5 August 2016

Proposal for application of the Corporate Governance Code to one-tier boards

The Dutch Corporate Governance Code Monitoring Committee published a consultation document on 3 August 2016 with a proposal for the application of the Corporate Governance Code to one-tier boards. This one-tier board proposal follows the comprehensive proposal by the Committee of 11 February 2016 for a revision of the Corporate Governance Code, which mainly addresses two-tier board companies.

Contrary to the Committee’s earlier communication, the one-tier board proposal does not contain a separate code for one-tier boards. The Committee proposes to only amend and expand the current principle and best practice provisions that apply to one-tier boards. The Committee also offers guidance on the applicability of the Code to one-tier boards in a separate document which is part of the consultation document. The consultation period regarding this proposal ends on 28 September 2016.

The Committee’s proposal clarifies the impact of the proposed Code for one-tier boards, whilst allowing for flexibility in applying the Code to a one-tier board.

No separate code for one-tier boards
Traditionally, Dutch companies have applied a two-tier board model and therefore the current Corporate Governance Code is mainly geared towards two-tier companies. However, over the last years, an increasing number of listed companies seem to be opting for a one-tier board.

In its February proposal, the Committee announced that it would publish a separate code for one-tier boards. The now released one-tier board proposal, however, states that the current practice does not justify a full one-tier board code. The one-tier board proposal therefore consists of some add-on provisions to the Code, and includes a guidance document for application of the Code to one-tier boards.

Amended and expanded best practices for one-tier boards
According to the proposed principle 2.8, the composition and functioning of a one-tier board consisting of both executive directors and non-executive directors should ensure proper and independent supervision by the non-executive directors. This principle is in line with principle III.8 of the current Code. The Committee proposes a few amendments and additions to the best practices for one-tier boards:

  • The chairman of the board is primarily responsible for leadership within the board and for the effectiveness of the board and its committees.
  • In accordance with the February proposal, the chairman of the board should be independent.
  • The non-executive directors should account for their supervision conducted over the past financial year in the management report or in a separate report.
  • One of the executive directors should be appointed as the chief executive officer (CEO) who leads the day-to-day management of the company and its business and who will regularly be consulted by the chairman.

A separate guidance document for one-tier boards
The Committee also gives guidance on how the principles and best practice provisions of the Code can be applied by one-tier board companies. The guidance document clarifies possible differences between the two-tier board and the one-tier board, and indicates where one-tier board companies can choose their preferred option.

The following topics are discussed in the guidance document:

  • collective responsibility and the division of tasks, including a list of tasks of non-executive directors
  • approvals by a one-tier board
  • composition of and reporting by committees
  • reporting by non-executive directors
  • effective management and supervision
  • remuneration

What’s next?
The consultation period for the February proposal for a revision of the Corporate Governance Code ended on 6 April 2016. The final version of the revised Code is expected to be published after the summer. If the final version of the revised Code differs from the February proposal, the principle, best practice provisions and guidance of the one-tier board proposal will be amended accordingly.