reference, shareholder agreements, remuneration policy) and conduct interviews with board members and senior management. We assess actual practice against the documentation and identify the gap relative to applicable standards (LSC requirements, CNMV Code recommendations, investor expectations). The diagnostic report sets out findings by severity and a recommended remediation roadmap.

Phase 2 — Structure design (4–8 weeks): We design the recommended governance architecture and draft all required documentation: board regulations, committee terms of reference, conflict-of-interest policy, related-party transaction procedure, whistleblowing channel protocol, code of ethics. Where independent directors are to be appointed, we develop the candidate profile and can support the selection process.

Phase 3 — Implementation and adoption (2–4 weeks): Governance documents are adopted through the appropriate corporate organs (board resolution, general meeting approval). Director training on LSC duties and the new governance framework is delivered. First board effectiveness assessment following implementation.

Ongoing — Annual governance retainer: Annual board effectiveness review, IAGC preparation (listed companies), CNMV Code compliance update, governance documentation updates in response to regulatory or ownership changes, and on-demand board support for specific transactions or governance challenges.

Why corporate governance matters beyond compliance

Corporate governance is frequently discussed in terms of regulatory compliance — board composition ratios, audit committee requirements, related-party transaction procedures. These are necessary but insufficient. Governance that adds value goes further: it creates the decision-making architecture that enables management to act decisively within clearly defined risk boundaries, and it provides the accountability mechanisms that align management behaviour with shareholder interests.

For Spanish family businesses — which represent the backbone of the Spanish economy — governance challenges are distinct from those of listed companies. The intersection of family dynamics, ownership structure, and business leadership creates conflicts and inefficiencies that standard corporate law frameworks address only partially. A properly designed family governance framework, including a family protocol (protocolo familiar) and the institutional structures to implement it, is one of the most significant value-protection investments a business family can make.

The Spanish corporate governance regulatory framework

For listed companies and large unlisted companies, the Spanish regulatory framework for corporate governance has evolved substantially since the Código de Buen Gobierno for Listed Companies (CNMV, 2015, updated 2020) and the subsequent transposition of the EU Shareholders Rights Directive II and the Non-Financial Reporting Directive (now integrated into CSRD for large companies).

Key governance obligations under current Spanish law include:

• Audit committee: mandatory for listed companies and large unlisted public interest entities, with specific independence and financial expertise requirements.
• Nomination and remuneration committee: mandatory for listed companies; recommended best practice for large unlisted groups.
• Related-party transaction policy: formal policy and board approval procedure required for material transactions with shareholders, directors, or their connected persons.
• Director remuneration report: annual report on director remuneration policy and implementation, subject to shareholder advisory vote for listed companies.
• Sustainability and diversity reporting: CSRD obligations for large companies include governance disclosures covering board diversity, sustainability governance structures, and ESG risk oversight.

Our CSRD reporting team works alongside our governance advisers to ensure that sustainability governance structures meet both the substance and documentation requirements of the reporting standards.

Board effectiveness and composition

Effective board composition is not simply about filling regulatory quotas. The competencies represented around the board table — financial, operational, sector-specific, international, and governance expertise — should reflect the strategic challenges the company faces over the next three to five years. Our board effectiveness reviews assess:

• Current board composition against strategic requirements
• Independence of non-executive directors (and adequacy of the independence assessment process)
• Board information flows and decision-making quality
• Committee structure and effectiveness
• Succession planning for key board roles

Where gaps are identified, we can support the recruitment of independent board members with the specific competencies required, drawing on our network of experienced non-executive directors across Spain’s principal business sectors.

Governance for private equity-backed companies

Private equity-backed companies face a specific governance challenge: implementing the reporting, decision-making, and oversight frameworks that institutional investors require, often within a relatively short timeframe following investment. The 100-day governance plan is a recognised element of PE value creation playbooks, and our team has direct experience supporting portfolio companies through this transition.

Key elements typically include: appointment of an independent chairman, establishment of an audit committee and investment committee, implementation of a management reporting framework (monthly P&L, KPI dashboard, cash flow forecast), and establishment of a formal board calendar with standing agenda items.

Succession and continuity

Governance and succession planning are deeply connected. A company without a formal succession plan for key leadership positions — CEO, CFO, technical director — carries a concentration risk that governance structures are designed to mitigate. Our succession planning work is integrated with governance advisory to ensure that the institutional structures needed to manage a leadership transition are in place before the transition occurs.

Contact our corporate governance team for a board effectiveness review or governance diagnostic.