On 8 December 2016, the Monitoring Committee for the Corporate Governance Code published the new revised Dutch Corporate Governance Code (the “Code”), which will take effect as of 1 January 2017.
The Dutch Corporate Governance Code contains best practice guidelines and principles on the governance of listed companies in the Netherlands and the accountability towards the shareholders. The Code was first introduced in 2003 and was revised in 2008 (the “Code 2008”).
The revised Code introduces a number of important changes as compared to the Code 2008. The revised Code places a particular focus on long term value creation and introduces “culture” as a new element of good corporate governance. More emphasis is placed on the responsibilities of managing and supervisory directors and their accountability for the performance of their functions has been expanded.
The structure of the Code has also been revised. The Code 2008 was divided into sections according to the responsibilities of each function within the company, whereas the new Code is divided into topics and explains the roles and functions of different stakeholders within each topic.
The most important points of the revision are the following:
- Long term value creation. The new principle of long term value creation requires managing and supervisory directors to consider creating value in the long term while making corporate decisions.
- The element “culture”. As a new element of good corporate governance the Code now requires companies to design and introduce a set of corporate values, aimed at promoting integrity and long term value creation.
- Risk management: the scope of the risk management statement in the management report has been expanded and must now contain not only financial reporting risks, but all material risks, which may affect the continuity of the company.
- Internal Audit: Appointment, assessment or dismissal of the internal auditor by the management board will now be subject to approval by the supervisory board. The internal auditors will have direct access to all relevant information and will be required to draw up a work plan, which will be subject to the approval of management and supervisory board.
- Composition of managing and supervisory boards. New requirements have been added with respect to the composition of the managing and supervisory boards, including requirements for diversity, independence and competence. New best practice provisions have been added regarding the evaluation of the performance of the supervisory board. Best practice provisions on misconduct and irregularities have been expanded and offer a broader scope of application than the provisions of the Whistleblower Act (Wet Huis voor klokkenluiders).
- The term of appointment. The term of appointment of the supervisory directors has been amended and is now limited to two terms of four years, with two more possible extensions of two years each.
- Remuneration policy. Some of the provisions on the remuneration have been simplified. The remuneration policy must in any case be clear and understandable, take into account the viewpoint of the managing directors on their remuneration and be aimed and long term value creation. The Code introduces a broader accountability of the managing and supervisory directors for the remuneration policy.
- Executive committee. If a company has an executive committee, this fact should be mentioned in the management report, along with the role and the composition of the executive committee as well as its relationship with the supervisory board.
- One-tier management structure. Although the Code is primarily addressed at the companies with two-tier management structure, it is also contains a number of provisions for the companies with one-tier management structure. Basically, the provisions directed at supervisory directors, are directed to non-executive directors.
The Dutch listed companies are expected to report in 2018 on compliance with the revised Code in the financial year 2017. The corporate documentation, covering applicable provisions of the Code, will have to be revised accordingly. It is also advisable to review and, if necessary, revise the current policies in accordance with the new Code. The applicability of the new Code is based on the principle “comply or explain”. The provisions of the Code have to be complied with by the listed companies. If a listed company chooses to deviate from the provisions of the Code, the reasons for the deviation must be explained and substantiated.
Please note that this article is intended as a general introduction to the revised Dutch Corporate Governance Code and is not intended to be a substitute for professional advise. Neither Buren N.V., nor any of the individual writers can accept any responsibility for any loss incurred by any person as a result of acting (or refraining from action) based on any information presented in this Alert.
