The Importance of Board Independence (IVOR nr. 90) 2012/8.3.3.6:8.3.3.6 Enforcement

The Importance of Board Independence (IVOR nr. 90) 2012/8.3.3.6

8.3.3.6 Enforcement

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The principles and best practice provisions must be complied with according to the comply or explain principle in the Netherlands. Such statements must be included in the annual report. The shareholders should call the management board and supervisory board to account for compliance. Furthermore, the auditor has to approve the annual report, of which the corporate governance section is a part. However, there is no listing authority that can impose (monetary) penalties on companies that do not comply with the DCGC. In order to improve this part of the preconditions building block, this might be introduced.

Table 8-5: The recommendations regarding independence of the Committee Peters and the Dutch Corporate Governance Codes of 2003 and 2008.

Committee Peters (1998)

Dutch Corporate Governance Code (2003)

Dutch Corporate Governance Code (2008)

1. CEO duality

Not mentioned

Not applicable to a dual board structure. The chairman of the management board shall not also be and shall not have been an executive director (III.8.1)

Not applicable to a dual board structure. The chairman of the board of directors may not also be or have been an executive director (III.8.1)

2. Senior director

Not mentioned

Not mentioned

The vice-chairman of the supervisory board shall deputise for the chairman when the occasion arises. By way of addition to best practice provision III.1.7, the vice-chairman shall act as contact for individual supervisory board members and management board members concerning the functioning of the chairman of the supervisory board (III.4.4)

3. Number of NEDs on the board

Not mentioned

Not applicable to a dual board structure. The majority of the members of the management board shall be NEDs and are independent within the meaning of best practice provision III.2.2 (III.8.4)

Not applicable to a dual board structure. The majority of the members of the board of directors shall be NEDs and are independent within the meaning of best practice provision III.2.2 (III.8.4)

4. Percentage of board independence

The composition of the Supervisory Board should be such that the Board Members are able to operate independently of one another and of the Board of Directors and in a critical way (Rec. 2) No more than one former member of the Board of Directors should serve on the Supervisory Board. Special consideration should be given tot the influence that former membership of the Board of Directors could exert on the performance in and on the Supervisory Board and on the performance of the Board of Directors. This is of special importance when a former chairman of the Board of Directors is the intended chairman of the Supervisory board (Rec. 4)

All supervisory board members, with the exception of not more than one person, shall be independent within the meaning of best practice provision III.2.2 (III.2.1) The majority of the members of the management board shall be NEDs and are independent within the meaning of best practice provision III.2.2 (III.8.4)

All supervisory board members, with the exception of not more than one person, shall be independent within the meaning of best practice provision III.2.2 (III.2.1) The majority of the members of the board of directors shall be NEDs and are independent within the meaning of best practice provision III.2.2 (III.8.4)

5. Definition of independence

See Percentage of board independence (4). Members of the Supervisory Board who have been appointed on the basis of nomination, should perform their duties without a mandate from those who nominated them and independently of subsidiary interests associated with the company. This means that they, like other Supervisory Board members, should not commit to certain subsidiary interests while neglecting other associated interests (Rec. 5) Neither hierarchic subordination within an interest group, cross bonds nor other relations with a person under his supervision should prevent a Supervisory Board member from performing his duties independently (Rec. 10). Any company shares held by a Supervisory Board member are meant to be long-term investments. The aggregate number of shares, certificates of shares and options held by the joined Supervisory Board members are to be published in the company’s annual report (Rec. 11) The remuneration of Supervisory Board members should not be dependent on the results of the company. Any business relationships with the company should be published in the notes to the annual accounts (Rec. 12)

A supervisory board member shall be deemed to be independent if the following criteria of dependence do not apply to him. The said criteria are that the supervisory board member concerned or his wife, registered partner or other life companion, foster child or relative by blood or marriage up to the second degree [The DCGC 2003 included seven relationships or circumstances.] (III.2.2) The report of the supervisory board shall state that, in the view of the supervisory board members, best practice provision III.2.1 has been fulfilled, and shall also state which supervisory board member is not considered to be independent, if any (III.2.3)

A supervisory board member shall be deemed to be independent if the following criteria of dependence do not apply to him. These criteria are that the supervisory board member concerned or his wife, registered partner or other life companion, foster child or relative by blood or marriage up to the second degree as defined under Dutch law [The DCGC 2008 included seven relationships or circumstances.] (III.2.2) The report of the supervisory board shall state that, in the board’s view, best practice provision III.2.1 has been fulfilled, and shall also state which supervisory board member is not considered to be independent, if any (III.2.3)

6. Maximum tenure

Reappointment of Supervisory Board members should be given careful consideration and should not be automatic. Supervisory Board members in companies without a structure regime should also be appointed for a certain period of time. The Supervisory Board should draw up a rota for resignations to prevent an unnecessary number of resignations having to be made at the same time (Rec. 6)

A person may be appointed to the supervisory board for a maximum of three 4-year terms (III.3.5)

A person may be appointed to the supervisory board for a maximum of three 4-year terms (III.3.5)

7. Audit committee

The Supervisory Board should consider setting up a nomination, audit and a remuneration committee from among its members. The existence of such committees should be mentioned in the report of the Supervisory Board in the company’s annual report.

The supervisory board shall draw up a set of regulations for each committee. The regulations shall indicate the role and responsibility of the committee concerned, its composition and the manner in which it discharges its duties. The regulations shall in any event contain a provision that a maximum of one member of each committee need not be independent within the meaning of best practice provision III.2.2. The regulations and the composition of the committees shall, in any event, be posted on the company’s website (III.5.1) The audit committee shall not be chaired by the chairman of the supervisory board or by a former member of the management board of the company (III.5.6)

The supervisory board shall draw up terms of reference for each committee. The terms of reference shall indicate the role and responsibility of the committee concerned, its composition and the manner in which it discharges its duties. The terms of reference may provide that a maximum of one member of each committee may not be independent within the meaning of best practice provision III.2.2. The terms of reference and the composition of the committees shall be posted on the company’s website (III.5.1) The audit committee may not be chaired by the chairman of the supervisory board or by a former member of the management board of the company (III.5.6)

8. Nomination committee

See Audit committee (7).

See first part of Audit committee (7).

See first part of Audit committee (7).

9. Remu ne ratio n committee

See Audit committee (7).

See first part of Audit committee (7). The remuneration committee shall not be chaired by the chairman of the supervisory board or by a former member of the management board of the company, or by a supervisory board member who is a member of the management board of another listed company (III.5.11) No more than one member of the remuneration committee shall be a member of the management board of another Dutch listed company (III.5.12)

See first part of Audit committee (7). The remuneration committee may not be chaired by the chairman of the supervisory board or by a former member of the management board of the company, or by a supervisory board member who is a member of the management board of another listed company (III.5.11) No more than one member of the remuneration committee may be a member of the management board of another Dutch listed company (III.5.12) If the remuneration committee makes use of the services of a remuneration consultant in carrying out its duties, it shall verify that the consultant concerned does not provide advice to the company’s management board members (III.5.13)

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