3.2 The 2004 foundation of the Dutch corporate governance model

Corporate governance refers to the governance of corporate entities and their activities.1 It is about the manner in which the power within a corporation has been distributed, i.e. who directs the processes and who plays a role in supervising this power. It also relates to the manner in which this power is exercised: the decision-making process.

In the Netherlands, the 'Tabaksblat Code ' (the Dutch corporate governance code of December 2003 for listed companies) was a semi-private regulation instigated by the Dutch government, the stock exchange and industry associations in order to restore trust in the public equity markets. The principal aim of the Code was to restore private sector confidence, partly in response to accounting scandals. The emphasis was on accountability and transparency. The Tabaksblat Committee s terms of reference ' were to examine the relationship between listed companies and providers of capital microscopically .2

It was estimated that establishing a new balance with a larger role for the shareholders would enhance the functioning of the capital markets.

The subject of CSR was touched upon by the Tabaksblat Committee but they decided that it was a different subject-matter, and that various CSR codes of conduct had been or were being developed (such as the GRI and the OECD MNE Guidelines), and that it would therefore not be necessary to include the subject in the new corporate governance code.3 At the same time however, it should be noted that the Tabaksblat Code stated that it was based on the stakeholders model, which according to the author has a similar outlook as CSR. Regarding the stakeholdersmodel, the Tabaksblat Code stated:

The Tabaksblat Code contains 'Principles ' which reflect generally subscribed views on good corporate governance and enjoy wide support. The principles have been elaborated in the form of specific ' Best Practices provisions, which create a set of standards on recommended corporate conduct. The principles and best practice provisions regulate relations between the management board, the supervisory board and the shareholders (i.e. the general meeting of shareholders). The participation of employees in the corporate decision-making process is regulated elsewhere, i.e. in the Works Councils Act (WCA; Wet op de Ondernemingsraden). Nevertheless, the Tabaksblat Code (as does the Frijns Code) stipulated that the supervisory board s terms of reference include a paragraph on how it would maintain a relationship with the central works council or works council.5

Through application of the ' comply or explain mechanism, incorporated in article 2:391(5) DCC in 2004, the Tabaksblat Code acquired a public regulatory aspect.6 Since 1 January 2004, listed companies are obliged to report on compliance with the Tabaksblat Code in their annual report, and in the event of a deviation, to provide an explanation. Deviations may be justified in certain circumstances. Shareholders, the media, businesses that specialise in rating the corporate governance structure of listed companies, and people advising on the exercise of voting rights attaching to shares, are expected to carefully assess the reason for each and every deviation. Both shareholders and the management and supervisory boards should be prepared to enter into a dialogue on the reasons for any deviation. It is up to the shareholders to call the management and the supervisory boards to account for compliance with the Tabaksblat Code. Pursuant to article 5:86 of the Dutch Financial Supervision Act (Wet Financieel Toezicht), Dutch institutional investors have also been obliged from 1 January 2007 to include in their annual report, or on their websites, a statement about their compliance with the Code.

The new ' pro-equity balance was further augmented by amendments to Dutch corporate law which were implemented in 2004.7 One of the amendments gave shareholders possessing one or more per cent of the voting rights the right to table subjects for discussion at the general meeting of shareholders; the same applies to shareholders possessing shares representing € 50 million or more in a listed company.8 Another 2004 amendment provided shareholders with an approval right in respect of strategic board decisions concerning the identity or character of the company or the enterprise run by the company.9 The termination of protective anti-takeover measures had already started in the Netherlands at the end of the nineties. Further changes in 2004 concerned the supervisory board of certain large companies, the so-called 'structure companies ': the shareholders meeting appoints members of the supervisory board, and can dismiss them.10 Previously, supervisory board members were elected by co-optation.