On 24 July 2009, the Dutch government submitted a bill to the Dutch parliament which, if passed, will make a number of changes in the corporate governance of listed companies. The introduction of the bill marks an important step in the reform of the corporate governance rules in the Netherlands. This newsletter briefly describes the bill's contents and provides an update on the status of the revised Corporate Governance Code and the appointment of a new Monitoring Committee.
The bill ("Bill") contains proposed amendments to the Financial Supervision Act (Wet op het financieel toezicht), the Securities Book-Entry Transfers Act (Wet giraal effectenverkeer), the Dutch Civil Code (Burgerlijk Wetboek) and the Economic Offences Act (Wet op de economische delicten). The Bill was drafted following the recommendations made by the Dutch Corporate Governance Code Monitoring Committee (the "Monitoring Committee") in its May 2007 report evaluating the 2003 Dutch Corporate Governance Code. A round of market consultation on a preliminary draft of the Bill was concluded in early 2008.
The main amendments under the Bill are as follows:
- the introduction of a mechanism to identify the 'ultimate investor' of a company with a listing in the Netherlands and to enable direct communications to and among the identified shareholders;
- the introduction of a new minimum threshold for the disclosure of substantial interests in Dutch listed companies;
- the introduction of a requirement for listed companies to disclose their strategy on their website;
- the introduction of a requirement for holders of substantial interests in Dutch listed companies to publicly disclose whether or not they agree with the company's overall strategy; and
- the raising of the threshold for the right of shareholders of Dutch listed companies to place items on the agenda for a shareholders' meeting.
Identification of shareholders
The Bill aims to enable a company (Dutch or foreign) listed on a Dutch stock exchange or multilateral trading facility to identify its ultimate investors. For that purpose, the company would have the right to request the Dutch Central Securities Depository (Euroclear Nederland) and Dutch and foreign securities intermediaries to inform it of (among other things) the identities of the clients on whose behalf they hold or administer shares (including depositary receipts for shares) in its capital. The company would also have the right to request the depositary of an investment institution that holds or administers shares in the company's capital to inform the company of (among other things) the identity of the institution's manager.
Following the provision of the information, the party would be entitled to receive remuneration from the company. In the event that the party fails to provide the information in a timely manner, the company would be entitled to request the competent court to impose measures to ensure compliance, e.g. the suspension of voting rights attached to the relevant shares. Furthermore, an investor or group of investors representing at least 10% of the company's issued capital would be entitled to request the company to initiate the identification process referred to above.
No later than the time at which it submits its first request, the company would be required to place a notice on its website announcing the submission of the request. Once the investors have been identified, the company would be able to communicate directly with the identified shareholders, for instance through collective mailings. Also, a shareholder or shareholders representing at least 1% of the company's issued capital would have the right to request the company to, on his/their behalf, distribute materials to all the identified shareholders. There would be certain exceptions to the obligation to meet such a request, e.g. where, given the nature of the information to be distributed, the company cannot in all reasonableness be asked to meet the request. Any investor who has entered into an agreement pursuant to which a third party is able to exercise the voting rights attached to the investor's shares will be required to forward the information received from the company to that third party, and will also have to disclose the identity of the third party to the company.
The company would be obliged to keep confidential all information collected, to process such information in an adequate and prudent manner and to protect it against loss or abuse.
Lower minimum threshold for disclosure of substantial shareholdings
Under current Dutch law, shareholders must notify the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, the "AFM") if their ownership of shares and/or entitlement to voting rights in a Dutch listed company (or a non-EEA company listed in the Netherlands) exceeds certain pre-defined thresholds. The lowest threshold is currently set at 5%. In addition to the existing thresholds, under the Bill a new threshold of 3% would be introduced.
Public disclosure and shareholders' position regarding company's strategy
Under the Bill, shareholders whose ownership of shares and/or entitlement to voting rights in a Dutch listed company (or a non-EEA company listed in the Netherlands) reaches 3%, the first ownership threshold described above, would be required to file a public notification with the AFM on whether or not they object to the company's strategy. The initial draft of the Bill provided for a broader "notification of intentions" requirement, but this requirement has been slimmed down in the Bill. Under the Bill, a shareholder would have to file a notification of either objections, or no objections. This would also apply to shareholders who have no opinion or a neutral opinion as to the company's strategy and to shareholders who do not actively support the company's strategy, but at the same time do not have the intention to undertake steps to change the strategy. A shareholder who later changes his/its stance towards the strategy would be required to immediately file a similar notification.
To enable shareholders to perform the necessary assessment, the listed company would be required to publish a separate strategy statement on its website. This statement would have to include the key points of the company's overall policy and the strategic choices made to achieve to company's long term objectives (over a span of 5 to 10 years) as well as the short term strategic decisions taken to that end. If the Bill is passed, the AFM will be charged with the enforcement of these requirements and will take administrative action in the event of non-compliance.
Higher threshold for placing of items on shareholders' meeting agenda
Under current Dutch law, shareholders of a Dutch company who individually or collectively hold either 1% of the company's issued capital or alternatively - in case of a listed Dutch company - shares with a total nominal value of at least € 50 million may request the company to include specific items on the agenda of an upcoming shareholders' meeting. This "agenda right", which was introduced in 2004, has in practice had a significant impact on the corporate decision-making process. In line with the Monitoring Committee's recommendation, the government now proposes to tighten the current requirement with regard to Dutch public companies by both raising the required percentage of shares to 3% as well as abolishing the alternative € 50 million criterion for listed companies. As a result, the threshold for the exercise of this right will be raised considerably and certain shareholders will lose standing to do so, especially shareholders in large Dutch listed companies who currently derive their standing from the alternative € 50 million share value requirement.
Legislative basis for 2008 Corporate Governance Code
While the preparations for the Bill were ongoing, the Monitoring Committee produced the updated version of the Corporate Governance Code (the "Code"), published in December 2008. The main changes and recommendations are summarised in our newsletter of 15 December 2008. On 25 May 2009, the Dutch government published its official response to the new Code (see our newsletter of 3 June 2009).
On 13 July 2009, the government submitted a decree to the Dutch parliament to create a legislative basis for the updated Code. Pursuant to the decree, the 2008 Code will replace the original 2003 Code as the code to which listed companies must refer in the comply-or-explain statement in their annual report, indicating the extent to which they have complied with the best practice provisions. Consequently, Dutch listed companies may have to revise their comply-or-explain statement and possibly also reconsider certain elements of their corporate governance system so as to adjust to the new requirements.
The government at an earlier stage had announced its intention for a change in the existing decree with regard to the applicability of the Code. This change would have the effect that the Code would no longer apply to Dutch companies with a balance sheet value of less than EUR 500 million whose shares or depositary receipts are admitted to trading on a multilateral trading facility. However, this particular amendment has not yet been included in the current draft decree.
The decree is expected to enter into force at the end of September 2009. The new Code will then be applicable as of 1 January 2010, meaning that Dutch listed companies will have to report under the 2008 Code in their annual report for financial years starting on or after 1 January 2009.
New Corporate Governance Code Monitoring Committee
Finally, also on 13 July 2009, the government appointed a new Monitoring Committee. This committee, which has been installed for a five-year term, will basically assume the same duties as its predecessor. Its principal duty will therefore be to monitor and evaluate compliance with the new Code.