4.1.5 Evolution of corporate governance

The small groups of peat farmers who worked the land beside the streams and rivers around AD 1000 started a tradition of cooperation and free consultation between equals that was designed to achieve consensus. The licences, "octrooien", they received from the Count of Holland were unique arrangements. The tradition of consultation was continued by the dike builders of around AD 1300 who formed waterschappen (water boards) to manage the polders and control the water. The water boards had members, who were fully liable, and supporters, gentlemen of influence who contributed as limited partners.

The partnerships formed for a single sea voyage, the voor compagnieën (precompanies), of the last decade of the 16^th century had managers with full liability as well as limited partners, who have been compared to the commendators (sleeping partners) known from societas of Northern Italy in Renaissance times. It is a matter of debate whether these limited partners (i.e. partners whose liability was limited to their contribution) were based on the earlier Italian examples of traders or on the Dutch water boards.1

These companies for a single voyage were already popular before the sea route to the East Indies was discovered. In the years immediately preceding the formation of the Dutch East India Company (VOC) the provincial states of Holland and Zeeland had issued ordinances prohibiting unlicensed voyages.

When the States General, inspired by Van Oldenbarnevelt, persuaded all these voor compagnieën (pre-companies) to merge, the VOC received an octrooi for 21 years. It was provided that the contributed capital would be returned to shareholders with accrued profits in the tenth and twentieth years.2 When the VOC was founded it managed to raise just onder 6 5 million guilders from a wide range of investors on the strength of the success and profits of the earlier companies.3 The VOC was less profitable initially because of the costs of the military tasks it was required to perform. Indeed, no dividends were paid in the first few years. Just before the end of its first decade, however, the board paid all investors a dividend of 162.5%, i.e. 6.25% interest per year compounded.4 This was paid partly in cash and partly in kind, which led to arguments about the valuation of the distributed assets. Dividends were paid in 1612, 1613, 1618 and 1620. Then dividend payments stopped, decreasing the value of the shares from 250% to 165%.5 In 1622 and 1623 shareholders and shareholder activists (doleanten) had asked for more rights. By publishing pamphlets they tried to influence public opinion and put pressure on the negotiations between the States General and the Heeren Zeventien for a renewal of the octrooi.6Nevertheless, the States General did not consent to giving the shareholders more rights when they issued a new octrooi.7

Dutch corporate historians tend to cite the VOC of 1602 as the first public limited liability company with fixed paid-up capital. The VOC was a large public company, which indeed had limited liability in the modern sense, a separation of ownership and management and tradable shares.8 The VOC was a merger of some of the East India companies established in various cities in the provinces of Holland and Zeeland and consolidated into Chambers (those of Amsterdam, Rotterdam, Middelburg, Delft, Hoorn and Enkhuizen). The VOC's executive board (the Heeren Zeventien) had authority over the six Chambers.9

Shortly afterwards the Wisselbank of Amsterdam was founded. This bank arranged an efficient system for the exchange of currencies and established a system of current accounts and cheques. In 1611, the Amsterdam Exchange (the Beurs) moved to splendid new buildings opposite the City Hall. As a result, the two symbols of Amsterdam's power stood facing each other.10

For this study it is interesting to note that the most obvious difference between the VOC and the English East India Company (EIC) was the different approach to the power of shareholders. The corporate structure of the VOC reflected the oligarchie nature of the semi-independent city states of the Dutch Republic, with control concentrated in the hands of a small group of directors (the Board of Seventeen or Heeren Zeventien).11 Even after protests of shareholders and the creation of the Committee of Nine, a soit of supervisory board, in 1623, the shareholders still had no influence. The Committee of Nine consisted of major shareholders, but they did not have voting rights at meetings with the Heeren Zeventien. The English EIC was much less oligarchie. In the EIC shareholders, called members, could dismiss directors, and had extensive information and approval rights,12 where each shareholder had a vote in the General Court or Court of Proprietors, comparable to the present-day meeting of shareholders.13 In the VOC, the Heeren Zeventien were appointed by the governing six city "Chambers" out of the members of these city oligarchies, therefore de facto by co-optation.14 In the first phase the VOC directors were even appointed for life.15 EIC directors were appointed for one year and could be dismissed. In the EIC shareholders had considerable power.16 It is interesting to note that the same difference of attitude to the power of shareholders vis-à-vis the board between the Netherlands and the UK can stil be observed in the beginring of the 21^st century.

The VOC licence was dated 20 March 1602. The EIC's charter was two years older.17 However, the VOC was larger, having an initial paid-up capital of 6,449,688 guilders and 20 cents as compared with the EIC's start-up capital of £68,000.18 At the conversion rates at that time (9 pounds to 100 guilders)19 this meant the initial capital of the VOC was 10 times higher than that of the EIC. Throughout the 17^th century the VOC remained larger than the EIC. The Dutch VOC served as an example not only for the Dutch West India Company of 1621, but also for other European shipping and trading companies in the 17^th century.20

The Heeren Zeventien formed the executive board of the VOC but were entitled to trade for their private account in the VOC's products. This led to widely criticised conflicts of interest. It should be noted, by the way, that a similar situation developed at the EIC. In 1623 these malpractices were corrected in the VOC by the new octrooi.21

In the first years of its charter from 1602 to 1623, the Heeren Zeventien had features of both a one-tier and a two-tier board. The change in 1623 resulted in a distinction between a management body and a body of supervisors (the Committee of Nine), which was the first instance of a two-tier board.

The right to appoint the Heeren Zeventien was reserved to the constituent founders, i.e. the six Chambers. Amsterdam chose eight directors, Middelburg four and Rotterdam, Delft, Hoorn and Enkhuizen one each. The seventeenth, who was the chairman, was chosen by the last five cities together.22 In the first years the board members were appointed for life. From 1623 directors were appointed for 3-year periods, but could be reappointed, which usually happened because they were appointed by the Chambers from which they came.23 Directors were major shareholders themselves. Each had to invest at least 6,000 guilders. Later this requirement was dropped. The Heeren Zeventien made all the decisions about voyages, ships, budgets, fitting out, crews, cash, provisions, the division of goods brought back from abroad, dates for auctions, the building of new ships and the declaration of dividends. Although some decisions were delegated to bewindhebbers (administrators) of the city Chambers, the Heeren Zeventien clearly exercised all the executive powers of the VOC.

As noted before, shareholders had no say at all in the management of the VOC during the first 21 years. In 1623 the octrooi was up for renwal and the States General had taken into account the complaints of shareholders about malpractices at the top of the VOC. The main innovation was the Committee of Nine. This consisted of nine major shareholders from the various Chambers. The Committee had the task of auditing the VOC 's accounts each year. It also had advisory powers in the event that the Heeren Zeventien wished to sell goods and "other important items". The Committee of Nine was given the right to attend meetings and make recommendations and also to inspect warehouses. This Committee may be regarded as the precursor of the present-day supervisory board.24 By 1720 the name of the Committee of Nine had changed to Raad van Commissarissen, the same name as carried by the present-day supervisory board onder Dutch corporate law.25

Some shareholders wanted the Committee of Nine to have not only advisory rights, but also real voting rights on the board. If this had happened they would have made decisions together with the Heeren Zeventien. In such a case, there would have been a one-tier board of 17 executive directors and 9 non-executive directors. However, this demand by the shareholders was not accepted by the States General. The lobbying of the merchant-regents (i.e. the regenten of the big cities) prevailed,26 and the Committee of Nine remained supervisory directors only.27 There was now a two-tier board. This development came to a business world that was accustomed to the role of outside influentials as sounding board and supporter in the "polder" tradition. Nowadays, many Dutch commentators argue that the country has been used to a board of supervisory directors for about 400 years and that two-tier boards should therefore remain. They have become a feature of Dutch corporate culture.

The so-called Accounting Committee, also established in 1623, was appointed to receive the accounts for the past 21 years from the Heeren Zeventien. The latter more or less boycotted this committee, but could not stonewall the Committee of Nine as it consisted entirely of major shareholders. However, the Heeren Zeventien knew how to deal with these supervisory bodies. They saw to it that their friends were appointed, and they pacified shareholders by paying out substantial dividends. When profits declined in the 18^th century, the VOC stil managed to regularly pay out smaller, equalised dividends, thereby satisfying the shareholders who were by this time no longer entrepreneurs but rentiers.28 In the 17^th century one or two other companies resembling the VOC were established in the Netherlands, such as the West India Company (WIC) in 1621. All of them had a multi-purpose function, i.e. a mixture of trading and the governance of overseas territories.29

As mentioned previously, the total number of participations entered in the share registers in 1602 was worth nearly six and a half million guilders, to be precise 6,449,688 guilders and 20 cents. This total did not change. Although there were no shares with a fixed nominal amount, registered shareholders were free to sell and transfer their total shareholding or part of it by new registration at the offices of Chambers in the presence of one or two members of the Heeren Zeventien. In practice, it became common to trade participations of 500 guilders, which was a fairly large amount in those days. The entries in 1602 even showed shares of 50 guilders in the name of clerks and chambermaids, subscribed by their benevolent bosses.

In 1720 the Dutch followed the British example, the new charter stated the total outstanding capital, with each share having an equal value. The charter now envisaged regular shareholder meetings. However, the Dutch did not follow the British example of creating a large number of shareholder companies and as a result did not suffer a share bubble and bust, as happened in both France and England. They did create several insurance companies with limited liability, of which the oldest still in existence is the Assurantiesociëteit Stad Rotterdam Anno 1720. In the articles of association of these companies the name commissarissen (supervisory directors) appeared for the first time.30 The responsibility of the supervisory directors varied from simply checking the accounts to a right to veto certain decisions, and even to management tasks. Other insurance companies were founded in 1776, 1807 and 1809. All of them had supervisory boards that verified the accounts on behalf of the main shareholders.31

Old company law remained applicable to existing companies. This had already been determined in draft codes prepared by Dutch jurists, including M.S. Asser in 1809. These drafts never became effective. After the Netherlands was incorporated into the French Empire in 1810 the French Code de Commerce became applicable. The old corporate practice and the clauses in articles of association remained applicable for existing companies, because the Code de Commerce saw a corporation as an agreement between shareholders. It followed that shareholders had freedom of organization once they decided the regime of the company, even when that had been established many years previously. The part of the Code de Commerce pertaining to corporate law was short. After the liberation of the Netherlands in 1813, a committee of Dutch jurists was formed to draft a new Commercial Code. This took a long time because of the main discussion point: whether the government would have the power to permit or veto the formation of limited liability companies and dissolve them at its discretion or, at the other extreme, could only check compliance with specific legal requirements. The Commercial Code that was finally enacted in 1838, contained only very brief provisions on company law. It had 21 articles applicable to companies with limited liability, called "NVs" (Naamloze Vennootschappen).32 The language it employed was sweeping and vigorous, as was that of the French Code de Commerce. As the company was seen as an agreement between shareholders, existing companies continued to function onder their existing regime, but, according to French "revolutionary" ideas for new companies, the meeting of shareholders would be the highest organ for new companies. The implications of this last point were less than might have been expected because most companies were old family enterprises in which shareholders and directors were the same persons and the old system of supervisory directors who represented the main shareholders for the purpose of checking the accounts remained in force.33 In practice, supervisory directors did often check the accounts for the shareholders, as there were no external auditors.34 The 1838 Code allowed substantial flexibility and, besides permitting the old system (where the duties of the supervisory directors could be limited to "bare" supervision), provided that the supervisory board could even engage in management.35 The Code of 1838 had the following characteristics:

(i) a notarial deed and government consent were necessary for the articles of association;

Apart from the Nederlandsche Handel-Maatschappij, which had a supervisory board that nominated the executive directors,37 only a few other NVs were incorporated between 1838 and 1850. 137 NVs registered by 1850.38 In the following decades several attempts were made to introduce a more detailed code. In the 1880s, the era of many cooperatives and cross-networking, several informal companies ("maatschappijen") actually mentioned in their articles of association that the supervisory board appointed the executive directors.39 This was an oligarchie clause that marked the start of a tradition of defence mechanisms enshrined in the articles of association.

From the 1880s onwards Dutch businesses flourished. The Netherlands played a role in international peace treaties. The Peace Palace in the Hague, sponsored by Andrew Carnegie, was buik Statesmen from all over the world gathered there in 1907 and 1913 to promote world peace. Notwithstanding their efforts, the First World War broke out in 1914. However, the Netherlands stayed neutral, to the benefit of its commerce and industry.

Abraham Kuyper, the founder of the Dutch Reformed Anti-Revolutionary Party, defended the interests of the "kleine luyden" ("little people"). These petty bourgeoisie found a voice in this party, which dominated the centre of Dutch polities at a time when revolutions were spreading over Europe. Efforts were made to reform company law and make it more "democratie". The public started to develop an interest in the shares of listed companies and thought had to be given to company law. On this occasion consensus was once again the basis for a new draft of company law. The new provisions would have created more transparency for shareholders and greater protection of corporate capital and minority rights and introduced director liability. The Minister of Justice introduced the bili in 1910.44 However, the time was not yet ripe and the law was not enacted until 192845 under Justice Minister Donner and only then after lengthy debate. During the First World War the Germany started to buy Dutch shares. There was a fear of Ueberfremdung (dominance by foreigners), but this was not confined to the Netherlands. Dutch companies introduced oligarchic clauses in their articles of association. Other countries created different classes of shares with multiple voting rights.46 Dutch company law allowed other oligarchic clauses in the articles of association, e.g. transfer of shares exclusively to Dutch shareholders, board membership restricted to Dutch nationals, and transfer of shares only to Dutch holding companies.47 In 1920 Philips established such a holding company, which was called NV Gemeenschappelijk Bezit. This company was controlled by the Philips family and owned the majority of the listed shares. Heineken has employed the same system right down to the present day.48 The family owns 51% of the shares in a listed holding company, which owns 51% of the operating company, which is also listed. Hence the family is able to control the business by holding 51% of 51%, i.e. 26.01%.

Between 1910 and 1928 protection measures were extensively discussed in legal and corporate circles. In 1910 the draft of a new Companies Bill would have banned oligarchic clauses. However, the threat of Ueberfremdung during the First World War and the subsequent volatility of currencies led most continental European countries to permit defence techniques. France, Belgium, Switzerland and Germany once again abolished these possibilities in the 1930s.49 The Netherlands kept its oligarchic clauses. By 1928 Justice Minister Donner wished to abolish all oligarchic clauses, but Dutch business strongly objected. As a result, companies could stil include a clause in their articles of association allowing for binding nominations of managing and supervisory directors.50

The Commericial Code of 1928 had 122 articles dealing with NVs, as compared with the 21 articles of the 1838 Code. The main elements of the new code were as follows:

The UK never allowed legal defence mechanisms. The UK maintains the "passivity rule", implying that boards should not take any action in shareholder matters. In the US the Ford Company Foundation issued new shares to the public in 1955. The family Ford retained B shares, a small percentage of the newly issued shares, but these shares carried 40% of the votes. At the time this was exceptional for the US.

In the Netherlands, however, it was quite usual to include some sort of defence in the company's articles of association. Polak, already in 1918, had given as the main reason for defence mechanisms the fear of takeovers by foreigners.55 In 1949 Boelens added some more reasons, including (i) dangers resulting from fragmented ownership, (ii) speculators and (iii) the advantage of having a supervisory board, (iv) continuity of the board, (v) freedom of the board to focus on company business without having to worry about shareholders' wishes and actions and (vi) independent shareholders. He concluded "it is awkward to let shareholders decide on important matters".56 This was a clear expression of the idea, then prevalent in Dutch corporate culture, that weak shareholders needed a guardian. Shareholders cannot instruct.

As stated before, the articles of association of many Dutch companies contain a variety of defences, such as giving the holders of a special class of shares ("prioriteitsaandelen") the right to appoint directors and to take other important decisions in the manner Royal Dutch Petroleum had done in 1898. The Companies Act of 1928 established clearly that companies could enshrine in their articles of association the right of the board of supervisory directors to appoint its members. Co-optation of the members of that board became common practice. By and after the Second World War other oligarchie clauses and clauses limiting the voting rights of shareholders found their way into the articles of association.58

After the Second World War NVs added a new weapon to their arsenal of defence against predators, the right to issue shares to a foundation especially established for that purpose and controlled by management. Usually such shares were preferred shares and the number which the board could issue at low cost was large enough to outvote any predator.59

A defence, already used in 1918, was to issue share certificates to bearer, "certificaten". The idea came from the US voting trusts. A company would transfer shares with voting rights to a trust, controlled by the board of the company, in exchange for "Depository Receipts". In the Netherlands the original shares were transferred to an administration vehicle, "administratiekantoor", sometimes an association or company, but usually a foundation, the board of which had the voting rights of the shares. For each share this administration vehicle issued a bearer certificate, listed on the Amsterdam Stock Exchange. The dividends and other economic rights attached to the shares were passed back to the certificate holders. The board of such a vehicle would be friendly to management, so that management could control the voting rights.60

In 1954 the committee Hellema found that of the 70 largest companies, listed in Amsterdam, only 4 did not have any form of defence mechanism.62

It is important to note that defence mechanisms can only work, if the law, i.c. the company law codes and jurisprudence, allow them, but it is also essential that the body responsible for permitting of a listing accepts the practice. At the time the responsible body was the "Vereniging voor de Effectenhandel". It could refuse to list the shares of a company, whose articles of association were not to its liking. The board of the "Vereniging voor de Effectenhandel" consisted of brokers and bankers who usually were sympathetic to the wishes of a company's board and were less supportive of activist shareholders.

In continental Europe the discussion in the 1950s and 1960s was whether the company's aim should be the maximisation of shareholders value or whether there are other decisive stakeholders' interests.

There was a strong employee interest lobby. There were suggestions to appoint employee representatives on the supervisory board as in Germany.

In 1964 the Committee Verdam on enterprise law laid the basis for later developments.63 The following laws were enacted in the 1970s:

All these laws, as well as some additions to the company law in the new Book 2 of the DCC of 1976, described on the next page, referring to the "interest of the company and its enterprises", breathe an atmosphere of pluralism and equal rights for all stakeholder interests, especially including the interest of employees. Another regulation in the atmosphere of that period were the Rules on Mergers of the Social Economie Council, the "SER Fusie Gedragsregels", the first chapter giving consultative rights to trade unions in cases of acquiring or disposing of companies. The SER has been mentioned before as the institution embodying the modern "polder model", as a meeting place for consultation between employers and employees.

The Enterprise Chamber for Enquiry of companies created a body of jurisprudence, from the 1990s concerning the rights and obligations of boards.

The law on structure regime companies is of interest, because the Netherlands chose its own unusual two-tier model called the "Structure Regime", which is relevant to board practices. Although this model was set up to create employee participation in the governance of the company, the consequence was that it elevated the supervisory and management boards to a legal position that made them immune to shareholder criticism, because the supervisory board of large companies were given extra powers of co-opting themselves, appointing the management board and vetoing important decisions.64 This came in addition to the defence mechanisms described above. In 1970 the general view in the Netherlands was that with the widespread shareholder-ownership these fragmented shareholders were only interested in their own profits and therefore companies had to be protected by giving their boards and works councils more power. Most of the power was concentrated in management and supervisory boards. It led to managerial capitalism. The strengthening of the voice of employees was a confirmation of the already existing stakeholder or pluralistic model.

The new civil code was a project developed some decennia earlier. Professor Meijers wrote many parts of it in the 1930s. Company law was to be dealt with in Book 2 of the new Civil Code, hereinafter to be called Book 2 DCC), the book on legal entities. The text of Book 2 DCC was finalised in 1960 and enacted on 8 April 1976. With respect to the NV (limited liability company, with many shareholders, comparable with the UK Plc, German AG and French SA) and the BV (limited liability company, with a closed number of shareholders, comparable with the UK Ltd., German GmbH and French SarL) Book 2 DCC replaced all the articles 36-58g of the Commercial Code. There were no important changes. The BV had been introduced in 1971. The first articles 1 through 25 of Book 2 DCC are applicable to both the NV and the BV. Articles 64 through 174 deal with the NV and articles 175 through 284 deal with the BV. They are very much alike and most of the articles for the BV are 110 numbers higher than those for the NV. For example, the main article describing the duty of supervisory directors is 2.140 DCC for the NV and 2.250 DCC for the BV. Hereinafter, this study will often refer to 2.140/250 DCC to make clear that a certain point is applicable to both NVs and BVs. Other legal entities, such as the state, provinces, municipalities, church associations, associations, co-operatives and foundations are also dealt with in Book 2 DCC. Then there are chapters on mergers and splitting of legal entities, disputes and enterprise investigation and finally the annual report and accounts, which were changed several times. Annex Book 2 DCC to this book gives a summary of Book 2 DCC. The summary includes the articles of the pending draft articles on one-tier boards, such as 2.129a/239a DCC (Act). One-tier boards are the centrepiece of this book. The alternative option to have a one-tier board instead of the usual two-tier board system was first proposed as a possibility in the Tabaksblat Code. This concept was introduced by the government in a bill, which was accepted by the Second Chamber of Parliament on 9 December 2009 and by the First Chamber of Parliament on 6 June 2011 and is expected to be enacted on 1 January 2012.

In the beginring of the 1980s there were many bankruptcies, many of them the consequence of fraud or fraudulent bookkeeping. First, an Act which made constructors liable for debts of their bankrupt subcontractors, second, an Act holding directors liable for failing to inform the tax and social security premium collector in case of near bankruptcy and third and most important for this study the articles 2:139/248 DCC creating joint and several director liability for sloppy bookkeeping, failing to file accounts and other causes of bankruptcy.

In 1987 the Committee Van der Grinten65 came to the conclusion that defence mechanisms could be lelt as they were, but that the courts should intervene in extreme cases. In the same period Professor Maeijer spoke in favour of defence mechanisms, in his Silver Jubilee speech in 1987, as a way for the board to act in the "interest of the company.66 This attracted attention at the time, because of the takeover battle between the publishing companies Kluwer and Elsevier. Elsevier wished to take over Kluwer, but Kluwer had defence mechanisms and successfully protected itself.

From 1989 the "Vereniging voor de Effectenhandel", the body running the "Beurs", the Association of Stocktraders, supported by the Minister of Finance, Mr Onno Ruding, argued and negotiated for less defence mechanisms or at least less far reaching defence mechanisms. The old boys network of brokers and investment bankers at the top of the Amsterdam Stock Exchange had become less tight. The former, by now, thought that there would be higher volume of trade in a free market without boards that can impede takeovers of "thee companies. In these discussions the Association of Large Listed Companies (VEUO) opposed the Minister of Finance Ruding and his successors Kok and Zalm and the "Vereniging voor de Effectenhandel". The discussion was settled by a compromise: the establishment of the Netherlands first corporate governance committee, the Committee Peters in 1997, which would give more rights to shareholders and lay down a number of obligations for supervisory directors.

In the same period shareholders and other stakeholders got the right to start Enterprise Chamber cases with immediate impact, because they could ask for preliminary injunctions. Asking for an investigation had been theoretically possible since the Companies Act of 1928. At the time Professor Mr E.J.J. van der Heyden was strongly opposed to this idea. He argued that it was against the interests of companies.67 In 1971, as mentioned above, the new Investigation Court, the Enterprise Chamber, was founded, giving shareholders, the prosecutor and unions the right to ask for an investigation. The first big case was OGEM, a huge bankruptcy, where directors were found to have been guilty of serious mismanagement. The receiver in the bankruptcy was the plaintiff and the case made the public aware, to much surprise, that respected directors of such a large public company could mismanage so badly.68

In 1994 an important change was made in the Law of Investigation of Enterprises, "het Enquêterecht", introduced already in 1928 and amended in 1971. The new point was that plaintiffs could ask for immediate injunctions such as blocking decisions or agreements, appointment and dismissal of directors, etc. This led to a large volume of cases concerning smaller unlisted companies and some well published cases involving large listed ones. These large cases are explained in further detail in the section on duties of directors (in sub-section 4.6.4), but are described in summary here to show how effective this 1994 extension of the law was.

The first large case involving injunctive relief requests was the Gucci case of 1999, the handbag war where LVMH, Louis Vuitton Moët Hennessy, threatened Gucci NV by silently buying a large percentage of shares and Gucci defended itself by issuing shares to an employee benefit fund, giving it extra votes, in order to outvote LVMH. LVMH asked the court to order that Gucci could not use these extra votes and Gucci asked the court to order that LVMH would not be allowed to vote its recently acquired shares. First, the Enterprise Chamber ordered that none of the parties could vote with the extra shares. However, Gucci's issue of shares to employees had been paid thanks to a huge Joan from Gucci, which transaction was in the end, upon appeal, in 2000, declared as against the tules of financial assistance by the Supreme Court.69

RNA, Rodamco North America N.V., case was the target in the next takeover defence case of 2003, where the target took temporary defence measures. The Enterprise Chamber ordered that these mechanisms could not be used, but in the end they were validated by the Supreme Court.70

HBG, Hollandsche Beton Groep N.V., was the object of the first large shareholder rights case in 2001, where shareholders demanded the right of consultation with the management board on major strategie moves.71 The shareholders got the Enterprise Chamber to order HBG not to enter into a large transaction, but the Supreme Court overturned this decision in 2003.

The subsequent shareholder rights case involved Stork N.V. in 2007, where shareholders wanted a say in strategy (in order to split the group). Shareholders asked for an order that an issue of shares by Stork to a friendly foundation could not be used and Stork asked for an order, that shareholders could not vote out the supervisory board. The Enterprise Chamber found a middle way by deciding that parties had to negotiate and chose the solution of forcing parties to negotiate onder the guidance of 3 super-supervisory board members.72

In the ABN AMRO in Sale LaSalle Bank case of 2007 shareholders asked for the right of veto for the sale of LaSalle Bank by ABN AMRO — and the Enterprise Chamber, indeed, ordered a stay of the transaction, which decision was overturned by the Supreme Court.73

In the ASMI — a large semi conductor producer — case of 2009 in the Enterprise Chamber and the decision of the Supreme Court in 2010 shareholders wanted a say in strategy (wishing to split the group) and got half a victory in the Enterprise Chamber, which stayed all voting and again ordered parties to negotiate to find a solution. This decision, however, was overturned by the Supreme Court.74

In the DSM NV case of 2007 US shareholders asked the Enterprise Chamber to block a special clause in the articles of association of DSM in 2007 the purpose of which was to give higher dividends to shareholders who owned the shares for more than three years. The Enterprise Chamber blocked the arrangement that would have favoured long-term shareholders, but the Supreme Court overturned the decision.75

Since 1994 the volume of Enterprise Chamber cases has grown to about 45 per annum. Most are joint venture cases and cases concerning unlisted closed companies, the Dutch "BVs", comparable to British Ltd's. In those smaller cases the Enterprise Chamber functions well in providing an orderly, third party forum for what would otherwise remain shareholder quarrels. There are about two large cases per annum concerning listed companies. There is some discussion about the way these cases are being handled, mainly because of the danger that the Enterprise Chamber might fall for the temptation to secondguess directors. Both the SER and a group of professors of the Groningen and Rotterdam Universities have published studies on this subject.76 The SER has offered several points of advice. It discussed the suggestion that the Enterprise Chamber follow the concept of the US Business Judgment Rule. It did not go so far, but generally agreed that the US practice of judges giving better motivated judgments with clear tests is a worthwhile example to follow. Mention is made by the SER of Assink's (2007) (thesis), who argues for a Dutch Business Judgment Rule.77

The idea of a code of best practices of corporate governance came from the UK, i.e. the Cadbury Code of 1992. The first Dutch code was the Peters Code of 1997. The committee, chaired by Jaap Peters, retired CEO of the large insurance company Aegon, made 40 recommendations. A summary is attached as Annex "Peters". Many of the relevant points — 21 on the supervisory board, 4 on the management board, 8 on shareholders and 7 on compliance — were addressed as recommendations.78 Compliance was not swift but the report did result in lively discussions which formed the base for the Tabaksblat Code of 2004.

When the Euro was introduced in 1999 shareholder-ownership of Dutch companies rapidly became more international at the same time. Dutch shareholders started to spread their investments to other European companies. Pension funds have since 1996 been free to invest elsewhere. Dutch investors went through the Ahold and the World Online dramas, where boards were alleged to have grossly misinformed the public. In the aftermath Dutch shares were relatively cheap. US and UK investors raised their holdings of Dutch listed shares. While in 1995 37% of Dutch listed shares were owned by foreigners, this jumped to 75% in 2005 and also to 72% in 2009. About half were held by North American and UK investors.79 Suddenly Dutch directors had a different shareholder base to deal with. The foreigners, often with strategie stakes, made it clear that they wanted more influence. In the same period the number of foreign board members of the largest Dutch companies grew to more than a third of all board members.

In 2004 important mies for corporate governance were introduced, the so-called Tabaksblat Code, which apart from describing duties of management and supervisory boards, gave shareholders more rights and supported the elimination or reduction of defence mechanisms.

Furthermore, in that year the Act on the change of the Structure Regime gave shareholders more rights as follows.

Shareholders could now appoint and dismiss the board of supervisory directors. A 1% shareholder or a shareholder holding EUR 50 million could submit an item for the agenda of a shareholders' meeting. Shareholders received the right to veto major transactions that would change the enterprise; they were given say on pay and received the voting right on the share even if they only had a depository receipt ("certificaat"), and the right to start an inquiry procedure and ask for preliminary injunctions in the Enterprise Chamber were to be used more easily.

Since 1999 shareholder activists have been approaching boards of important companies, in some cases causing minor culture shocks. Boards were not used to communicate with critical shareholders, shielded as boards had been by defence mechanisms and by their protected position in structure regime companies, where supervisory boards co-opted themselves and appointed management and could afford to disregard the opinions of shareholders.80

Aggressive actions by shareholder activists and hedge funds, and takeovers of Dutch icons by private equity houses quite rapidly created a backlash and led to second thoughts about such unfettered power for shareholders. Since 2008, the government has proposed bifis to increase the transparency concerning the identity of activist shareholders. These proposals include a reduction of the threshold for mandatory notification of ownership from 5% to 3% and a requirement for shareholders to notify the board if they want to object to the strategy set out by the board. The threshold for adding an item to the agenda of a general meeting is to be raised from 1% to 3%.81 The waiting period for a demand for an agenda point is extended from 60 to 180 days.82 Defence mechanisms will still be allowed. Draft laws limiting the maximum period during which a defence mechanism can be operative to 6 months were shelved and a law restricting the use of certificates was mitigated.83 In the implementation of the EU takeover directive (the 13^th European Directive) the Netherlands opted out of many stipulations that would have limited protection devices.84

The Tabaksblat Code was followed by monitoring reports, at least each year and the Frijns Code of 2008, which did not deviate from the Tabaksblat Code but did add a few points.85 Generally there is a high degree of compliance with these codes. Annex Frijns gives a summary of the Frijns Code.

The most recent development can be described as follows: the CEO has become stronger. He stands above his executive colleagues and is not inclined to accept the increasing influence of the supervisory board; the chairman of the supervisory board on the other hand has not become much stronger so there is insufficient balance vis-à-vis this strengthened CEO. This tends to weaken the power of the supervisory board as a whole. This weaker position instead of contributing to the development of strategy might result in supervisory directors limiting their task to monitoring and to work less on strategy development. On the other hand the outside world in the shape of shareholder activists, share-vote advisers, politicians, civil servants and the media are interfering more and more in company matters, which should be a reason for more board discussion about strategy and more proactive participation of supervisory boards in strategy development. Corporate governance has become more complicated.86