New Dutch Code Aims to Improve Corporate Governance

Financial News, December 14, 2003 | Go to article overview

New Dutch Code Aims to Improve Corporate Governance


Byline: Kit Bingham

The corporate governance practices of Dutch companies will come under renewed scrutiny following the publication of the Tabaksblat code, a detailed set of guidelines.An 11-strong committee led by Morris Tabaksblat, chairman of Reed Elsevier and former chief executive of Unilever, was established to revise Dutch governance practices, which are conspicuously poor. Shareholders enjoy few rights, there is a negligible presence of independent directors on boards, and Dutch companies remain well protected from takeover.

The Tabaksblat code includes 21 principles of good corporate governance, supported by more than 100 detailed provisions. Its aim is "to bring Dutch corporate governance rules and practices into line with the best in the Western world".

Tabaksblat said: "We looked closely at what other countries have in terms of self regulation and adjusted them to Dutch circumstances. The UK Combined Code was quite an influence."

The Netherlands' code of governance practice, known as the Peters code, has been in place since 1997. However, its provisions are non-binding and companies do not have to report that they apply the code. Tabaksblat said: "There was no enforcement. It was self-regulation in the most vague sense."

The new code adopts the UK's "comply or explain" formula, whereby companies are not required to meet all the terms of the code but must disclose any areas of non-compliance. To ensure that the Tabaksblat guidance has teeth, this requirement to comply or explain has been incorporated into law, which takes effect on January 1. The committee also urged institutional investors to take a greater interest in governance.

Tabaksblat said: "What we have now is pretty powerful. Companies will be required to explain themselves. We have an enforcement system in place."

The draft code, published in July, attracted more than 200 comments. Many of the responses were critical, particularly aimed at the proposed limit on the number of supervisory board seats that one individual could hold, and some of the requirements on pay and director independence.

Tabaksblat said: "There was quite an emotional response from companies. Their view was why do we need all this? But it has sunk in that the code is quite reasonable, especially by international standards, and necessary."

The code focuses on reinforcing the role and strengthening the independence of the supervisory boards, improving transparency, and making companies more accountable to investors. The committee also recognised a high level of public disquiet with the way companies are run, particularly following the collapse of Ahold, the supermarket chain, in a welter of accounting scandals.

Tabaksblat said: "As the Ahold events played out, it became a determining factor in public opinion."

Management committees at Dutch companies have become too dominant, the committee concluded. It recommended that supervisory boards establish audit, pay and nomination committees; that companies only have one non-independent non-executive director on the supervisory board; and that pay details and the company's pay policy be spelled out separately in the annual report. …

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