New Dutch Corporate Governance Code – most significant changes

The Monitoring Committee Corporate Governance published a revised Dutch Corporate Governance Code (the “Code”). The Code will take effect for the relevant Dutch listed companies as from the financial year starting on or after 1 January 2017.

Below we summarize the most significant changes to the Code.

Most significant changes

Long-term value creation
The Code stipulates that the management board must focus on the creation of long-term value. The management board must develop a view on long-term value creation and formulate a strategy in line with this. The management board must engage the supervisory board early on in formulating such strategy and the supervisory board must supervise the implementation of the strategy.

Internal audit function
The Code emphasizes a stronger position of the internal audit function, which (a.o.) reviews the design and operation of the risk management system. The management board both appoints and dismisses the senior internal auditor and establishes an internal audit department. The internal auditor department must draw up an audit plan, involving the management board, the audit committee and the external auditor. If there is no separate internal audit department, the supervisory board is expected to assess whether adequate alternative measures have been put in place and explain why these measures are sufficient.

Adequate risk control management
The management board must anticipate and indicate which material risks may impact the continuity of the company. The statement of the management board in the annual report is also no longer limited to financial reporting risks but pertains to material risks in general.

Checks and balances
The supervisory board must formulate a diversity policy for the composition of the management board, the supervisory board and, if applicable, the executive committee. The policy should address the concrete targets relating to diversity and the diversity aspects relevant to the company, such as nationality, age, gender, education and work background.

Share ownership on a large scale tends to be a sign of long-term involvement and parallel interests, and therefore the Code has expanded the possibility to appoint non-independent supervisory board members holding or representing at least 10% of the share capital. In order to safeguard the independence of the supervision the Code still requires the majority of the members to be independent.

Appointment and reappointment supervisory board members
The maximum term of office for supervisory directors has been further limited. A maximum term of office of two times four years is the starting point. Reappointment after eight years is possible, however only for two times a two year period and with an explanation in the annual report.

Responsible remuneration
The Code has become less detail-oriented in respect of management board remuneration and more principle based. The remuneration policy must focus on long term value creation and must take into account the social context in which the company operates.
When formulating the policy various factors must be taken into consideration, such as the performance of the company, the pay ratios within the company and the appropriate ratio between the fixed and variable remuneration components. The management board members are expected to critically reflect on their own remuneration and to share their views with the remuneration committee.

The remuneration in the event of dismissal may not exceed one year’s salary. The exception of awarding two year’s salary is removed. Severance pay must not be awarded if the agreement is terminated early at the initiative of the management board member, or in the event of seriously culpable or negligent behavior on the part of the management board member.

For the full text of the Code, see:

Edwin Liem

Bart Wehmeijer

Eva Klein Obbink