5.4 Convergence

With internationalisation, larger institutions and growing critical pressure of shareholders and with legal changes in the UK since 1992, the US since 2002 and the Netherlands since 2004, the board systems and roles of management and directors in these three countries are converging in many ways.

Although this is not part of the consensus board culture of the Netherlands, the Dutch CEO has become stronger due to the centralisation of conglomerates and stock market and media requirements, and the wishes of foreign investors. The UK and US CEOs have become less prominent because of the rise of a separate independent chairman, now the rule in most UK companies and increasingly so in the US.

The chairman in all three countries is increasingly playing a more important role, especially in the UK. In the US, and now also in the Netherlands the concept of the heavier-chairman and in the US of the lead director as well, is being promoted as a counterweight for the strong CEO. While UK chairmen are prominent and have direct contact with shareholders even in discussing strategy, the way the role of the chairman is developing in the Netherlands might show more similarities with the trend in the US.

Some questions will continue to be asked in the three jurisdictions.

Can a chairman, who spends so much time at the company, make sure that his colleagues on the board keep up with him so that he gets the best out of them?

Should he have an office next to the CEO?

Should he communicate directly with shareholders and how and on what topics? In any case he should not discuss strategy with shareholders without the CEO being present.

The job of outside or supervisory directors is becoming more demanding in all three countries. They all spend more time on strategy; in the UK by developing strategy together with management, in the US by challenging management at the earliest stages of setting the course. Netherlands law assigns to supervisory directors the duty of monitoring, but there is a growing tendency of supervisory directors wanting to become involved in developing strategy.

All three countries have introduced active, hard working, board committees, which implies that they are all getting used to the fact that the board does not always meet as a whole, but board members often have separate meetings of only a few. There are differences in who attends and who is a member. In the US only independent directors attend committee meetings, while in the Netherlands supervisory directors are the only formal members, but executives will often attend. In the UK, as well, non-executives are members and executives attend on invitation.

The Dutch two-tier board in its practical functioning is getting closer to UK and US one-tier boards. The practice of hands-on, working supervisory directors and separate committee meetings make the Dutch speak of "one-and-a-halftier" boards, while the US boards with their executive sessions, where independent directors meet without the CEO or any other officer, could also be called one-and-a-half-tier boards.

All three countries have introduced forma! nomination and succession procedures in nomination committees at full board level. For the Netherlands this substantial difference with the old practice of CEO prompted nominations of the past is changing the oligarchie old-boy atmosphere at the top of the Dutch corporate governance world. There are still some minor differences, e.g. in the UK and the Netherlands the chairman usually chairs the nomination committee, while in the US it is usually a senior independent director who chairs the nomination committee.

All elements of best practices, such as evaluation, diversity and early and onsight information, as well as more time required of non-executives which means less time for other functions receive a lot of attention in all three countries. The US is ahead on diversity because of its multicultural background tradition. The Dutch are behind in early and on site information, because of the two-tier board culture.

The US practice of executive sessions, where independent directors meet without the CEO or any other officer, is sometimes being followed by the Netherlands and occasionally in the UK.

In all three countries boards are taking all factors and interests into consideration though in the end loyalty to the corporation prevails and especially to the long-term shareholder interest, with elements of difference of nuance in each country.

As mentioned above there are many more institutional investors, more shareholder associations and activists, more foreign investors and hedge funds, but also more long-term strategic investors. An increase in direct communication with these strategic long-term investors permitted to a certain extent by the authorities — the UK FSA, the US SEC and the Dutch AFM — which have issued guidelines and letters in the form of questions and answers to assist participants in one-on-ones.

In the US litigation on director liability continues at huge cost and time, but the Delaware courts persevere in producing leading opinions that give direction to aspirational best practices of directors by preaching the standards of liability and by giving judgments along the lines of the business judgment rule.

In the UK there is infrequent liability litigation, but the number of disqualification cases and criminal cases against directors is increasing.

The interpretation in Dutch jurisprudence of liability for serious blame ("ernstig verwijt") in the district courts on the one hand and mismanagement in the Enterprise Chamber on the other hand is developing to a clearer set of tests. Certain law studies recommend following the direction of the tendency in the US and the UK to give directors leeway in their entrepreneurship by a methodical thought process comparable with the business judgment rule.

In the US companies usually indemnify directors against liability in their articles of association. In the UK this happens to a les ser extent and even less so in the Netherlands, but they may follow.

Convergence is to be found in the D&O insurance policies, although premiums do differ.