The Importance of Board Independence (IVOR nr. 90) 2012/8.2.4.1:8.2.4.1 Independence criteria

The Importance of Board Independence (IVOR nr. 90) 2012/8.2.4.1

8.2.4.1 Independence criteria

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

The independence criteria for Dutch companies are provided in the Dutch Corporate Governance Code. The emphasis on independence in the DCGC is an innovative finding in comparison to the situation before the first introduction of the DCGC in 2004 (Timmerman 2004: 1634-1635). The DCGC gives a principle and a best practice provision with a list of circumstances and relationships that disqualify a supervisor from being independent. Principle III.2 DCGC provides that: ‘The composition of the supervisory board shall be such that the members are able to act critically and independently of one another, the management board and any particular interests.’ In order to determine whether the members of the supervisory board are independent, best practice provision III.2.2 provides the following:

‘A supervisory board member shall be deemed to be independent if the following criteria of dependence do not apply to him. These criteria are that the supervisory board member concerned or his wife, registered partner or other life companion, foster child or relative by blood or marriage up to the second degree as defined under Dutch law:

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has been an employee or member of the management board of the company (including associated companies as referred to in Section 5: 48 of the Financial Supervision Act (Wet op het financieel toezicht / Wft) in the five years prior to the appointment;

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receives personal financial compensation from the company, or a company associated with it, other than the compensation received for the work performed as a supervisory board member and in so far as this is not in keeping with the normal course of business;

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has had an important business relationship with the company, or a company associated with it, in the year prior to the appointment. This includes the case where the supervisory board member, or the firm of which he is a shareholder, partner, associate or adviser, has acted as adviser to the company (consultant, external auditor, civil notary and lawyer) and the case where the supervisory board member is a management board member or an employee of any bank with which the company has a lasting and significant relationship;

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is a member of the management board of a company in which a member of the management board of the company which he supervises is a supervisory board member;

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holds at least ten per cent of the shares in the company (including the shares held by natural persons or legal entities which cooperate with him under an express or tacit, oral or written agreement);

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is a member of the management board or supervisory board - or is a representative in some other way - of a legal entity which holds at least ten per cent of the shares in the company, unless such entity is a member of the same group as the company;

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has temporarily managed the company during the previous twelve months where management board members have been absent or unable to discharge their duties. ’

The best practice provision cited above mentions that a supervisor is considered to be independent when all eight circumstances or criteria do not apply to him. This means that if at least one of the eight above-mentioned circumstances or criteria applies to a supervisor, he is not considered to be independent anymore, according to the DCGC. If the criteria apply to ‘his wife, registered partner or other life companion, foster child or relative by blood or marriage up to the second degree as defined under Dutch law1 , the supervisor is also not considered to be independent.

This best practice provision does not leave room for the supervisory board or NEDs to label a supervisor non-independent if none of the circumstances or relationships given apply to him. The opposite is also true. If one of the criteria does apply to a supervisor, the DCGC does not offer the opportunity for the supervisory board of NEDs to label him independent. This means that the DCGC focuses completely on independence in form and ignores signals about alack of independence in fact or independence in appearance. As such a list cannot be exhaustive this best practice provision does not use the possible valuable assessment of the other members of the supervisory board or other NEDs.

‘Explanation of and notes on terms used in the Code’ mention best practice provision III.2.2 sub d, which refers to cross-links or interlocking directorates (Corporate Governance Code Monitoring Committee 2008: 42). This interlocking directorate entails that one director A, who is a member of the management board of company D, has a position in the supervisory board of company C and supervises in this capacity director B, who is a member of the management board of company C and a member of the supervisory board of company D. Due to their positions on the supervisory board of the different companies, where they supervise each other, directors A and B can hardly be considered to operate independently of each other.

Deze functie is alleen te gebruiken als je bent ingelogd.