Monday, January 03, 2011

Dutch Corporate Governance Monitor Says Supreme Court Ruling on Shareholder-Board Relations Calmed the Waters

A Netherlands Supreme Court ruling that a company’s management board can determine corporate strategy without involving the shareholders in advance of the decisions, and that the supervisory board is not obliged to mediate in disputes between the management board and shareholders, has calmed and clarified the vexing relationships between boards and shareholders. This was the view of the Dutch Corporate Governance Monitoring Committee on the landmark ASM International N.V. (ASMI) opinion rendered by the Court last year.

The committee also said that the supervisory board must have the freedom to decide from case to case whether direct contact with the shareholders and/or mediation between shareholders and the management board is desirable. But the committee also pointed out that the Supreme Court emphasized in its ruling that the management board is obliged to respect the rights of shareholders to obtain information during the general meeting of shareholders.

Although the debate on certain aspects of the Court’s ruling is still in progress, the Monitoring Committee expects the ruling to calm and clarify the vexed subject of the mutual relationships between the various organs of listed companies. The Committee also observed that these relationships could become unclear again as a result of pending legislation to compel shareholders with a stake of 3 per cent or more to indicate whether they object to the strategy of the company.

Approximately 75 per cent of the shares in the largest Dutch companies are held by foreign investors. In the view of the committee, the enactment of the legislation will probably usher in an era where shareholders will indicate that they do not agree with the corporate strategy in order to keep open all their options for future discussions with the management board. Consequently, a substantial proportion of the major shareholders may indicate solely for legal reasons that they do not support the company’s strategy, although this is often not the case in practice.

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