Why the board matters beyond the legal obligation
Many Spanish companies have a board of directors because the law requires it or because a bank or investor requires it as a financing condition. Few have a genuinely effective board that adds strategic value beyond mere formality.
The difference between a board that works and one that does not rarely lies in the applicable regulation. It lies in composition — the right people with the right skills — in process — the quality of information, the depth of deliberation and the rigour of follow-up — and in culture — whether directors genuinely feel responsibility and commitment to the company.
This guide addresses the key elements of an effective board, following the best practices of the CNMV Code of Good Governance (updated in 2020) and the standards of the Institute of Directors and the ICGN.
Composition: the right people in the right roles
Board size
International corporate governance principles converge on the view that an overly large board becomes paralysed and an overly small one lacks the necessary diversity. The optimal range for most mid-sized companies is five to eleven members.
For family businesses in the process of professionalisation, a board of five members — three family members or proprietary directors and two independents — is a reasonable starting point. For groups with external investors or preparing for an institutional financing round, a board of seven to nine members with a majority of external directors provides the appropriate balance.
Types of director
Executive directors. These are directors who also perform management functions: the managing director (consejero delegado), the general manager. Their presence on the board ensures information flow between management and the governance body, but should be limited to preserve supervisory independence. The Code of Good Governance recommends that executives not be a majority on listed company boards.
Proprietary directors. Proposed by significant shareholders, they represent their interests. They are fundamental in companies with several partners or institutional investors. Their number should be proportional to the shareholding of the proposing shareholder.
Independent directors. They have no employment relationship or significant economic interest in the company. Their role is to provide objective perspective, represent minority shareholders and strengthen the board’s credibility with third parties — auditors, banks, regulators, potential investors. Independence is a legal concept: the Code of Good Governance establishes the criteria that prevent a director from being considered independent.
Diversity
An effective board is a diverse board. The diversity relevant to the governance function includes:
- Skills diversity: financial, sectoral, legal, technological and international experience.
- Perspective diversity: people with different professional, geographical and cultural backgrounds.
- Gender diversity: the Code of Good Governance recommends that women represent at least 40% of listed company board members. For unlisted companies, a target of 30% is a reasonable starting point.
Board committees: structure and functions
Board committees are delegated bodies that allow deeper analysis of specific areas that the full board cannot address in sufficient detail in each session.
Audit Committee
The Audit Committee is the most regulated committee of the board. For listed companies it is mandatory under the Securities Market Act; for other public interest entities it may also be mandatory.
Its minimum functions include:
- Overseeing the integrity of financial information and the appropriateness of accounting policies.
- Managing the relationship with external auditors: proposing their appointment, reviewing their work plan and conclusions, ensuring their independence.
- Overseeing the internal control system and risk management.
- Overseeing regulatory compliance and the whistleblowing channel.
- Reviewing internal audit reports.
The Audit Committee must consist exclusively of non-executive directors, with a majority of independents. At least one member must have demonstrated competence and experience in accounting, auditing or finance.
Nominations and Remuneration Committee
This committee — which in larger companies may be divided into two separate committees — has two principal responsibilities:
On nominations:
- Evaluating the competencies, knowledge and experience needed to fill board vacancies.
- Proposing the appointment of independent directors for approval by the full board or the general meeting.
- Setting the objective for representation of the less represented gender and the timeline for achieving it.
- Evaluating the profile of senior management candidates proposed by the managing director.
On remuneration:
- Proposing the remuneration policy for directors and the management team.
- Proposing the remuneration systems for executive directors: fixed salary, short-term variable, long-term variable, pension plans, severance pay.
- Supervising the application of the approved remuneration policy.
- Reporting to the full board on individual director remuneration.
Other committees
More complex companies may create additional committees:
- Risk Committee: for companies in the financial sector or with significant regulatory exposure.
- Sustainability / ESG Committee: for companies committed to non-financial information disclosure or with an active sustainability strategy.
- Strategy Committee: to oversee the strategic plan and the most significant initiatives.
- Technology Committee: for companies with high technological dependence or undergoing digital transformation.
Board meeting protocol
Notice and pre-meeting information
Board meeting notices should be issued with sufficient advance notice — typically five to seven working days — for directors to review documentation before the session. Documentation should include: the agenda with a description of each item, the reports and memoranda needed to decide on each matter, a draft of the minutes of the previous session, and any follow-up information on outstanding resolutions.
A director who has not had time to review the documentation cannot deliberate with the necessary quality or rely on the business judgment rule if their decision proves harmful.
Deliberation
An effective board session is not a management team presentation followed by automatic approval. It is a forum for genuine deliberation in which directors question, contrast hypotheses and provide perspective. The chairman has the responsibility of creating the right climate for that deliberation: ensuring all directors have the opportunity to speak, managing differences of perspective constructively and moderating executive directors’ contributions so they do not dominate the discussion.
Minutes and follow-up
The minutes of each session should be approved by the board at the next session or circulated for approval in the period between sessions. Resolutions that generate tasks or commitments should include an accountable party and a deadline, and the minutes of each session should begin with follow-up on outstanding resolutions from previous sessions.
Board evaluation
Evaluating the functioning of the board and its committees is one of the practices that most clearly distinguishes high-performing boards from purely formal ones.
What is evaluated
The evaluation should cover:
- Board composition: does it have the competencies and diversity that the company’s strategy requires?
- The deliberation process: is the information sufficient? Is deliberation genuine? Are resolutions followed up?
- The functioning of committees: do they have the right mandate, composition and resources?
- The relationship between the board and management: is there mutual trust? Does the managing director provide sufficient information?
- The individual contribution of each director: do they attend? Do they contribute with added value? Are they committed?
External evaluation every three years
The Code of Good Governance recommends that every three years the evaluation be facilitated by an independent external consultant. External evaluation provides a more objective perspective and can compare board functioning with sectoral benchmarks and international best practices.
The board chairman: separation of roles
One of the most significant debates in corporate governance is whether the board chairman should also be the chief executive. The international trend — and the recommendation of the Code of Good Governance — is towards separation of roles.
The board chairman has the responsibility of governing the governance body: ensuring it functions properly, that directors have the necessary information, that deliberation is genuine and that resolutions are executed. The managing director has the responsibility of running the company. Combining both roles in one person concentrates power in a way that makes effective supervision difficult.
When separation is not possible or appropriate — for example, in early company stages or when the founder-CEO is irreplaceable — the Code recommends appointing a Lead Independent Director who acts as a counterbalance and communication channel between independent directors and the chairman-CEO.
Conclusion: the board as a competitive advantage
An effective board of directors is not a legal obligation or a formality: it is a genuine competitive advantage. Companies with functioning boards access better financing, attract and retain better managers, manage risks more effectively and are more likely to succeed in corporate transactions.
At BMC we accompany companies in the design, evaluation and improvement of their governance bodies: from the selection of independent directors to the implementation of delegated committees and the drafting of the board’s regulations.
