Good corporate governance
The principles of the International Corporate Governance Network are used to improve governance practices at listed companies as part of the good corporate governance theme. These principles have been designed so that they can be harmonized with specific local regulation and governance codes. They provide a reference point for engagement with Dutch listed companies during the shareholder-meeting season. But they are also used as a touchstone for example to discuss shareholder rights in Asia, or improvement plans for companies embroiled in corruption scandals in South America.
2016 AGM season in the Netherlands
During shareholder meetings, a company's board requests its shareholders to approve a number of proposals. Topics that regularly arise at shareholder meetings include the appointment of members to the Board of Directors and the Supervisory Board, authorizing directors to buy back or issue new shares, and requests for the approval of remuneration policies and financial statements. Over the last few years, Robeco and other institutional investors have built up good relationships with many listed companies in the Netherlands. The agenda points are always assessed and discussed with management prior to a shareholder meeting. They are sometimes amended or even cancelled after this such discussions. One example of engagement that led to cancelling an agenda item was at DSM. A proposal to the agenda was intended to extend fixed rate of return on preferential shares for another 5 years. This extension was contrary to the company's Articles of Association. Since there was insufficient support among ‘ordinary’ shareholders, who don't hold preferential shares, the proposal was withdrawn after various meetings, attended by various company representatives including the CFO.
Speaking at a shareholder meeting also allows to address some issues that do not require a vote. At the shareholder meeting of AkzoNobel, various matters were discussed, including the company’s transparency in relation to its tax policy and a change to the performance indicators in its remuneration policy.
Room to maneuver for companies and compliance with the principles
Among listed companies in the Netherlands, compliance with the Dutch Corporate Governance code is quite high. Generally speaking, the Code is implemented quickly. One positive example is IMCD, a chemicals distributor in Rotterdam. Shortly after the company's public listing, IMCD implemented the principles of the Dutch governance code. At the first public meeting of shareholders in 2015, IMCD reported only four exceptions to the implementation of this corporate governance code. At the second public shareholder meeting in 2016, the company reported just one exception.
Despite the strict compliance with the Dutch Corporate Governance Code in the past, there seems to have been a trend in recent years for directors to demand greater decision-making powers without first asking shareholders for approval. One example of this is the use of so-called ‘executive committees’. These ‘excos’ have become very popular among listed companies in the Netherlands over the last few years. An executive committee comprises of several executive management members, appointed directly by the CEO or the management. The appointment these members is not subject to shareholder approval. Another example is the demand for more extensive mandates for share issuance by directors. In the Netherlands, it was always customary for directors to issue no more than 20% of the company's authorized share capital in shares. Since this percentage is much higher in many other European countries, many listed companies requested a bigger mandate this year.
The interpretation of governance principles necessitates communication and is not static.
Listed companies in the Netherlands are obliged to report on the exceptions they make to the implementation of the Dutch Corporate Governance Code. What's more, they have to engage with shareholders if they require approval for changes to their company's governance. This process makes the corporate governance of companies a dynamic one. Where communication between a company and its shareholders is of a constructive nature, there is room for exceptions to the ‘best practice’ provisions, and strict regulatory compliance is not necessary. Corporate governance codes themselves are also subject to change. Over the course of 2015, the Dutch Corporate Governance Monitoring Committee started consultations for a new version of the corporate governance code. The proposed key changes relate to reporting on long-term strategy, risk management and the corporate culture. Another objective of the updated proposal is to simplify and clarify remuneration structures. Once the revised code takes force, these changes will form the basis of fresh discussions between Robeco as a shareholder and the Dutch companies it invests in. We expect the impact of the new Dutch Corporate Governance Code on companies to be discussed in the 2017 shareholder-meeting season.