4.5.12 Separate chairman and CEO:• exceptions in family companies?

Under Dutch law the chairman of the supervisory board and the CEO cannot be the same person. No one can be on the management board and supervisory board at the same time. The Act too states that all one-tier board companies must have a separate chairman who is a non-executive director and therefore cannot be the CEO at the same time.1

In the UK and the US even the most convinced proponents of separate nonCEO chairmen make exceptions for family companies. For example, Cargill Corporation, a US company, is 100% owned by the family. Cargill is a huge conglomerate with operations in the food, energy, chartering and finance sectors. It has a board of five executive directors, five outside directors who are also family members and five independent directors. No family members are employed by the company. Cargill has a non-family professional CEO/ chairman, who has the complete trust of the family; as CEO he has a high profile within the company and ensures that he meets a lot of staff in many different locations. He is also in close touch with the family and gives them direct information. Cargill is successful and has come through the crisis well. The close cooperation between the CEO/chairman and the family is regarded as a plus. Would a separate chairman in any way improve the communication with family shareholders? In the event of a dispute a lead independent director can always step in. The family considers it an advantage that they need deal with only one person, namely the CEO/chairman who manages the company and represents it — in his capacity as chairman — in dealings with the outside world. Keep it simple!

The point I wish to make is that there are good examples of a combined role working. So the question could be asked why the Act mandatorily prescribes that these positions should in all cases be held by two separate persons. Even UK and US proponents of separate non-CEO chairs say that it would not be appropriate to have a "one size fits all" rule.

If Cargill were a Dutch company and still wanted to have a combined CEO/ chairman after the Act becomes law, it would be advised that by law it is required to have a CEO/president and a separate chairman. It could also be advised to include a provision in the board bye-laws to the effect that only the CEO/president should communicate with shareholders. The bye-laws would state that the chairman presides over the board meetings, but could also stipulate that the chairman should always follow the advice and suggestions of the CEO/president. The chairman would also chair the shareholders' meetings, but let the CEO/president deal with all items on the agenda of the meeting.

As we are not dealing with a public company in this hypothetical case, a more straightforward alternative would be for the company to have only a classic management board without non-executive directors. The CEO could then be called chairman of the board and the five family members and independent directors would constitute an advisory board in the same way as Unilever used to work, see 4.4.2.3 above.

Possible ways of achieving greater flexibility would be to amend article 2:239(a) DCC as proposed in the Act or to insert a clause in the Act on liberalisation of the rules on share capital and governance in private limited liability companies (known as the Flex BV Bill) providing that the general meeting of shareholders could resolve by a large majority to opt out of the requirement that the position of chairman be held by a non-executive director. However, I shall refrain from making such a proposal, also because there are practical solutions to solve this problem as described above.

There are many views and possibilities of using the one-tier board system in family companies, where family members may want to be more involved in the business as non-executive directors. The One-Tier Board Act gives substantial flexibility.2