On 20 December 2022, the Corporate Governance Monitoring Committee published the actualised Corporate Governance Code 2016 (hereinafter: the Code). The Code contains principles and best practice provisions that aim to regulate the relations in listed and large companies between the management board, the supervisory board and the shareholders (including general meeting).
Compliance with the Code is based on the ‘comply or explain’ principle. Therefore, the Code has in principle no direct legal effect. The principles and best practice provisions may be regarded as reflecting widely general views on good corporate governance.
Even though most companies in the Netherlands do not directly fall within the scope of the Code, it is assumed in literature and case law that the Code has a certain ‘reflex effect’. This means that the Code could also apply to companies that do not explicitly fall within the scope of the Code. Besides the phenomenon of the reflex effect, the Code could provide guidance for companies in setting up good governance and supervision. In practice, we regularly receive questions from clients about this topic.
The Code is based on the notion that a company is a long-term alliance between the various stakeholders of the company. In the recent update of the Code, the focus shifts to the sustainable long-term value creation of the company. Based on the Code, the management board should involve stakeholders in defining the Environmental, Social and Governance-strategy and should account for the vision and realization of sustainable long-term value creation. For years, the prevailing view was that shareholders were allowed to serve their own (financial) interests. The Code is – corresponding with existing Supreme Court (Hoge Raad) and Enterprise Chamber (Ondernemingskamer)case law - about to change that view. The update explicitly states that shareholders should acknowledge the importance of a strategy aimed at sustainable long-term value creation.
Diversity and inclusion also plays an important part in the Code. Companies should formulate a Diversity and Inclusion policy (D&I policy) and need to account for this policy. Diversity refers to all aspects and personal characteristics in which people differ, such as gender identity, age, ethnicity, work disabilities and sexual orientation. Inclusion means the ability of an organization to create a culture in which every employee feels valued and respected, giving employees the same opportunities regardless of their identity and diversity of employee advancement to the top is facilitated. Moreover, inclusion encompasses social safety, including addressing transgressive behavior in the workplace.
The revised Code shall enter into force as of the financial year of a respective company beginning on or after 1 January 2023.
If you have any questions about corporate governance, please feel free to contact Ilse Ekkel.