8.2.5.2 Conflicts of interest

When a conflict of interest arises, principle III.6 of the DCGC is applicable: ‘Any conflict of interest or apparent conflict of interest between the company and supervisory board members shall be avoided. Decisions to enter into transactions under which supervisory board members would have conflicts of interest that are of material significance to the company and/or to the relevant supervisory board members require the approval of the supervisory board. The supervisory board is responsible for deciding on how to resolve conflicts of interest between management board members, supervisory board members, major shareholders and the external auditor on the one hand and the company on the other.’

Best practice provision III.6.1 provides three criteria for determining whether a relationship or circumstance is a conflict of interest. Such a conflict of interest exists when the company enters into a transaction with a legal person, in which (1) the supervisory director has a financial interest, or (2) a family member of the supervisory director is a member of the management board of the legal person, or (3) the supervisory director is either a member of the management board or supervisory board of the legal person. According to the same best practice provision the supervisory director should immediately report his conflict of interest to the company and the chairman of the supervisory board.

If the chairman of the supervisory board has a conflict of interest, he should report this to the vice-chairman and the company.

A supervisory director with a conflict of interest may not take part in the decision about the transaction in which he has a conflict of interest (best practice provision III.6.2). When there is a transaction in which a conflict of interest arises, the transaction should be executed under terms that are customary in the sector. Furthermore, the supervisory board should give approval for the transaction and the transaction must be announced in the annual report (best practice provision III.6.3). Best practice provision III.6.5 requires that the terms of reference of the supervisory board provide for rules on situations in which conflicts of interests arise.

Besides the provisions in the DCGC, section 2: 140 paragraph 5 DCC provides that supervisory directors with a conflict of interest in a transaction may not participate in the deliberation and decision-making about the transaction. If the supervisory board is not able to make a decision, the general meeting must decide about the transaction. However, the articles of association may provide differently. This section of the DCC is in line with the provisions of the DCGC. It defines a conflict of interest as a situation in which the supervisory director has a direct or indirect personal interest in a transaction that is not aligned with the interest of the company. This formulation of a conflict of interest is in line with the Bruil case of the Dutch Supreme Court1 (Maeijer et al. 2009: 412).

A comparable provision can also be found for members of the management board in section 2: 129 paragraph 6 DCC. However, it is not clear whether section 2: 129 paragraph 6 DCC applies to NEDs in a unitary board structure or that section 2: 140 paragraph 5 DCC applies to NEDs in a unitary board structure as well, according to Nowak (2008).