6.1 Annex Summary in English

This study investigates the one-tier board system. The reason for this inquiry is the introduction of the One-tier Board Act, which was finally enacted on 6 June 2011 and which will probably become effective on 1 July 2012. This Act gives the option for NVs and BVs to organize themselves with a one-tier board as alternative to the traditional Dutch two-tier board system with a management board and a supervisory board. This alternative governance system is being adopted to facilitate foreign investors.

Looking over the borders is an effective way to accumulate ideas about better board practice. I have chosen for the comparison of the UK, the US and the Netherlands, because UK and US investors directly or indirectly own more than 50% of the Netherlands listed shares and because a lot of thought has been given to corporate governance in these two countries.

This study has five chapters:

Each of the country chapters are composed of sections 1 - history and culture, 2 - who owns the shares, 3 - acts and informal codes, 4 - composition of boards, 5 - role of directors, 6 - duties and 7 - liability of directors. Each time the sections4,5,6and7areconcludedbyasummary.

Within the Netherlands' chapter there is also a comparison between the one-and two-tier board systems.

The history and culture of board systems is different in each country.

The UK has since the East India Company of 1600 had companies where the shareholders were powerful. British directors like to be pragmatic and creative and to be active in developing strategy of the company.

The US directors are used to free entrepreneurial activity. They are individualistic and assertive and give power to a strong CEO, who is in the majority of companies at the same time chairman.

The Netherlands has through its history developed a collegial non-hierarchical board system without strong CEOs or chairmen. This also entails a principle of joint responsibility for all directors. Through four centuries of corporate activities a system developed of managers and a separate body of supervisory directors who are at a distance and only monitor directors.

In the last 20 years there has been a strong development in corporate governance practice. From 1977 the word corporate governance was used in the US where audit committees were developed. In 1992 the British developed the Cadbury Code of Best Practices with the "comply or explain" rule. This Code was followed and partly copied by many of these Codes in other countries. In 1992 shareholder activists initiated changes in the US, but after Enron the real development started in 2002. In the Netherlands, after the Peters Code of 1997, big changes came about in 2004 with the Tabaksblat Code. These changes provide for a convergence to a certain extent.

While it is by now a joint characteristic of the three countries that the shareholdings of listed companies are spread out, there has been substantial change in the shareholdings in the last 30 years. In the 1970s UK investment institutions obtained important positions as large shareholders. The same happened in the 1980s in the US and from the 1990s in the Netherlands. The Dutch went through another drastic change after 2000 with a growth to 75% foreign shareholders.

The composition of the boards differ, while the number of people in the boardroom is about the same.

They all have company secretaries, of which the UK ones have the strongest stature.

The role of the outside directors differs. UK NEDs are active in the development of strategy, see sub-section 2.5.5. US independent directors actively challenge and debate the strategy, see sub-section 3.5.3. UK chairmen are strong and often earn four times as much as NEDs, see sub-section 2.5.8. US lead directors or non-CEO chairmen are less powerful.

Dutch supervisory directors are, save with some exceptions, not intensely involved in developing strategy or in decision making. The management board does that and supervisory board members are limited to monitor and have a veto on certain decisions. This means that Dutch supervisory board members do not get early information or on-site information and do not speak with lower management, as UK, US directors and Dutch one-tier board non-executive directors do.

Duties are converging. The UK enlightened shareholder value embodied in section 172 of the Companies Act 2006 is of interest, because of due consideration of all stakeholders as is the Dutch literature and jurisprudence on interest of the company and the attention for the shareholders' interest, see sub-section 4.2.5.

The litigation scenes in the three countries differ, with a lot of activity in the US, where the loser does not have to reimburse the winner and where directors can rely on the business judgment rule which is clearly developed in the Delaware chancery courts, on indemnification and D&O insurance. The UK, where the loser must pay the winner for all costs, has rare liability cases, but more disqualifications. The Netherlands has enterprise inquiry cases for mismanagement and measures in companies and a separate route to the district courts for liability cases. In each country there is different recognition in various degrees for the differences in functions. See section 1157 Companies Act 2006 and the Dutch Staleman v. Van de Ven case.

Examples that can be followed and proposals for the practice of two-tier and one-tier boards are:

Furthermore I have the following proposals:

In considering the pros and cons of a one-tier board, one sees that the good one-tier boards have a system where outside board members get earlier and better information and are involved in decision making and strategy development and know more about the business and its managers, but it still is useful to have the annual deliberation about process.

The pro of a two-tier board is that the independent supervisory board is part of the Dutch board culture, which implies that all directors know their role.

I propose as possibility to first change the activity and process of the boards and then, when the roles have changed, to consider to change to a one-tier board.

The One-Tier Board Act is important to spark the discussion about improvement of process and activity of outside directors and can with a good preparation be a good alternative board model.