The Importance of Board Independence (IVOR nr. 90) 2012/6.5.1:6.5.1 High Level Group of Company Law Experts

The Importance of Board Independence (IVOR nr. 90) 2012/6.5.1

6.5.1 High Level Group of Company Law Experts

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

With respect to independence, the High Level Group advises having independent supervisors involved in areas that affect strategy and the future of the company (Winter et al. 2002: 65). Examples of such areas are the nomination and remuneration of directors and the auditing of the company’s performance. In order to achieve the involvement of independent supervisors in these areas, the High Level Group recommends establishing remuneration, nomination and audit board committees. These committees must consist of supervisors, the majority of whom are independent. The High Level Group rejects any proposal to staff these committees fully with independent members, because it goes too far to exclude representatives of shareholders and employees from a position on these committees (Winter et al. 2002: 61). Furthermore, the High Level Group does not give any recommendation about the composition of the whole board or supervisory board with respect to independence.

In order to determine whether a supervisor is independent, the High Level group advises the Commission to offer a methodology for this purpose. ‘It is important that, to qualify as independent, the non-executive or supervisory director, apart from his directorship, has no further relationship, with the company, from which he derives material value. Certain relationships with the company, its executive directors or controlling shareholders may also impair independence.’ (Winter et al. 2002: 62) The High Level Group offers a list of relationships or circumstances that disqualify a supervisor from being independent. Related parties and family relationships should also be considered when the following relationships and circumstances are assessed:

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‘Those who are employed by the company, or have been employed in a period of five years prior to the appointment as NED or supervisory director;

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Those who receive any fee for consulting or advising or otherwise, from the company or its executive managers;

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Those who receive remuneration from the company which is dependent on the performance of the company (e.g. share options or performance related bonuses, etc.);

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Those who, in their capacity as NED or supervisory directors of the company, monitor an executive director who is NED or supervisory director in another company in which they are an executive director, and other forms of interlocking directorships;

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Those who are controlling shareholders, acting alone or in concert, or their representatives. Controlling shareholder for the purposes of this rule could be defined, as a minimum, as a shareholder who, alone or in concert, holds 30% or more of the share capital of the company. ’(Winter et al. 2002: 62-63)

This advice should be implemented in a Recommendation and the enforcement should be based on the comply or explain principle. Companies should either comply with the requirements or state in their annual report to what extent and the reason why they do not comply.

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