At a glance: responsibilities of company boards in Netherlands

Responsibilities of the board (supervisory)

Is the predominant board structure for listed companies best categorised as one-tier or two-tier?

Historically, Dutch law only provided for two-tier boards with a management board and separate supervisory board. Since 2013, Dutch law also provides for one-tier boards for private limited liability companies and public limited companies (including listed companies). Although several listed companies have adopted the one-tier board, the predominant board structure remains the two-tier board.

What are the board’s primary legal responsibilities?

Under Dutch law, the main rule is that the management board manages the company. Several duties have been specified as falling within the scope of the management board, including:

• the day-to-day management of the company;
• adopting the company’s policies and the strategy;
• monitoring the liquidity position of the company and the financial policy and fulfilling tax obligations (including tax planning);
• overseeing risk management;
• reporting to the (annual) general meeting;
• preparing, publishing and filing the annual accounts; and
• representing the company to third parties.

The management board must carry out its duties in line with the objectives of the company, which are included in the company’s articles of association. Dutch law provides that managing directors when carrying out their duties, must be primarily guided by the interests of the company and the enterprise connected with it. This means that the management board should also take into account the interests of not only the shareholders but also the employees, creditors and other stakeholders, or even (local) society.

Pursuant to the Dutch Corporate Governance Code, the management board should develop a view on sustainable long-term value creation by the company and its affiliated enterprise and formulate a strategy in line with this. The management board should formulate specifc objectives in this regard. Depending on market dynamics, it may be necessary to make short-term adjustments to the strategy.

In addition, pursuant to the Dutch Corporate Governance Code, the management board and the supervisory board should ensure that decisions are made in a balanced and effective manner while taking account of the interests of stakeholders. The management board should ensure that information is provided in a timely and sound manner. The management board and the supervisory board should keep their knowledge and skills up to date and devote sufficient time to their duties and responsibilities. They should ensure that, in performing their duties, they have the information that is required for effective decision-making.

Whom does the board represent and to whom do directors owe legal duties?

The primary concern of the management board is to be guided by their company’s interests and enterprises connected with it. As such, the management board is largely autonomous when performing its duties, even if the managing directors risk being dismissed by the general meeting, for example, because some shareholders are of the opinion that their interests are being subordinated.

The management board’s autonomy can be restricted to a certain extent. For example, certain resolutions by the management board can and will mostly be subject to approval by the general meeting or the supervisory board, or both. Management board resolutions pertaining to important changes to the identity of a listed company require the general meeting’s approval in any case. Further, to a certain extent, the general meeting can have the right to issue instructions to the management board. The management board and the supervisory board must provide the general meeting with all requested information unless a substantial interest of the company opposes this.

Can an enforcement action against directors be brought by, or on behalf of, those to whom duties are owed? Is there a business judgement rule?

The corporate body that originally appointed a managing director – usually the general meeting – is authorised to suspend and dismiss a managing director. A managing director should be consulted before he or she is suspended or dismissed. Other managing directors must also be given the opportunity to express their views regarding the proposal to suspend or dismiss a managing director. In addition, minority shareholders who meet certain criteria may request the Enterprise Chamber of the Amsterdam Court of Appeal to start an inquiry into the company’s affairs, and the Enterprise Chamber may order immediate relief, for example, by suspending or temporarily replacing a managing director. There is no business judgement rule.

Do the duties of directors include a care or prudence element?

Under Dutch law, a managing director must fulfil his or her duties with due care and attention. Should he or she fail this duty of care, then the managing director may be held personally liable for any damage caused to the company as a result. Based on Supreme Court case law, it is established that a managing director is personally liable only if he or she could be blamed for seriously culpable conduct. Actions by the managing directors are most likely to constitute seriously culpable conduct if these actions would not have been taken by any other reasonably acting and fully experienced managing director.

To what extent do the duties of individual members of the board differ?

A multi-member management board may divide duties among its various managing directors. This division is typically included in management board regulations. Dividing duties does not mean that responsibility for the actions of each of the managing directors is limited to the duties conferred to them. Managing directors have joint responsibility for the company’s day-to-day business, general policy and financial affairs. The management board shall be joint and several liable for shortcomings in the performance of management board duties.

If an individual director can prove that he or she has not been negligent in taking measures to prevent improper management by demonstrating that he or she took all measures in his or her power to prevent improper management, this director may exculpate him or her from directors’ liability.

To what extent can the board delegate responsibilities to management, a board committee or board members, or other persons?

Listed companies often establish an executive committee. These executive committees usually consist of both statutory managing directors and members of the senior management. An executive committee can be defined as a management layer responsible for preparing and adopting resolutions of the company. It usually has an advisory and supportive function, but it can also have a more managerial function. In addition, the management board may grant (continuing) power of attorney. This type of power of attorney is also referred to as a power of procuration. Holders of powers of attorney will carry out their duties on the basis and within the limits of this power. It is often granted to officers in certain positions who are not a part of the statutory management board.

Is there a minimum number of ‘non-executive’ or ‘independent’ directors required by law, regulation or listing requirement? If so, what is the definition of ‘non-executive’ and ‘independent’ directors and how do their responsibilities differ from executive directors?

A two-tier board structure does not have non-executive directors but a separate supervising body being the supervisory board. For structure regime companies, the supervisory board consists of at least three members. The supervisory board is responsible for supervising the policy pursued by the management board and the general course of affairs in the company and its business. The supervisory board also advises the management board. Pursuant to the Dutch Corporate Governance Code, the composition of the supervisory board should be such that the members are able to operate independently and critically in relation to one another, the management board and any particular interests involved. The Corporate Governance Code includes detailed independence criteria.

A one-tier board consists of executive and non-executive directors. The non-executive directors are charged with the general management of the company. To a certain extent, the role of non-executive directors can be compared to the role of supervisory directors; however, they are more actively involved than supervisory directors in the general policy of the company and decision-making of the board. Pursuant to the Dutch Corporate Governance Code, the majority of the board should be made up of non-executive directors. The Corporate Governance Code includes detailed independence criteria for non-executive directors.

How is the size of the board determined? Are there minimum and maximum numbers of seats on the board? Who is authorised to make appointments to fill vacancies on the board or newly created directorships? Are there criteria that individual directors or the board as a whole must fulfil? Are there any disclosure requirements relating to board composition?

Regarding the management board, the minimum number of directors is one (in a one-tier board, the minimum number of executives is one and non-executive directors are two). Maximum numbers are not provided. The number of directors is usually set by the general meeting.

An individual shareholder does not have the power to appoint or remove directors as this requires a resolution by the general meeting. However, a shareholder who meets certain criteria can request that the management board put an item to replace managing and supervisory directors on the agenda of the general meeting. The power of the general meeting to appoint and remove managing and supervisory directors can be restricted. 

Most listed companies have limited the rights of the general meeting to appoint and dismiss managing and supervisory directors in such a way that the resolution requires a (non-binding) nomination to be prepared by the supervisory board or, in some cases, by the meeting of holders of priority shares. A resolution to appoint a managing director or supervisory director nominated by the supervisory board must be adopted by an absolute majority of the votes cast. 

The general meeting of shareholders of a company not having statutory two-tier status may adopt a resolution to cancel the binding nature of a nomination for the appointment of a member of the management or supervisory board, or to dismiss a member of the management or supervisory board by an absolute majority of the votes cast, or both. It may be provided that this majority should represent a given proportion of the issued capital, which must not be set higher than one-third. If this proportion of the capital is not represented at the meeting, but an absolute majority of the votes cast is in favour of a resolution to cancel the binding nature of a nomination or to dismiss a board member, a new meeting may be convened at which the resolution may be adopted by an absolute majority of the votes cast, regardless of the proportion of the capital represented at the meeting.

A different appointment and removal system applies to structure regime companies. The Dutch structure regime applies to (listed) companies of which the majority of the employees are employed in the Netherlands. In these companies, the involvement of the supervisory board and the works council in the appointment of supervisory directors is greater than in other companies.

Shareholders will be able to put resolutions and director nominations to a shareholder vote if the general meeting is authorised to resolve upon these resolutions. If the company’s articles of association state that certain resolutions by the general meeting require approval or nomination by the supervisory board, it is doubtful whether without this approval the item could be put to a vote in the general meeting

Directors of insolvent companies may be banned for five years from taking director positions.

Is there any law, regulation, listing requirement or practice that requires the separation of the functions of board chair and CEO? If flexibility on board leadership is allowed, what is generally recognised as best practice and what is the common practice?

In the two-tier board structure, this issue does not apply as a managing director cannot be a member of the supervisory board at the same time.

In the one-tier board structure, only natural persons can be a non-executive director and only a non-executive director can become chair. The functions of the board chair and chief executive (the latter being an executive director) cannot be fulfilled by one person.

What board committees are mandatory? What board committees are allowed? Are there mandatory requirements for committee composition?

Public interest companies (ie, listed companies) must, pursuant to the terms of the law, establish an audit committee. The management board may establish an executive committee.

Pursuant to the Dutch Corporate Governance Code, if the supervisory board consists of more than four members, it should appoint from among its members an audit committee, a remuneration committee and a selection and appointment committee. Without prejudice to the collegiate responsibility of the supervisory board, the duty of these committees is to prepare the decision-making of the supervisory board. If the supervisory board decides not to establish an audit committee, a remuneration committee or a selection and appointment committee, the best practice provisions applicable to these committees apply to the entire supervisory board. The committees of a one-tier board should be comprised exclusively of non-executive directors. Neither the audit committee nor the remuneration committee can be chaired by the chair of the board or by a former executive director of the company.

The Dutch Corporate Governance Code further elaborates on the duties and responsibilities of audit committees. In some cases, especially in companies operating in the financial sector, a risk committee is established in addition to the audit committee. Article 39(4) of the EU Statutory Audits Directive (Directive 2006/43/EC) stipulates that, if another body has been designated to perform the functions of the audit committee, the management report must state which body carries out those functions and how that body is composed. Various companies have set up a committee in addition to the audit committee to deal with sustainability issues relating to the company. Such a committee is often referred to as a sustainability committee or corporate responsibility committee. If a company has established such a committee, the preparation of the decision-making for the supervision of the integrity and quality of the sustainability reporting can also be carried out by such a committee instead of the audit committee.

Is a minimum or set number of board meetings per year required by law, regulation or listing requirement?

There is no statutory requirement regarding the minimum number of meetings of the management board or of the supervisory board. Usually, the minimum number is included in the articles of association or in the respective board regulations.

Is disclosure of board practices required by law, regulation or listing requirement?

Relationships between a company’s corporate bodies (ie, the management board, the general meeting and, possibly, the supervisory board) and relationships within these corporate bodies can be included in the articles of association or in the board’s regulations. As the articles of association of companies are publicly available through registration in the Trade Register of the Chamber of Commerce and usually also through publication on the company’s website, this information is disclosed to the public. With regard to supervisory board regulations and management board regulations, the Dutch Corporate Governance Code prescribes that these should be posted on the company’s website. The regulations usually contain detailed provisions on the board’s practices.

In addition, pursuant to the Dutch Corporate Governance Code, the division of duties within the supervisory board and the procedures of the supervisory board should be laid down in terms of reference. The supervisory board’s terms of reference should include a paragraph dealing with its relations with the management board, the general meeting, the employee participation body (if any) and the executive committee (if any). The terms of reference should also be posted on the company’s website.

The Dutch Corporate Governance Code furthermore provides that the supervisory board should draw up terms of reference for the audit committee, the remuneration committee and the selection and appointment committee. The terms of reference should indicate the role and responsibility of the committee concerned, its composition and the manner in which it discharges its duties. The terms of reference should be posted on the company’s website.

Is there any law, regulation, listing requirement or practice that requires evaluation of the board, its committees or individual directors? How regularly are such evaluations conducted and by whom? What do companies disclose in relation to such evaluations?

Pursuant to the Dutch Corporate Governance Code, at least once per year, outside the presence of the management board, the supervisory board should evaluate the functioning of the management board as a whole and of the individual managing directors. The management board, in addition, should evaluate its own functioning as a whole and the functioning of the individual managing directors at least once a year.

At least once per year, outside the presence of the management board, the supervisory board should evaluate its own functioning, the functioning of the various committees of the supervisory board and that of the individual supervisory directors.

The supervisory board’s report should state in what manner the evaluations have been carried out and what has been or will be done with the conclusions from the evaluations.