4.5.4 Roles of boards in a two-tier and one-tier system

The function of the management board is to manage the company.1 The Dutch term besturen (managing or directing) means more than just running the company; it also encompasses buying and selling important assets and determining policy and strategy. Managing the company does not include exercising rights that by law belong to the shareholders, such as the right to issue shares, unless this right has been delegated to the management board in the articles of association.2 Apart from running the company, the management board has the task of developing (formulating) and achieving objectives and strategy and defining and implementing risk profiles and CSR policy and is also responsible for fmancial reporting.3 The management board and each of its members represents the company in all its contacts and contractual relations with third parties.4 The management board must also provide the supervisory board with timely information on a regular basis and on the topic of strategy at least once a year.5

The management board develops the company's objectives and strategy6 and must also achieve and implement them.7 In the ABN AMRO and ASMI cases the Enterprise Chamber and the Supreme Court confirrned that the management board is responsible for determining strategy and the supervisory board for supervising strategy.

Article 2:140/250 DCC states that it is the function of the supervisory board "to supervise the strategy of the management board and the overall management of the company and its enterprise". It assists the management board "by providing advice". The word "assists" (staat ter zijde) should be viewed against the Dutch background of harmonious consultation. The word "advice" reflects the advisory role of the supervisory board.8 However, supervision is the main task. The supervisory role is described at length in the legai literature, which confirms that the provision of advice is part of this role and involves merely acting as a sounding board and not developing ideas independently.9

The supervisory board supervises the management board in its work of developing and achieving objectives and strategy, defining and implementing risk profiles and CSR policy and its financial reporting10 and supervises the performance of the management board as well. The supervisory board is basically dependent on the management board for its information.11 However, supervisory board members can now gather their own inforrnation.12 This means that the supervisory board has a duty to gather information (haalplicht) and that the chairman has a duty to coordinate this.13 Ten years ago supervisory board members did not have to check the text of an acquisition agreement or ask whether there are sufficient vendor guarantees and a fmancial analysis.14 Would this low standard of conduct stil be acceptable today, ten years later? I doubt it. I think it is now standard practice for the supervisory board to check whether due diligence has taken place before an acquisition and whether there are sufficient vendor guarantees and a financial analysis. The standards for directors have become higher.

One of the main supervisory duties of supervisory board members is to ensure that there is a good management board and that it functions wel1.15 Supervisory board members must check whether there are tensions within the management board. The supervisory board must be diligent in monitoring the composition of the management board and its entrepreneurship and succession. In "structure regime" companies and under the articles of association of many companies, the supervisory board appoints the management board members. Even if the articles of association provide that the shareholders' meeting appoints the management board members, the supervisory board usually nominates them or at least has influence on these nominations. This influence on nominations by outside supervisory board members has always been part of Dutch board culture. The Frijns Code emphasizes the role of evaluating the management board.16

Furthermore, the supervisory board is charged with setting the remuneration of the management board members under the policy adopted by the general meeting17 and with representing the company if the management board members have a conflict of interest.18

Under the Act the new article 2:129a/239a to be added to the DCC provides that all duties or roles in a one-tier board are to be divided among the executive and non-executive directors. However, a mandatory provision is that the supervising and nominating duty will be performed by the non-executives. Developing and achieving the aims and strategy of the company, in other words running (besturen) the company, is the duty of the executives. The non-executives are responsible for supervising the performance of the executives. Developing strategy and risk management is the duty of the whole board (executives and non-executives together). Strategy development decisions are made in the whole board. It is the whole board that will choose the direction to be taken, i.e. whether to adopt the US model in which non-executives actively challenge executives or the UK model in which executives and non-executives cooperate in developing company strategy.