4.5.17 Succession

The system of succession in Dutch public companies has always tended to vary from company to company and has not followed uniform and transparent rules. A variety of pressure groups could make binding or semi-binding nominations or even appoint management and supervisory board members. These groups included priority shareholders and board-friendly foundations, in cases where defence mechanisms had been installed. And in the case of "structure regime" companies supervisory board members and works councils had rights of nomination and appointment. Even in the absence of such privileged groups, it was customary for the CEO to propose his own successor and the successors of other management board members. Often such a successor was accepted by the supervisory board. Similarly, the chairman of the supervisory board and other heavyweight fellow members appointed their successors. Now, with the recent evolution of nominations committees presided over by the chairman, there is a more formal process.

The Dutch can learn both from the UK example of rigorously following the procedures for nominations and of regularly discussing succession1 and from the example of US boards, which actively plan recruitment, development and succession for all key positions.2 Although the introduction of nomination committees has seemingly improved the Dutch succession planning system, the CEO is still felt by some to exercise too much influence.3

Nomination committees are now required to draw up a profile for the board as a whole whenever they make a nomination.4 The idea of a profile was put forward by the Peters Committee in 1997 and even earlier, in 1984, by the Social and Economie Council (Sociaal Economische Raad/SER), m its advisory report on the members of supervisory boards of "structure regime" companies. This idea was developed further in the Tabaksblat and Frijns Codes.

In my view, a certain amount of formalisation of the nomination procedures is a good idea and a profile can be helpful in this respect. There are many companies where this works well, but there are others where profiles and formai procedures are just window-dressing, or box-ticking exercises, designed to conceal the fact that a dominant director is still pushing his or her favourite. Another criticism, often heard about profiling, is that it focuses on formai aspects such as residence, nationality, knowledge and experience and less on the personal qualities needed for good human resource and teamwork aspects. The introduction of nomination committees does provide for a proper procedure. It is important to follow the UK example of discussing succession and nominations regularly in meetings to avoid decisions being prepared and taken informally. Dutch corporate practice would also do well to follow the US example of discussing mid-level succession and formulating emergency plans for sudden vacancies.

I suggest that the following text be added as 111.2.4 to Principle 111.2 of the Frijns Code: "The supervisory and management boards will deliberate with each other at least once a year about the procedure and the ways and means of discussion, the frequency and timing of the evaluation and succession of supervisory and management board members and about the desirability and, if so, the frequency, to ask outside advisors to assist in this process, as well as the terras of office of all the directors, and which middle management persons should fall under the evaluation and succession proces s. If there is a one-tier board, the complete board should hold these annual deliberations."