What is the Corporate Governance Code?
The Dutch Corporate Governance Code focuses on the governance of listed companies and provides guidelines for effective collaboration and management. The aim of the Corporate Governance Code is to achieve a sound and transparent system of checks and balances within Dutch listed companies. To this end, the Corporate Governance Code contains principles and best practice provisions that regulate the relationships between the various corporate bodies.
Why is the Corporate Governance Code important?
Listed companies use the Corporate Governance Code as a guideline to organise the governance of their company. Provisions can be found in the Corporate Governance Code that regulate the relationships between the management board, the supervisory board and the (general meeting of) shareholders. In addition, the Corporate Governance Code contains rules that prescribe how the board provides explanations and how the supervision of the board is organised. For example, the rules of conduct in the Corporate Governance Code encourage good governance of listed companies. The Corporate Governance Code thus contributes to a strong business climate.
What are the consequences if the Corporate Governance Code is not complied with?
The management board and the supervisory board are responsible for compliance with the Corporate Governance Code. When listed companies do not apply provisions, they are expected to provide explanation in their annual report (the ‘comply or explain’ principle). This makes the Corporate Governance Code seem like a toothless tiger. However, the Corporate Governance Code Monitoring Committee checks whether and how listed companies comply with the Corporate Governance Code. To this end, it writes compliance reports on an annual basis and draws conclusions from them. According to the anchoring of the Corporate Governance Code in the law, politicians also endorse the importance of good corporate governance. After all, the same legal anchoring increases the legitimacy and awareness of the Corporate Governance Code.
Amendment of the Corporate Governance Code is available for consultation
In addition to monitoring compliance, the Corporate Governance Code Monitoring Committee fosters the topicality and usefulness of the Dutch Corporate Governance Code. For this purpose, the Monitoring Committee published a consultation document in February 2022 in which proposals were made to update the Corporate Governance Code. According to various parties, the changing times, legislative changes and other social developments have necessitated several adjustments to the Corporate Governance Code.
What are the proposed adjustments?
In the consultation document, the Monitoring Committee made several proposals to update the Corporate Governance Code:
- Long-term value creation. The consultation document makes a number of proposals with regard to the theme of ESG (Environment, Social & Governance). For example, companies are expected to formulate a clear ESG strategy with concrete objectives.
- The role of shareholders. The consultation document emphasises the importance of effective and sustainable shareholder engagement. In addition, the role of shareholders is further clarified.
- Diversity and Inclusion. In the consultation document, the Monitoring Committee has made proposals that not only aim to achieve a more balanced male/female ratio in the (sub)top of companies, but also take into account developments in the field of gender identity and gender expression.
- Response time. There is an overlap between the statutory cooling-off period (introduced in Book 2 of the Dutch Civil Code) and the response time of the Corporate Governance Code. In the consultation document, the Monitoring Committee has made limited adjustments to the provisions of the Corporate Governance Code that regulate the response time and has explained those provisions in more detail.
- Rewards. Although the Corporate Governance Code has a broader scope than the law (Book 2 of the Dutch Civil Code), in some areas the law contains more detailed provisions than the Corporate Governance Code. In the consultation document, the Committee further explains a number of provisions on remuneration policy and the remuneration report.
All parties involved, stakeholders and other interested parties had the opportunity to provide feedback on the consultation document until 18 April 2022. The aim is to update the Corporate Governance Code with the input and findings obtained from this consultation phase.
Need help with the Corporate Governance Code? VIOTTA is happy to help
For a couple of years now, the Corporate Governance Code has been legally anchored for listed companies. VIOTTA’s lawyers specialise in corporate governance and are happy to help you with any questions you might have about the Corporate Governance Code. Please feel free to contact Dirk de Waard.
