4.4.2.2 Structure regime supervisory boards

In the 1970s worker participation became important. The Netherlands chose for a different two-tier board system from Germany. In Germany supervisory boards of large companies had to make nearly 50% of the seats available for representatives of trade unions. In the Netherlands this option was not chosen, because neither the unions nor the enterprises wanted union members or employees on the supervisory board. Most UK and US literature dealing with two-tier boards looks at the German system.1

The two-tier system of Germany has a history and culture of its own since the Allgemeine Deutsches Handelsgesetzbuch of 1861, of the period following the unification of Germany. Since the Aktienrechtsnovelle of 1870 larger companies had a mandatory supervisory board, "Aufsichtsrat", of shareholder representatives. The Aktienrechtsnovelle of 1884 made it possible for non-shareholders to be supervisory board members. They could supervise especially, because of their qualities. The law gave a further description of the supervision function. Further reforms were introduced with the employee participation rules of 1920, 1931 and 1937. There were further changes in 1951, 1952 and 1976, which reform describes that AGs with more than 2,000 employees just below half of its supervisory board members had to be employee representatives.2

In the international arena the Dutch were able to develop a two-tier system that on the one hand gives some influence to works councils, at least for consultation and good communication and maybe even in some cases for sounding out the employee base for strategie decisions, and on the other hand does maintain the possibility for the management board to continue its management function with limited outside interference and in harmonious consultation with a supervisory board. This system was laid down in the 1971 Act on Structure Regime Companies, which perpetuated the time-honoured tradition of a supervisory board with substantial powers and independent, not special interest, director.3 Employees got their say in another way than through their own directors.

The Dutch did introduce works councils with the Works Council Act of 1971. Every company with more than 50 employees must have a works council. The works council is a body of representatives of the employees of the company. It must be consulted by management to give advice on important decisions, such as acquisitions or disposal of shares or enterprises, large loans, mass dismissals or a change in management structure. For example, if a company would contemplate a change from a two-tier system to a one-tier system, the works council would have to be consulted.4 Its advice must, by law, be taken into account by management before it takes its decisions on these major matters.

If the works council gives a negative advice on the proposed decision of management, management must wait for a month to give the works council the possibility to lodge an appeal with the Enterprise Chamber.5

The essential novel part of the Dutch worker participation system is the so-called "Structure Regime" arrangement for large companies laid down in the Structure Regime Act of 1971. Large companies, for the Structure Regime, are companies with more than €16 million6 equity (paid-up capital plus reserves), with at least 100 employees and a works council that has been active in its group of companies for more than three years.7 These large companies must have a supervisory board, which is independent from shareholders and management and considers the interests of the company and its enterprise, i.e. all stakeholders. A supervisory board in a structure regime company is powerful, because it appoints, suspends and dismisses8 the management board and can veto all important decisions of management, such as the acquisition of disposal of shares, large loans and mass dismissals. To provide for this independence of the supervisory board the act initially stipulated that it co-opted itself, with some rights of shareholders and the works council to propose candidates and to object against nominations. As mentioned in 4.2.5 above this appointment procedure was changed in 2004.9

Since the changes in the Law on Structure Regime Companies in 2004, the shareholders' meeting appoints and dismisses the supervisory directors. There must be at least 3 supervisory directors. The rule is still valid that supervisory directors nominate their successors with some influence from the works council in these nominations, but the shareholders have the right to refuse to follow the nomination. The influence of the works council rests on its right to prenominate one-third of the nominations of the supervisory board. The fact that shareholders may dismiss the complete supervisory board was shown to be an important power of shareholders in the Stork case.

An example of the decision power and independence from shareholders of a supervisory board under the structure regime was the Corus case of 2003, which was rather a surprise to the international business community.11

These cases show how independent supervisory boards in Structure Regime companies are and how linie power shareholders have. The lessop for these and other shareholders would be to communicate well in advance in an open and informative way about their plans with the supervisory board and the works council in which case their chances of success would be betten This is a consequence of the consultation culture of the Netherlands. The shareholder or director, who omits one of the consultation obligations usually runs into problems.

The fact that the supervisory board in a Structure Regime company appoints and dismisses management directors is very important for its power. In the majority of regular classical Dutch companies the supervisory board does not have this power. There the shareholders' meeting appoints and dismisses management and supervisory board members, which means that those supervisors have less power vis-à-vis the management board. In practice, however, they usually do nominate management directors or at least influence these nominations.