229 Emergence of a more engaged supervisory board.

In addition to the responsibilities of the supervisory board, Dutch corporate law also lays down its mandate and composition. In general, the mandate of the supervisory board consists of several legal powers, such as the power to call a general meeting of shareholders, to establish a policy for dealing with the conflicted interests of board members, and to propose a renumeration policy for executive board members.1 If the corporation is subject to the structural regime (structuurregime), then the supervisory board receives the additional power to appoint and replace executive board members, and to veto specific board decisions, such as the acquisition of another corporation, a proposal to change the corporation’s articles of association, or a restructuring involving a large number of employees.2 These powers provide weight to the supervisory function and enable the supervisory board to provide checks to the autonomy of the executive board.3 Particularly through selecting or profiling for new board members, the supervisory board can influence the direction of the corporation with regard to social and ecological interests, for example by profiling for candidates with a strong social or sustainability-related background.4

Building on these legal powers, the Dutch Corporate Governance Code contains detailed and technical best practices regarding the mandate of the supervisory board, particularly in relation to risk management, internal audit, selection, culture, renumeration and the role of the chairperson.5 The Code further stipulates the establishment of special sub-committees with regard to internal auditing, selection and renumeration.6 These best practices enable the supervisory board to closely monitor detailed aspects of board decisions, particularly through the internal audit committee. The audit committee monitors financial reporting, the internal risk management system, the internal audit department, the relationship with the external accountant, the application of information technology and the affiliated risks of cybersecurity, and the financing of the corporation including its tax policy.7 Although at first glance the focus seems to be on financial performance only, it is increasingly expected that auditing functions should include non-financial performance in their auditing operations.8 The internal audit committee also enables the supervisory board to receive the information and signals that are necessary to monitor board decisions with regard to social and ecological aspects.9 Taken together, these legal powers and best practices therefore provide the supervisory board with the unique capacity to closely monitor the risks and impact related to the social and ecological interests involved in the corporation.

In addition to the mandate of the supervisory board, Dutch corporate law increasingly provides ground rules regarding the composition of both the executive and supervisory boards, particularly in relation to their independence and diversity.10 Although corporations are free to decide who sits on their supervisory board, Dutch corporate law lays down specific formal requirements in order to safeguard the independence of supervisory board members from other sub-interests involved in the corporation.11 The supervisory board as a whole is composed of at least three supervisory board members, who should together represent the competences and backgrounds encompassing the nature of the corporation.12 The growing need for gender diversity in top leadership positions has resulted in the adoption of the Dutch Gender Diversity Act (Wet genderdiversiteit), which obliges the supervisory boards of large Dutch corporations to be composed of at least one third female and one third male board members.13 Additionally, the European Union recently adopted the EU Gender Balance on Boards Directive with similar requirements.14 In recent years, the Corporate Governance Code has further required listed corporations to have a policy for stimulating diversity among their general leadership, particularly regarding gender, age, nationality and professional background.15 For the supervisory board, this implies the recruitment of a diverse set of professional experts having different viewpoints, nationalities, backgrounds and areas of expertise.16 Bulten and Jansen identify a trend of increasing expectations for supervisors to monitor risks and issues related to sustainability, requiring a new set of expertise and competences in the supervisory board.17 In relation to the appointment of new supervisory board members, the supervisory board proposes new candidates and the general meeting of shareholders appoints them.18 An important exception in corporations that are subject to the structural regime is that the works council has the right to provide a binding recommendation for a third of the candidates for the supervisory board.19 By law, each supervisor – also those proposed by particular interest groups – is required to serve the interest of the corporation as a whole.20

All in all, these rules demonstrate the emergence of a more engaged, professionalized and expert-based supervisory board, as encouraged by the Dutch Corporate Governance Code.21 This development fits well with a potential responsibility for the supervisory board to specifically monitor the larger social and ecological interests involved in its corporation. Meanwhile, further capacity-building might be needed, for example by requiring corporations to include specific experts from civil society who are able to represent relevant social and ecological interests in corporate governance. In order to determine whether the current rules provide sufficient capacity for social and ecological supervision, I look more closely at the issue of what should be the composition of a capable supervisory board in order to effectively monitor and consider relevant social and ecological interests.22