4.5.10 Independence of supervisory board members

Interestingly, the Frijns Code not only defines independence in technical terms but also sets a standard of behaviour (the duty to "act critically"). This is one of the few cases in which the Frijns Code broaches the subject of behaviour (gedrag).1

The Frijns Code stipulates that all but one of the supervisory board members must be independent of the company and defines independence as not having been connected with the company as an employee or contracting party during the preceding year, not having cross-board memberships (see (d) in the note) and not holding or directing a company that owns more than 10% of the shares in the company.2

The main difference of principle between the Dutch and US positions is that in the US independent directors can be and are encouraged to own shares in the company on the grounds that having a stake in the company is a motivational factor. In the Netherlands, however, they are discouraged from owning shares as it is thought that this would make them less receptive to other stakeholder interests and the long-term view. The Frijns Code puts the threshold at a 10% shareholding.3 In the US cros s-directorships are deemed to compromise independence only if the cross-director is a member of the compensation committee. In the Netherlands all cross-directorships should be avoided.4 The Frijns Code says that all cross-directorships create a lack of independence. The difference with the UK is that in the Netherlands a maximum term of 12 years applies to supervisory board membership,5 whereas in the UK a director is deemed to have lost his independence after 9 years of service. The UK Corporate Governance Code even suggests that a company should actively consider whether a director should be reappointed after 6 years.

The question is whether the drive for independence is not overdone. Will the pendulum swing back? If one over-emphasizes independence, the pool of available business knowledge and expertise becomes very small. The Frijns Code only permits one non-independent supervisory board member/nonexecutive director. Professor Maarten Kroeze argues that this should be more flexible, and there is international support for his view.6 The UK system of balanced membership is more flexible.

UK chairmen are not regarded as independent after their appointment. This point has not been raised in the US and the Netherlands, probably because they do not yet have a track record of "hands-on" chairmen. This point may erop up in the future.

The last independence criterion in the Frijns Code is not having acted as de facto manager of the company in the preceding year.7 This is analogous with the UK reasoning that a chairman is ipso facto no longer independent. It is my impression that in the US independence is generally a matter of fact, not of forma! mies, because the US courts hold that there is a duty of loyalty to the company. Under the Dutch Code, by contrast, independence is more of a boxticking exercise.