The Dutch Corporate Governance Code Monitoring Committee has presented a consultation document with proposals for revision of the Corporate Governance Code. All stakeholders and interested parties are invited to respond to the consultation document and to participate in a public debate on revision of the code. The consultation period will end on 6 April 2016. The committee wants to adopt the new code in the course of 2016; it will apply to financial years starting on or after 1 January 2017.

The committee has also published its monitoring report on compliance with the current code during the financial year 2014. This monitoring report will be discussed in the February edition of De Brauw’s In context.

What is being proposed?

The principal proposals in the consultation document revolve around seven themes:

  1. A greater focus on long-term value creation
  2. Reinforcement of risk management
  3. A shift of focus in effective management and supervision
  4. Introduction of culture as an explicit part of corporate governance
  5. Improvement and simplification of the remuneration provisions in the code
  6. Shareholders and the general meeting
  7. Quality requirements for ”comply or explain” statements

A greater focus on long-term value creation

The committee puts an emphasis on long-term value creation. Pursuant to a new principle, the management board should focus on long-term value creation and design and implement a strategy aimed at this. The consultation document lists a number of aspects to be taken into account when formulating the strategy, including the relevant non-financial aspects of running a business.

Reinforcement of risk management

The committee proposes improving the risk management provisions.

  • The various stages of risk management (risk assessment, implementation and evaluation) will be developed further in best practice provisions.
  • The internal audit function, performing under the management board’s responsibility, will be strengthened and include direct access to the audit committee and the external auditor.
  • The scope of the in-control statement on how the internal risk management and control systems have functioned, will be extended to include non-financial risks.
  • The in-control statement will include a confirmation that the company´s continuity is expected to be safeguarded for the coming 12 months.
  • The management board and the external auditor should immediately inform the audit committee of any material irregularities relating to the contents of financial statements or otherwise.
  • The roles of the supervisory board and audit committee after irregularities are identified, will be clarified.
  • Their roles in the external auditor’s appointment, dismissal and performance review will also be clarified. The appointment and dismissal procedure will be brought in line with existing legislation and with the EU Audit Regulation, which will enter into force in June 2016.
  • The management board and supervisory board in their discussions with the internal audit function, as well the audit committee in its discussions with the external auditor, should leave room to address matters of culture and behaviour at the company.
  • The management board and the supervisory board should both receive the auditor’s management letter.
  • The audit committee should be informed about any material changes that the external auditor has made to the draft management letter or the draft audit report at the request of the management board.

A shift of focus in effective management and supervision

With a view to recent management and supervision developments, the committee proposes several changes. The committee also recommends a further discussion about the impact that these developments have on checks and balances and on independent supervision in the company.

Executive committee

The proposed changes do not include specific requirements on the structure of executive committees. However, a company with an executive committee should take into account the checks and balances that are part of a two-tier board system. The management board should report on why it has opted for an executive committee, on the executive committee’s role and composition, and on how the interaction between the supervisory board and the executive committee has been structured.

One-tier board

The committee has not proposed amending the one-tier board provisions in the code, but it has confirmed that it will prepare a separate version of the code covering the one-tier board. The committee aims for both versions of the revised code to be finalised at the same time.


The diversity provisions in the code have been extended to managing directors. The committee has emphasised that there should be a broad discussion on diversity that should also include age, nationality, expertise, independence and experience. The management board should clarify the diversity policy in the corporate governance statement (comply or explain), addressing what the policy objectives are, how the policy has been implemented and what the outcome has been in the past financial year.

The general provision on the expertise of supervisory directors will be extended to managing directors. At least one supervisory director should have specific expertise in existing and future technological innovation and business models.

Independent supervisory directors

The committee believes that engaged shareholders contribute to long-term value creation. To this end, the committee proposes a change in the independence criteria for supervisory directors: more than one supervisory director may be dependent as a result of a 10% stake or more in the company being held by him/her or a relative. But the majority of the seats on the supervisory board must be held by independent directors. The supervisory board chairman will have to be independent.

Terms of appointment

To keep in line with foreign corporate governance codes, the committee proposes shortening the term of office for supervisory directors to two four-year periods, from three four-year periods. Under certain conditions, the term of office (that is, eight years maximum) may be extended for a further two years, and then again for another two years. In appointing and reappointing managing directors the diversity targets have to be taken into consideration. An early resignation of a managing or supervisory director should, in line with the guidelines of the Netherlands Authority for the Financial Markets, be announced in a press release. The proposals for a revised code provide that the press release should state the reasons for the resignation.

Evaluation and additional directorships

The proposals include further provisions on the supervisory board’s evaluation of its own performance. The committee also recommends that the management board evaluates at least once a year how it and the individual managing directors have performed. This is in addition to the supervisory board’s evaluation of the management board.

Managing and supervisory directors should notify the supervisory board in advance if they intend to accept an additional position. Additional positions should be discussed in a joint meeting of the management and supervisory boards at least once a year. All supervisory positions held by managing directors are subject to the supervisory board’s approval.

Special committee takeover situations

The management board and the supervisory board should set up a special committee to prepare decision-making in specific takeover situations. The special committee comprises both managing and supervisory directors, and the supervisory board chairman chairs this special committee. If one or more supervisory directors serving on the special committee qualify as dependent, the chairman must carefully assess whether it is opportune for these supervisory directors to be involved in the decision-making process on the takeover. The monitoring committee may extend the possibility of installing a special committee to stress situations in general, depending on the consultation feedback.

Introduction of culture as explicit part of corporate governance

The committee considers that the Code should focus more on culture as one of the driving forces behind effective corporate governance.

  • The management board, under the supervision of the supervisory board, should implement a culture aimed at the company’s long-term value creation.
  • Both the management board and the supervisory board should stimulate a culture of openness and responsiveness at the company.
  • The management board should inform the chairman of the supervisory board about signs and suspicions of material misconduct.
  • The management board is responsible for embedding culture in the company, taking into account factors such as the company’s business model and commercial environment.
  • The management board should also discuss behaviour and culture during consultations with the works council.
  • The management report should explain how a culture aimed at long-term value creation is encouraged at the company.

Improvement and simplification of the remuneration provisions in the code

Executive remuneration

Based on legislative developments in executive remuneration and given that remuneration structures are usually designed in a complex manner, the committee proposes simplifying the principles and best practice provisions on executive remuneration.

  • The remuneration policy should be simple and transparent, and it should stimulate the company’s long-term value creation.
  • The supervisory board, in consultation with the management board, determines the supervisory board’s responsibilities regarding the remuneration of the executive committee. These responsibilities are set out in the rules of the remuneration committee.
  • The remuneration policy should specify the parameters for claw-back of variable remuneration.
  • To encourage managing directors to be more involved in their own remuneration, the remuneration committee should take into account the views of individual managing directors on the amount and structure of their remuneration.

Supervisory board remuneration

The committee acknowledges that the position of supervisory directors is becoming more professional. The committee proposes a new best practice provision that the remuneration of supervisory directors should reflect the responsibilities and time spent by the supervisory board. The committee proposes allowing supervisory directors to be paid in shares. This should be subject to strict conditions to ensure the focus on long-term value creation.

Shareholders and the general meeting

Given the current debate on and developments in shareholder rights and obligations, the committee wants to limit the revision of provisions concerning the company’s relationship with the general meeting and individual shareholders. The committee suggests reorganising the relevant best practice provisions and where possible deleting text to avoid overlap with Dutch legislation.

  • Managing directors and supervisory directors nominated for appointment should attend the general meeting where their appointment is dealt with.
  • The 180-day response period will be maintained and the reference to  “a change of strategy” is clarified as an important change in the identity or character of the company (section 2:107a BW).
  • After the end of the response period the management board must report to the general meeting on how it has applied the period.
  • Information must be provided to the general meeting in English and may, in addition, be provided in Dutch.

The committee believes that the issue of depositary receipts for shares (certificering) should be allowed as an anti-takeover measure, but only if it supports the creation of long-term value. In this connection, the committee proposes removing the principle in the code that the issue of depositary receipts be used as a tool to prevent absenteeism and random majorities. The committee also wants to remove the trust office’s obligation to give a voting proxy to holders of depositary receipts at all times. This obligation is provided for by law and is subject to a number of exceptions.

Quality requirements for ‘comply or explain’ statements

In the revised code the committee provides more guidance on the use of the ‘comply or explain’ principle. In connection with an earlier recommendation of the European Commission, the committee provides a framework for companies on how to explain a deviation from the code.