On 8 December 2016 the Dutch Monitoring Committee Corporate Governance Code presented the revised Dutch Corporate Governance Code (applicable to companies listed in the Netherlands) to the Dutch Minister of Economic Affairs.
The Monitoring Committee revised the Code after it presented a consultation document with proposals for the revision of the Code on 11 February 2016. Over 100 reactions of stakeholders and other interested parties were submitted to the Monitoring Committee. Also CMS responded to the consultation document.
The revised Code shall be effective as per the financial year 2017. Companies listed in the Netherlands shall therefore have to report on the application of the revised Code in their management report over the financial year 2017 for the first time.
The revisions may be classified in seven themes:
1. Increased focus on long-term value creation
The revised Code focuses on the long-term value creation of the company and its affiliated enterprise. The management board shall develop a view on long-term value creation by the company and its affiliated enterprise and shall formulate a strategy in line therewith. In a best practice provision several aspects are mentioned which play a role in the strategy of the company, including several non-financial aspects, such as the environment, social and employee-related matters and the fight against corruption. In the management report, the management board shall give a more detailed explanation of its view on long-term value creation and the strategy for its realization, as well as a description of which contributions were made to long-term value creation in the past financial year.
2. Reinforced risk management
In the revised Code, the provisions on risk management are extended.
3. New accents in effective management and supervision
The Code has been revised on a number of items with a view to recent developments in the field of management and supervision.
The executive committee, a management layer under the responsibility of the management board, has been given a place in the Code.
If the management board works with an executive committee, the management board shall take account of the checks and balances that are part of the two-tier system (comprising a management board and a supervisory board). In the management report, account shall be rendered of the choice to work with an executive committee, the role, duty and composition of the executive committee and how the contacts between the supervisory board and the executive committee have been given shape.
One tier board
Contrary to earlier announcements, the Monitoring Committee shall not make a separate version of the Code applicable to companies with a one tier management system (being a system with one management body consisting of executive directors and non-executive directors). Instead, the Monitoring Committee added one principal and five best practice provisions to the Code specifically applicable to companies with a one tier management system. Provisions in the Code applicable to supervisory directors are also applicable to non-executive directors, without prejudice to their other responsibilities as non-executive director.
The best practice provision applicable to the diversity policy is expanded to the management board and, if installed, the executive committee. The Monitoring Committee is of the opinion that, apart from gender, also aspects of age, nationality, expertise, independence and experience are of importance. The corporate governance statement shall explain the diversity policy, addressing the policy objectives, how the policy has been implemented, and the results of the policy in the past financial year.
The best practice provision applicable to the expertise of supervisory directors is expanded to the management board. The earlier suggested addition that at least one supervisory director has specific expertise on current and future technological innovation and business models has not been included in the revised version of the Code.
Independence of supervisory directors
The Monitoring Committee is of the opinion that committed shareholders are beneficial to the long-term value creation. The Monitoring Committee therefore proposed that more than one supervisory director may be not independent due to him or her (or their spouse) holding more than 10% of the shares in the company or he or she representing a legal person holding more than 10% of the shares in the company. However, the majority of the supervisory directors shall be independent. Furthermore, the chairman of the supervisory board must be independent.
Terms of appointment
In line with corporate governance codes applicable in other countries, the term of the appointment of supervisory directors is shortened from 3 periods of 4 years to 2 periods of 4 years. Thereafter, the supervisory director may be reappointed for a period of two years, which appointment may be extended by maximally two years. In the event of a reappointment after an eight-year period, reasons shall be given in the report of the supervisory board. In the event of the early retirement of a member of the management board or the supervisory board, the company shall issue a press release mentioning the reasons for the resignation.
The revised term of appointment for supervisory directors does not apply to supervisory directors who, as of the date of the revised Code becoming effective, have already been in office for more than 8 years, and to supervisory directors who are nominated for reappointment for a third four-year period at a general meeting in 2017.
Managing directors and supervisory directors shall report to the supervisory board in advance any other positions they may have. At least annually, such other positions shall be discussed with the management board in a supervisory board meeting. Accepting a position as supervisory director by a managing director, requires the approval of the supervisory board.
No special committee in case of takeovers
Contrary to the consultation document, the revised Code does not prescribe that in takeover situations a special committee shall be installed.
4. Introduction of culture as explicit part of corporate governance
The Monitoring Committee is of the opinion that the culture of the company is important for an effective corporate governance of the company. The revised Code therefore includes the following provisions:
5. Clean-up and simplification of remunerations
Due to recent changes in the law and that fact that remunerations in practice are often structured in a complex and therefore non-transparent way, the Monitoring Committee proposed to abolish detailed provisions in this respect and to bring the principles and best practice provisions with regard to remunerations back to the core:
6. Relationship with the shareholders
Whereas at this moment there are several discussions and developments taking place with regard to the rights and responsibilities of shareholders, the number of revisions in the Code in respect of shareholders is limited.
Managing directors and supervisory directors nominated for appointment shall attend the general meeting at which votes will be cast in respect of their nomination; they may be questioned personally by the shareholders.
7. Clarification on the requirements to the quality of explanation
The revised Code gives more guidance to the use of the comply or explain principle, by providing for a number of elements the explanation shall always need to include.
If you have any questions regarding the revised Code, please contact: Erik Vorst or Bob van Zijl.