In December 2008 the Dutch Corporate Governance Code Monitoring Committee presented the updated Corporate Governance Code and made various recommendations for legislative/ministerial action. Our newsletter of 15 December 2008 summarised the main changes and recommendations. On 25 May 2009 the Minister of Finance responded to the updated Code in a letter sent on behalf of the cabinet to the lower chamber of the Dutch Parliament.
The cabinet endorses the updated Corporate Governance Code (the "Code") and the Corporate Governance Decree will be amended to require Dutch listed companies, as from 1 January 2010, to disclose their compliance with the updated Code in the preceding financial year (as they must presently do with respect to the 2003 Code). The cabinet will also appoint a new Corporate Governance Monitoring Committee (the "Monitoring Committee"), which will systematically monitor compliance with the updated Code and strive to keep it current and workable.
In his letter the Minister sketches the most important corporate governance developments since 2003, and discusses the updated Code's structure and main themes: risk management, management board remuneration, supervisory boards, shareholders' responsibility, takeovers and corporate social responsibility. The key elements of the cabinet's response are described briefly below.
Response time not statutory requirement
One of the new best practices introduced by the updated Code is the 'response time'. Prior to exercising his/its right to have an item put on the agenda for a general meeting, the shareholder should enter into discussions with the company. If the shareholder seeks to have an item put on the agenda regarding a subject that can result in a change in corporate strategy, or if the shareholder seeks judicial authorisation to convene a general meeting for this purpose, the management board has a maximum of 180 days in which to respond to the item in question before it is handled at the meeting. The Monitoring Committee recommended that the response time be made a statutory requirement in order to increase "legal certainty and the effectiveness of the response time".
Although the cabinet has expressed support for the principles underlying this recommendation, it has elected not to follow it. The letter gives a number of reasons for this, inter alia, that an extension of the present statutory period for submitting an agenda item – 60 days prior to the relevant shareholders' meeting (Article 2:114a (1) Civil Code) – would substantially restrict this right, would deviate from the practice in other European countries and would not be in line with the Shareholders' Rights Directive (2007/36/EC). The directive assumes that the period during which a shareholder can exercise the right to have an item put on the agenda will be the same regardless of the subject of the item. The legal status of the newly introduced response time is therefore uncertain, given the strict text of the relevant statutory rules and the limited territorial effect of the Code with respect to foreign shareholders.
Corporate governance bill
According to the Minister's letter, the bill incorporating (some of) the recommendations in the Monitoring Committee's May 2007 advisory report will be submitted to the lower chamber of Parliament before the summer. The bill, which has been in the pipeline for some time, will deal with the following points:
- the identification of shareholders;
- an increase in the threshold for the right of a shareholder to have items place on the agenda of the general meeting of shareholders;
- the reduction of the minimum threshold for the obligation of shareholders to disclose major holdings and/or voting rights.
The Monitoring Committee changed its mind and decided to no longer recommend that large shareholders be required to disclose their intentions. Instead, the committee elected to suffice with the introduction of a response time as described above. However, the cabinet indicates that a shareholder who discloses a major holding as described in the third bullet point above should be obliged to concurrently state whether or not he/it is agreement with the company's strategy as described on its website. Disclosure should also be required if the shareholder's viewpoint changes.
In addition, the cabinet proposes to oblige all institutional investors in Dutch listed companies, whether Dutch or foreign, to periodically make a public statement regarding their compliance with the applicable Code provisions.
Introduction of 'put up or shut up' rule
The Monitoring Committee recommended that an investigation be conducted into the merits of introducing a public offer rule under which a potential bidder can be required to state within a certain period of time whether or not he/it intends to make a bid ("put up or shut up"). This Minister writes that before the summer recess he will revert to this question and in addition state his position on the desirability of introducing a body akin to the English "Takeover Panel" (marktmeester) to exercise supervision over public offers (on which the market was consulted in the autumn of 2008).
Statutory buy-out proceedings unchanged, at least for now
The Monitoring Committee pointed out a number of bottlenecks in the present statutory buy-out proceedings that had been drawn to its attention by market parties in connection with the updating of the Code. These proceedings are experienced as too slow and the threshold for initiating them (a shareholding of at least 95%) as too high. The cabinet will, in the future, consider whether amendments are necessary.