25 The role of the Netherlands Enterprise Chamber at the Amsterdam Court of Appeal

This reticence is also evident when the remuneration as part of the policy and the state of affairs is submitted to the courts for assessment, which in the Netherlands is to the Netherlands Enterprise Chamber. The general rule for an assessment of executive compensation at listed companies is that, with regard to the salary and other agreements made with executives regarding their work, in principle only the body that is authorised to set these conditions can decide which agreements are justified, on the understanding that that body must automatically respect any right of approval held by a different body (for example the general meeting) over parts of these agreements. For this reason, the Enterprise Chamber should exercise reticence when assessing remuneration. There is only room for valid grounds for doubting correct policy if the agreements are such that in the interim it must be judged they could not have reasonably been agreed. It should be noted, however, that remuneration cannot be reviewed if the only criterion to do so is the fact that the amount of this remuneration is disproportionately high. The level of the remuneration cannot in itself be an argument to support a claim of mismanagement.

The attention of the Enterprise Chamber will primarily concentrate on the decisionmaking process around the challenged remuneration. The key issue within this framework is whether or not there is a question of a careful balancing of interests when setting, granting and/or paying the remuneration. A two-stage rocket can be observed when answering this question. The first stage relates to the issue of whether or not the (competent) body that took the decision was sufficiently and correctly informed, and incidentally also observed the rules governing the process. Particular attention is paid here to the question of whether any contradictory interests were sufficiently identified and adequately addressed.

If the decision-making process raises insufficient reason to doubt this, then the question of whether the choices made are defensible can only be assessed for reasonableness. The Enterprise Chamber formulates this reticent assessment by stating that an actual content-related review of the remuneration will only occur if no reasonably thinking entrepreneur would have paid the remuneration in question.

When this particular review is examined in detail, i.e. the question of whether the choice made is defensible or not, it can be seen to comprise two parts. First, the plausibility of the grounds given to justify the remuneration is assessed. In principle, justifiable grounds are only considered insufficiently plausible if the argument used is blatantly erroneous. Second, there is the question of whether the argument used results in sufficient justification for the challenged remuneration. A negative answer to this question can only be given if it can be determined that the remuneration agreement is intended to benefit executives without sufficient justification, whereby part or all of the remuneration can be earmarked as unjustified enrichment of the executive(s) without benefit to the company, i.e. as waste. In short, there must be a link between the remuneration and the goal it intends to achieve to the benefit of the company.

The aforementioned means that the role of the Enterprise Chamber in assessing executive compensation at listed companies is a very reticent one. However, there is one caveat related to the decisions made by the Enterprise Chamber. There is evidence that the chances of a content-related assessment of remuneration by the Enterprise Chamber increase when it is a question of a permanent or interim adaptation of the remuneration agreements due to an upcoming event, or when the remuneration is determined without an upcoming event being taken into consideration. Incidentally, the review conducted by the Enterprise Chamber when there is a suspicion of mismanagement does not change. The judgment by the Enterprise Chamber that the change was only to the benefit of executives and not the company remains decisive.

When the decisions of the Dutch Enterprise Chamber are compared with the Walt Disney case in the US and the Mannesmann case in Germany, it can be seen that the various courts approach the degree of discretion they have to assess executive compensation in a rather uniform way. The primary issue in all three of these countries is whether the decision-making process was performed correctly. If it turns out that the executives or the supervisory board violated their fiduciary responsibilities during this process, for example because the body was insufficiently informed or certain conflicting interests were insufficiently taken into account, then a request for further investigation will be granted and the remuneration will be examined more critically by the courts. If the decision-making process does not give rise to doubt, the courts will be reticent and will only assess whether any reasonably thinking entrepreneur would have paid that remuneration.

The standards applied are the same in all three countries. There is only room for the courts to intervene if the remuneration decision can serve no rational business goal when viewed from the perspective of the company. The remuneration must be able to be designated ‘corporate waste’. This is a high threshold that is seldom crossed.