6.4 Legal questions

In order to compare the United Kingdom, the Netherlands and Sweden, six issues are addressed for the three countries. In order to have clarity about the terminology in the questioning, the term supervisor is used to refer to either supervisory directors or NEDs.

These issues are discussed separately for each country. The first issue concerns the available board structures that a company can apply in its country, which is an important part of the composition/structure building block of independence. Subsection 2.2.1 has already described that the choice of a unitary versus a dual board structure has implications for the independence within a company. A unitary board structure differs from a dual board structure with respect to the separation between supervisors and executive directors. Such a separation in dual board structure has certain advantages with respect to independence in comparison to unitary board structures (Jungmann 2006: 449-450). Therefore, in order to understand the situation in a country the type of board structure that is in use is important.

The second and third issues are the appointment and the removal or suspension of supervisors, respectively. If a certain person, group of persons or corporate body is responsible for the appointment, removal or suspension of the supervisors, this person, group of persons or corporate body has a certain power over the supervisors and this might influence the independence (Hermalin and Weisbach 1998: 98-99). It is debatable whether a supervisor can or is willing to execute independent monitoring when he is dependent on that person, group of persons or corporate body for his (re)appointment or dismissal. It is therefore a vital part of the preconditions building block of independence.

The fourth issue concerns the independence criteria, because these criteria influence the decision about whether a supervisor is labelled independent or not. These independence criteria underlie the person building block of independence. These independence criteria are concerned with independence in fact. However, good best practice provisions should aim to ensure that independence in form approaches independence in fact. This is visualised in Figure 6-2. Within the scope of this issue, the required composition of the board, supervisory board and board committees with respect to independence are also considered. These items belong to the composition/structure building block of independence.

The fifth issue deals with other parts of the legal framework in a country that influence the independence of supervisors. Especially cases in which conflicts of interest arise are appealing here. The danger of these sort of situations is that supervisors allow their own interests to prevail over the interests of the company, shareholders or other stakeholders. Chapter 3 describes the consequences of these conflicts of interest. How these sort of situations are dealt with is addressed within the scope of this issue. Evaluations of the (supervisory) board are also described, which is important for independence because they – among other things – critically assess the independence of the board (Lückerath-Rovers 2011: 31). All these issues belong to the preconditions building block. Besides this, attention is also paid to the diversity on the board. Diversity on boards should lead to less cohesive groups, which results in more independent thinking (Beecher-Monas 2007: 412). Diversity in values of board members is also expected to increase independence (Muth and Donaldson 1998: 9). This issue belongs to the composition/structure building block of independence.

The sixth and final issue is the enforcement of independence, which is an important precondition of independence. Although regulations and law concerning independence may be in place, without the enforcement of regulations and law there might be no benefits. It is therefore important to address this final issue in order to complete the view of the full spectrum of independence regulation and law.

The order of the six issues of independence is not the same as for the building blocks of independence. The choice has been made because elements of the first issue are needed for the second issue, and so on. However, the conclusions of each chapter and the final conclusion in chapter 10 follow the order of the building blocks of independence. Before these issues are researched for the three countries, the next sections shed light on the independence requirements introduced by the European Commission and OECD.