23 Major corporate events

A new power was instigated with the introduction of Art. 2:135.7 (old) DCC. For a period of three years, the Netherlands had a unique regulation to reduce the financial incentive for executives in cases of major corporate events (an open bid, merger, division, or a decision within the meaning of Art. 2:107a DCC), with the aim being to enable a pure decision-making process. This regulation came under severe criticism. The criticism can be divided into three types. First, doubts were cast on the legitimacy of this regulation in the light of Art. 1 of the First Protocol of the European Human Rights Act. Second, the necessity for this regulation was questioned, partly because of the existence of a conflict of interest provision that aimed to guarantee a pure decision-making process. Third, there was criticism of the effectiveness of Art. 2:135.7 (old) DCC. For example, there were doubts about the extent to which this regulation actually removed the incentive towards improper opinion-forming among executives, given that the application of the regulation was not comprehensive. The obligation for executives to pay back to the company a certain increase in the value of their shares due to a major corporate event ex Art. 2:135.7 (old) DCC, for example, only applied to shares that executives had received as remuneration. Executives were fully entitled to any increase in the value of shares that they had purchased or had inherited. Furthermore, many derivatives, including phantom stocks and phantom stock appreciation rights, did not fall under the regulation in Art. 2:135.7 (old) DCC. The result of this incompleteness was that the ‘creaming off’ regulation could easily be avoided and arbitrariness was a constant danger. Alongside avoidance of the Art. 2.135.7 (old) DCC, the incompleteness of this regulation also resulted in unequal treatment, partly because the regulation did not apply to a public limited company with a stock exchange listing outside the European Economic Area. The regulation thus resulted in several undesired incentives for executives, for example to agree a separate remuneration with the acquiring party to compensate for the drop in value as a result of the application of Art. 2:135.7 (old) DCC, or to choose for a listing ‘abroad’ instead of on Euronext Amsterdam, or if a takeover was in the air, to prematurely terminate their executive status (before the start of the first reference date). When taking stock after several years of Art. 2:135.7 (old) DCC, the fruits are bitter and the burden heavy. There is thus no reason to regret the termination of this article by law. The legislator would be well advised not to revive this clause in its old form.