HomeChapter 8: Two-Tier Board Attributes Netherlands8.6 Facts About Changing Two-Tier Board Attributes

8.6 Facts About Changing Two-Tier Board Attributes

Compared to information available on corporate boards in the US and the UK, the number of publications and databases available on Dutch two-tier boards is rather limited (Glasz et al., 1997). Despite the extra attention recently given to board disclosure, annual reports still present a limited view of board practices in the Netherlands. Typically disclosed information on Dutch supervisory boards is often limited to the:

  • composition of supervisory and management boards;
  • age of supervisory directors;
  • professional background of directors when they are nominated to be appointed to the supervisory board;
  • total number of formal supervisory board meetings;
  • total of supervisory board compensation including additional fees.

 

Changing Disclosure Culture in the Netherlands

The recommendations of the Peters Committee are changing the reporting culture in the Netherlands. More detailed information on the governance structures of corporations is becoming available to the public. With respect to the supervisory board, the Peters Committee’s aims to bring more openness on the following topics:

  • duties, profile, appointment and remuneration of supervisory directors;
  • composition of the supervisory boards and demographic data on supervisory directors;
  • procedures of supervisory boards;
  • committees of the supervisory board and the number of board meetings;
  • compliance of corporations with the recommendations of the Peters Committee.

Although corporations are not required by the Amsterdam Exchanges to comply with the forty recommendations of the Peters Committee, many have already indicated their level of compliance in annual reports published in 1998. Maassen (1998a, 1999a) indicates that many supervisory boards have already set corporate governance principles identical to the recommendations of the Peters Committee.

These include the recommendations to:

  • appoint not more than one formerly affiliated managing director to the corporation’s supervisory board;
  • draw up a profile of the supervisory board;
  • form board committees such as the audit, the remuneration and the nomination committee;
  • meet without the presence of managing directors.

This paragraph further explores developments in the governance structure of one hundred corporations listed at the Amsterdam Exchanges. The figures in this chapter are culled from annual reports and additional compliance reports of 25 AEX-corporations, 25-AMX corporations and fifty randomly selected smaller corporations. The sample represents 74 percent of corporations listed in the Netherlands in 1998.

 

Fact 1 -> Board Composition: Supervisory Board Size is Stable

 

Maassen (1999a) indicates that the size of Dutch supervisory and management boards has been fairly stable between 1987 and 1998. The average supervisory board consisted of six supervisory directors. The average size of management boards has also hardly changed during the last twelve years. The management board is on average composed of 3.3 managing directors in 1998 (3.4 in 1987).

 

Fact 2 -> Board Composition: The appointment of Formerly Affiliated Managing Directors to the Supervisory Board

 

As indicated above, corporation laws do not prohibit the appointment of formerly affiliated managing directors to supervisory boards. The Peters Committee recommends that no more than one formerly affiliated member of the corporation’s management board should be appointed to the corporation’s supervisory board. Maassen (1999a) calculated the number of formerly affiliated managing directors who have a seat in supervisory boards 1998 based on a sample of one hundred AEX-corporations[41].

Based on an analysis of annual reports published between 1987 and 1998, the Maassen (1999a) study indicates that a majority of seventy percent of one hundred listed corporations had no formerly affiliated managing directors in their boards in 1998. Only 37 positions out of a total of 592 supervisory board positions were held by formerly affiliated managing directors in 1998 (about six percent). When formerly affiliated directors are appointed, corporations also generally adhere to the recommendations of the Peters Committee to appoint a maximum of one formerly affiliated managing director to their supervisory boards.

 

Fact 3 -> Board Leadership: The Appointment of Formerly Affiliated Managing Directors to the Chair Position of the Supervisory Board

 

Based on the same method to measure the composition of supervisory boards, Maassen (1999a) calculated the number of supervisory boards that were chaired by a formerly affiliated managing director in 1998. The latest figures indicate that only four supervisory boards out of a total of one hundred listed corporations were chaired by a formerly affiliated managing director in 1998 (Maassen, 1999a). These appointments took place between 1987 and 1998. These findings indicate that a strong majority of the one hundred corporations investigated (96 percent) adhere to the recommendations of the Peters Committee to avoid the appointment of a formerly affiliated managing director to the chairman seat of supervisory boards. The findings also indicate that these appointment rarely take place in the top one hundred of Dutch listed corporations.

 

Fact 4 -> Board Composition: Executive and Supervisory Directors Meet Together

 

The Peters Committee recommends that a supervisory board meets at least once a year without managing directors to discuss its own performance, its relationship with the management board, the performance of the management board and to discuss matters related to the succession and remuneration of managing directors. Maassen (1998a) indicates that it is common for supervisory directors to meet regularly with managing directors. The study indicates that approximately fifty percent of the chairmen interviewed indicate that their supervisory board always met with the managing directors and about 26 percent of supervisory boards scheduled only one meeting a year without executive board members in 1996.

The study indicates that supervisory boards formally met six times on an annual base. This means that a large majority of formal supervisory board meetings have been held together with the managing directors in 1996. The latest figures indicate a similar development for supervisory boards in 1997. On average, directors met six times formally in 1997. The corporations’ compliance reports with respect to the recommendations of the Peters Committee indicate that 49 supervisory boards out of a total of one hundred corporations met at least once without the presence of managing directors in 1997. As such, a large majority of formal meetings were held together with managing directors in 1997 (Maassen, 1999a).

 

Fact 5 -> Board Committees: Supervisory Directors Work in More Board Committees

 

Board committees are usually not disclosed in annual reports or other reporting titles in the Netherlands. This makes it rather difficult to reveal historical developments in the use of committees in the Netherlands. The recommendation of the Peters Committee to disclose the existence of board committees in annual reports has recently resulted in more openness on committee structures in supervisory boards. Developments in the number of board committees could be determined for 1996 and 1997[42].

Although they are not required by Dutch company laws or stock exchanges, board committees are increasingly receiving more attention in the Netherlands. The Peters Committee recommends the formation of board committees such as the nomination, the remuneration and the audit committee. At least 45 supervisory boards out of a total of one hundred corporations had one or more board committees in 1997 compared to 38 in 1996. Like last year, the remuneration committee was the most popular supervisory board committee.

A total of at least 42 supervisory boards had established such a committee, compared to thirteen supervisory boards in 1996. The number of audit committees increased as well from 26 in 1996 to at least 32 in 1997. A similar development can be observed in the formation of nomination committees (from fourteen in 1996 to 23 in 1997). These figures are supported by Vergoosen en Muys-de Graaf (1997) who found an increasing number of board committees in supervisory boards of listed AEX-corporations.

The study indicates that 12,4 percent (or seventeen corporations) used audit committees in 1995 compared to 16,8 percent (23 corporations) in 1996[43]. Other committees include the strategic committee and several specific ad hoc committees.

 

Fact 6 -> Board Committees: Supervisory Boards Often Too Small For Committees

 

In a recent study, Maassen (1998a) asked chairmen to indicate why some of their supervisory boards do not use board committees. The main reason given is the size of the supervisory board. A total of 47 percent of the chairmen indicate that their supervisory boards are too small for board committees. Other reasons why chairmen have decided not to use board committees are:

 

  • there is no immediate reason to establish committees;

25%

  • board committees may sometimes result to more bureaucracy;

3%

  • decision making takes place collectively within the board.

25%

 

 

Source: Maassen (1998a).

 

Corporations also frequently indicate in their compliance reports with respect to the recommendations of the Peters Committee that the size of the supervisory board does not justify the formation of board committees. Table 8.5 finds support for the general rule that the larger the size of the board, the more common it is for directors to operate in board committees in the Netherlands. In 1997, the average board with an audit committee and/or remuneration committee was comprised of more than seven supervisory directors. Boards without these committees are on average comprised of five supervisory directors. In the same year, the average supervisory board with a nomination committee was comprised of eight supervisory directors. Directors that do not work with nomination board committees also often operate in boards with an average size of a little more than five supervisory directors.

 

Table 8.6

Board Committees in Dutch Supervisory Boards

 

Supervisory Board Size and Audit Committees

 

 

Average Supervisory Board Size

Average Supervisory Board Size Without an Audit Committee

Average Supervisory Board Size With an Audit Committee

1996 n = 100

5,8

5,2

7,5

1997 n = 99

5,9

5,1

7,4

 

Supervisory Board Size and Remuneration Committees

 

 

Average Supervisory Board Size

Average Supervisory Board Size Without a Remuneration Committee

Average Supervisory Board Size With a Remuneration Committee

1996 n = 100

5,8

5,1

7,5

1997 n = 99

5,9

4,8

7,3

 

Supervisory Board Size and Nomination Committees

 

 

Average Supervisory Board Size

Average Supervisory Board Size Without a Nomination Committee

Average Supervisory Board Size With a Nomination Committee

1996 n = 100

5,8

5,3

8,5

1997 n = 99

5,9

5,2

8

Source: Maassen (1999a).

 

Fact 7 -> Board Committees: Dutch Supervisory Board Committees Also Seat Managing Directors

 

As indicated by chapter six, audit committees are mandatory for corporations listed at the major stock exchanges in the US (NYSE, NASDAQ and AMEX). Also developments in the UK increasingly put pressure on corporations to establish independent audit committees. To support the independence of the board, audit committees are predominately composed of non-executive directors in these countries. The voluntary introduction of committees to Dutch supervisory boards resembles the common practice of directors in one-tier boards to operate in committees. Yet, the function of Dutch board committees seems to differ from those in one-tier boards.

According to Maassen and van den Bosch (1999a): “ . . . the function of Dutch board committees seems to differ from the oversight function of committees in one-tier boards. The survey results indicate that nearly all committees are composed of both managing directors and supervisory directors. So, while one-tier board committee structures serve purposes which are, to some degree, similar to the legal separation of the management and supervisory boards in two-tier boards . . . Dutch board committees may serve as integrative devices by means of a mixed composition.” Maassen (1998a) asked supervisory chairmen more about the composition of their audit committees. According to thirty chairmen surveyed, it is a common practice of supervisory directors to meet together with managing directors in audit committees. On average, one managing director is also a member of the audit and the nomination committee. By general rule, the remuneration committee has no managing directors in the committee (see also table 8.7).

 

Table 8.7

The Composition of Board Committees

 

Committees

 

 

Number of committee meetings

 

Number of supervisory members

 

Number of executive members

 

Number of executives attending meetings

 

Remuneration

(averages)

2

(averages)

2

(averages)

0

(averages)

2

Audit

3

3

1

3

Nomination

3

3

1

2

Source: Maassen (1998a).

 

The study also indicates that nearly all of the observed board committees have managing directors attending board committee meetings. In addition, the study indicates that these committees met on average between two and three times in 1996.


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Maassen, G.F. (2002). An International Comparison of Corporate Governance Models. A Study on the Formal Independence and Convergence of One-Tier and Two-Tier Corporate Boards of Directors in the United States of America, the United Kingdom and the Netherlands.

Maassen, G.F. (2002). An International Comparison of Corporate Governance Models. A Study on the Formal Independence and Convergence of One-Tier and Two-Tier Corporate Boards of Directors in the United States of America, the United Kingdom and the Netherlands. Amsterdam: Spencer Stuart Executive Search.