3.8 Overall analysis and concluding remarks

As set out in section 3.1, much progress has been made during the last decade in improving CSR. Nonetheless, it remains a challenge for boards to employ strategies with a long-term focus on sustainability. New types of shareholders, such as hedge funds and private equity parties have attempted to influence corporate strategy. Their acts sometimes caused conflicts with boards on corporate strategy. These conflicts as well as the financial crisis sparked the debate about short-termism.1 To avoid new crises, the author contends that we need a true reorientation of our economy and business methods towards a model that encourages a value increase in three dimensions: People, Planet and Profit, i.e. a fusion of interests. The supporting corporate governance model can enhance this by (i) requiring company boards to define ambitions and standards to be met, (ii) creating transparency of business activities, and in (investment) decision-making, (iii) stimulating accountability for corporate conduct and offering remedy measures, and (iv) allowing stakeholders to participate in the decision-making process. The inclusion of CSR as a subject of corporate governance in the Frijns Code, is a positive step in this direction. It encourages companies to explicitly consider CSR matters and to make them part of (long term) core-business concerns.

As regards setting ambitions and standards, section 3.4 explained that the Frijns Code requires of directors - in general wording - that they 'manage CSR issues that are relevant to the enterprise' and that they submit the same for supervisory board approval (Principle II.1 and provision II.1.2). The code of conduct that the directors have to publish on the company's website is however only regarded as an internal risk management instrument (provision II.1.3(b)). The Frijns Code could be improved by requiring directors to set plain standards for CSR performance in a code of conduct (or by referencing an existing international code of conduct), and by defining clear ambitions as part of the CSR strategy. Best practices include communicating them on websites and in annual reports, and to report on the progress. Today, the question is no longer whether a company wishes to become a responsible company, but rather how it can be one.

A long-term perspective needs to be the focal point in order to recover trust in the markets. In section 3.5 it has been argued that transparency is crucial in this respect, not only on corporate governance aspects (G), but also on Planet (Environmental=E) and People (Social=S) aspects, i.e. together, on the ESG factors. Transparency will contribute to making business methods and activities visible, as well as any hidden and externalised consequences of economic activities. The information can be used by corporate directors, policy makers, consumers, and investors when taking decisions while conscious of all their effects and impact.

Regarding the transparency of business activities, section 3.4 described that the Frijns Code requires that boards mention the main elements of the company's CSR strategy in the annual report (provision II.1.2). Although said provision is in line with Dutch corporate legislation (article 2:391 DCC), Dutch accounting guidelines (Guideline 400), and the international developments concerning the GRI G3 sustainability reporting guidelines, the Frijns Code does not refer to any of these. As was noted in section 3.6, Dutch MP Kalma had expressed the opinion that provision II.1.2 is therefore unclear. Whereas many internationally operating companies already follow the GRI G3 reporting guidelines and/or Guideline 400, the provision does not even affirm best practices. It could be improved by explicitly referencing them. In section 3.6, the author contends that the same result could be achieved if these guidelines were to be designated as a code of conduct within the meaning of article 2:391 (5) DCC with which a company has to comply or explain. Moreover, in orderto generate reliable and comparable information about business activities, it would be recommendable to recommend verification and validation by independent auditors. This aspect has not been covered by the Frijns Code.

This brings us to the second dimension,transparency: transparency in investment decision-making. As has been demonstrated in section 3.5, there is room for improvement. Institutional investors could consider ESG factors in a more systematic way, and be more transparent about their considerations and choices. Also, CSR would be supported if investors were to show a stronger loyalty and engage more actively in ESG issues with the companies in which they invest. The author expressed regret about the Monitoring Committee's decision not to include a duty on institutional investors to disclose whether and to which extent they take into account ESG factors' in the Frijns Code. The Monitoring Committee rejected the recommendation of the Burgmans Committee to include this in Principle IV.1. In section 3.5, the author referred to the internationally accepted Freshfields Report on the fiduciary duties of institutional investors, which report confirmed that such investors may and sometimes should take ESG factors into account in their decision-making process. The sequel to this Report came out in 2009 and provides a legal roadmap for concrete steps to operationalise responsible investment. The author also discussed the Eumedion position paper. Its view concurs with the Burgmans recommendation. The position of Eumedion includes the view that greater responsibility is expected from institutional investors, in particular that ESG factors are to be integrated into the investment process, and that engaged shareholdership is to be encouraged.

In respect of the question whether the Frijns Code assists in stimulating accountability for corporate conduct and offering remedy measures, the general idea is that making CSR part of corporate governance will enhance accountability. However, corporate governance can further develop in this respect. As suggested above, the formulation of clear standards and ambitions would definitively improve accountability. As regards offering remedy measures, the Frijns Code does not address how to deal with stakeholder conflicts related to CSR issues. The author opined in section 3.4 that it would have been positive if the Frijns Code had included language on how to resolve CSR conflicts with external stakeholders.

The last subject considered in the light of CSR concerns the question whether the Dutch corporate governance model facilitates and encourages stakeholders to participate in the decision-making process. In the view of the author, a stakeholder dialogue is a first step in the CSR process, and stakeholder participation constitutes the next step. Corporate strategy is set by a few people at the top of a company. In order to implement CSR strategies, what is needed is people from the floor to advise about filling in the main structures and making it work in practice. Existing expertise available in the company as well as fresh ideas can be very valuable to make CSR operational.2 It is also imperative that as part of the stakeholder participation, the company liaises with external stakeholders. They can contribute to the discussion the perspective of people elsewhere who may be affected by the company's activities and the public interest (Planet).3 The Netherlands and other European countries introduced a legal system of codetermination in order to have the workers' interests respected long ago. In some jurisdictions, such as France and the UK, unions play a stronger role in codetermination. The Frijns Code explicitly maintains that the directors take into consideration the concerns of stakeholders, and that they engage in dialogue with stakeholders; section 3.4 discussed this (Principles II.1 and provisions III.4.1(g) and III.1.9). In section 3.6 it has been

explained that pursuant to a Bill, the Dutch works councils will acquire some rights to express their opinion in the general meeting. However, the author feels that boards can make more effective use of co-determination systems for the carrying out of CSR policies. On the other hand, works councils themselves can also claim a more active role in the CSR debate.4 However, as regards the participation of external stakeholders in the decision-making process, it seems that the authors of the Frijns Code had not intended to further institutionalise this. The author considers this a next step in the development of corporate governance based on CSR. The participation of stakeholders is necessary in order to create legitimacy of business decisions. This becomes even more important in the case of MNCs due to their impact on society. Introducing stakeholder participation could for example take place by inviting external stakeholders to the decision-making process, either as experts or as co-decision-maker, e.g. by making them part of a supervisory board or a works council committee, or by establishing a special CSR committee. Section 3.6 mentioned some examples of best practices in this respect. Propositions to this end were also recorded by the Burgmans Committee (see section 3.3).

Board composition has to do with expertise but can also link up with stakeholder participation. Shareholders and works councils have a say in the appointment of directors in Dutch companies. Interestingly, the Frijns Code pays attention to gender and diversity considerations concerning the composition of the supervisory board. Equal gender representation of boards is also part of a new Bill (at least 30 per cent female and 30 per cent male). The Frijns Code could have followed this line, which would be in accordance with international legislative developments. Furthermore, the Frijns Code could have been more explicit in its wish that the gender component of the composition of the board of directors also requires attention (see the discussion in section 3.4).

Concluding, making CSR part of the Dutch corporate governance code is an interesting step. It will assist boards to guide the company towards sustainable business with a long-term view. However, there is room for improvement of the Frijns Code. Corporate governance will undoubtedly develop further as a tool that supports CSR.