Incompatibility: Chairman of the board and effective director functions

In its judgment of 24 April 2018 in joined cases T-133/16 to T-136/16, the General Court of the European Union (“General Court”) rejected the action for annulment introduced by four regional branches of Crédit Agricole (“Applicants”) against decisions by which the European Central Bank (“ECB”), in its capacity as prudential supervisor of Crédit Agricole, rejected several appointments.

Although the ECB had approved the appointment of the persons proposed by the Applicants as chairmen of their respective boards of directors, it rejected the simultaneous appointment of these persons as “effective directors” by reference to Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms (CRD IV) and, in particular, its Article 88 regarding arrangements ensuring effective and prudent management of a credit institution.

The ECB considered that, on one hand, the functions enabling a person to be appointed as “effective director” were executive functions, hence different from the supervisory function vested in the chairman of the board of directors, and that, on the other hand, there had to be a separation between the executive and non-executive functions within the management body. The Applicants argued that the ECB did not correctly interpret the concept of “effective director” by limiting it to members of the senior management with executive functions.

In line with the ECB’s reasoning and recalling the objective of good governance of credit institutions and the need for checks and balances within their management body, the General Court held that the effectiveness of the supervision by non-executive members of the management body would be jeopardised if the chairman of the board of directors in its supervisory function was also responsible for the effective direction of the business, such as by exercising simultaneously the function of “effective director” of the credit institution.

In Luxembourg, this principle is enshrined in the CSSF Circular 12/552 on central administration, internal governance and risk management.