Monday November 28, 2016
The Netherlands has a long history of navigating the world and trading with other countries. Trade creates wealth and is a vehicle to spread new knowledge and best practices. But trade also raises tremendous risks, especially in regions outside Western Europe and the United States. With one of the twenty largest economies in the world, the Netherlands offers a good example of knowledge and best practices in its Corporate Governance Code. Its enhanced 2015 legislation tackles one of most devastating risks in business: bribery.
The Dutch Corporate Governance Code
The history of the Dutch rules for corporate governance dates back to 1997. By that time, almost 20 years ago, a committee issued a report (the Peters report) with recommendations on corporate governance, particularly for sound management, effective supervision and accountability of listed companies. This included a specific recommendation on clear separation between management and investment. The main reasons for setting up this committee were the growing internationalisation of the Dutch economy and the increasing international focus on the role of shareholders.
It is worth quoting an epigraph at the beginning of that report: “Trade rules are excellent because they have not been instituted by soldiers, priests, magistrates or courtiers but by the tradesmen themselves” (Dennis Diderot in “Voyage en Hollande”, 1744).
That idea inspired the work of the Peters Committee: accountability and openness have to come first and foremost from within companies and from interested parties, not from external rules.
The Dutch Corporate Governance Code
The Netherlands adopted its first Corporate Governance Code in 2003, and one year later the legislator designated this Code as a document reference to which listed companies should refer in their annual report.
The 2003 Code was applicable to all Dutch listed companies: companies whose registered office is in the Netherlands and whose shares or depositary receipts for shares are officially listed on a government-recognised stock exchange. It was not applicable to investment funds.
The rules issued in 2003 echoed the principle accepted in the Netherlands that a company “is a long-term form of collaboration between the various parties involved”. The interests of the different stakeholders (employees, shareholders and other providers of capital, suppliers, customers, government and civil society) must be weighed up and taken into account by the management board and supervisory board of the company. The members of these boards should also observe concrete provisions included in the code in relation to the stakeholders.
The code is based on the two pillars of good entrepreneurship and proper supervision. Good corporate governance relates to integrity and transparency of decision-making by the management board and to accountability for supervision.
Rules and principles were elaborated as specific best practice provisions. Although the original 2003 Code stated that listed companies were able to depart from the best practice provisions, it also mentioned that unconditional freedom to decide whether or not to apply the code was not desirable. This situation was complemented by the designation made by the legislator in 2004, which made applicable the “apply or explain principle”: the Dutch Corporate Governance Code became a code of conduct and listed companies had to indicate in their annual report to what extent they have complied with its principles and best practice provisions, or explain the reasons why they did not adhere to them.
Last revision of the Code in 2009
The 2003 Code was amended in December 2008 and the revised Dutch Corporate Governance Code became enforceable in 2009.
One of the main changes in this revised Code is its scope of application: the Dutch Corporate Governance Code now applies to all companies whose registered offices are in the Netherlands and whose shares or depositary receipts for shares have been admitted to listing on a stock exchange, or more specifically to trading on a regulated market or a comparable system, and to all large companies whose registered offices are in the Netherlands (balance sheet value in excess of €500 million) and whose shares or depositary receipts for shares have been admitted to trading on a multilateral trading facility or a comparable system.
Some best practice provisions became mandatory when they correspond with a statutory rule, and companies are not allowed to depart from them, even when reasons are given (e.g. provisions about the audit committee).
Compliance with the Dutch Corporate Governance Code
In order to monitor compliance by Dutch listed companies and institutional investors with the Code, a Monitoring Committee was installed in 2013. Its most recent release reports a high rate of compliance with the Code.
This monitoring entity is a very useful tool, not only to assess actual levels of compliance with the corporate governance rules, but also to propose revisions to the Code which might become necessary considering the results obtained.
2015 Anti-bribery developments
Impressively, the Netherlands ranked fifth out of 168 countries on the 2015 Corruption Perceptions Index. Also outstanding is the ranking that the Netherlands obtains in the latest (2011) Bribe Payers Index issued by Transparency International: it was ranked the highest in the world, meaning Dutch companies were perceived as being engaged in the lowest global level of overseas bribery.
Curiously, other research also performed by Transparency International shows a “must do more” performance of the Netherlands in the field of enforcement of foreign bribery. According to the 2013 report, Netherlands has little or no enforcement on foreign bribery. This is the lowest level of enforcement globally, under the “active”, “moderate” and “limited” levels classification system.
The Netherlands has made some improvements since then. On January 1, 2015, relevant amendments to the Dutch Criminal Code (DCC) came into force, including the following definitions:
In the Corporate Governance Code, Dutch companies provide an excellent reference. This is complemented by enhanced anti-bribery provisions. In conclusion, this represents a tremendous opportunity for Dutch companies to operate in high risk environments with trust and confidence in the very highest integrity standards. As to whether the theory will be borne out by the practice, well, time will tell!
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