The Importance of Board Independence - a Multidisciplinary Approach (Instituut voor Ondernemingsrecht nr. 90), 10.5.3 Consequences of independence

Earlier corporate governance reforms in the Netherlands did not prevent the management board of Ahold from committing accounting fraud. The same is true for the boards of Enron and WorldCom, which were involved in fraud despite corporate governance initiatives in the United States. The financial crisis that unfolded after the collapse of the bankruptcy of Lehman Brothers revealed that supervision in banks fell short, but whether that was caused by insufficient corporate governance regulations and in particular independence or by other factors is difficult to conclude.

(Consideration 10.14) The real consequences of independence are difficult to point out. However, the regulations have set the focus on good corporate governance and independence in particular. These movements towards more independent boards have increased the awareness of stakeholders about the weaknesses of prior corporate governance in companies and the need for reforms.

Table 10-2: Differences between the United Kingdom, Netherlands and Sweden with respect to the list of relationships and circumstances that disqualify a supervisor from being independent.

	United Kingdom	Netherlands	Sweden
Relationship to the company
Employment relationship	has been an employee of the company or group within the last five years	has been an employee or member of the management board of the company in the five years prior to the appointment has temporarily managed the company during the previous twelve months where management board members have been absent or unable to discharge their duties	whether the individual is the chief executive officer or has been the chief executive officer of the company or a closely related company within the last five years whether the individual is employed or has been employed by the company or a closely related company within the last three years
Financial relationship	has received or receives additional remuneration from the company apart from a director’s fee, participates in the company’s share option or a performance-related pay scheme, or is a member of the company’s pension scheme	receives personal financial compensation from the company, or a company associated with it, other than the compensation received for the work performed as a supervisory board member and in so far as this is not in keeping with the normal course of business	whether the individual receives a not insignificant remuneration for advice or other services beyond the remit of the board position from the company, a closely related company or a person in the executive management of the company
Business relationship	has, or has had within the last three years, a material business relationship with the company either directly, or as a partner, shareholder, director or senior employee of a body that has such a relationship with the company	has had an important business relationship with the company, or a company associated with it, in the year prior to the appointment. This includes the case where the supervisory board member, or the firm of which he is a shareholder, partner, associate or adviser, has acted as adviser to the company (consultant, external auditor, civil notary and lawyer) and the case where the supervisory board member is a management board member or an employee of any bank with which the company has a lasting and significant relationship	whether the individual has or has within the last year had a significant business relationship or other significant financial dealings with the company or a closely related company as a client, supplier or partner, either individually or as a member of the executive management, a member of the board or a major shareholder in a company with such a business relationship with the company whether the individual is or has within the last three years been a partner at, or has as an employee participated in an audit of the company conducted by, the company’s or a closely related company’s current or then auditor
Shareholder relationship	represents a significant shareholder	holds at least ten percent of the shares in the company (including the shares held by natural persons or legal entities which cooperate with him under an express or tacit, oral or written agreement) is a member of the management board or supervisory board - or is a representative in some other way - of a legal entity which holds at least ten percent of the shares in the company, unless such entity is a member of the same group as the company
Other relationships or circumstances
Family relationship	has close family ties with any of the company’s advisers, directors or senior employees	one of the relationships or circumstances in this list apply to the supervisory director’s 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	whether the individual has a close family relationship with a person in the executive management or with another person named in the points above if that person’s direct or indirect business with the company is of such magnitude or significance as to justify the opinion that the board member is not to be regarded as independent
Interlocking directorships	holds cross-directorships or has significant links with other directors through involvement in other companies or bodies	is a member of the management board of a company in which a member of the management board of the company which he supervises is a supervisory board member	whether the individual is a member of the executive management of another company if a member of the board of that company is a member of the executive management of the company
Maximum tenure	has served on the board for more than nine years from the date of their first election