4.6.5 What is the judicial corporate governance arrangement in the country under review?

In the Netherlands the national corporate governance code and the comply or explain principle are embedded in legislation. Since October 2004 article 391 par. 5 of Book 2 of the Dutch Civil Code (Burgerlijk Wetboek, the BW) states that by means of an administrative order (algemene maatregel van bestuur) further rules regarding the contents of annual accounts can be laid down and more particularly regarding compliance with a code mentioned in this administrative order. In section 3 of such an administrative order (Staatsblad 747, 2004) the Dutch corporate governance code was assigned in 2004 as a code based on which listed companies have to provide information in their annual reports regarding their compliance with this code.1 With respect to the 2008 code the same happened by means of a renewed administrative order (Staatsblad 154, 2009). A similar provision for institutional investors is laid down in article 5:86 of the Dutch Financial Supervision Act (Wet op hetfinancieel toezicht, Wft); as regards the best practice provisions applicable to institutional investors, they have to comply or explain in their annual report or website or to their participants and clients personally. An embedding in the listing rules (as in the UK) was not considered, since not enough trust was placed in listing rules as a regulatory instrument and self-regulation was rejected as a result of the poor compliance with the recommendations of the Peters Committee (Voogsgeerd 2006, p. 138). Before the coming into effect of Directive 2006/46/EC, this legal embedding of the code and comply or explain principle was considered rather progressive, because in most EU countries no legal basis existed at all (Wymeersch 2005, p. 4). By embedding the comply or explain principle in legislation, the Netherlands has opted for judicial corporate governance arrangement C: self-regulation supported by statutory rules (Voogsgeerd 2006, p. 145). In the event of this arrangement a group or committee established by one or more private bodies and with the support of the authorities drafts the code and in national legislation a reference is made to this code: as a consequence the code, whilst involving self-regulation, has a kind of hybrid form (Wymeersch 2005, p. 3). Characteristic for the Netherlands is that reasonableness and fairness have an important influence on this hybrid code form. Timmerman claims that the code provisions enable listed companies to give their own content to these vague norms (art. 2:8 BW), as well as to what constitutes good governance (goed bestuur). Notwithstanding the fact that the framework of company law needs to be laid down in legislation and that the legislator has the responsibility thereto, the code provisions can clarify what the legislator, under penalty of too detailed legislation, does not want or will elucidate (Timmerman 2007).

With respect to the implementation of Directive 2006/46/EC, little to nothing has changed in the Dutch judicial corporate governance arrangement. Article 2: 391 par. 5 BW has changed slightly2 (Staatsblad 550,2008) since 23 December 2008 and a renewed administrative order has been issued (Staatsblad 154, 2009) (De Bos, Edelman et al. 2010). The Dutch government was not entirely positive about the directive; not because it disagrees with the contents, but the rules in the directive have already been imposed by national legislation (Tweede Kamerstukken 2004-2005, 22112, nr. 354, p. 20). The directive would only provide unnecessary additional administrative burdens. The mandatory indication as to where the national corporate governance code is publicly available seemed strange, but with a reference to a website is easy to solve. The government also doubted whether any additional information requirements were needed regarding internal risk and control systems. The Dutch corporate governance code already contains best practice provision II.1.4: in the annual report the management board shall provide a description of the design and effectiveness of the internal risk management and control systems (Tweede Kamerstukken 2004-2005, 22112, nr. 354, p. 20).