On 10 December 2008 the Corporate Governance Monitoring Committee (the "Monitoring Committee") presented an updated version of the Dutch Corporate Governance Code (the "Code") of 2003. This newsletter highlights the main amendments to the Code and the Monitoring Committee's recommendations for legislative/ministerial action.

Main amendments to Code

Remuneration of management board members

The procedures for determining and publishing management board remuneration have not been substantially changed, although the requirements regarding the level and structure of the remuneration have been tightened in some respects. In setting both the level and structure, consideration should be given to, among other things, the remuneration granted within the rest of the company and the company's long-term objectives.

The variable remuneration component must be in an "appropriate" proportion to the non-variable component, be linked primarily to the company's long-term objectives and be in line with its risk profile. The Monitoring Committee elected not to set a limit on the variable component of the remuneration. In a recent interview, the chairman of the Monitoring Committee, Mr Frijns, stated that the support for this was insufficient, both within the Monitoring Committee and within a number of the initiating organisations (Association of Listed Companies (VEUO) and Eumedion). Other interest groups - the Dutch Trade Union Federation (FNV) and the Dutch Investors' Association (VEB) - have expressed regret that, in their view, the Monitoring Committee has done too little to curb excessive executive remuneration.

The maximum severance pay of one year's salary used to apply only where the employment relationship was terminated involuntarily, but now also applies where it is terminated voluntarily by the management board member. In addition, the supervisory board's grip on management board remuneration has been further strengthened in two ways. Firstly, the supervisory board should, as a best practice, be given the power to increase or decrease previously granted variable remuneration if it believes that such remuneration will, on account of exceptional circumstances, produce an unfair result. Secondly, the supervisory board should be given the power to claw back variable remuneration that has been granted to management board members based on incorrect financial or other information.

The obligations to provide and publish information about management board remuneration have been elaborated upon or expanded. Supplementing the already existing statutory obligation to publish certain information regarding management board remuneration in the explanatory notes to the annual accounts, and the provision under the 2003 Code requiring the supervisory board's report in the annual accounts to include the principal points of its remuneration report, the Code now also requires that the report in the annual accounts describe transparently and in clear and understandable terms the remuneration policy that has been pursued. The remuneration report, to be published on the company's website, should contain additional details. These include, in particular, information about (i) the cost of the remuneration, (ii) the shares, options and other share-based remuneration granted to each individual management board member, and (iii) the performance criteria to which the variable remuneration component is linked.

Shareholders' responsibility (response time)

According to Frijns, a company should not be at the mercy of the stock markets, and for this reason a number of rules of conduct for shareholders have been introduced. A new principle requires shareholders to act in accordance with the standards of reasonableness and fairness in relation to the company, its bodies and other shareholders. This obligation is also laid down in Dutch statutory corporate law, but under the Code explicitly includes the willingness to enter into a dialogue with the company and fellow shareholders.

The Code also contains several rules of conduct for shareholders in the form of best practices, the most important of which is the introduction of a "response time". Prior to exercising his/its right to have an item put on the agenda for a general meeting, the shareholder should enter into discussions with the company. If the shareholder seeks to have an item put on the agenda regarding a subject that can result in a change in corporate strategy (for example through the dismissal of one or more management board members or supervisory board members), or if the shareholder seeks judicial authorisation to convene a general meeting for this purpose, he/it should give the management board the opportunity to invoke the right to a period of not more than 180 days in which to respond to the item in question before it is handled at the meeting. The management board should use this period for further deliberation, constructive consultation and the exploration of options.

In addition, the Code now imposes on shareholders a special responsibility in exercising their voting rights. The Code makes clear that a shareholder who relies on a voting recommendation by a third party (such as a proxy advisor) is expected to form his/its own judgment on the voting policy and advice of that third party. Moreover, a shareholder who has an item put on the agenda of a general meeting is required to explain and answer questions about that item at the meeting. It should also be noted that a pending bill to implement the Shareholders' Rights Directive requires a shareholder who wants to have an item put on the agenda to submit a duly reasoned request in writing.

The Monitoring Committee recommends that the response time be anchored in law, in order to increase "legal certainty and the effectiveness of the response time". Without a statutory basis, it is uncertain whether shareholders can be compelled to comply with the response time, which of course is also true of the other rules of conduct applicable to shareholders.

Duties and composition of supervisory board

The supervisory duties of the supervisory board from now on explicitly extend to the relations between shareholders and the management board and to the relevant social responsibility aspects of the company's business practices. The Code does not specifically require the supervisory board to mediate conflicts between the management board and shareholders/groups of shareholders. Under case law, however, the supervisory board may have a duty to do so in certain circumstances.

In line with Anglo-American practice, the amendments give the chairman of the supervisory board a more important role by explicitly stating that he is the main contact person for the management board and for shareholders on matters relating to the functioning of management board members and supervisory board members.

The supervisory board should strive for diversity in its membership in terms of, among other criteria, gender and age.


Contrary to what had been expected, the amendments do not include the addition of a chapter on the position of the management board and supervisory board in the event of a takeover, and in particular on conflicts of interest, fairness opinions and the requirement that management board members act in the corporate interest. The amendments do, however, require the management board to involve the supervisory board closely and in a timely manner whenever a third party is preparing a takeover bid for the company's shares or depositary receipts. In addition, the management board of a company for whose shares a bid has been announced or made should immediately discuss with the supervisory board a request by a competing bidder to inspect the company's books and records.

One-on-ones with shareholders

The company should formulate an outline policy on bilateral contacts with shareholders (one-on-ones) and publish this policy on its website. In this respect a balance has been sought between, on the one hand, the potential usefulness of such bilateral contacts and, on the other hand, their potential dangers (e.g. unequal treatment of shareholders and the disclosure of price-sensitive information).

Internal risk management

The amendments emphasise the importance of internal risk management and express more clearly the responsibility of the management board (subject to the supervision of the supervisory board) in this regard. The management board should include in its annual report a description of, among other things, the company's risk profile and internal risk management and control systems, including any deficiencies therein. In addition, the management board is now required to issue an "in control" statement. The "proper and effective" (adequaat en effectief) standard therefore no longer applies.

Corporate social responsibility

The duties of the management board and the supervisory board now include the obligation to consider the relevant social responsibility aspects of the company's business practices. The theme of corporate social responsibility recurs in several other places in the Code as well. In this respect, the Monitoring Committee has followed the recommendations made by the Burgmans Committee on 6 November 2008 (which can be consulted at www.ez.nl).

Recommendations for legislative/ministerial action

In addition to making the recommendations set out above, the Monitoring Committee has recommended that the following action be taken by the legislature/relevant minister:

designation of the Code as the code of conduct to which listed companies must refer in their annual report, indicating the extent to which they have complied with the best practice provisions (as they must presently do with respect to the 2003 Code);

  • appointment of a new Monitoring Committee with the same features and powers as the present one;  
  • investigation of the possibility of adding a "put up or shut up" rule to the Dutch public offer rules;  
  • review of the bottlenecks in statutory buy-out proceedings and the solutions that have been proposed to eliminate them. A number of interest groups, e.g. Eumedion, the VEUO and the Confederation of Netherlands Industry and Employers (VNO-NCW), have pointed out that these proceedings are slow and that the high threshold for initiating them (a shareholding of at least 95%) compels acquirers to use other legal instruments (such as statutory mergers) that were not intended for, and are not tailored to, the elimination of minority shareholders remaining after a successful takeover.  

The Code can be consulted at www.commissiecorporategovernance.nl.