The Corporate Governance Review: Netherlands
Overview of governance regime
The general rules of civil law relating to the governance of companies and listed companies in the Netherlands are laid down in Book 2 of the Dutch Civil Code (DCC). This sets out the duties and powers of the various corporate bodies, as well as rules on representation, conflicts of interest and the liability of management board members. The DCC also contains rules regarding financial reporting and disclosure. Compliance with the rules in the DCC can, if necessary, be forced through the courts. Furthermore, shareholders with a specific capital interest (in some cases even former shareholders)2 have the right to request an inquiry into the company's policy and affairs, at a court specially designated for this purpose – the Enterprise Chamber of the Amsterdam Court of Appeal. Upon a showing of mismanagement, the Enterprise Chamber can intervene by, inter alia, suspending or nullifying a management board decision, suspending or removing management or supervisory board members and appointing temporary board members. In practice, inquiry proceedings have been an important part of the development of law in the area of corporate governance, for example with regard to the issue of the respective roles of the management board and the shareholders in determining the strategy of the relevant company.
In addition, the Netherlands has rules on the supervision of the business conduct of listed companies, laid down in Chapter 5 of the Financial Supervision Act (FSA). The FSA contains rules on, inter alia, the disclosure of major holdings, financial reporting, the prevention of market abuse and the obligations of institutional investors. Supervision of compliance with these rules is carried out by a specially designated body, the Authority for the Financial Markets (AFM).
Alongside these statutory rules, there is a system of self-regulation consisting of codes of conduct containing principles and best-practice provisions drawn up by the sector itself. The first Dutch Corporate Governance Code containing governance rules for listed companies entered into effect in 2004. In December 2016, a revised version was published, with more attention being paid to long-term value creation, culture, reporting of misconduct and risk management.
Since the introduction of the first Corporate Governance Code, several sectors have set up their own specific codes, such as the Code of the Dutch Pension Funds, the Housing Corporations Code and the Banking Code. All codes adopt a comply or explain system: on their websites, companies must state how they apply the principles and best-practice provisions and, if applicable, provide a reasoned explanation of why a provision has not been applied.
Since 2019, asset owners and asset managers holding shares in Dutch listed companies are legally required to comply with the obligations of the Dutch Stewardship Code or to publicly disclose a clear and reasoned explanation why they have chosen not to comply with one or more of those obligations. This Code incorporates the new stewardship obligations stemming from the revised Shareholder Rights Directive.3 While this Code's principles are principally focused on stewardship towards Dutch listed investee companies, the principles can also be applied to non-Dutch listed investee companies, as appropriate. This Stewardship Code was developed to emphasise the increasing importance of engaged and responsible share ownership and the role that institutional investors play in promoting long-term value creation at Dutch listed companies.
i Board structure and practices
Dutch corporate law has traditionally provided for a two-tier board structure, consisting of a management board and a separate supervisory board (each of which is governed by different statutory provisions); however, the institution of a supervisory board is only mandatory for companies subject to the structure regime.4
Since 2013, Dutch corporate law has also provided a statutory basis for the one-tier board structure. However, through the influence of international developments, the one-tier board structure had made its way into Dutch corporate practice prior to this legislation. The current Corporate Governance Code specifies that the current rules for supervisory board members also apply to non-executive directors.
Generally, the one-tier model is considered to be suited to companies in a highly dynamic environment, such as those in the technology sector, complex companies that need to act quickly in crisis situations, companies that are in the process of being listed and in which a major shareholder is closely involved in the company's management or supervision (family businesses) and companies that form part of an international group or have an international group of shareholders.5
In practice, the one-tier model and the two-tier model appear to be growing closer to one another: in companies with a two-tier board structure the supervisory board is now expected to perform a more active role, while in those with a one-tier structure it is often required that the majority of board members consist of independent non-executives. According to the new Code, the latter is also mandatory.
The management board is charged by law with the duty to manage the company, subject to restrictions imposed in the articles of association.6 It is generally accepted that management in any event includes directing the company's day-to-day affairs and setting out its strategy. It should be borne in mind that in accordance with the Dutch stakeholder model, the board must take into account various interests, not only those of the enterprise and shareholders, but also those of other interested parties, such as employees and creditors. The management board as a body has the power to represent the company. However, the articles of association can assign this power to any individual board. In this aspect, a two-signature clause is common. In principle, the board member(s) can represent the company without a board decision.
A significant number of companies have two-member boards (typically a chief executive officer (CEO) and a chief financial officer (CFO)). The rise of this CEO–CFO model can be explained by a number of factors, one of which is the popularity of the executive committee (exco), in which board members and senior managers have seats; in these set-ups, a larger management board makes less sense. The latest Corporate Governance Code embraces the exco; however, it requires companies to render account of governance issues, such as how the interaction between the exco and the supervisory board will be structured. Furthermore, the exco's role, duties and composition must be set out in the management report.
The function of the supervisory board is to supervise and advise the management board and oversee the general state of affairs within the company.7 Like the management board, the supervisory board must take into account the interests of the company and its enterprise, as well as those of all other stakeholders.
The supervisory board of a structure-regime company has a number of important rights, including the right to appoint, suspend and remove management board members, and the right to approve (or refuse to approve) certain management board decisions, such as a decision to issue shares, amend the articles of association or dissolve the company.8
To enable the supervisory board to perform its supervisory duties, the DCC requires the management board to provide the supervisory board with information at least once a year about the company's strategic policy, its general and financial risks and its internal control system. The Corporate Governance Code expands on the supervisory duties: if the supervisory board consists of more than four members, it must appoint from among its members an audit committee, a remuneration committee and a selection and appointment committee, whose duties are also specified.
ii Directors (both management and supervisory board)
Appointment and removal
Directors are appointed and removed by the general meeting of shareholders. Under the Corporate Governance Code, directors are appointed, in principle, for a maximum term of four years, but reappointment for successive four-year terms is permitted. However, this is limited to only one additional four-year term for supervisory board members with a possible third and fourth term of two years. In the event of a reappointment after an eight-year period, reasons should be given in the report of the supervisory board. As previously stated, management board members of structure-regime companies are appointed and removed by the supervisory board.
Each management board member who has been employed for two years or more is entitled to claim a transition payment when the contract is (1) terminated by the employer, (2) dissolved in court at the employer's request or (3) has ended by operation of law. Only in exceptional circumstances, such as in the event of any seriously culpable act or omission on the employer's part, or other extraordinary circumstances, could the board member be eligible for additional severance pay, referred to as fair compensation. Under the Corporate Governance Code, no remuneration is justified if the board member ended the contract on his or her own initiative or in the case of seriously culpable or imputable acts.9
Supervisory board members of structure-regime companies are appointed by the general meeting of shareholders based on a nomination by the supervisory board.10 However, the general meeting of shareholders may overrule such a nomination. The general meeting of shareholders and the works council may recommend persons for nomination. An individual supervisory board member of a structure-regime company may be removed only by the Enterprise Chamber of the Amsterdam Court of Appeal, at the request of the company, the general meeting of shareholders or the works council.11 However, if the general meeting of shareholders passes a vote of no confidence in the supervisory board as a whole, this results in the immediate removal of all board members.
Independence and expertise
The DCC and the codes contain several provisions intended to safeguard the independence of supervisory board members, such as the absence of family ties and business interests.12 The Dutch Central Bank (DNB) has developed its own policy rules for the financial sector. It requires that supervisory board members are independent in mind (independent with respect to partial interests), in state (formal independence) and in appearance (no conflicts of interest). Regarding expertise, the Corporate Governance Code states that each supervisory board member and each management board member shall have the specific expertise required for the fulfilment of his or her duties. Furthermore, each supervisory board member shall be capable of assessing the broad outline of the overall policy.
Within the financial sector, there are even more rules regarding suitability and independence of supervisory board members. For example, under the Banking Code, supervisory board members are expected to have knowledge of the risks of the banking business and of the individual bank's public functions. Moreover, banks are expected to introduce a permanent education programme, and legislation has been enacted; since 1 July 2012, management and supervisory board members of financial institutions have been subject to a stricter 'fit and proper' test, to be applied by the AFM or DNB.
Caps on the holding of multiple supervisory board memberships
The number of supervisory positions a management board member or supervisory board member is allowed to hold at large legal entities is limited by the DCC. In principle, a management board member may hold a maximum of two positions as a supervisory board member in addition to his or her management board position; for a supervisory board member, the limit is five supervisory positions, with a position as a management board or supervisory board chairperson counting as two.
Under the Code, the approval of the supervisory board is required for a management board member of the company intending to accept a supervisory board membership elsewhere.13
Over and above these measures to improve the quality of management and supervision, rules to promote gender diversity within the management boards and supervisory boards of large companies have applied in the Netherlands since 1 January 2013, the target being that the board is at least 30 per cent female and 30 per cent male. As from 1 January 2022, a 30 per cent quota applies for both women and men for the supervisory boards of Dutch companies with a listing in The Netherlands. If a man is appointed to a vacancy on a supervisory board where fewer than 30 per cent of the seats are occupied by women, the appointment would be declared invalid. Additionally, large companies are required to set their own ambitious targets for the boardroom and senior management. The target must exceed the board's current percentage of women and should be increased gradually.
Narrower in scope but still relevant, the Non-Financial Reporting Directive (NFRD) requires certain large companies to have a description of the diversity policy applied in relation to the undertaking's administrative, management and supervisory bodies.14 Diversity under this Directive has a wider significance than gender alone, but also includes, inter alia, background, expertise, nationality and experience.
Conflicts of interest
Neither a management board member nor a supervisory board member will be permitted to take part in any discussion or decision-making that involves a subject or transaction in relation to which he or she has a conflict of interest. The DCC provides subsequently that if the board member nevertheless does take part, he or she may be liable towards the company, but the transaction with the third party will remain valid, in principle.
A management board member or supervisory board member who has performed his or her duties improperly may be held personally liable to the company. In principle, each board member is liable for the company's general affairs and for the entire damage resulting from mismanagement by any other board member (principle of collective responsibility). A board member may avoid liability, however, by proving that he or she cannot be blamed for the mismanagement. The allocation of duties between the board member and his or her fellow board members is one of the relevant factors in that respect. In the one-tier board model, an internal allocation of duties among the board members is permitted, but this does not change the directors' collective responsibility for the company's management. The non-executive board members (i.e., those not charged with attending to the company's day-to-day affairs) may therefore be held liable for the mismanagement of an executive board member.
It is a well-established concept of Dutch law that personal liability should arise only in situations of apparent mistakes or negligence. In this context, the concepts of, for example, 'severe fault' or 'apparent mismanagement' are developed in case law or are part of statutory provisions. Case law reminds us, however, that this does not imply immunity.15
The Supreme Court has held that only the company, or a bankruptcy trustee in cases of insolvency, may sue a board member for mismanagement under Article 2:9 of the DCC; there is no shareholder derivative action under Dutch law.16
As a general rule, management board members will not be personally liable for the company's debts or other obligations as regards creditors, shareholders or other third parties. Liability might only ensue if that board member (1) can be seriously blamed for having conducted a wrongful act on the company's behalf towards a third party, (2) is subject to liability pursuant to certain specific statutory grounds or (3) is penalised pursuant to criminal or administrative law. A parent company or its directors may, under certain circumstances, also be liable for the debts of a subsidiary.
If a company is declared bankrupt, special rules – including certain evidentiary presumptions – apply. Under these rules, each management board member is personally liable for debts that cannot be satisfied from the assets of the bankruptcy estate if the management board was guilty of clear mismanagement during the three years preceding the bankruptcy and it is likely that this was an important cause of the bankruptcy. Besides failure of the management board to comply with its accounting obligations and its obligation to file the annual accounts, clear mismanagement constitutes conduct that is seriously irresponsible, reckless or rash; the trustee in bankruptcy must show that no reasonably thinking board member would have acted in this way under the same circumstances. Case law shows that supervisory board members are not immune in this respect.17
Listed companies are subject to various disclosure obligations. The general rules on financial reporting can be found in Book 2 of the DCC, while the FSA contains additional rules applicable to listed companies. The Corporate Governance Code also lays down several specific financial disclosure obligations for listed companies. In addition, the provisions of the Code must either be complied with by applying them or the reason for deviating from the relevant provisions must be explained, based on the comply or explain principle. Listed companies must render account for their compliance with the Code in their management report. Dutch institutional investors are required to make a statement in their annual report about compliance with the principles and best practice provisions of the Code that pertain to them.
The DCC contains rules with regard to the composition of the annual accounts and management report, the auditor's opinion, the adoption of the annual accounts and the publication requirement. Listed companies are required to send their annual accounts to the AFM after adoption. If the AFM believes that annual accounts do not comply with the relevant rules, it may initiate special annual accounts proceedings before the Enterprise Chamber of the Amsterdam Court of Appeal. Shareholders and employees may also initiate such proceedings. In these proceedings, the Court may order the company to amend the annual accounts and management report in accordance with its instructions.
With regard to the auditing of financial disclosure, statutory auditors are required to enact an extensive, supplementary control statement for the audit committee of the board of directors.18 Audit committees have to explain how the audit contributed to the integrity of the financial reporting, what the audit committee's role has been in the process, and bear responsibility for the selection procedure regarding the auditor.
The Corporate Governance Code also contains provisions on the auditing of the financial reports and the position of the internal audit function and the external auditor. These provisions cover subjects such as the role, appointment, remuneration and assessment of the functioning of the external auditor, as well as the relationship and communication of the external auditor with the management board, supervisory board and audit committee.
Pursuant to the NFRD, certain large corporations are required to report on environmental, social and human rights issues, as well as on the fight against corruption and bribery in their annual management report. The scope of this Directive will be broadened after its amendment through the proposed Corporate Sustainability Reporting Directive (CSRD). Depending on the type of company, the requirements of the CSRD are intended to apply from the financial year starting on 1 January 2023 or during the calendar year 2023.
Besides these periodic disclosure obligations, there are mandatory ad hoc disclosure obligations. For example, issuers of securities in regulated markets have to disclose inside information that directly concerns the issuer as soon as possible. Moreover, shareholders of listed companies are required to notify the AFM if their holdings of voting rights or capital in listed companies reach, exceed or fall below particular thresholds.19 Gross short positions in excess of a certain threshold (3 per cent) must also be disclosed; this obligation is intended to give an insight into the shareholder's true economic interest and, at the same time, to shed light on empty voting.20 In addition, shareholders are obliged to disclose the loss or acquisition of predominant control (30 per cent shareholding or voting rights). Management and supervisory board members of listed companies are also required to notify the AFM of their holdings of shares or voting rights in the company and of any transactions in these shares or changes in the voting rights.
Corporate social responsibility / ESG
The Netherlands has traditionally followed the stakeholder model, under which management and supervisory board members are required to take into account the interests of all stakeholders when making decisions and performing their duties. The Corporate Governance Code is based on the principle that a company is a long-term alliance between the various parties involved, such as employees, shareholders and other investors, suppliers, customers, the public sector and public interest groups. The Dutch Stewardship Code also confirms the duty of asset owners and asset managers to take the interests of stakeholders into account.
With regard to the scope of the responsibility, the Dutch Stewardship Code states that in assessing a Dutch listed investee company's long-term value creation opportunities, risks, strategy and performance, it is critical to consider environmental (including climate change risks and opportunities), social and governance information (including board composition and diversity) besides financial information. The Corporate Governance Code is in line with this and requires the management board to draw up a view and strategy on long-term value creation setting out, inter alia, any aspects relevant to the company, such as the environment, social and employee-related matters, the chain within which the enterprise operates, respect for human rights, and fighting corruption and bribery.21
In light of the call for action on climate change, corporate responsibility is climbing up the agenda of governments all over the world, as well as regulatory authorities such as the DNB as the regulatory authority for financial institutions in the Netherlands, which reaffirmed this agenda during the coronavirus pandemic.22
Regarding ESG, the Taxonomy Regulation entered into force on 12 July 2020, although most of the detail to define the Technical Screening Criteria remains a work in progress. The EU Taxonomy is a classification system with definitions and rules to determine which economic activities are environmentally sustainable. The system elaborates on the concept of 'environmentally sustainable economic activity', linked to six environmental objectives. The EU Taxonomy also requires certain entities to disclose information concerning the degree of alignment of their activities with the Taxonomy. This is achieved by amending the NFRD (by means of the proposed CSRD) and the Sustainable Finance Disclosure Regulation. Mandatory reporting under the Taxonomy Regulation is applicable from January 2022 (for financial year 2021) for climate mitigation and adaptation targets and from January 2023 (for financial year 2022) for the other four environmental targets. Several other legislative initiatives regarding ESG were taken in 2021, such as the European consultation on sustainable corporate governance, the CSRD and the Dutch initiative on responsible and sustainable international business practices. So far, none of them has entered into force.
i Risk management
Not surprisingly, governance reforms after the financial crisis of 2007–2011 focused on risk management. As a result of, risk management gained prominence in the Corporate Governance Code. The 2016 Code contains several best practices to further strengthen risk management and disclosure concerning risk. For instance, the position of the internal auditor and the role of the audit committee regarding staffing, work plan and functioning of the internal auditor are strengthened. Furthermore, the CFO, the internal auditor and the external auditor should attend the audit committee meetings, unless the audit committee determines otherwise. In practice, the 2016 Code also turns out to have a knock-on effect on other sectors. Often the rules of the Code are used by non-listed companies, serving as a model for codes of conduct in all sorts of sectors, including semi-public sectors such as health care and education.
In addition, Article 2:391 of the DCC requires the management board to describe in the management report the main risks to which the enterprise is exposed. If necessary, to properly understand the results or position of the company and its group companies, the management report should also contain an analysis of both financial and non-financial performance indicators, including environmental and employment-related issues.
ii Whistle-blowing policy
Companies must have an internal reporting procedure in the case of employers who, as a rule, employ at least 50 people, which prescribes the matters that must be regulated in any case. In 2021, a legislative proposal to implement the EU Directive on the protection of persons who report breaches of Union law was submitted to the Lower House. Among other things, the protection afforded whistle-blowers who report suspicions of wrongdoing will be extended, with the employer bearing the burden of proving no wrongdoing, and the scope of protected persons will be extended. Although the deadline for implementation of the directive is 17 December 2022, it appears unlikely that this deadline will be met owing to the large number of concerns expressed by members of the Lower House.
According to the Corporate Governance Code, the purpose of the remuneration structure should be to focus on long-term value creation for the company and its affiliated enterprise. The remuneration must 'not encourage management board members to act in their own interests nor to take risks that are not in keeping with the strategy formulated and the risk appetite that has been established'.23 The Banking Code also contains a section on remuneration policy.
Moreover, the supervisory board of financial companies and Dutch public companies (NVs) have the authority to claw back bonuses from management board members when, for instance, payment of the bonus would be unacceptable pursuant to the criteria of reasonableness and fairness.24
Since the Bill implementing the previously mentioned Shareholder Rights Directive25 entered into force on 1 December 2019, the works council also has the right to render an opinion on the proposed remuneration policy adopted by the annual general meeting at least every four years. Besides the new requirements for the content of the remuneration policy that are introduced by the Shareholder Rights Directive, the Dutch government added an additional requirement, namely that, henceforth, the remuneration policy must explain how the identity, mission and values of the company and its affiliated companies, the company's internal remuneration ratios and those of its affiliates, and public consensus have been taken into account.
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:
- the incorporation of a protective foundation with a call option to acquire preferred shares;
- a binding nomination right for the company's board or another body regarding the appointment of directors;
- a proposal right for the board or another body in respect of certain resolutions of the general meeting of shareholders;
- imposing an ownership limitation on shareholders; and
- 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.
Covid-19 and a caretaker government obviously slowed down legislative progress at the national level. Looking at the progress of the 2021 legislative programme, all initiatives regarding the modernisation and simplification of corporate law appear at a standstill. A bill regarding the modernisation of public limited liability companies as well as the modernisation of partnerships is still expected. The protection of companies also remains on the agenda, with a bill introducing screening for risks to national security during takeovers and investments currently pending before the Lower Parliament.
As mentioned before, several initiatives regarding ESG are on the horizon, such as the proposal for an EU directive to improve sustainability reporting, the European consultation on sustainable corporate governance and the national initiative on responsible and sustainable international business practices. Given the lengthy legislative procedures, it will be some time before these proposals enter into force.
1 Geert Raaijmakers is a partner and Suzanne Rutten is a professional support lawyer at NautaDutilh.
2 SNS Reaal, 4 November 2016.
3 Directive 2017/828/EU of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement.
4 A company is subject to this regime if, for a period of three consecutive years: (1) its issued capital and reserves amount to not less than €16 million; (2) it has a works council instituted pursuant to a statutory requirement; and (3) it regularly employs at least 100 employees in the Netherlands. Dutch Civil Code (DCC), Book 2, Title 4, Part 6.
5 See Rients Abma (in Dutch), 'Naar de one-tier board', Goed Bestuur, 2012/3.
6 DCC, Article 2:129.
7 ibid., at Article 2:140(2).
8 ibid., at Article 2:164.
9 Corporate Governance Code 2016, Best Practice 3.2.3.
10 DCC, Article 2:158.
11 ibid., at Article 2:161.
12 Corporate Governance Code 2016, Principle 2.1.
13 Corporate Governance Code 2016, Best Practice 2.4.2.
14 Directive 2014/95/EU of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups.
15 Fairstar, 30 September 2015.
16 Poot-ABP, 2 December 1994.
17 Landis, 19 June 2013,Van der Moolen, 15 February 2013 and Meavita, November 2015.
18 Audit Firms (Supervision) Decree.
19 Financial Supervision Act [FSA], Section 5:38-44.
20 The absence of any economic interest with the party legally entitled to exercise the voting right at the general meeting of shareholders.
21 Corporate Governance Code 2016, Best Practice 1.1.1.
23 Corporate Governance Code 2016, Principle 3.1.
24 The Clawback Act (Bulletin of Acts and Decrees 2013, 563).
25 See footnote 3.
26 DCC, Article 2:107a of the DCC.
27 ABN-AMRO, 13 July 2007.
28 Article 2:114a of the DCC was introduced by means of the Corporate Governance Act; see Section V.iv.
29 DCC, Article 2:92 of the DCC.
30 ibid., at Article 2:118(2).
31 DSM, 14 December 2007.
32 Corporate Governance Code 2016, Best Practice 4.3.4.
33 ibid., at Best Practice 4.3.6.
34 Eumedion represents the interests of institutional investors in the field of corporate governance and sustainability.
35 This statement was updated in June 2014.
36 To put things into perspective, Eumedion estimates that between 2005 and 2011 a total of 40 shareholder proposals (not just hedge funds) were submitted in the Netherlands, against around 7,500 management proposals.
37 See Section III.
38 Corporate Governance Code 2016, Best Practices 4.1.5 and 4.1.6.
39 Cryo-Save, 6 September 2013.
40 ASMI, 9 July 2010.
41 Boskalis/Fugro, 12 January 2018.
42 RNA, 18 April 2003.
43 Corporate Governance Code 2016, Principle 4.4.
44 ibid., at Best Practice 2.2.4.
45 Directive 2004/25/EC.
46 Public statement, Information on shareholder cooperation and acting in concert under the Takeover Bids Directive, ESMA31-65-682, January 2019.