4.4.3 Composition of the average boards

In general, the number of directors in Netherlands' boardrooms is not different from that of the US and the UK boards: on average in all these countries there are about 4 to 5 "inside" directors and 5 to 6 "outside" directors. The difference is that they have different "name tags" and by consequence have different tasks.

In the UK there are about 4 to 5 executive directors, a chairman and an average of 5 to 6 non-executive directors (NED5). In the US the CEO is usually also the chairman. He is the only executive board member. The other officers, about 3 or 4 are not board members but do usually attend board meetings. These US boards are further filled with 6 to 7 independent directors, including a lead director — who often meet separately in executive sessions. In 30% of the listed companies there is a separate non-CEO chairman instead of a lead director.

In the Netherlands there is a management board of about 4 to 5 and a supervisory board of about 5 to 61 and they usually meet together.

Upon introduction in the Netherlands of a one-tier board in the Act there would most likely be 4 to 5 executives, including the CEO and 5 to 6 non-executives, including the chairman.

Traditionally a Dutch management board was composed of a general managing director ("algemeen directeur"), a finance director and one or two other directors. They managed by consultation of equals leading to consensus and there were checks and balances within the management board, the co-pilot model.2

From about 2000 the "algemeen directeur" changed into a CEO. Not only did the name change, but the function became more important. The stock exchange, foreign investors, foreign financial markets and media wanted a visible personal leader. It is also a consequence of centralisation of global conglomerates.3

Dutch listed companies, whether in a structure regime or not, have by average 5 to 6 supervisory directors. Their tasks are increasing. They work harder and they are nominated independently. One of them is the chairman. The growth of the role of the chairman has not kept pace with the rising star of the CE0.4 The company also has a vice-chairman who can replace the chairman and lead the evaluation of the chairman.5

In examples mentioned above6 there are "insiders" and "outsiders".

The Act leaves completely open how many executive directors and how many non-executive directors there should be. In the UK NEDs must have a majority, in the US the independent directors must form a vast majority. The Dutch are used to 4 to 5 executives and 5 to 6 supervisory directors/non-executives, it is likely that this will continue. The Tabaksblat and Frijns Codes stipulate that there should be more independent non-executives than executives.7 This is important for the balance and stimulates to follow the UK model.

Theoretically a Netherlands' company in deciding for a one-tier board could opt for the US model of only a CEO and 5 or more non-executives on the board and the other officers in the room by invitation. An argument for such US type boards could be: they only discuss broad lines and strategy anyway and it is more efficient. The counter argument would be: if other officers are also on the board, there is more insight for the non-executives in the background arguments of the officers, more insight in the dilemmas, more insight as to whether the management team functions well and more insight in who would be suitable candidates for the top.

The supervisory directors or non-executives are, according to the Frijns Code, to be assisted by an independent company secretary who is appointed by the management board upon the proposal of the supervisory board and with its consent. On paper the arrangement seems good.8 In practice, however, he works for and is instructed by the management board and the supervisory board at the same time.9 The example of the UK company secretary is good, because in the UK it is absolutely clear that the company secretary works for the chairman and the NEDs. The UK experience has been that if the functions of general counsel and company secretary are combined in one person, the secretary work is usually delegated to a more junior person and is then diluted. If there is a real separate company secretary, who is the conscience of the company and who supports the chairman in corporate governance and strategy development, the company secretary can add substantial value. The UK example shows that it is advisable to have a senior and independent person as company secretary. See for the UK, sub-section 2.4.4.

Dutch supervisory boards — sine the Tabaksblat Code of 2004 — have audit, remuneration and nomination committees if there are more than 4 supervisory board members. In the Netherlands the nomination committee is called "selection and approval committee", "selectie- en benoemingscommissie". The members of these committees are supervisory board members. The chairman of the supervisory board may not be chairman of the audit or remuneration committee,10 although he is usually chairman of the nomination committee. In Dutch one-tier boards onder the Act the committees will be the same and the members will be non-executives. Article 2:129/239(a) of the Act on one-tier boards restricts the monitoring and nomination roles to non-executives.11

As in the UK and US one of the members of the audit committee must be a financial expert. This idea of the financial expert was developed by the Sarbanes-Oxley Act.12 In the UK the names of the committees are the same as in the Netherlands although in the Netherlands the Nomination Committee is often called the selection and appointment committee. In the US there are audit, compensation (US word for remuneration) and nomination committees.

In the composition of the committees we see a substantial convergence in the US, UK and Dutch practice, except that in the US there is a strict rule banning executives from the meetings and US committees tend to deliver more finished and final work to the board than Dutch and UK committees do. Having more independent advisers in board committees and in board meetings is a general trend in the US. This trend is followed to a lesser extent in the UK and the Netherlands, but may grow further. "Over use" of advisers has draw backs. Caused indirectly by the Sarbanes-Oxley Act, Dutch audit committees may now sometimes be more "directive" than Dutch supervisory directors were in the past.13

The Tabaksblat Code and Frijns Code already had a stipulation limiting supervisory directors to not more than 5 board memberships, where the chairman counts for two memberships.14 The House of Representatives on 8 December 2009 amended the Act to have this stipulation added into the Act, to determine that executives can only serve on two boards as supervisory director and non-executives can only serve on five supervisory boards at one time.15 It is interesting to note that such best practices are already quite normal and accepted in the UK and the US, not only because of any cumulation, but simply because of the time involved in these functions. The main point of the amendment is that it is mandatory instead of a "comply or explain" rule and can have draconian, i.e. voidness, effects as a consequence.

The House of Representatives added a further amendment to the Act aiming for a diversity, on a comply or explain basis, that both management and supervisory boards should have at least 30% women and at least 30% men.16