All questions

Shareholders

i Shareholder rights and powers

The general meeting of shareholders has important powers within the company, such as the power to amend the articles of association, dissolve the company, approve a merger, adopt the annual accounts and appoint supervisory board members. In addition to these specific powers, Article 2:107 of the DCC assigns all residual powers (i.e., those not assigned to the management board or other corporate bodies) to the general meeting of shareholders. However, the general meeting of shareholders of a Dutch public limited liability company is not entitled to give the management board binding instructions regarding the manner in which the board carries out its duties. Management board decisions resulting in an important change in the company's identity or character require the approval of the general meeting of shareholders.26 This applies, for example, to decisions to transfer the enterprise or almost the entire enterprise, enter into or terminate a significant long-term cooperation, or acquire or divest a significant holding. The provision applies only to decisions that are so fundamental that they change the nature of share ownership, in the sense that the shareholder will, as a result of the decision, in effect have provided capital to and hold an interest in a substantially different enterprise.27

Another important shareholder right is the right to have items placed on the agenda of a general meeting.28 The threshold is 3 per cent. The consequences in practice of the right to have an item placed on the agenda of a general meeting are discussed further in Section V.iv. Furthermore, shareholders have the right to vote on the remuneration policy.

ii Equality of voting rights

The most fundamental right of a shareholder is the right to vote at meetings. In principle, Dutch corporate law adheres to the principle of equality of voting rights: all shares carry equal rights and obligations in proportion to their nominal value and all shareholders whose circumstances are equal must be treated in the same manner.29 The articles of association, however, may provide otherwise. The principle of one share, one vote also applies.30 There are important exceptions to these principles, however, a few of which are mentioned below.

The first exception is the use of loyalty shares, to which extra voting rights or extra dividends are attached as a reward for long-term shareholders.31 A second exception to the principle of equality of voting rights is the issuance of protective preference shares: listed companies may protect themselves against hostile takeovers or shareholder activism by issuing preference shares to an independent foundation set up in advance for this purpose (see Section V.v). A third exception to the principle of equality of voting rights is financial preference shares, which are used as a financing instrument. In respect of these shares, too, there is a disproportionate relationship between the voting rights acquired and the capital invested. With respect to the issuance of financing preference shares, the Corporate Governance Code provides that the voting rights attached to such shares must be based on the fair value of the capital contribution.32 This represents an attempt to return to the one share, one vote principle.

iii Shareholder duties and responsibilities

Under Dutch law, shareholders – unlike management and supervisory boards – are in principle not required to be guided by the interests of the company and its affiliated enterprise. Therefore, shareholders may give priority to their own interests, in principle, with due regard for the principles of reasonableness and fairness. Based on these principles, however, larger shareholders are considered to have a certain responsibility towards other parties. The Corporate Governance Code's preamble states: 'The greater the interest which the shareholder has in a company, the greater is his or her responsibility to the company, the minority shareholders and other stakeholders.' Institutional investors in particular, therefore, are being called on to accept greater responsibility.

In this regard, the Corporate Governance Code seeks to increase the transparency of voting behaviour. Institutional investors must publish their voting policy on their website and report annually on how that policy has been executed in the preceding year. They must also report quarterly to the general meeting of shareholders on how they have exercised their voting rights.33 Furthermore, Eumedion34 adopted a set of Best Practices for Engaged Share Ownership in June 2011, which, inter alia, call on institutional investors to inform clients of conflicts of interest if, in relation to a particular matter, the investors have divergent roles that could affect their voting behaviour.

At the European level, similar developments have taken place. In this regard, the ESMA updated its guidelines in 2014 on acting in concert in the Directive on Takeover Bids (see Section V.v).35 In addition, the revised Shareholder Rights Directive requires institutional investors to be more transparent about their voting policies, as this would lead to better investment decisions and could also facilitate dialogue with the relevant company.

iv Shareholder activism

In practice, the shareholder rights described in Section V.i have also been actively exercised by hedge funds, most notably the right to have an item placed on the agenda of a general meeting.36 Although the aim of the new rights was to increase shareholder participation and strengthen the monitoring of management boards, the actions of hedge funds have also revealed a dark side to participation. In particular, the focus on short-term profits has had adverse effects in some cases.

To this end, the Corporate Governance Act was introduced in 2013. The idea behind the Act is to enable the management board, through the introduction of disclosure obligations, to learn the identity and intentions of its shareholders at an early stage, so that it can enter into a dialogue with them. The minimum threshold for the obligation to disclose substantial holdings of capital or voting rights in listed companies has been reduced, therefore, from 5 per cent to 3 per cent.37 In addition, the threshold for the right of shareholders to have items placed on the agenda for a general meeting has been substantially raised, from a capital interest of 1 per cent to a capital interest of 3 per cent; the alternative threshold in the case of an interest of €50 million for listed companies has been cancelled. Finally, the Act contains a mechanism enabling a listed company to identify its ultimate investors.

The issues of empty voting or securities lending, both of which have appeared to be important instruments for activists, have not been directly provided for in the Act. Hedge funds can use these devices to influence decision-making in the general meeting of shareholders, without bearing any economic risk. Furthermore, shareholders of listed companies are not only obliged to disclose their long positions in excess of a certain threshold, but also their gross short positions (see Section III) and should, when exercising the right to place an item on the agenda, disclose their full economic interests (both long and short). As a result, the shareholder's true motives for placing an item on the agenda should be revealed, which is supposed to discourage the practice of empty voting as well.

In limiting the right to have items placed on the agenda, the Corporate Governance Code goes further than the Act.38 The Code provides that a shareholder of a listed company may exercise this right only after having consulted the management board. If the item to be placed on the agenda may possibly result in a change in the company's strategy, the management board must be given a period of a maximum of 180 days to respond (the response time). The management board should use this response time to confer with the relevant shareholder. The statutory period for these requests, however, is 60 days before the meeting – even for items concerning the company's strategy – and, therefore, may clash with the response time. The response time is an elaboration of the statutory principles of reasonableness and fairness to which shareholders are required to adhere in their relations with the company and, therefore, must be respected by an activist large shareholder. It may be disregarded only on compelling grounds.39 Furthermore, the Act on a cooling-off period for the management of listed companies entered into force in 2021. A listed company may impose a statutory cooling-off period of up to 250 days, during which the shareholders' meeting would not be able to dismiss, suspend or appoint board members of a listed Dutch company under attack. The cooling-off period may also be invoked if there is unwanted shareholder activism.

The trend towards limiting shareholder rights can also be discerned in Dutch case law. For example, the Supreme Court, in summer 2010, held that it is up to the management board to determine corporate strategy. Decisions of this nature need not be submitted to the shareholders for approval or consultation, not even on the grounds of reasonableness and fairness or non-statutory governance rules.40 This judgment limits the possibility for shareholders to demand strategic changes. This is echoed in a judgment in 2018, in which a large investor was denied the right to add a strategic item to the agenda.41

v Takeover defences and other protective measures

In Dutch practice, various (structural and ad hoc) defensive measures have been developed against the threat of hostile takeovers, shareholder activism, among other things:

  1. the incorporation of a protective foundation with a call option to acquire preferred shares;
  2. a binding nomination right for the company's board or another body regarding the appointment of directors;
  3. a proposal right for the board or another body in respect of certain resolutions of the general meeting of shareholders;
  4. imposing an ownership limitation on shareholders; and
  5. listing of depositary receipts instead of shares.

The most common is itemised at (a). The preferred shares, which are issued when a threat materialises, change the balance of control within the general meeting of shareholders and make it possible to pass certain resolutions desired by management or, in some cases, block certain undesired resolutions. The Supreme Court permits the issuance of protective preference shares provided they are necessary with a view to the continuity of the enterprise, and are adequate and proportional. The construction must be temporary in nature and have the purpose of promoting further dialogue.42

Dutch law accepts a number of deviations from the one share, one vote principle (see Section V.ii). Instruments that are typically used as a defensive tool are dual-class structures, ownership limitations and, to a lesser extent, loyalty shares. The listing of depositary receipts instead of the shares themselves is not allowed as a defensive measure under the Corporate Governance Code43 and its use by listed companies has slowly declined.

White-knight defences only occur occasionally in the Netherlands, probably because of the availability of preferred alternatives. Directors are typically appointed and reappointed on the basis of a rotation scheme, as required under the Corporate Governance Code.44 The concept of staggered boards, as far as we are aware, is not applied by Dutch listed companies.

vi Contact with shareholders

Although the general meeting of shareholders has a statutory right to obtain information, based on which it is accepted that shareholders have the right to ask questions at a general meeting, it is unclear from the relevant DCC provisions whether the management board can itself take the initiative to discuss its intentions with individual shareholders outside a meeting. In practice, one-on-one meetings of this kind do take place. According to the Corporate Governance Code, the company should formulate a policy on bilateral contacts with shareholders and publish this policy on its website. It is important that particular shareholders are not favoured and given more information than others, however, as this would violate the principle that shareholders in the same circumstances must be treated equally. It goes without saying that price-sensitive information may not be disclosed. The fear of violating the market abuse rules causes some shareholders and companies to be hesitant about participating in one-on-one meetings.

Furthermore, shareholders among themselves may be afraid of being regarded as parties acting in concert because, under the provisions of the Directive on Takeover Bids,45 these parties are obliged to make an offer for the listed shares of a company if they collectively acquire dominant control (30 per cent or more of the voting rights in that company's general meeting of shareholders). At the end of 2013, ESMA drew up a white list of activities on which shareholders can cooperate without being presumed to be acting in concert, which was updated in 2014 and again in 2019.46 However, if shareholders engaging in an activity on the white list in fact turn out to be cooperating with the aim of acquiring control over the company, they will be regarded as persons acting in concert and may have to make a mandatory bid. The sensitive subject of cooperation with regard to board appointments has been acknowledged, but was nevertheless left off the white list.