4.5.11 Chairmen in the present and future

Under present Dutch law the chairman of the company is the chairman of the supervisory board.

The general view is that whereas the role of the CEO has become stronger the chairman's position has not grown at an equal pace. This means that a certain balance has been lost.1

There are many instances where a strong CEO has managed to dominate the chairman. After aft, the CEO has all the information, can choose what he wants to teil and has the opportunity to influence the chairman in one-on-one meetings and calls. In this way the CEO can also create a distance between the chairman and the other members of the supervisory board.2 This can only be prevented if the chairman has the initiative and can gather information about the company and its business from other interaal sources. So far, however, the Dutch consensus culture has expected the chairman to behave not as an active leader, but as a primus inter pares.3 The DCC makes no mention of the chairman of the supervisory board.

The Tabaksblat Code and the Frijns Code have given the chairman of the supervisory board a sub stantial role in ensuring the functioning of the supervisory board and its committees. Under the Codes the chairman has to act as the main contact between the supervisory board and the management board members and shareholders and to ensure the orderly and efficient conduct of proceedings at general meetings.4

Conducting the general meeting of shareholders is an extemal function. As mentioned above, the DCC does not state who should chair the meetings, but most articles of association provide that the chairman of the supervisory board should preside over the general meetings.5 General meetings in the Netherlands are less well prepared than in the US and UK, where the lead time is much longer and all the procedures are observed for proxy voting and the provision of extensive information. General meetings in the Netherlands are often full of surprises. An example is the HBG case of 2003, where shareholders had asked the chairman to consult the shareholders' meeting about a substantial transaction (the conclusion of a joint venture), although there was no legal obligation to seek the approval of the general meeting. At a later meeting the boards gave some information about the transaction, but the shareholders questioned whether it was sufficient. The Enterprise Chamber held that there had been mismanagement, but the Supreme Court overturned the decision. This was an example of a supervisory board having to deal with a novel and unexpected situation.6 Foreign chairmen are not used to surprises at formal meetings. Chairing may become increasingly difficult7 if general meetings of shareholders are shown live on the company website and electronic voting becomes possible.8 Given the large percentage of foreign shareholders and the difficulties for foreigners in speaking and voting at general meetings, the pressure to move the debate with shareholders to an earlier date before the meeting, as is the practice in the US with proxy soliciting, is likely to increase.9

The responsibility for chairing general meetings of shareholders results in other extemal duties, such as giving the company a human face (a duty shared with the CEO), promoting the company's image in the long-term, and deputising for the CEO in cases of illness or sudden absence (as happened at ING, where chairman Hommen replaced the CEO when he suddenly fell ill). The chairman may possibly also be called upon to explain matters in the case of a crisis and to explain the company's remuneration policy to the outside world. All these functions suggest that while the CEO is chosen for what he can do, the chairman is often chosen for the impression he makes. Nonetheless, he should be modest!10

The most important interaal function of the chairman is to advise, encourage and act as a sounding board for the management board, especially the CE0.11 He should know the company well. He should also understand the dynamics of the management team and take action as soon as he suspects any disagreement between management board members. He should talk to them and inform his fellow supervisory board members. As soon as he senses disagreement between two executive directors during a meeting, he should adjourn informally and talk to each of them. In that sense he acts as the coach of the management board.

Some commentators say that Dutch companies have a triangular organization: management board, supervisory board and shareholders. All three should communicate well internally and with each other.12 If there is a problem of communication the chairman should try to mend the lines of communication.13

He is clearly the team leader of the supervisory board and as such responsible for ensuring the best possible results in the following fields: induction, training, information, agenda setting, allowing for sufficient time for consultation and decision making, committee functioning, appraisals at least once a year, election of the vice-chairman, meetings of the supervisory board without management board members present, proper contact with the management board and works council,14 and the planning of an orderly succession for management and supervisory board members. The harder the chairman works, the more important it is that he ensures that no information gap exists between him and the other supervisory board members, because he will only get the best out of his fellow board members if they are fully involved and informed.

Clearly, the Tabaksblat Code was inspired in part by the UK Combined Code. The UK literature on chairmen is often used as example in the Netherlands.15

The UK codes and literature have also inspired the most recent Dutch book by Professor Steven Schuit entitled "The chairman makes or breaks the board". Professor Schuit interviewed captains of Dutch industry and, based on the information they provided, made recommendations. These recommendations deal with the points mentioned in the Frijns Code, which are in many cases influenced by the UK codes. The chairman should ensure (1) proper succession of board members, (2) proper consultation and debate in the supervisory board, (3) proper coaching and "employment" of the management board members,16 (4) proper committee composition, (5) proper distribution of information, (6) proper follow-up to board decisions, (7) independent monitoring, (8) proper coordination of advice, (9) proper training and education, (10) proper evaluation, (11) meetings of the supervisory board without management board members present, (12) proper discussion of the development and achievement of strategy, (13) proper communication with important shareholders, (14) transparent reporting, (15) choosing a vice-chairman to evaluate the chairman, and (16) proper documenting of the division of duties between the CEO and the chairrnan.17 The book includes an English summary and is well worth reading. Schuit is of the view that chairmen should be more active than they are at present in order to get the best out of their fellow supervisory board members. He pleads for "heavyweight" chairmen. The same points would also be applicable to the chairman of a one-tier board, who would then also act as team leader of the executives and non-executives. The sheer number of quotes from people who are or were in positions of authority in large companies, such as Morris Tabaksblat, Hans Weyers, Jeroen van der Veer, Rob Zwartendijk, Jan Michiel Hessels and Kees van Lede, lends extra weight to these recommendations. It is interesting that the emphasis placed by Professor Schuit on the chairman's role as an inspiring team leader fits in well with the Dutch tradition of teamwork and consensus.

Schuit raises the question of whether the Dutch should follow the UK example exactly. Whatever the answer to this question might be, it is thought-provoking to read about "chairmen/team leaders" in the UK literature. It raises the question of whether UK chairmen are not becoming too powerful. Is it right that they should have a room next to the CEO? Would it not be better if the CFO were to sit in the room next to the CEO and that the chairman were to have a room on another floor, for example a floor above or below the CEO? Or should he perhaps have no room in the company's offices at all, as suggested by Kees van Lede.18 Should there be greater emphasis on the CFO? Is it right for the chairman to speak to shareholders about strategy without the CEO being present? Hans Weyers believes this should not happen 19 As UK chairmen are experts in just listening and not saying anything, not even by body language, it may be acceptable for them to have meetings with shareholders, but this may not be advisable in Dutch corporate culture. The advice of the Frijns Monitoring Committee is that the chairman should be able to speak to shareholders to sound out their views in the presence of another supervisory board member and an executive.20 It is also Martin Lipton's advice that a chairman or lead director should not speak to shareholders other than in the presence of the CEO. Again, what is possible in the UK where the chairman only listens may not be appropriate in the US or the Netherlands. For a low key approach and not too much hands-on leadership we might look to the US examples of non-CEO chairmen and lead directors.

Finally, what should a chairman do if there is a dispute between management and shareholders? In the Stork and ASMI cases21 the Enterprise Chamber gave the impression that the supervisory board should act as a go-between. The term used by the Enterprise Chamber — bemiddelen — is generally translated as mediate, but the meaning of the Dutch term is wider. The word mediate has a neutral connotation. In my view, a supervisory board can hardly be called neutral because it must have its own view. If it does not agree with the strategy of the management board it should say so immediately, but only to the management board. If it agrees with the management board it should support it. If the supervisory board then talks to shareholders it has to express support for the position of the management board, but remain open to the views of the shareholders. It may suggest a compromise in the presence of a management board member, after having consulted with management, but has no obligation to do so.

A completely different question is what the chairman of the supervisory board should do if he senses that communication between the management and the shareholders is not good. He should make every effort to ensure that communication improves and should in any case do nothing that could exacerbate the situation. In some cases the supervisory board might then be free but is not obliged to play a conciliatory or mediating role,22 as proposed by the Frijns Monitoring Committee and Advocate General Timmerman in the ASMI case.23 This requires politeness, respect and sensitivity to the feelings of the parties or, as Mrs M. Bax has said, emotional intelligence.24 This does not mean the supervisory board has to make concessions. It can listen and say it will give the matter thought.

In a one-tier board the role of the non-executive chairman is much clearer. He monitors, coaches and, if he agrees, supports management. I do not think that UK or US judges or lawyers would suggest that a chairman has a mediating role; naturally, he has a role in improving communication, but no more.

As regards committees, the chairman should not chair the audit committee or the remuneration committee, but should chair the nomination committee. There is convergence on this point in the UK, US and the Netherlands.25