The Netherlands

Author: | Published: 9 Oct 2003
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

The past year has been a time of heightened activity in the area of corporate governance in the Netherlands. This was due to the need to prevent serious corporate scandals such as was seen with Royal Ahold - the Netherlands-based international supermarket chain - which had to admit to accounting irregularities, causing a dramatic drop in its share price. This article will provide an update on corporate governance developments in the Netherlands in 2002 and the first half of 2003 (up to and including August 25 2003).


Any corporate governance development will have to take into account the existing structures of Dutch corporate management. These are traditionally characterized by attention not just to the interests of shareholders but of all other stakeholders in a company (notably employees). As a result, the influence of shareholders is to date considerably less than in English-speaking countries.

The limited influence of shareholders is a particular characteristic in the large company regime (structuurregeling). It is also apparent in anti-takeover instruments applied by many listed Dutch companies, which disallow shareholders' influence relative to their financial investment. Examples are the use of priority shares and depositary receipts (without voting rights) issued for shares. The latter structure is applied by Royal Vendex KBB, the leading non-food retailer in the Netherlands. US investor and corporate raider Guy Wyser-Pratte, holder of depositary receipts, has claimed the right to vote in the company's 2002 annual shareholders meeting. With some success, it appears, though proposed legislative changes will have played a role (see below) as an amendment of the articles has since been proposed, allowing for votes by depositary receiptholders during the general meeting of shareholders. But restrictions will remain: no voting is allowed in the event of, for example, a hostile takeover attempt.

In the two-tier model, corporations have a management board which performs executive functions, and a non-executive supervisory board which advises and supervises the management board. Under the large company regime, the supervisory board co-opts its own members, nominates and dismisses the management board members, adopts the annual accounts, and can effectively veto important decisions of the management board. The non-executive supervisory board is thus quite powerful.

The large company regime mandatorily applies to corporations (whether or not listed) that have statutory two-tier status, for which all of the following has to apply:

  • the issued share capital plus reserves is at least €13 million (amount as of September 1 2002; eg $14 million);
  • the company or any subsidiary has established a works council pursuant to a statutory requirement; and
  • the company together with its subsidiaries has 100 or more employees in the Netherlands.

As demonstrated above, the large company regime gives the supervisory board a more prominent position in the corporate hierarchy, at the expense of the shareholders. It has been the focus of much debate in the context of attempts to give more power to the shareholders. Calls for the abolition of this regime can still be heard, for various reasons, such as the peculiarity and complexity of this unique Dutch corporate structure.


In January 2002 a legislative amendment of the large company regime was proposed. Most importantly:

  • the general meeting of shareholders would have ultimate control over the composition of the supervisory board through the power the remove the board (as a whole);
  • the works council would be able to nominate candidates for one-third of the supervisory board members; and
  • the annual accounts may be adopted by the general meeting of shareholders.

With respect to all Netherlands incorporated companies, certain resolutions of the management board which have a material impact on structure or activities of the company would under the proposal be subject to the approval of the general meeting of shareholders. The proposed changes would also significantly enhance the influence of depositary receiptsholders in listed corporations, by giving them voting proxies.

The status and timing of the proposed legislative amendment is somewhat unclear, with a discussion in parliament scheduled for September 1 2003. The proposed amendment, however, is likely to be influenced by the discussions surrounding the Tabaksblat Committee's proposals (see below).


Certain foreign influences are bound to influence the Dutch corporate landscape. The following can be mentioned.

To date, the EU has unsuccessfully attempted to agree on the 13th Directive covering public offers, anti-takeover instruments and buy-out obligations. Any new Dutch legislative efforts relating to anti-takeover instruments are generally expected to remain frozen until the 13th Directive has been agreed.

In 2001 an EU regulation finally introduced the so-called European public company (Societas Europaea or SE). A legislative proposal to implement the Regulation into Netherlands law by 2004 has been drafted by the government, but is not yet public. The EU Regulation allows for both the one-tier management model and the two-tier model. Each EU country needs to choose between the two. In the Netherlands, there seems to be a preference for the one-tier model for the SE, and this choice is more in line with international standards. It should soon be known which choice the Dutch government intends to make.

The US Sarbanes-Oxley Act has a big impact on corporate governance and accounting practices of public corporations, including the approximately 44 Dutch corporations which are either listed on the NYSE or admitted to NASDAQ, among them Shell, Unilever, Philips and ABN AMRO. Ferdinand Mason's article entitled 'Control over your Dutch subsidiary', which appeared in the December 2002 issue of Corporate Counsel is a useful reference point for this. The article can also be found on Boekel De Nerée's website:, English version, News and reference, Archives.


Case law has shown a tendency to expand the duties of members of the management board to inform and in some cases, to consult shareholders on important decisions.

One such case is the HBG/Ballast Nedam/Heijmans/Boskalis case (dubbed the 'dredging war'), decided by the Supreme Court of The Netherlands on February 21 2003 (JOR 2003, 57), in which the Court recognized the possibility of a right of consultation for the shareholders, if provided for in the articles of association of the company or in the event of a justified expectation that such consultation will take place; the basis of the justification may be a specific promise by the management board.

Since September 1 2002, Dutch listed public companies are required to disclose the remuneration, including share option arrangements, and shareholdings of each of their managing and supervisory directors.

The Dutch government has submitted a proposal for an Act to introduce independent public supervision of auditors and of the external financial reporting of listed companies, the latter by the financial regulator Authority Financial Markets.

The government is also considering the early introduction of the option to use the International Financial Reporting Standards of the International Accounting Standards Board, ahead of the EU as a whole, which is working towards implementation of the IAS rules from 2005.


Some large European countries have produced corporate governance codes as suggested by the EU High Level Group of Company Law Experts. Germany has the Cromme Kodex and the UK has the Smith/Higgs proposals. This has highlighted the necessity to reconsider and to update the 40 corporate governance recommendations presented by the Dutch Peters Committee in 1997. In March 2003, a committee chaired by former Unilever chairman Morris Tabaksblat (the Tabaksblat Committee) was asked to come up with proposals speedily for listed companies.

On July 1 2003, the Tabaksblat Committee presented a draft corporate governance code. The Committee's aim is to impose self-regulation with a view to strengthening the structure of checks and balances in Dutch listed companies, in order to guarantee the timeliness, completeness and correctness of the external financial reporting. The draft code mainly focuses on increased transparency and improved checks and balances regarding management, the latter through strengthening of the position of the shareholders and the supervisory board. Although the Committee's suggestions do not cover the admissibility of anti-takeover instruments in the event of takeover bids, the Committee does state that it is against the use of depositary receipts for anti-takeover purposes.

The draft code contains 24 paragraphs with principles and some 120 best practice clauses. The principle of comply or explain applies, with the recommendation to give this principle a legal basis. The Committee also recommends the installation of a permanent watchdog committee to review and modify the code, and monitor compliance.

The draft code contains detailed recommendations relating to:

  • the management board;
  • the supervisory board;
  • the general meeting of shareholders;
  • auditing of the financial reporting and the external auditor; and
  • disclosure, compliance and enforcement of the code itself.

This article will discuss a few of the key recommendations. A management board member is appointed for a maximum period of four years (renewable). Share options are awarded provided that pre-determined performance criteria are fulfilled. The economic value of the variable remuneration components must not exceed 50% of the total remuneration (but excluding pension arrangements, which the Tabaksblat Committee does not touch on). The maximum compensation for dismissal will be one year's salary, that is, the fixed remuneration part. Expertise requirements for supervisory board members will receive more attention and the need for further training or education will be reviewed annually. An individual cannot hold more than five supervisory board memberships, with a chairmanship post counting double. The supervisory board will act as the permanent point of contact for the external auditor.

The general meeting of shareholders (that is, of companies not having two-tier status) must appoint and dismiss the members of the management board and the supervisory board. The general meeting will need to approve decisions of the management board on important acquisitions or divestitures and more generally, decisions that would greatly change the identity of the company or its business. Companies need to enable shareholders to vote, obtain proxies and instructions at a distance.

The Tabaksblat Committee provides certain recommendations to change current Netherlands statutory law, most importantly:

  • to change the employee status of management board members on dismissal (effectively disregarding length of service as an important factor in determining severance compensation); and
  • to improve the position of the general meeting of shareholders in relation to key management decisions (see above), and in widening the possibilities for shareholders to vote electronically (to which end, EU wide regulation will also be necessary) and to communicate with the company and other shareholders.


The status and timing of the proposed legislative amendment of the mandatory two-tier model for large companies is somewhat unclear, and will be influenced by the developments regarding the Tabaksblat proposals.

The introduction of independent supervision by the Authority Financial Markets of the financial reporting of listed companies should take place soon.

The Tabaksblat Committee's code is scheduled to become effective on January 1 2004. The government has signalled that it is ready to adopt all the recommendations. It has also indicated that if the code is not observed, further statutory measures will be considered.

With the consultation period lasting until September 5 2003, other reactions to date vary from very positive to highly critical. Positive reactions can be identified mostly from the media, the unions and political circles, more critical views have been expressed by certain legal scholars, some (former) managing directors (KPN, ING, Philips, VNU) and some supervisory board members.

The outcome of the debate is unclear, although the contours of any future corporate governance regime in the Netherlands are slowly becoming apparent. The wider possibilities of increasing the influence of shareholders and introducing (elements of) the one-tier management model can now be explored.

Boekel De Nerée
Atrium Building
Strawinskylaan 3037
1077 ZX
The Netherlands
Tel: +31 20 431 3131
Fax: +31 20 431 3143