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Board-level Representation

Works councils have the right to nominate up to one third of the members of supervisory boards or a third of the non-executive directors in larger companies. However, neither employees of the companies nor trade unionists dealing with them can be nominated, so the works council nominees are often distant from employees’ day-to-day concerns.

In the Netherlands, public limited companies (NV) and private limited companies (BV) can choose between a single-tier (monistic)and a two-tier (dualistic) corporate governance structure.

 

In the single-tier structure, there is a single board of directors, which can be made up entirely of executive directives or be a combination of executives and non-executives. In the two-tier structure, there is a management board and a supervisory board. The management board runs the company and the supervisory board, is regularly informed of developments, appoints and dismisses the management board and approves major management decisions. Large companies – defined as those with issued capital of more than €16 million, at least 100 employees in the Netherlands and a works council (obligatory for companies with more than 50 employees) – must either have a supervisory board or include non-executive directors in the single-tier board of directors. (International groups with the majority of employees outside the Netherlands are exempt from this obligation.)

 

In these “large” companies, other than those who are exempt, the works council has a right to nominate a third of the board members, either to the supervisory board or among the non-executive directors, although in both cases the process is somewhat complicated.

 

Where there is a two-tier structure, the works council’s nominations go first to the supervisory board and then to the general meeting of shareholders. (All nominations to the supervisory board must come from the supervisory board.) The works council’s nominations must be accepted by the supervisory board, unless there are good grounds for not doing so, such as that the person was unfit or that the appointment would unbalance the board. (If there are objections the two bodies attempt to reach an agreement, with the Enterprise Chamber of the Amsterdam Court taking the final decision.)  These nominations, along with all others then go to the general meeting of shareholders. The general meeting can reject the nominations from the supervisory board, including those which originally came from the works council, but it cannot make its own nominations, as these must come from the supervisory board.

 

The general meeting of shareholders also has the right to dismiss the entire supervisory board by a majority vote, provided this vote represents at least one third of the issued share capital. However, the meeting must hear the views of the works council before taking a decision.

 

Finally, the legislation also permits the supervisory board, general meeting of shareholders and the works council to agree other arrangements if they wish, although the right of the shareholders to reject a nomination cannot be removed.

 

Where a “large” company opts for a single-tier structure (with just one board), many of the duties which in a dualistic structure are carried out by supervisory board become the responsibility of the non-executive directors, who must make up a majority of the board. For example, the non-executive directors appoint the executive directors. The non-executive directors are appointed at the general meeting of shareholders and in “large” non-exempted companies (that is those required to have employee representation at board level) the works council continues to have special nominating rights for up to a third of the non-executive board members.

 

However, one very important element of the Dutch approach is that employees of the company or of a union involved in collective bargaining with it are specifically excluded from being members of the supervisory board or non-executive directors. The thinking behind this relates to a core feature of the Dutch system – that members of the supervisory board and non-executive directors should act in the interests of the company as a whole and not as representatives of partial interests, whether they are shareholders, banks or employees. This also means that works council members, for example, cannot be on the supervisory board or become non-executive directors. Those who are chosen are probably somewhat distant from the day-to-day concerns of the workforce. They are sometimes academics, perhaps with a broad sympathy for trade unions positions, individuals with a human resources background, people from the voluntary sector, and in some cases former senior trade unionists.

 

In practice, it appears that works councils do not make full use of their right to nominate members of the supervisory board. A report in 2012 found that in almost half of the cases examined (four out of nine) the works council had not taken up their nominating rights.[1]

 

Dutch companies are also only making slow progress in increasing the number of women on management and supervisory boards. Since 2013, the government has required “large” companies to appoint women to at least 30 percent of the seats on their management and supervisory boards. However, by 2019 in 4,700 large companies there were only 19.8% where women made up 30% of the management board and only 32.3% where this level had been reached on the supervisory board.[2] The government is considering introducing legislation which will invalidate any appointment which does not contribute towards the 30% figure. This would also affect nominations coming from the works council.

 

Supervisory board members and non-executive directors nominated by the works council have the same rights and responsibilities as any other members and directors. This includes their period of office. The Dutch Corporate Governance Code provides that members the supervisory board should be appointed for an initial period of four years, which can be extended by a second four years, with extensions after that only for a period of two years, possibly extended by a further two.[3] The Code does not specify the term of office for non-executive directors, but in general they are treated in the same way as members of the supervisory board.

 

Since July 2010, works councils in public limited companies (NV) have had the right for their views on certain issues to be heard at the shareholders’ general meeting. The works council can comment on resolutions approving the management board, including appointments and dismissals, on major changes in the identity of a company and on remuneration policy. There is no requirement for the shareholders to take account of the views of the works council.

[1] De samenstelling en het functioneren van de raad van commissarissen in het boekjaar 2011 alsmede het verslag van de raad van commissarissen by J Biesheuvel-Hoitinga and AA Bootsma, Instituut voor Ondernemingsrecht, October 2012  

[2] Diversity in the boardroom: Time to accelerate, Summary - SER-advisory report September 2019

https://www.ser.nl/-/media/ser/downloads/engels/2019/diversity-boardroom.pdf (Accessed 06.05.2020)

[3] The Dutch Corporate Governance Code, December 2016.

L. Fulton (2021) National Industrial Relations, an update (2019-2021). Labour Research Department and ETUI (online publication). Online publication available at http://www.worker-participation.eu/National-Industrial-Relations.