In 2003 the Dutch Corporate Governance Code (the “Code”) was adopted by the Commissie Tabaksblad. The Code sets out principles and best practices regarding the governance of listed companies and the rendering of account to shareholders. Governance relates to management and regulation, responsibility and control, and supervision and accountability.
“Apply or explain”
The Code is based on the “apply or explain” principle, meaning that listed companies must apply the Code or must explain any derogation from Code. Compliance with the Code contributes to confidence in the corporate governance of listed companies.
Principles of the new Code
On 8 December 2016 the Corporate Governance Code Monitoring Committee (the “Committee”) published a revised Code. The main changes are the focus on long-term value creation and the introduction of culture as part of sound corporate governance.
The new Code focuses on managing directors’ and supervisory directors’ own responsibility. Their duty to render account on their own performance has been expanded. The structure of the Code has also been changed. Whereas the old Code had a subdivision of tasks and responsibilities per function, a thematic system has now been opted for. It is explained per theme who plays what role within that theme. That clarifies the relationships and links, which should stimulate dialogue.
A list of the main revised points compared with the 2008 Code is presented below.
• Long-term value creation: the management board is required to develop a vision and an accompanying strategy for long-term value creation. The management board must involve the supervisory board in doing so. Managing directors and supervisory directors are thereby forced to act in a sustainable manner by making sound choices regarding the long-term tenability of the strategy.
• Culture: the new “culture” principle obligates the management board to set values that are to contribute to a culture aimed at long-term value creation. That culture must stimulate desirable behaviour and sound operational management within the company. It is important that the management board serves as a model in that regard.
• Risk management: the management board must render account on the effectiveness of the structure and functioning of internal risk management and control systems. Whereas in the old Code the management board’s statement was linked only to risks in the financial reporting, the management board must now take all material (also non-financial) risks into account in its report.
• Internal audit function: the supervisory board is more closely involved in the appointment, appraisal and dismissal of the internal auditor. If the company does not have an internal audit service, the supervisory board must assess each year whether adequate alternative measures have been taken and whether there is a need to set up an internal audit service.
• Term of office of supervisory directors: the term of office of supervisory directors has changed. In principle, it lasts two four-year periods. A supervisory director may be reappointed after a period of eight years for two two-year periods, but the supervisory board must state the reasons for that decision in its report
. • Executive Committee: if the company has an executive committee (“EC”) (a committee that is closely involved in the decision-making by the management board), the management board must state its reasons for that choice in the annual report and must render account on the role, task and composition of the EC and on the manner in which the contacts between the supervisory board and the EC are organised.
• Remuneration policy: the remuneration theme has been slimmed down and has less detailed provisions than in the past. In principle, the remuneration policy for managing directors must be ‘clear and comprehensible’ and must take into account both long-term value creation and the internal remuneration relationships within the company. The management board must state its views on its own remuneration. The supervisory board must take those views into account in determining the remuneration and must establish whether it is in keeping with long-term value creation and the social context. The responsibility of the management board and supervisory board for the remuneration policy has therefore increased.
• One-tier board structure: the one-tier board structure has been given a chapter of its own in the new Code. Although the Code focuses on companies with a two-tier board structure (which is customary in the Netherlands), the Code also applies to companies with a one-tier board structure.
The Committee believes that the revised Code is now up to date and offers a practical framework for corporate governance in the coming years.
The text of the entire revised Code can be found here.