The role of shareholders in Dutch public companies and, to a certain extent, private companies in the Netherlands has come under great scrutiny. Companies are currently reluctant to adhere to the outright wishes of investors (such as foreign pension funds) from abroad who demand cash distributions and profit-taking in an effort to satisfy their own liquidity crunch. Amidst the global economic crisis, companies are dealing with banks and other financial institutions that aggressively seek to enforce their rights given increased breaches of covenants (financial and reporting) ratios, etc. The tendency is not to pursue short-term returns but rather to satisfy renegotiated financing conditions through shareholder equity increases, restructuring of debt, and through dismissal of employees, reduction of labour hours in combination with temporary unemployment benefits, renegotiation of collective labour agreements, and attempts to dispose of non-core assets.
Until mid-2008, shareholder activism was rampant in the Netherlands, with hedge funds and pension funds seeking to dictate the strategy of management and trying to change the constituency of management. (In)famous examples include ABN AMRO Bank and Fortis bank, in which shareholder activism played a significant role that eventually led to the demise of both companies as global institutions.
In view of recent shareholder activism, the Corporate Governance Code Monitoring Committee, the Dutch corporate governance regulator, proposed amendments to the Corporate Governance Code (the “Code”) introduced in 2003. The Code applies to Dutch listed companies on a comply or explain principle. Although the Code is technically not applicable to private companies, the Dutch Chancery Division in Amsterdam (Ondernemingskamer Hof Amsterdam) uses the Code as guidance in assessing stakeholders’ conduct. The revised Code entered into force on 1 January 2009.
The revised Code attempts to curb shareholder activism. One of the new practice rules supplements the statutory right to put an item on the agenda of a shareholders’ meeting that could alter the company’s strategy. A shareholder can only exercise the right of placing an item on the agenda after he has consulted the management board. The management board shall be given the opportunity to stipulate a reasonable period in which to respond. Such a period should not exceed 180 days from the moment the management board is informed by the shareholder(s).
Furthermore, the revised Code reflects the contemporary views of the role of the shareholder in the Dutch stakeholders’ model. This model is based on a division of powers and control: the so called two-tier board system. The two-tier board system, introduced in the 1970s, has endured despite the recent demand for a onetier board system. Recent bills before parliament envisage even further consolidation of the stakeholders’ model by conferring on the chairman of the works council the right to address the shareholders meeting and giving the works council the right to advise on the appointment, suspension or dismissal of (supervisory) directors prior to a shareholders meeting. As for the shareholders, although they may act to serve their own interests, the exercise of their rights is increasingly being tested in accordance with the principles of reasonableness and fairness towards the stakeholders, the company and its corporate bodies.
The Monitoring Committee has also made recommendations to the legislator that may further affect the position of current and future shareholders. The committee recommends that the legislator examine whether it is possible to amend the Dutch bidding rules in such a way that a company is not subject to takeover speculation for longer than necessary. A prospective bidder, once it announces a takeover plan, shall be given a period in which it must indicate that it either intends to make a bid or has decided not to do so (“put up or shut up”). In the latter case, the bidder shall not be entitled to make any bids for some considerable time (no time frame is mentioned but it is expected that the time frame will be linked with the City Takeover Code: up to 12 months) . We expect that this recommendation to amend the Public Bids Decree (Besluit Openbare Biedingen) will be adopted by the legislator.
In this view from Amsterdam, we conclude that the revised Code effectively succeeds in its goal of circumscribing shareholder activism. The contemporary shareholder operates in a different landscape in which it has to take into account the interests of other stakeholders. Recent bills before parliament enhance the stakeholders’ model by introducing new checks and balances. The stakeholders’ model seems to be more alive than ever.