2.8 Transactions with related parties (executive corporate officers and members of the Supervisory Board)

2.8.1 SERVICE AGREEMENT

Since 1988, Lagardère Capital & Management (LC&M), a company created by Jean-Luc Lagardère, has provided the Group and its subsidiaries with a range of management resources and skills, with the following aims:

• over the long term, to guarantee that the Group’s operating businesses have the best environment required for expansion;
• to supply the Group with strategic planning and operational services, coupled with high quality management services, including principally:
  • designing and developing economic and financial strategic scenarios; providing project monitoring skills,
  • providing research and follow-up concerning major markets and their development; assessing factors in different market environments that may create new opportunities for action,
  • monitoring and identifying potential investments and divestments,
  • managing business negotiations such as divestments, mergers and acquisitions,
  • orchestrating corporate operations, including state-of-the-art finance and capital management techniques,
  • establishing and maintaining relations in banking and finance, with particular attention to the characteristics of the various countries in which the Group does, or plans to do, business,
  • enhancing human resources by attracting high-potential management personnel,
  • providing overall management of the Group’s image.

To meet these aims, LC&M employs the members of the Group Executive Committee, whose role is to assist the Managing Partners in performing their duties.
LC&M carries out its activities within the framework of the Service Agreement originally put in place in 1988 between LC&M and Lagardère Ressources, which is responsible for managing all of the Group’s corporate resources.
Following an amendment in 2004, the remuneration paid under the Service Agreement is equal to the amount of expenses incurred in the execution of the Agreement, plus (in accordance with tax rules and customary market practices) a margin set at 10%, with an absolute upper limit of €1 million (an amount which, in practice, has been applied each year since 2004). After examination by the Audit Committee, these terms and conditions were approved by the Supervisory Board on 12 March 2004 and subsequently by the General Meeting of Shareholders on 11 May 2004.
In light of the 24 September 2020 acquisition by Groupe Arnault of a stake in LC&M through its subsidiary Financière Agache, the Service Agreement and all of its component parts, including the employment contracts of Executive Committee members and the supplementary pension benefit commitments accruing to them, were transferred prior to said acquisition without any modifications, to a new entity, Lagardère Management, wholly owned by Lagardère SAS, itself wholly owned by Arnaud Lagardère, under the terms of a partial transfer of assets involving a full business transfer (transmission universelle du patrimoine). The Supervisory Board of Lagardère SCA noted this transfer of the Service Agreement at its meeting of 24 May 2020.
Accordingly, with effect from 31 August 2020, Lagardère Management, of which Arnaud Lagardère and Pierre Leroy serve as Chairman and Chief Executive Officer, respectively, automatically replaced LC&M in the performance of the Service Agreement. The operation took effect retroactively on 1 July 2020 for accounting and tax purposes.
The expenses incurred in the execution of the Service Agreement, which form the basis for the remuneration due under the Agreement, can be split into three main categories, which would in any event have been borne by the Lagardère group.
The first category, representing the majority of expenses (around 82% in 2020), includes remuneration payable to members of the Executive Committee, the associated payroll taxes and duties (tax on wages, levy on performance share awards) and the amount accrued to the provision for the supplementary pension plan.
In accordance with applicable regulations, details of remuneration are provided in the annual report published by the Company. In compliance with the recommendations of the Afep-Medef Code, since 2014 remuneration allocated to executive corporate officers has been submitted to the shareholders’ vote and has always gathered high approval rates. Since 2020, shareholders have been asked to vote on the remuneration policy itself, in accordance with binding “say-on-pay” legislation that the Company has chosen to adopt of its own volition in order to implement best corporate governance practices.
The supplementary pension plan is also described in detail in the annual report. Like other components of remuneration, it is subject to a shareholder vote.
The second category (around 12.5% of the expenses in 2020) corresponds to the work environment of Executive Committee members and includes offices, equipment and furniture, meeting rooms, secretarial services, official vehicles and telecommunications.
As Lagardère Management (and previously LC&M) has none of its own resources, these items are made available by the Lagardère group. The corresponding expenses are thus monitored by the Group Management Control Department, which determines the amount billed to Lagardère Management (or to LC&M prior to 2020) for use of the above items. For the past dozen or so years, this amount has been stable at €1.9 million, and LC&M and Lagardère Management therefore bill the exact same amount to the Lagardère group.
The third category (around 5.5% of the expenses in 2020) includes miscellaneous other expenses incurred in connection with the Agreement. These expenses essentially consist of (i) fees for administrative and accounting services billed by the Lagardère group (following a similar scheme to the one for work environment costs), (ii) fees for consultants used by LC&M, and subsequently by Lagardère Management, and (iii) taxes and duties inherent to Lagardère Management’s activities (property tax, etc.).
Hence, this contractual framework brings together in a clear and transparent manner the expenses corresponding to the total cost of the Group’s general management, and subjects them to the statutory monitoring procedure applicable to related-party agreements.
As part of this procedure, the Service Agreement is reviewed annually by the Audit Committee and by the Supervisory Board and is also referred to in the Statutory Auditors’ special report prepared in accordance with article L. 226-10 of the French Commercial Code.
The work of the Audit Committee on the precise conditions and costs related to the Service Agreement and any changes therein is presented to the Supervisory Board as part of the review required under article L. 225-88-1 of the French Commercial Code.
In 2020, the Supervisory Board asked the specialist financial firm Ledouble to perform a contractual audit on the application of the Service Agreement. Ledouble’s favourable opinion was subsequently published on the Company’s website.
* * *
In 2020, invoicing to the Group in respect of the Service Agreement amounted to €16.66 million, further to review by the Audit Committee on 20 April 2021 and by the Supervisory Board at its meeting of 26 April 2021, versus €19.18 million in 2019. Total payroll costs recognized amounted to €13.1 million. These correspond to gross salaries, plus the related taxes, payroll taxes and pension provisions. The amount also includes the provision accrued for variable remuneration. Payment of this variable remuneration plus, where applicable, its inclusion in the basis for calculating fees, will be submitted to the 2021 General Meeting for approval in accordance with “say-on-pay” legislation. With the other expenses set out above (support costs invoiced by the Lagardère group for €1.9 million and other miscellaneous fees in an amount of €0.6 million), total costs amounted to €15.66 million versus €18.18 million in 2019. The contractual margin came out at €1 million, unchanged from 2019.

2.8.2 AGREEMENTS ENTERED INTO WITH MEMBERS OF THE SUPERVISORY BOARD

None – see section 2.6.2.

2.8.3 OTHER TRANSACTIONS

The other transactions with related parties in 2020 were undertaken in the normal course of business and under arm’s length conditions. In particular, Lagardère SCA has not identified any agreements, other than those relating to normal business operations and entered into on arm’s length terms, signed in 2020, directly or via an intermediary, between (i) any of the Managing Partners, any members of the Supervisory Board or any shareholders of Lagardère SCA owning more than 10% of the voting rights and (ii) any company controlled by Lagardère SCA within the meaning of article L. 233-3 of the French Commercial Code.

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