4.6.9 Summary question: What are the developments after having the comply or explain principle in place for several years?

In the midst of the corporate governance discussion the first Dutch Corporate Governance Committee was established and it published its "Recommendations on Corporate Governance in the Netherlands" in 1997. Unfortunately these recommendations were not followed as often as had been anticipated (De Jong and Roosenboom 2002, p. 927). Hence, the Dutch government responded with new legislation, and a new corporate governance committee was established that published its Corporate Governance Code in December 2003 and the latest amended code in December 2008. The codes are strongly based on the stakeholder model accepted in the Netherlands. In the preambles it is argued that a company is a long-term form of collaboration between the various parties involved (Dutch corporate governance code 2003, Preamble 3).

The Dutch corporate governance code is comprehensive and detailed, which is explainable due to the failure regarding the compliance of the 40 recommendations of the first Dutch Corporate Governance Committee (Voogsgeerd 2006, p. 105). This negative experience led to a detailed corporate governance code with a legal foundation in the Dutch civil code, which at the time was very progressive in Europe. The principles have to be complied with by the listed companies and the comply or explain principle is applicable to the best practice provisions. Since October 2004, article 2:391 par. 5 BW states that by means of an administrative order further rules regarding the contents of annual accounts can be laid down and more particularly regarding the compliance with a code mentioned in this administrative order. In article 3 of such an administrative order (Staatsblad 747, 2004) the Dutch corporate governance code was assigned in 2004 as a code based on which listed companies have to provide information in their annual reports regarding the compliance with this code. With respect to the 2008 code, the same happened by means of a renewed administrative order (Staatsblad 154, 2009). It is remarkable that, in the end, the comply or explain principle seems slightly 'limited' since it only applies to the best practice provisions on the management and supervisory boards and not to chapters IV and V of the code (section 3 of the administrative order). By embedding the comply or explain principle in legislation, the Netherlands has opted for judicial corporate governance arrangement C: self-regulation supported by statutory rules (Voogsgeerd 2006, p. 145). Regarding the implementation of the EU Directive 2006/46/EC, little to nothing has changed in the Dutch judicial corporate governance arrangement.

With respect to disclosure, in the Netherlands the corporate governance statement includes a separate chapter in the annual report in which the corporate governance structure of the company is explained, as well as the compliance with and deviations from the Dutch code, as laid down in the code and the administrative order. Discussion exists on the accountability for the disclosure, which is perhaps strengthened by the fact that the Dutch government decided that implementation of this aspect of the directive was not necessary (Beckman 2008, p. 396) (Klaassen2010) (Tweede Kamerstukken 31508, nr. 3,2007, p. 10). The general rules for liability as laid down in the Dutch Civil Code were considered sufficient.

Supervision of the application of the comply or explain principle is performed by the shareholders, the Netherlands Authority for the Financial Markets (the AFM) and the external auditor of the company. As is the case for the other countries under research, the shareholders ought to perform supervision of code compliance first. On the initiative of the shareholders, the corporate governance chapter of the annual report can be raised at the annual general shareholders' meeting. If desired, the corporate governance chapter, the corporate governance policy, and the reasons given for non-application of one or more best practice provisions may be put to the vote during the meeting. Unfortunately, the code did not impose any obligation to do so and up till now the chapter was rarely put to the vote. Only during the years in which the 2003 and 2008 codes were in force the corporate governance committees recommended that the companies put their corporate governance structure and code compliance on the agenda of the shareholders meeting as a separate item for discussion. If the corporate statement is not approved by the general meeting, the shareholders can exert pressure on the boards to consider adjusting the statement by using their shareholder rights or, in the case of a deadlock situation, by exercising their right not to discharge or to dismiss the management and supervisory boards or, as final remedy, take legal action. On the basis of the Wtfv, the AFM verifies whether the corporate governance statement is present in the annual reports and whether the contents are consistent with the rest of the annual accounts, annual report, and other public information (Dinant 2007, p. 69) (Renes 2004, p. 24) (Galle 2006). In the event that the corporate governance statement is not formulated according to the rules in the code, the AFM can ask a company for additional information, can recommend that the company publish an announcement regarding the reporting mistakes and, as final remedy, can submit a request to the corporate court to have the company modify its annual report. The third supervisor of the 'comply or explain' principle is the external auditor. Through the implementation of Directive 2006/46/EC, a specific article (article 3c) of the administrative order on the corporate governance statement (Staatsblad 154, 2009) provides for the supervision by the external auditor and clarifies his monitoring duties. The external auditor performs formal supervision of the comply or explain statement, which works as an instrument with which to exert pressure, since companies prefer to present an unqualified opinion. Although not supervisors of code compliance, the Dutch court and the Corporate Governance Code Monitoring Committee need to be mentioned as well. If serious problems occur the (corporate) court can be asked to give a judgment with regard to corporate governance inefficiencies. It is questionable whether non-compliance with (best practice provisions of) the code is a reason for proceedings and whether the code can be of use in the interpretation by the court of judicial norms such as misconduct, reasonableness and fairness. The general consensus is that, with regard to listed companies, the principles and best practices of the code can be used for the interpretation of the open norms (e.g. art. 2:8 BW, reasonableness and fairness) in Dutch legislation, since the legal system has a tendency to absorb the rules of the corporate governance code each time that the law allows for a blank norm (Wymeersch 2005, p. 6). However, both in the HBG case and the ABN AMRO case the Supreme Court does not acknowledge the relevant legal rule as being based partly on the views on corporate governance accepted in the Netherlands (HR 21 February 2003, NJ 2003/182) (HR 13 July 2007, NJ 2007/434). Memelink therefore argues that an appeal based on the code has up till now not brought grist to the mill (Memelink 2010, p. 47). Although the Supreme Court and Corporate Court acknowledge the possibility, in literature the discussion whether the code can be a source of legal rules still continues (Das 2004) (Bartman 2004) (Timmerman 2003). Each year since 2004 the Corporate Governance Code Monitoring Committee has published an advisory and evaluation report that measures the code compliance of a listed company and often provides proper recommendations to politicians or participants in the financial markets, which makes the committee an important participant in the Dutch corporate governance discussion.

Code compliance is studied comprehensively and annually, mainly by or commissioned by the Dutch Corporate Governance Code Monitoring Committee, starting with the forty "Recommendations on Corporate Governance in the Netherlands" of 1997 of the committee Peters until code compliance in 2010. The recommendations of 1997 were not followed as often as had been anticipated. In 2004, taking into consideration that it was the 2003 code's first year, the level of compliance was immediately regarded as high. For 2005 higher compliance scores were visible, but the fixed set of provisions with a poor compliance rate remained almost unchanged. With respect to the years 2006 up till 2007, a point of stabilisation seemed to have been reached. A slight decrease in code compliance was even visible. Fortunately, during 2008 the number of deviations decreased and the top 5 deviations were almost the same again. The Dutch Corporate Governance Code 2008 became applicable as from 1 January 2009. However, as it is an assumption, the compliance with the new provisions of the actualised code is, in general, high. In many cases the compliance must be assumed, since hardly any explicit information is provided on, for example, corporate social responsibility and the involvement of the supervisory board whenever a public takeover occurs (RUG Report Akkermans, Van Ees et al. 2010, p. 2). In the Monitoring Report of 2011, the Corporate Governance Code Monitoring Committee states that, in comparison with the compliance during 2009, a slight increase is visible in the average number of best practice provisions explained per company (5.2 explanations in 2009 and 5.4 in 2010). Moreover, except for a few position changes the top 10 best practice provisions explained the most remain the same (Dutch Monitoring Committee 2011, p. 21). To conclude, the national corporate governance code in the Netherlands seems to be complied with properly, although some comments should be made. After an increase in the level of compliance, in recent years a point of saturation has been reached or the level of compliance has decreased slightly. Possibly, this development is the result of a lack of attention to the code by the companies involved which, as a result of the actualised code, has improved. Moreover, the reasons provided for deviations from code provisions and their quality remain an item to be improved (Abma and Olaerts 2011) (Van Ees and Hooghiemstra 2010, p. 165), as also extensively elaborated upon by the Dutch Monitoring Committee in its 2011 Report (Dutch Monitoring Committee 2011). A fixed set of often reoccurring deviations can still be seen where 'traditional' topics are concerned, such as the appointment period, severance payment and board remuneration. An average of 5 deviations per company seems quite high, given the attention paid to corporate governance in the Netherlands. Possibly, the fact that the Dutch code is quite detailed plays a role and also the fact that the Dutch government does not choose to legislate the unpopular best practice provisions, since it believes in a ' one size does not fit all' mentality.

Although the Netherlands is innovative as regards its corporate governance system, the optimum framework for the comply or explain principle has not yet been reached. The discussion on accountability still lingers; consensus and clear jurisprudence have not yet been reached. Regrettably, it is not clarified in the code whether past and/or future code compliance needs to be discussed in the corporate governance statement. The question is whether, i.a. due to a changing playing field as a result of the financial crisis, the code does not need to be updated, on the other hand Dutch corporate governance legislation is updated and it is believed that the Dutch national code is able to cope with changing circumstances.

To conclude, with respect to the cultural dimensions the Netherlands scores low on power distance, has weak uncertainty avoidance and scores extremely low on masculinity. The scores on these three cultural dimensions cohere with a self-regulation code from a stakeholder approach. In the Netherlands the aim is, above all, to achieve good relations and a dialogue between the parties concerned (Code 2008, Preambles 3 and 4) and, as stated before, it is believed that the Dutch national code is able to cope with changing circumstances and promotes ' made to measure' code compliance.