3.3 The 2010 Dutch corporate governance model

When the Tabaksblat Code entered into force in the Netherlands, a 'Corporate Governance Code Monitoring Committee ' (Monitoring Committee) was appointed to evaluate compliance with the Code. The Committee published a report annually. In 2008 it was decided that the Tabaksblat Code needed updating and that the Monitoring Committee should do this.1

Over the years, various arguments had been put forward for extending the Code to cover new themes. Relevant for this chapter are the position of women in board composition, diversity and CSR.2 As regards CSR, two options were suggested: to include provisions on CSR in the updated corporate governance code or to draft a separate CSR code (also subject to a comply or explain' mechanism).3

In May 2008, a study was commissioned by the State Secretary for Economic Affairs, to be carried out by a committee under the chairmanship of Anthony Burgmans, the former CEO of Unilever, into the relationship between CSR and corporate governance (Burgmans Committee). The resulting report contained specific recommendations for supplementing the Tabaksblat Code with provisions on CSR (Burgmans Report).4 The recommendation was to incorporate the subject of CSR into the provisions regarding the task and operating procedures of the boards of directors and supervisory directors.

Further recommendations dealt with the strategy; internal control system; salaries; conflicts of interest; the expertise and composition of the supervisory board; and the provision of information to shareholders. Proposals were also made to include a requirement to appoint a special CSR committee within the supervisory board;5 to include a provision on a special CSR code of conduct; to make the subject of CSR part of the general meeting agenda; to require integrated reporting (of financial and ESG information); and to impose certain CSR-related obligations on shareholders. The Report stressed that the Burgmans Committee had also received criticism on the idea of including CSR in the Tabaksblat Code. It therefore recommended that the largest possible effect should be aimed at with as few changes as possible. The Report thus advised to urge the management and supervisory boards to consider the material concerns for the company of societal aspects of its business, and to communicate those. Furthermore, the Burgmans Report recommended that institutional investors should be encouraged to clarify their ESG considerations.6

The Monitoring Committee subsequently decided to include the majority of the Burgmans recommendations in the amended corporate governance code. It stated:

A proposal for the amended code was released in June 2008 (the draft Frijns Code). Similar to the Tabaksblat Code, the core perspective of the Frijns Code was: ' that a company is a long-term alliance between the various parties involved in the company.' The draft Frijns Code stated that the management board and the supervisory board have overall responsibility for balancing the various interests. This is aligned with the common Dutch perception of the role a company fulfils in society, i.e. that corporate activities are embedded in a stakeholder model. In fact, the CSR concept is fairly much in line with the traditional Dutch stakeholder model.7

The proposed changes coincide with the approach introduced in 2006 in section 172 of the UK Company Act. Section 172 requires boards to employ a broader and long-term perspective in their management. This is a new duty developed from the fiduciary duty of good faith to act in the company'sbest interest.8 This section imposes a duty to act in the way a director considers - in good faith - would be most likely to promote the success of the company. When exercising this duty, the director is required to have regard for various non-exhaustive factors listed in section 172(1) including the long-term consequences of the decisions as well as the interests of the employees; the relationships with suppliers and customers; the impact of the decision on the community and environment; the desirability of maintaining a reputation for high standards of business conduct; and the need to act fairly towards members of the company. Scholars point out that this duty introduces wider CSR into a director's decision-making process but they regret that success' is not defined.9 The UK Department of Trade and Industry (DTI, 2010) guidance on the Bill suggests that success in relation to a commercial company is considered to be its long-term increases in value'.10 Inevitably, the courts will set out the perimeters' in the interpretation of this duty. According to commentaries, it remains to be seen how in practice a director is to balance all these sometimes conflicting factors in his decisions.11

Besides ensuring the continuity of the enterprise, and trying to create longterm shareholder value, the draft Frijns Code advocated that the management board and the supervisory board should take the interests of the various stakeholders, including corporate social responsibility issues that are relevant to the enterprise' into account [Emphasis added]. If stakeholders are to cooperate within and with the company, it is essential for them to be confident that their interests are represented. It was stipulated by the Monitoring Committee that the two pillars upon which good governance is founded and which are essential conditions for stakeholder confidence are (i) good entrepreneurship, which includes integrity and the transparency of the management board's actions, and (ii) effective supervision of their actions and accountability for such supervision. Moreover, it was argued that good relations between the various stakeholders are of great importance, particularly through continuous and constructive dialogue.12

Interested parties could comment on the proposals until September 2008.13 In addition to written reactions, the Monitoring Committee held consultations with special interest groups and experts to discuss the proposals in more detail. The comments led to amendments to the draft Frijns Code, and, as the Committee indicated, fostered support for the Code. One respondent asked the Committee to try to avoid including social themes in the Code. In the respondent's view: 'social themes are not directly connected with corporate governance, such as detailed rules on executive pay, diversity and corporate social responsibility'. Other respondents were of the opinion that 'the [CSR] proposals did not go far enough to safeguard the company as a long-term alliance of interests, or wished greater emphasis to be placed on the role of employees (and their representatives) or more attention given to integrity'.14 In reaction to these comments, the Monitoring Committee stated: the fact that the Code is seen as a way of solving issues identified in society is a testament to its strength'.15

One respondent drew attention to the inherent tension in the stakeholder model between, on the one hand, the rule that when taking decisions the management and supervisory boards should be guided by the interests of the company and its stakeholders and, on the other, the fact that these boards are accountable for their actions to shareholders, who are themselves entitled to put their own interests first'.16 The Committee considered this tension particularly relevant in takeover situations, and dealt with this issue in the preamble. The preamble states that the way in which this tension should be resolved will differ from case to case. For example, shareholders can give priority to their own interests with due regard for the principle of reasonableness and fairness. The greater the interest a shareholder has in a company, the greater is his responsibility towards the company, the minority shareholders and other stakeholders. The Committee pointed to the Code's general rules of conduct which are supposed to ensure careful handling of the processes involving the various bodies that constitute the company. These are designed to help management and the supervisory board 'weigh up the different interests'.17 Whereas the Committee addressed the issue of the tension between different interests in takeover situations (the management and supervisory board, on the one hand, and a group of shareholders on the other), the author regrets that the Committee did not elaborate on how to solve conflicts with other stakeholders, e.g. concerning the company's CSR strategies. This is unfortunate since CSR conflicts frequently occur, and it seems that a company's management does not not always know how to deal with them constructively.18 The Code could have proposed ways of creating a platform for complaints, and offered suggestions for remedial measures.

On 10 December 2008, the Monitoring Committee published the final revised corporate governance code, i.e. the 'Frijns Code' named after the chairman of the Monitoring Committee, Mr Jean Frijns. The Code came into force 1 January 2009.19 A Decree to designate the Frijns Code in accordance with article 2:391(5) DCC was adopted in 20 09.20 Consequently, just like the Tabaksblat Code, the Frijns Code applies to listed companies with a registered office in the Netherlands.21