5.3 Changes at different moments

Corporate governance had been topical in the US in the 1970s and there were broad discussions about the need for truly independent directors and committee members, especially on audit committees, but in practice in most cases the imperial CEO was dominant in the choice and appointment of outside directors he trusted.

In 1992 the UK took the lead — upon instigation of leaders in the City and institutional investors supported by the government — with the trendsetting Cadbury Code of Best Practices, which set aspirational standards and introduced the concept of "comply or explain".

The UK emphasized balance, (a) by separating the function of CEO from the task of chairman and, (b) in the area of Board functioning by underlining the important roles of creative strategy and monitoring by Non-Executive Directors (NEDs) who are in a small majority so as to form a balanced board. The Cadbury Code and all its successor codes emphasized all elements of early and on-site information of NEDs, formal discussion on succession by the complete board, intense work, evaluation, committees, etc. The best practice codes system in the UK led to changes in all these areas.

The UK Companies Act of 2006 introduced the concept of "enlightened shareholder value" in section 172, which emphasizes that the board must have regard to all aspects, including elements such as employees, customers and the environment and promote the success of the company for the benefit of its members as a whole.

In the US the first changes came in 1994 at large companies, such as General Motors, instigated by shareholder activists like CaIPERS, but these initiatives dwindled as soon as share prices moved up and the conviction took root that better governance could be achieved by giving directors options and shares.

In the US the real changes came after the Enron scandal and the SarbanesOxley Act in 2002. At that point the imperial CEO/chairman was still common. Since then activists fought for changes, which are continuing.

In the Netherlands, where boards are to act in the interest of the company, shareholders are able to wield more power since 2004, thanks to the Tabaksblat and Frijns Codes, the relaxation of the Structure Regime Act, the Enterprise Chamber jurisprudence and the substantial increase in foreign shareholders.

In the US a counterbalance to strong management is achieved by a large majority of the board consisting of independent directors, where the only officer on the board is the CEO. The roles of the independent directors include the task of co-deciding on strategy by intense challenging and monitoring. The Sarbanes-Oxley Act, stock exchange regulations, privately developed best practice codes and court decisions emphasize personal independence of directors, due process in board meetings, independent advisors, and early and on-sight information, succession procedures, intense involvement of all directors, etc. There are "executive sessions" where the independent directors meet separately. The committees are composed of only independent directors and have quite stringent procedures to assure that directors can form their opinions independently and can freely ask advice of outside specialists if they wish to do so.

In the US already 30% of listed corporations have separated the functions of CEO and chairman; shareholder activists are urging other corporations to follow this trend. In the other 70% lead directors are becoming stronger. Modesty is becoming a more important characteristic for CEOs.

These changes in the US were slower to come than in the UK, because they were a result of long discussions between shareholder activists and CEO supporters, such as the Business Roundtable, while the federal rule makers have not really taken the initiative. They have since taken drastic action with the enactment of some measures in corporate law through the Sarbanes-Oxley and the Dodd-Frank Acts.

In the Netherlands there has been debate about defence mechanisms from 1990 onwards. Litigation about corporate governance matters in the Enterprise Chamber became more frequent after 1995 with the introduction of the possibility of preliminary injunctions. In 1997 there was first the Peters Code; then came the Tabaksblat Code in 2004, which on many subjects followed the Cadbury Code for example by:

In all three countries the influence of institutional investors and activists have increased considerably over the last twenty years — first in the UK, then in the US and in the last 9 years in the Netherlands also with 75% foreign shareholders — and direct communication between board and strategie and vocal investors has become a common feature.