English summary

The current Dutch law on foundations is almost identical to the first Act on Foundations, which was adopted in 1956. The law on foundations has proved to be flexible and, in my opinion, should remain flexible. In contrast to 1956, nowadays many foundations have installed a supervisory board in addition to the management board. Not every foundation needs a supervisory board. In some cases, a management board, consisting of more than one member, is sufficient. In other cases, a foundation may decide to install an advisory body (instead of a supervisory body) in addition to the management board. However, if a supervisory board is installed, it is important that the members of the supervisory board know what their tasks, duties and authorities are. This is because they may, in some cases, be held liable if they have not performed their tasks in a reasonable manner, if they are seriously culpable.

For this reason, it is high time to regulate the tasks, duties and (basic) authorities of the supervisory board of the foundation. In my opinion, this regulation should be included under the separate title of Book 2 of the Dutch Civil Code which only regulates foundations and should not be included under the general title of Book 2 which deals with all corporate entities. The reason for this is that the foundation has special legal characteristics: the foundation’s assets are legally tied to the foundation’s objectives and the foundation may not have members or shareholders.

The basic task of the supervisory board of the foundation is the same as the basic task of the supervisory board of other entities: to supervise the policy of the management board and the general state of affairs in the foundation and its affiliated business (to the extent that the foundation has a business or an enterprise) or organisation. Moreover, the task of the supervisory board of the foundation is to advise the management board. In performing their tasks, managing directors and supervisory directors should be driven by the foundation’s purpose, i.e. by its objectives. The management board must primarily focus on the realisation of the foundation’s purpose, particularly with respect to the preparation and implementation of the policy. A key task of the supervisory board is to supervise this.

When performing their tasks, the management board and supervisory board of the foundation should, in any case, take into account the interests of the founders, the parties providing the foundation’s assets and the beneficiaries of the foundation. These interests follow from or are related to the objectives of the foundation. If the foundation has an enterprise, the enterprise should serve to realise the foundation’s objectives. It is superfluous and may even be confusing to mention the public interest as a separate additional interest which managing and supervisory directors should take into account, because the relevant public or social interest is already included in the foundation’s objectives.

In my opinion, the supervisory board of each foundation must explicitly play a role in protecting the foundation’s assets, which assets are legally tied to the foundation’s objectives. My view is that the supervisory board must be involved in important decisions that can lead to a material change in the identity or character of the foundation or the foundation’s assets. An example is the decision to amend the foundation’s statutory objects, because amendments of the statutory objects can lead to a change in the destination of the foundation’s assets. Moreover, the supervisory board must be involved in the case of a conflict of interest situation that is material to the foundation.

If the foundation has installed a supervisory board, this supervisory board should be able to fulfil its supervisory task. The supervisory board must have the means to counterbalance the power of the management board. Both the obligatory supervisory board (on the basis of sector rules) and the voluntary supervisory board should, by virtue of law, be given the authority to decide to suspend a managing director if the director violates the foundation’s interest. In this way, the supervisory board has an instrument to use in the event that the managing director is making distributions which are contrary to the foundation’s objectives. Moreover, the law should make it possible for the articles of association to grant a binding right of instruction to the supervisory board. By giving instructions, the supervisory board can intervene in the foundation’s policy in some situations before or instead of using its authority to suspend or dismiss managing directors.

In my opinion, the special title on foundations in the Dutch Civil Code should include basic default rules regarding foundations with a supervisory board. These rules could be based on the “supervisory board and management board”- governance structure which has already been used for many years by foundations in different sectors (health care institutions, housing association sector, academies and universities, cultural institutions, fundraising institutions). According to these basic rules, the supervisory board appoints and dismisses managing directors unless the articles of association determine otherwise. Moreover, the supervisory board adopts the annual accounts unless the articles of association determine otherwise. This will show that the “default supervisory board” of the foundation has a more responsible position than the supervisory board of other legal entities. Other legal entities have a general meeting of members or shareholders with the authority to appoint and dismiss managing directors and supervisory directors (unless the large entity regime is applicable) and the authority to adopt the annual accounts. As the foundation does not have a general meeting, the supervisory board is normally not only the body that supervises the management board but also the body the management board is internally accountable to.

The supervisory board of a foundation has a role and duty to the members of the board itself. Many foundations do not have an extra (third) body that supervises or monitors the supervisory board. For this reason, it is important to ensure the best possible composition of the supervisory board and to ensure that the supervisory board has a “self-cleaning” capacity. In line with this, Dutch law should provide that the supervisory board consists of at least three members and that the supervisory board has the authority to suspend its own members.

The behaviour and the decisions of individual members of the supervisory board are never flawless. Psychological factors, such as group think, may influence the quality of board decisions. For this reason, it is important that the decisionmaking process of the supervisory board is structured, for example, on the basis of checklists provided by sector organisations. It should be noted that the chairman of the board has an important role with respect to proper decision making. Moreover, it is important that the supervisory board periodically makes a selfevaluation of its performance using certain standards which are, for instance, provided by sector organisations. For some supervisory boards it is advisable to periodically involve an outsider in the self-evaluation process.

In my opinion, the supervisory board should, at the end of each financial year, draw up its own report. The information in this report of the supervisory board should contribute to a good understanding of the way the management board was supervised, the composition of the supervisory board, the work process of the supervisory board and its self-evaluation. A strong supervisory board will voluntarily, without any legal obligation, account for its supervision to the relevant stakeholders. This strong supervisory board will choose to be transparent about its performance and will account for this in an appropriate manner. An example of this is to publish the supervision report voluntarily on the foundation’s website or to distribute the report in another manner to the relevant stakeholders.