Bachelor

Thesis Finance

The influence of the financial crisis on board independence in Dutch banks “Has the percentage of independent board members in Dutch banks increased since the start of the financial crisis?”

Name Vincent Schurink

ANR S108689

Bachelor Business Studies

Academic Year 2011 - 2012

Supervisor Francisco Urzúa Infante

Department Finance

Word count 7999 Abstract

This thesis will show an increase in the percentage of independent board members since the start of the financial crisis in August 2007. It discusses in turn the function of boards, the difference between dependent and independent board members and the importance of board independence. Subsequently the increase of the percentage of independent board members in the management boards of Dutch banks, since the start of the financial crisis, will be statistically shown and discussed.

In addition, this thesis investigates the change in the degree of board independence for different bank types, bank sizes and different levels of profitability.

Key words: board independence, financial crisis, Dutch banks.

2

Table of Contents 1. Introduction ...... 5 1.1 Background ...... 5 1.2 Problem statement ...... 8 1.3 Research questions ...... 8 1.4 Academic relevance ...... 9 1.5 Managerial relevance ...... 10 2. Literature review ...... 11 2.1 The regulations concerning Dutch banks ...... 11 2.2 The influence of the current financial crisis on banks ...... 12 2.3 The importance of boards ...... 13 2.3.1 Function of boards ...... 14 2.3.2 Board structure ...... 14 2.3.3 Board size ...... 15 2.4 Difference between dependent and independent board members...... 16 2.5 Importance of independent board members ...... 17 2.6 Summary ...... 18 3. Data collection ...... 19 3.1 The type of bank ...... 20 3.2 Bank size ...... 20 3.3 Profitability ...... 21 4. Empirical evidence ...... 22 4.1 Data selection ...... 22 4.2 Data on the degree of board independence ...... 23 4.2.1 Statistical proof ...... 24 4.3 Empirical findings; categorized by ‘type of bank’ ...... 26 4.3.1 Statistical proof: Commercial Banks ...... 27 4.3.2 Statistical proof: Government and Investment banks ...... 27 4.4 Empirical findings; categorized by ‘size’ ...... 28 4.4.1 Statistical proof: Small and Large banks ...... 28 4.4.2 Statistical proof: Medium-sized banks ...... 29 4.5 Empirical findings; categorized by ‘profitability’ ...... 30

3

4.5.1 Statistical proof: banks high profitability and losses ...... 31 4.5.2 Statistical proof: banks with medium profitability ...... 31 4.6 Summary ...... 32 5. Conclusion ...... 33 Reference list: ...... 35

Appendix:……………………………………………………………………………………………………………..……………………………… 39

4

1. Introduction

Chapter 1 will give an introduction and a background view on the subject. In section 1.2 and 1.3 the problem statement and research questions will be presented, whereas the academic and managerial relevance will be presented in section 1.4 and 1.5. Chapter 2 will go into the importance of boards and board independency. Chapter 3 will go into the data collection and chapter 4 will go into the variation of the percentage of independent board members in Dutch banks since the start of the financial crisis. Chapter 5 will reflect on the influence and present an overview and summary.

1.1 Background In recent years multiple arrangements have been made to ensure the protection of the shareholder. One of them being the new listing standards, proposed by the New York Stock Exchange and the Nasdaq Stock Market. These new standards attempt to increase shareholder protection by increasing the level of board independence so that listed firms will act in the interest of the shareholders. They were introduced following the Enron and WorldCom scandals in 2002 (Bebchuk & Weisbach, 2010). Since the introduction, companies listed on these two stock exchanges are legally obliged to have a majority of independent board members (Securities & Exchange Commission, 2003). These American standards however apply to the board system applicable in the United States, which is the one-tier board system.

In the one-tier board system, both executive and non-executive directors are seated. The executive directors are responsible for the day-to-day management of the firm, whereas the non-executive directors are responsible for supervising this process. The new listing standards indicate the importance of this supervisory function for which, according to Jungmann (2006), a majority of independent board members is necessary.

Another applied form of governance is a so called two-tier board. This board system employs a management board and a supervisory board as two separate entities. The management board is responsible for the day-to-day management of the firm and the supervisory board controls and performs an audit on the management board. In order to ensure that the firm acts in the interest of the shareholders, the supervisory board has to be independent.

5

The Netherlands is one of the countries in Europe that applies the two-tier board system (Jungmann, 2006). In the two-tier system in the Netherlands, the supervisory board has to be independent. Due to the obliged independence of the supervisory board, no strict rules exist concerning the obliged percentage of board independence in the management board (Dutch banking association, 2009).

In theory the absence of independence rules for the management board should not be a problem, since the two-tier system is supposed to employ a rather high degree of independence. However, the supervisory board sometimes seems to lack its basic tasks, which subsequently means that the board is missing its supervision. The ABN-Amro case of 2008 shows a clear example where the management board performed inadequate due to “arrogance and poor decision making” (Smit, 2010). The weak supervisory board omitted to take action and after a while the bank lost his independence in a hostile takeover (Smit, 2010). Since the two- tier system is supposed to have higher quality of a banks accounting information and thus supervision (Firth, Fung & Rui, 2007), the Netherlands provide a relevant sample of a country with a two-tier board system that in history has shown to have its imperfections.

ABN-Amro is not the only bank that came into financial distress in recent years. Since the start of the financial crisis in August 2007 (Taylor, 2009), the financial world has been confronted with the bankruptcy of multiple big banks worldwide. Starting in the United States, (Taylor, 2009) banks that were categorized by the government as being ‘too big to fail’ (Stern & Feldman, 2004), filed for bankruptcy. These bankruptcies give an indication of the increased level of uncertainty for banks. Due to this increased uncertainty, the start of the financial crisis provides a period in which banks would be expected to take measures in favor of their continuity, for instance by the mechanism of board independence.

Due to the high level of importance of banks for a country’s economy (King & Levine, 1993), a simple lack of supervision should not create a possibility for poor performance leading to a (hostile) takeover or bankruptcy. Increasing board independence in the management board might therefore be an option to improve the supervision, and consequently the expected firm performance. Problems concerning the supervisory function due to a lack of involvement by the

6 supervisory board could then be minimized. Still theory does not fully agree on the importance of independent board members concerning firm performance.

On the one hand, research confirms the importance of board independence; Butler and Baysinger (1985) show empirical evidence that firms with higher proportions of independent directors have came up with superior performance records over the seventies. In addition, Hermalin and Weisbach (1988) document that outside directors are more likely to join a board when a firm is performing poorly. This poor performance might be the result of poor management and thus a greater need for the monitoring of the management by independent members.

On the other hand, it is said that these independent board members have smaller knowledge of the firm and might thus not guarantee optimal firm performance. Bhagat and Black (2002) state that the amount of knowledge and incentives are just as important; hence board independence would not be directly correlated to long term firm performance. Westphal (1998) is also critical on board independence; an increase of board independence will lead to integration and influential behavior by the CEO towards board members.

Despite these differences, the market seems to believe the importance of independent directors. Rosenstein and Wyatt (1990) contribute to this field by documenting a significant positive share-price reaction to the appointment of outside directors. One could say this indicates a positive attitude of shareholders towards independent board members.

If shareholders, the owners of the banks, are positive towards the appointment of independent board members, banks themselves might feel the same way. Especially since the financial crisis has introduced an increased level of financial uncertainty, which banks are likely to compensate for. In order to find out if this expected increase is present in the two-tier board system in the Netherlands, this thesis will investigate whether the percentage of independent board members in the management board of Dutch banks has increased between the start of the crisis in august 2007 and January 2012. In that way the expected influence of the current financial crisis, which is increased uncertainty, is expected to lead to an increased percentage of independent board members.

7

Once this change is known, it will first be considered in light of type of bank: Will commercial banks have a higher increase in board independence than, for instance, government banks? Subsequently, the size of the bank will be taken into account: Will bigger banks, with more clients and greater responsibility, be more likely to appoint independent board members? And finally profitability will be taken into consideration as well: Will banks with small profits or losses, be more likely appoint a higher percentage of independent board members as Hermalin and Weisbach (1988) documented?

1.2 Problem statement

“What is the influence of the current financial crisis on the percentage of independent board members in Dutch banks?”

1.3 Research questions

In order to answer this question, the following research question will be addressed.

 Has the percentage of independent board members changed since the start of the financial crisis?

8

1.4 Academic relevance

Boards of directors are difficult institutions to study (Adams, Hermalin & Weisbach, 2010) and the academic papers on board independence so far differ on the effects. Papers, such as Muth & Donaldson (2002) or Bhagat & Black (2001) document board independence to not have a positive influence on firm performance. On the other hand Butler & Baysinger (1985) and Mishra & Nilsen (2000) did document a positive influence of board independence on the firm’s performance. In addition, Rosenstein & Wyatt (1990) have contributed by documenting evidence that the appointment of independent board members leads to higher share price and thus increased trust of the market.

Since the start of the financial crisis in 2007 the degree of uncertainty on the financial markets has increased. However, it is unclear if financial institutions such as banks, which are vital for a country’s financial system, use measures such as board independence to cope with this uncertainty.

The Dutch two-tier board system, in theory, has a relatively high degree of supervision due to the presence of its supervisory board. By performing empirical research on the management boards of Dutch banks, it will become clear whether the banks actually increased board independency in their executive board and thus increased supervision.

On account of the ongoing debate on the importance of board independency, this thesis will contribute to the field of board independence by adding evidence on whether banks, in a period with relatively high levels of financial uncertainty, tend to appoint a higher percentage of independent board members. It will do so by attempting to empirically show whether the percentage of independent board members has changed since the start of the financial crisis.

9

1.5 Managerial relevance

With the bankruptcy of large, globally operating banks such as Lehman Brothers, Merril Lynch and Bear Sterns, the world has been confronted with the notion that banks, no matter their size, are not safe from bankruptcy these days. The same became evident in the Netherlands when ABN-Amro and the Dutch part of Fortis were acquired by the Dutch state (Rijksoverheid, 2011, rijksoverheid.nl).

The increased level of financial uncertainty affects the continuity of the Dutch banks; institutions that are vital for the economy of a country. Bankruptcy of one of the bigger Dutch banks might not lead to a complete collapse of the market, it will put a considerable burden on the other banks nevertheless (Lelyveld & Liedorp, 2006). In order to minimize the risk that bankruptcies or takeovers occur again, an increased level of independency in the management board can improve the supervisory function. A higher percentage of independent board members can help to improve internal audit opinions (Firth, Fung & Rui, 2007) and regain the trust of the market (Rosenstein & Wyatt, 1990).

Whether the increased percentage of board independence will also lead to improved firm performance is still a heavily debated area. Despite that, the expected increase of the supervisory function and improved internal audit opinions are likely to contribute to banks in coping with the current financial crisis.

10

2. Literature review

The second chapter will go further into the role and function of boards, as well as the importance of independent board members. Section one discusses the regulations concerning Dutch banks and section two goes into the influence of the current financial crisis on banks. Section three then explains the importance of boards in general. Chapter four discusses the difference between dependent and independent board members and chapter five will explain the importance of independent board members. Chapter six will then summarize and conclude why independent board members are expected to be important for the banks in this thesis.

2.1 The regulations concerning Dutch banks According to the Dutch Authority of Financial Markets (Autoriteit Financiële Markten, 2012), a bank is defined as a company that obtains and provides financial products to consumers and companies, other than solely to professional parties or companies. For that reason, institutions that obtain and provide financial products from and to consumers in the Netherlands require a banking license. Therefore banks in this thesis refer to financial institutions that possess a banking license, since they provide several financial products to consumers and companies.

All banks that are in the possession of a banking license and that perform activities in the Netherlands, have to comply with the Dutch banking Code. The code contains explicit rules concerning the way to conduct business, the executive and supervisory board, risk management, audits and remuneration policy. Dutch Banks that are listed on the stock exchange have to conform to another code, The Dutch Corporate Governance Code.

Since this thesis concerns the board structure of all Dutch banks, it will mainly focus on the Dutch Banking Code since the Dutch Corporate Governance Code only applies to banks listed on the stock exchange.

The Dutch Banking Code defines the two-tier board structure consisting of an executive management board and a non-executive supervisory board (Nederlandse Vereniging van Banken, 2008). In this structure, the supervisory board is obliged to be independent in order to

11 optimize supervision. This structure ensures a rather high degree of supervision on the audits and for instance the risk that the firm is facing (Maassen & Bosch, 1999).

2.2 The influence of the current financial crisis on banks In August 2007, the current financial crisis started to show its size and consequences in the United States. Taylor (2009) states that crises are often caused by monetary excesses which lead to a boom and an inevitable burst. In the current crisis, the subprime mortgage boom burst’ into financial turmoil in the United States.

According to Reinhart & Rogoff (2008), the majority of crises are preceded by high levels of financial liberalization. In the United States there was quite a high level of liberalization present before the housing boom burst. Since financial institutions have a much larger role in financial systems, problems concerning their performance will affect many related institutions and whole economies. As a result, the channeling of over a trillion dollars into the sub-prime mortgage market has not only affected a small number of banks in the United States (Reinhart & Rogoff, 2008). Instead it has led to bankruptcies of financial institutions worldwide, involving high levels of financial uncertainty.

It can be noted that high levels of liberalization enable financial crises, but might also be a reason for no critical view on poor performance by the large Dutch bank ABN-Amro, which eventually led to it being acquired by competitors in 2008.

Now that liberalization and the interconnectedness of financial institutions has led to bankruptcies, even in our country, the question arises which measures can be taken to prevent it from occurring again? Answering that question is complex, therefore this thesis will focus on the role of the boards.

12

2.3 The importance of boards Any organization, large or small, requires some form of governance. In large firms this governance is arranged by appointing a board of directors, who have a formal and legal responsibility for controlling the performance of the firm (Lattin, 1959).

As Zald (1969) states, a board operates as the agent of the corporation, overseeing organizational activity. The formal and legal responsibility mentioned by Lattin can therefore be seen as ensuring the firm to act in the interest of the shareholder. In the classical principal- agent theory, the shareholders will then be considered as the principal who hires the agent to pursue the interest of the principal.

Zald’s (1969) notion of boards being the agents of the corporation has been further defined by Hermalin & Weisbach (2003). They suggest that “boards are the second-best-efficient solution to the various agency problems confronting any organization with such a potentially large divergence in interests among its members.”(p. 9) The main agency problem exists between the shareholders who are the owners and the management of the firm. According to Hermalin and Weisbach (2003), management needs incentives to perform in the interest of the firm. The shareholders are actually responsible for providing these incentives, but they are too diffused and too uninformed to do so properly. Boards are then necessary to align all interests and make sure management pursues the goals of the firm, in favor of the shareholders.

Minimizing variability , according to Adams, Almeida & Ferreira (2005), is another important function of boards. They state that firm performance is more variable when decision-making power becomes more centralized in the hands of the CEO. For companies such as banks, this increased variability leads to increased uncertainty concerning performance and the bank’s continuity. This is undesirable in times of a financial crisis and stresses the importance of the decentralization of decision making by involving management and supervisory boards.

Despite the fact that not all the banks in this thesis have shareholders, they all have stakeholders in the form of clients who have put their money in bank accounts. This thesis therefore considers these clients as having the same kind of interest as shareholders, namely:

13 consistent good performance of the respective bank. Boards can be seen as an important instrument to ensure good performance, as is desired by all the stakeholders.

2.3.1 Function of boards To find out how to ensure the good performance, the main function of the board will have to be clear. Theory has several modeling approaches applicable to boards. Hermalin and Weisbach (1998) focus in their model on one of the primary board tasks: the process of hiring and firing of the management team and deciding on whether to retain or replace the CEO.

In their model, inferior performance leads to the appointment of more independent board members. Because CEO turnover is more sensitive to performance when the board is more independent, the CEO prefers a less independent board, while the board prefers to keep its independence. In this bargaining process it can be said that a higher degree of board independence leads to a more critical view on performance. CEOs ensuring good performance have then got nothing to fear. Bad performance on the other hand can have the consequence of replacing the CEO.

A critical view on decreasing performance will be of great assistance in dealing with the financial uncertainty of the current financial crisis. The model by Hermalin and Weisbach (1998) describes this supervisory function of boards and indicates the importance of board independence when firms attempt to ensure good performance.

2.3.2 Board structure Boards in banks are structured into multiple committees, each covering an operating field of the bank and all committees together lead to the whole process of government. The question is, how individual independent board members can use the board’s structure to be ensured of the proper amount of power they need in order to actually influence performance.

The power of the board members does not simply refer to voting rights, but mainly depends on two other factors (Zald, 1969). The first factor is the control over a key committees to which they can be assigned. The second factor concerns personal characteristics that determine the extent to which other directors find it necessary to use their perspectives and ideas.

14

Consequently, in order for independence to have effect, the independent board members will require the right social skills and have to be positioned on the right places.

In the two-tier board system in the Netherlands, the independent members from both the management and the supervisory board will have to be well positioned to have optimal effect. However, a good balance between inside and outside directors is of great importance.

On the one hand, critical audit and risk committees would ensure optimal supervision. It would therefore be logical to ensure high influence of independent board members on audit and risk committees. On the other hand, inside directors should have high influence in finance and investment committees, to ensure better accounting and stock market performance (Klein, 1998).

However, this thesis does not allow for thoroughly investigating the influence of the respective committee appointments. The Dutch sample has got too many differences in the respective committee structures for that. Bank X might for instance only apply a risk, audit, remuneration and nomination committee. Simultaneously, bank Y combines risk and audit into a single committee and adds multiple committees such as a remuneration and compensation committee, a credit committee, an asset & liability committee, etc. Due to these differences, it is unclear which committees and which committee positions have the highest effective level of influence. This thesis will therefore only focus on the overall presence of independent board members in the management board of the banks.

2.3.3 Board size The paragraphs on the function and structure of boards indicate the importance of independent board members on the right positions. Still banks cannot simply keep adding board members when they desire a higher board independence percentage.

Studies by Yermack (1996), De Andres, Azofra & Lopez (2005) and Dulewicz & Herbert (2004) show that an increase of the size of boards leads to poorer performance. Once boards become too big, agency problems such as free-riding increases and the board becomes more symbolic and an inferior part of the management process (Hermalin & Weisbach, 2003).

15

As a result, when firms want to make changes to the board’s composition - for instance by adding independent board members for the supervisory function- dependent board members will have to make place to prevent increased size to lead to poorer performance.

2.4 Difference between dependent and independent board members. In every bank, nominations for the board can either come from within or from outside the company. Nominations from within indicate that a person currently working at the bank is appointed towards the function of board member. This appointment indicates that the new board member already has some sort of relationship with the company and can therefore be classified as a dependent board member.

Appointing a person from outside the bank can indicate two types: a dependent or an independent board member. Here, an independent board member indicates a board member who “has no material relationship with the company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company)” (Securities and Exchange Commission, 2003). The Dutch Corporate Governance Code (Nederlandse Vereniging van Banken, 2008) tightens the definition of an independent board member for the supervisory board by also considering a board members’ direct family.

Due to the fact that the available data concerning the board members does not allow us to find out if the current members have any immediate family members in the respective banks, other than those previously in the management and supervisory board, this thesis will focus on the employment relationship. However, the term of three years, as used by the Securities and Exchange Commission, will be replaced by the five year term applied by the Dutch Corporate Governance Code (Nederlandse Vereniging van Banken, 2008) This means that an independent board member in the management board will in this thesis be defined as a board member who in the past five years:

Has not had an employment relationship with the respective company, nor with the internal or external auditor or a subsidiary of the company . However, employment as an interim chairman or CEO would not disqualify a director from being considered independent following that employment. (Securities and Exchange Commission, 2003, sec.gov)

16

2.5 Importance of independent board members Now that the influence of the financial crisis, the importance of boards and the definition of independence has been discussed, this thesis will elaborate on the importance of independent board members. Theory on its importance differs and will therefore be shortly discussed based on relevant papers and subsequently explaining how this thesis comes to its hypothesis.

On the one hand, research denies the importance of independent board members on firm performance. Hermalin and Weisbach’s (2003) review on the literature concerning board independence documents papers from MacAvoy, Cantor, Dana & Peck (1983), Hermalin & Weisbach (1991), Mehran (1995), Klein (1998), and Bhagat & Black (2000) that all report board independence not to have a direct effect on accounting performance.

On the other hand, there is research confirming board independence to positively influence performance (Butler & Baysinger, 1985). In addition, Bebchuk and Weisbach’s (2010) review on board independence shows empirical research from Byrd & Hickman (1992), Shivdasani (1993), Brickley, Coles & Terry (1994), Cotter, Shivdasani & Zenner (1997) Dann, Del Guercio & Partch (2003), Gillette, Noe & Rebello (2003) indicating that board independence is associated with improved decision making with respect to some specific types of decisions.

Because the empirical research differs on whether board independence directly leads to improved accounting performance, this thesis will focus on the value of independence in the board’s decision making.

In the decision making process, adequate information is of essential importance. The CEO will have to provide as much relevant information as possible. According to Adams & Ferreira (2007), increasing independence in the management board will only lead to adequate information provision by the CEO, when improved disclosure practices are introduced. For the supervisory board this does not matter, therefore increasing the independence of supervisory boards in two-tier board systems directly increases shareholder value.

Since history has shown that supervisory boards sometimes lack adequate involvement (Smit, 2010), increasing independence in the management board might then be an option (Adams &

17

Ferreira, 2007). Once boards ensure adequate provision of information by the CEO, decision making can be improved by increasing board independence.

This thesis views adequate decision making as a basis for good performance. Consequently, the financial distress caused by the financial crisis is likely to increase the desire for adequate decision making. Therefore this thesis hypothesizes the financial crisis to have a positive influence on the percentage of independent board members.

Current financial crisis Percentage of independent board + members in the Management board

2.6 Summary This chapter explains the importance of a board in order to ensure optimal performance by the management team and the CEO. Increasing board independence offers ways to improve the supervisory function of the board. An improved supervisory function might signal poor performance in an early stage and perform the necessary measures. However, the most important function of board independence is the improved decision making when independence increases.

Referring back to the problem statement questions in chapter one, the current financial crisis has involved high levels of uncertainty for banks worldwide and also those in the Netherlands. Despite the presence of the two-tier board system, history has shown that the Dutch banks can still benefit from improved board performance. Therefore an increased level of uncertainty is likely to be compensated for by improving the supervisory function of boards through an increase in the level of board independence.

18

3. Data collection

According to Taylor (2009), the current financial crisis began in August 2007. Due to the interconnectedness of global financial systems, this thesis will take August 2007 as the start of the so called financial crisis. The annual reports of the banks indicate that board members are usually appointed for a period of 4 years. Therefore it is not useful to research the percentage of board independence for every subsequent year. Instead choosing January 2007 and January 2012 will give an indication of the trend before the start of the crisis and the current situation.

Bankscope provides elaborate data on banks worldwide. For the Dutch market, banks are selected based on the following criteria:

- banks either have their headquarter in the Netherlands; - or they are subsidiaries that have a two-tier board system in the Netherlands and are responsible for the business conducted in their firm.

Subsequently the board members of the management board of the selected banks will be investigated on their independence. The annual reports of 2006 will give an indication of the amount of independent board members on January 2007, thus before the crisis. The annual reports of 2011 report the management board composition on the first of January 2012.

Deciding whether the board members are independent is mainly done via information provided by Bankscope, the company websites and the annual reports. Also reports from surrounding years are used as sources for determining their career paths. In a few cases news articles and linked-in profiles are used to complete the data by determining their exact date of appointment. It must be noted linked-in profiles cannot be considered as the most reliable source. However, the profiles are carefully matched to the career path provided by the companies and are merely used to obtain the exact month or day of the start of the board function. Any profiles providing information that did not fully match information provided by the companies are ignored.

19

After these results have been found, a distinction is made based on the type, size and profitability of the bank. All these factors are found by using the data provided by Bankscope.

3.1 The type of bank The type concerns commercial banks, private banks & asset management, real estate & mortgage banks, securities firms, bank holding companies, specialized government credit institutions, multilateral government banks and central banks.

Due to the rather high amount of different types of banks, three groups will be formed. First of all commercial banks, cooperative banks and real estate & mortgage banks are grouped together based on the fact that they offer a wide range of financial products to the whole public.

Then private banking & asset management companies and a bank holding company are grouped together. These two form of banks both offer investment products to a small group of wealthy individuals and companies instead of serving the whole market. Therefore private banking- and bank holding institutions will be grouped together.

Finally banks operating on behalf of the government are grouped together. This concerns specialized governmental credit institutions, multi lateral government banks and a central bank.

3.2 Bank size

Size is defined as the size of the total assets. Just as Kishan and Opiela (2000) segregate banks by total asset size when testing for their lending channel, this thesis will use this criterion when testing for the percentage of board independence. Due to the fact that total asset size can fluctuate over the years, the average total asset size over 2006-2011 will be taken to define size. Grouping the banks into the right classification is done by using the ECB classifications. (European Central Bank, 2011) Banks with total assets greater than 0.5% of the total consolidated assets of EU banks are defined as large domestic banks; banks with 0.5%-0.005%

20 are defined as medium-size banks; and banks with total assets of less than 0.005% will be considered as small banks.

To correct for overall changes during the years of the sample, the average of the total consolidated assets of EU banks is calculated and amounts €34.788,52 billion. Dividing the average total assets of the respective Dutch banks by this amount provides the percentages that represent the relative size of the Dutch banks.

3.3 Profitability

Profitability can be measured by several metrics; however, according to Athanasoglou, Brissimis and Delis (2006), return on assets (ROA) can be considered as the key ratio for evaluating the profitability of a bank. Due to the fact that profits are a flow variable generated during the year (Athanasoglou, Brissimis & Delis, 2006), the return on the average assets (ROAA) over the whole year will be used as the determinant for profitability.

In determining whether or not the banks in the sample are profitable, the sample is divided over three categories of profitability. The Dutch Central Bank provides an overview of the financial stability in the Netherlands from 1998 until 2010 (De Nederlandsche Bank, 2010). This overview indicates that the overall return on assets amounts around the 0,5% until 2010 when it falls below zero. Based on these averages, this thesis will categorize three levels of profitability relating to the Return on Average Assets: high profitability, with return on average assets over one percent; medium profitability with return on average assets between zero and one percent; losses with return on average assets below zero percent.

21

4. Empirical evidence

In this chapter the findings of the empirical research will be discussed. Based on the methods discussed in chapter three, this chapter will show whether the percentage of independent board members in the management board of Dutch banks has increased since the start of the financial crisis. Since the percentage of independent board members is expected to increase, the following hypotheses will be statistically tested in this chapter:

H0 : µ0 ≥ µ1 versus H1 : µ0 < µ1

In section one the data selection will be described, section two will go into the overall differences before and after the start of the crisis. Sections three, four and five will respectively categorize the results by bank type, bank size and profitability and finally section six will summarize the findings.

4.1 Data selection The data retrieved from Bankscope generates a list of one-hundred-six financial institutions registered in the Netherlands (appendix 1). Combining this list with annual reports and company websites led to a selection of twenty-nine Dutch banks that matched the criteria listed in paragraph three (appendix 2). These banks are all headquartered in the Netherlands and have a two-tier board system, with the management board being responsible of the day to day management of the bank. The other seventy-six banks were often small establishments of internationally operating banks, being controlled by their headquarters in another country, financing companies for multinationals, or were subsidiaries of large Dutch companies which consolidated them in their statements and regulatory agreements.

22

4.2 Data on the degree of board independence For the remaining twenty-nine Dutch banks the following results concerning the percentages of independence in the management boards have been discovered.

1-1-2007 1-1-2012 Average number of board members 3,82 3,59 Average number of independent board members 1,14 1,52 Average percentage independent board members 29,9% 43% Number of banks in sample 22 27 Table 1: Overall results

The whole sample consists of twenty-nine banks, however Anadolubank and Bank Insinger de Beaufort do not provide sufficient data. For respectively fifty and sixty percent of their board members, it is unclear whether they are independent. Therefore these two banks will not be taken into the sample of 2012.

When correcting for this influence in 2007, only twenty-two banks provide enough data to calculate their level of independence. Subsequently the remaining seven banks do not provide data for both 2007 and 2012 which means that the two datasets cannot be statistically tested without removing them from the sample. As a result Amsterdam Trade Bank, Bank Mendes Gans, Royal Bank of Scotland, Theodoor Gilissen Bankiers and Westland Utrecht Bank are as well removed from the sample.

The twenty-two remaining banks (appendix 4) provide sufficient data to determine whether their board members can be classified as dependent or independent over the period in the sample.

1-1-2007 1-1-2012 Average number of board members 3,82 3,81 Average number of independent board members 1,14 1,68 Average percentage independent board members 29,9% 43,51% Number of banks in sample 22 22 Table 2: Results from banks in the sample

23

Percentage of independent board members 50% 44% 40% 30% 30% 20% 10% 0% January 2007 January 2012 Graph 1: Percentage independent board members in banks in the sample

4.2.1 Statistical proof Now that the Dutch banks with insufficient data have been removed from the sample, graph 1 shows the increase when comparing the two data-sets. A t-test is performed in order to find out if the increase in board independence is statistically significant.

2007 2008 Average 0,2989 0,4351 Variance 0,0594 0,0865 N 22 P (T <= t) one-sided 0,0166 P (T <= t) two-sided 0,0333 Table 3: Statistical proof

When investigating whether there actually is a difference in the percentage of independent board members between 2007 and 2012, the following hypothesis is tested:

H0 : µ0 = µ1 versus H1 : µ0 ≠ µ1 σ = 0,05

The t-test indicates a P-value of 0,0333. This indicates that there is a 3,33% chance that there is no difference between the percentages in 2007 and the percentages in 2012. Since the p-value of 0,0333 is smaller than the general accepted significance level of 0,05 (Nieuwenhuis, 2009), the null hypothesis can be rejected. As a result, it can be concluded that there is a significant difference between the percentage of independent board members in the management board of Dutch banks between 2007 and 2012.

24

Subsequently, the main hypothesis of this thesis is tested. The H1 in this hypothesis suggests that there is an increase in the percentage of board independence 2012 compared to 2007.

H0 : µ0 ≥ µ1 versus H1 : µ0 < µ1 σ = 0,025

Table 3 indicates a one sided p-value of 0,0166, which is smaller than the significance level of 0,025 (Nieuwenhuis, 2009). Therefore, it can be concluded that there is a significant increase in the percentage of independent board members in the management board of the Dutch banks in the sample between 2007 and 2012.

25

4.3 Empirical findings; categorized by ‘type of bank’

Now that it is statistically proven that the percentage of independent board members has increased, this chapter will investigate whether this statistically significant increase also holds when grouping the types of banks.

The Dutch banks in the sample are grouped into: ‘commercial banks’, ‘investment banks’ and ‘government banks’ as described in chapter 3 (Appendix 5).

100% 78% 80% 60% 53% Percentage independent board 38% 38% 44% members 1-1-2007 40% 21% Percentage independent board 20% members 1-1-2012 0% Commercial banks Government banks Investment banks Graph 2: Percentage independent board members across groups

Graph two and table four illustrate that the absolute percentage of independent board member in both commercial banks and investment banks has increased. Government banks however show a decrease in the percentage.

26

Bank type Commercial banks Government Banks Investment Banks Year 1-1-2007 1-1-2012 1-1-2007 1-1-2012 1-1-2007 1-1-2012 Average 20,72 % 38,03 % 53,33 % 38,33 % 44,44 % 77,78% Variance 4,24 % 8,69 % 5,63 % 3,96 % 3,7 % 3,7 % N 15 4 3 P(T<=t) one- 0,0047 0,1955 0,112701665 sided P(T<=t) two- 0,0094 0,3910 0,22540333 sided Table 4: statistical proof for different type of banks

H0 : µ0 = µ1 versus H1 : µ0 ≠ µ1 σ = 0,05

H0 : µ0 ≥ µ1 versus H1 : µ0 < µ1 σ = 0,025

4.3.1 Statistical proof: Commercial Banks From the three groups of banks only the p-values of the commercial banks are significant. The p-values of 0,47% and 0,94% are smaller than respectively 2,5% and 5%. Therefore it can be concluded that the percentage of independent board members in commercial banks in 2012 significantly differs from 2007 and subsequently it can be concluded that the increase in the percentage of independent board members is significant.

4.3.2 Statistical proof: Government and Investment banks Government and investment banks on the other hand show no significant results. The p- values of the one-sided and two-sided test of government banks amount 19,55% and 39,1% respectively, whereas these amount up to 11,27% and 22,54% for investment banks.

The null hypothesis can therefore not be rejected in both cases, which indicates that there is no significant differences between the percentage of independent board members in these banks between 2007 and 2012. The small sample size might be an explanation for these insignificant results.

27

4.4 Empirical findings; categorized by ‘size’

In this chapter banks are grouped by their respective total asset size compared to the total consolidated assets of EU banks (European Central Bank, 2011). Large banks in the sample have total assets greater than 0.5% of the total consolidated assets of EU banks; banks with 0.005%- 0.5% are defined as medium-sized banks; and banks with total assets of less than 0.005% will be considered as small banks. (Appendix 6)

50% 47% 39% 39% 40% 30% 30% 30% Percentage independent board 21% members 1-1-2007 20% Percentage independent board members 1-1-2012 10%

0% Large banks Medium banks Small banks

Graph 3: Percentage independent board members across different sizes

4.4.1 Statistical proof: Small and Large banks From graph three, the absolute increase in the percentages for large and medium sized banks can be identified. Small banks however do not even show any absolute increase. Table five subsequently indicates that the increase in the groups with large and small banks are insignificant.

28

Bank size Large Medium Small Year 1-1-2007 1-1-2012 1-1-2007 1-1-2012 1-1-2007 1-1-2012 Average 0,2083 0,30159 0,2990 0,46875 0,3888 0,3889

Variance 0,06771 0,0212 0,05476 0,0971 0,1203 0,1204

N 3 16 3 P(T<=t) one- 0,3245 0,0206 - sided

P(T<=t) 0,6490 0,0411 - two-sided

Table 5: statistical proof for different sizes of banks

H0 : µ0 = µ1 versus H1 : µ0 ≠ µ1 σ = 0,05

H0 : µ0 ≥ µ1 versus H1 : µ0 < µ1 σ = 0,025

4.4.2 Statistical proof: Medium-sized banks The group with medium-sized banks however does have a significant difference when testing for the null hypothesis of both the two-sided and one-sided t-test. This indicates that the group of medium sized banks has a significant increase in the percentage of board independence between 2007 and 2012.

29

4.5 Empirical findings; categorized by ‘profitability’

This chapter investigates whether different levels of profitability lead to different levels of the percentage of board independence. The Dutch banks are classified into high and medium profitability and losses (appendix 6), based on the data of de Dutch financial market (De Nederlandsche Bank, 2010), as described in chapter three.

60,0% 44,8% 48,4% 50,0% 41,8% 40,0% Percentage independent board 27,8% 30,0% members 1-1-2007 23,1% 22,2% 20,0% Percentage independent board members 1-1-2012 10,0% 0,0% High profitability Medium profitability Losses Graph 4: Percentage of independent board members across different levels of profitability

Graph four indicates an increase in board independence for both banks with medium profitability and losses. Dutch banks with high profitability show a remarkable, though rather small, decrease in the percentage of board independence.

Profitability High Profitability Medium Profitability Losses Year 1-1-2007 1-1-2012 1-1-2007 1-1-2012 1-1-2007 1-1-2012 Average 0,4476 0,4184 0,2313 0,4841 0,2222 0,2778 Variance 0,0674 0,1065 0,0492 0,0858 0,0370 0,0648 N 7 7 12 12 3 3 P(T<=t) one- 0,4302 0,0155 0,4038 sided P(T<=t) 0,8603 0,0309 0,8075 two-sided Table 6: statistical proof for different levels of profitability

H0 : µ0 = µ1 versus H1 : µ0 ≠ µ1 σ = 0,05

H0 : µ0 ≥ µ1 versus H1 : µ0 < µ1 σ = 0,025

30

4.5.1 Statistical proof: banks high profitability and losses Banks with high profitability show a small decrease in board independence, as indicated in graph four. Simultaneously, banks facing losses with respect to the return on average assets, indicate a small increase in board independency. However these two results are not significant, their respective p-values are 86,03% and 80,75%, which indicates that there is no difference between the percentage of board independence in 2007 and 2012. Therefore no conclusions can be drawn for these two categories of profitability.

4.5.2 Statistical proof: banks with medium profitability Banks with medium profitability on the other hand do have significant results. Their two-sided p-value of 3,09% indicates that the percentage of board independence in 2012 differs from that in 2007. Consequently the one-sided p-value of 1,55% confirms that there is an increase in the percentage of board independence between 2007 and 2012.

31

4.6 Summary This chapter identifies twenty-nine Dutch banks that provide financial products to both consumers and companies. These twenty-nine banks are further defined into a sample of twenty-two banks that provide sufficient data on all board members to determine the percentage of board independence.

After investigating the difference in the percentage of independent board members in the management board between 2007 and 2012, this thesis finds a positive increase. Testing for statistical significance confirms the hypothesis that there is an increase in the percentage of board independence since the start of the crisis.

Subsequently this result is investigated for the different bank types, bank size and levels of profitability. Concerning bank type, only banks in the commercial bank group show a statistical significant increase. The same holds for banks in the medium sized bank group, and the group with medium profitability.

As a result, an increase in the percentage of board independence since the start of the financial can be confirmed. More specifically, commercial banks, medium sized banks and banks with medium profitability show statistically significant increases in the percentage of board independence in the Netherlands since the start of the financial crisis.

32

5. Conclusion

The current financial crisis, which started in August 2007, has drastically increased the financial uncertainty for banks worldwide. In the Netherlands, banks apply a two-tier board system. This two-tier system is expected to have a rather high degree of board independence, due to the presence of a supervisory board. This expected optimal supervision however does not always hold, due to a lack of involvement of the supervisory board, as the ABN-Amro case for instance shows.

Therefore this thesis stresses the importance of board independence. Literature does not agree on the direct effects on firm performance. However, improved supervision and decision making, due to better information sharing by the CEO and management team, are two important factors derived from the literature on board independence.

The expected influence of the current financial crisis on the percentage of board independence is based on the positive effects that independency has on supervision and information sharing. When testing this effect for Dutch banks, a statistically significant increase is documented. The research question can thus be answered by showing that the percentage of independent board members has increased since the start of the crisis. The answer to the main problem refers to the fact that this thesis presumes that the increased financial uncertainty has led banks to increase the percentage of board independence in order to improve supervision and decision making.

Further grouping the sample of Dutch banks leads to the conclusion that the group of commercial banks shows a significant positive change. Since commercial banks are the ones offering a wide range of financial products, and thus address a wide public, the increase might signal an alertness of Dutch banks on the positive effects of board independence on decision making.

A remarkable finding is the fact that these effects simultaneously hold for medium-sized banks and banks with medium profitability levels. Based on literature, it is expected that poor performing banks tend to increase their board independency, instead of banks with medium

33 profitability levels. Simultaneously bigger banks, in terms of total asset size, would be expected to show an increase in board independence, due to more clients and as a consequence a higher responsibility. Instead, medium sized banks are the only ones showing a significant increase. It must be acknowledged that the size of the Dutch economy leads to a low sample size, which might influence this outcome. Redoing this research with large sample sizes for every defined group might control for that influence.

Simultaneously, further research on banks in other European countries will have to identify possible peer pressure actions among European banks. In that case one can identify the pressure of comparable banks to increase the level of board independency, since shareholders seem to value this factor by increases in share price.

34

Reference list:

1. Adams, R. (December 2011). Governance and the Financial crisis. International Review of Finance, Vol. 12, Issue 1, pp. 7-38. 2. Adams, R., Almeida, H., Ferreira, D. (2005). Powerful CEOs and their impact on corporate performance. Review of financial studies Vol. 18 No. 4 pp 1403. 3. Adams, R, Ferreira, D. (11 January 2007). A theory of friendly boards. The Journal of Finance, Vol. 62, Issue 1, pp. 217-250. 4. Adams, R., Hermalin, B., Weisbach, M. (2010). The role of boards of directors in corporate governance: a conceptual framework and survey. Journal of economic literature, Vol. 48, Issue 1. 5. Andres, de, P., Azofra, V., Lopez, F. (2005). Corporate Boards in OECD Countries: size, composition, functioning and effectiveness. Corporate Governance: an international review vol. 13, issue 2, p. 197-210. 6. Autoriteit Financiële Markten (2012). Vergunning en Vrijstelling. Retrieved from: http://www.afm.nl/nl/professionals/diensten/veelgestelde-vragen/richtlijn- consumentenkrediet/vergunning.aspx?perpage=10 7. Baysinger, B., Butler, H., (1985). Corporate Governance and the Board of Directors: Performance Effects of Changes in Board Composition. Journal of Law, Economics and Organization, vol 1 no.1. 8. Bebchuk, L., Weisbach, M. (2010). The state of corporate governance research. The Review of Financial Studies, Vol. 23 No. 3 9. Bhagat, S., Black, B. (2001). The Non-Correlation Between Board Independence and Long- Term Firm Performance. Journal of Corporation Law, Vol. 27, Issue 2, pp. 231-273. 10. De Nederlandsche Bank (November 2010). Overzicht Financiële Stabiliteit in Nederland, No. 12. Retrieved from: http://www.dnb.nl/binaries/Overzicht%20Financiele%20Stabiliteit%20nov%202010_tcm46- 242463.pdf

35

11. Dulewicz, V., Herbert, P. (2004). Does the composition and practice of boards of directors bear any relationship to the performance of their companies? Corporate governance: an International Review, vol. 12, issue 3. 12. Donaldson, L., Muth, M. (2002). Stewardship Theory and Board Structure: a contingency approach. Corporate Governance: An International Review, Vol. 6, Issue 1, pp. 5-28. 13. European Central Bank (2011). CBD - Statistics on Consolidated Banking Data 2007, 2008, 2009, 2010, 2011. Retrieved from: http://www.ecb.int/stats/money/consolidated/html/index.en.html 14. Feldman, R., Stern, G. (2004). Too Big to Fail: the hazards of bank bailouts. Washington D.C. Brookings Institution Press. 15. Firth, M., Fung, P., Rui, O. (2007). Ownership, two-tier board structure, and the in formativeness of earnings – Evidence from China. Journal of Accounting and Public Policy p. 463-496. 16. Hermalin, B., Weisbach, M. (2003). Board of directors as an Endogenously Determined Institution: A Survey of the Economic Literature. Working paper series, Center for Responsible Business, UC Berkeley. 17. Hermalin, B.E., Weisbach, M.S. (1991) The effects of board composition and direct incentives on firm performance. Financial Management 20, pp. 101–112. 18. Hermalin, B.E., Weisbach, M.S., 1998. The determinants of board composition. RAND Journal of Economics 19, pp. 589–606. 19. Jungmann, C. (2006). The Effectiveness of Corporate Governance in One-Tier and Two-Tier Board systems. European Company and Financial Law Review 3 ECFR. 20. Kishan, R., Opiela, T. (2000). Bank Size, Bank Capital, and the Bank Lending Channel. Journal of Money, Credit and Banking, Vol. 2, No. 1, pp. 121-141. 21. Klein, A. (April 1998). Firm performance and Board committee structure. Journal of Law and Economics, Vol. 41, No. 1, pp. 275-304. 22. Lattin, N. (1959). The Law of Corporations. Brooklyn: Foundation Press. 23. Lelyveld, I., Liedorp, F. (2006): Interbank Contagion in the Dutch Banking Sector: A sensitivity Analysis. Journal of Central Banking, Vol 2, No. 2, pp. 99-133.

36

24. Nieuwenhuis, G. (2009) Statistical Methods for Business and Economics. Berkshire: McGaw- Hill Education. 25. MacAvoy, P., Cantor, S., Dana, J., Peck, S., 1983. ALI proposals for increased control of the corporation by the board of directors: an economic analysis. In: Business Roundtable (Ed.), Statement of the Business Roundtable on the American Law Institute’s Proposed Principles of Corporate Governance and Structure: Restatement and Recommendation. Business Roundtable, New York, NY. 26. King, R., Levine, R. (1993) Finance and Growth: Schumpeter Might be Right. The Quarterly Journal of Economics , Vol. 108, No. 3, pp. 717-737. 27. Klein, A. (1998). Firm performance and board committee structure. Journal of Law and Economics 41, pp. 275–299. 28. Mishra, S., Nielsen, J. (2000). Board independence and Compensation Policies in Large Bank Holding Companies. Financial Management, Vol. 29, pp. 51-70. 29. Rabobank company website (May, 2012). Retrieved from: www.rabobank.nl 30. Reinhart, C., Rogoff, K. (January 2008). Is the 2007 U.S. Sub-prima financial crisis so different? An international historical comparison. National Bureau of Economic Research Working Paper 13761. 31. Rijksoverheid (2011). Nationalisering Fortis/ABN AMRO. Retrieved from: http://www.rijksoverheid.nl/onderwerpen/kredietcrisis/financiele-sector-en- overheidsingrijpen-nederland/nationalisering-fortis-abn-amro. 32. Rosenstein, S., Wyatt, J.G., 1990. Outside directors, board independence, and shareholder wealth. Journal of Financial Economics, Vol. 26, pp. 175–191. 33. Securities and Exchange Commission (November 4, 2003). NASD and NYSE Rulemaking: Relating to corporate government. Retrieved from: http://www.sec.gov/rules/sro/34- 48745.htm 34. Smirlock, M. (1985). Evidence on the (non) relationship between concentration and profitability in banking. Journal of Money, Credit, and Banking, Vol. 17, pp. 69–83. 35. Smit, J. (2010) De prooi; blinde trots breekt ABN Amro. Amsterdam, Prometheus.

37

36. Taylor, J. (2009). The financial crisis and the policy responses: an empirical analysis of what went wrong. National Bureau of Economic Research Working Paper 14631. 37. The Dutch Banking Association (Nederlandse Vereniging van Banken) (9 September 2009). The Dutch Banking Code. Retrieved from: http://www.nvb.nl/pers_persberichten/090909- nvb_code_banken_uk.pdf 38. The Dutch Banking Association (Nederlandse Vereniging van Banken) (2003). The Corporate Governance Code. Retrieved from: http://www.commissiecorporategovernance.nl/Dutch_Corporate_Governance_Code 39. Westphal, J. (1998). Board Games: How CEOs Adapt to Increases in Structural Board Independence from Management. Administrative Science Quarterly. Vo. 43, No. 3. Pp. 511- 537. 40. Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics vol. 40 nr. 2 p. 185. 41. Zald, M., (1969). The power and Functions of Boards of Diretors: A theoretical synthesis. American Journal of Sociology. Vol. 75, No. 1, pp. 97-111.

38

Appendix 1: all financial companies retrieved from bankscope

Bank Name Bank name 1. ABN AMRO Bank NV 54. Hof Hoorneman Bankiers N.V. 2. ABN AMRO Clearing Bank N.V. 55. Home Credit BV 3. ABN AMRO Group N.V. 56. HSBK (Europe) B.V 4. Achmea Bank Holding NV 57. IKB Finance BV 5. Achmea Holding NV 58. ING Bank NV 6. Achmea Hypotheekbank NV 59. ING Commercial Finance B.V. 7. AEGON Bank NV 60. ING Direct NV 8. AFAB Financiële Diensten Holding 61. ING Groep NV N.V 9. Ageas Finance NV 62. Kas Bank NV 10. Ageas NV 63. Kazkommerts International BV 11. Akbank NV 64. KBC International Financieringsmaatschappij N.V.-KBC IFIMA N.V 12. Algemene Spaarbank voor 65. Kempen & Co N.V. Nederland - ASN Bank NV 13. Allianz Nederland Asset 66. LeasePlan Corporation NV Management BV 14. Amstelhuys NV 67. Mercedes-Benz Financial Services Nederland B.V 15. Amsterdam Trade Bank NV 68. Mizuho Corporate Bank Nederland NV 16. Amsterdams Effectenkantoor BV 69. Morgan Stanley BV 17. Anadolubank Nederland NV 70. Nederlandsche Bank NV (De) 18. ANT Trust & Corporate Services NV 71. Nederlandse Waterschapsbank NV 19. ASR Bank N.V. 72. NIBC Bank NV 20. Associates First Capital BV 73. NIBC Holding NV 21. Baden- Württemberg L-Finance NV 74. Nokia Finance International BV 22. Bank Insinger de Beaufort NV 75. Nomura Europe Finance NV 23. Bank Mendes Gans NV 76. Oyens & Van Eeghen NV 24. Bank Nederlandse Gemeenten NV, 77. Parjointco NV BNG 25. Bank of Tokyo - Mitsubishi UFJ 78. Peugeot Finance International NV (Holland) NV 26. Bank voor de Bouwnijverheid N.V. 79. PPF Group N.V. 27. BinckBank NV 80. Rabo Real Estate Group-Rabo Vastgoedgroep 28. BNP Paribas Bank NV 81. Rabobank Nederland-Rabobank Group 29. Celesio Finance BV 82. Rabohypotheekbank NV 30. CenterCredit International BV 83. RBS Holdings NV

39

31. CITCO Bank Nederland NV 84. Royal Bank of Scotland NV (The)-RBS NV 32. Concordia BV 85. Ribank NV 33. Credit Europe Bank N.V. 86. Robeco Direct NV 34. Credit Europe Group NV 87. Robeco Groep NV 35. De Nederlandse Investeringsbank 88. Robeco NV voor Ontwikkelingslanden NV 36. Delta Lloyd Bank NV 89. SNS Bank N.V. 37. Delta Lloyd Bankengroep NV 90. SNS Reaal NV 38. Delta Lloyd NV-Delta Lloyd Group 91. SNS Securities NV 39. Demir-Halk Bank (Nederland) N.V- 92. Société Générale Bank Nederland N.V. DHB Bank 40. DePfa Finance NV 93. Spaarbeleg Kas NV 41. Deutsche Bank Nederland NV 94. Staalbankiers NV 42. Dexia Bank Nederland NV 95. TD Waterhouse Bank NV 43. EuroFinance 96. The Economy Bank NV 44. F. van Lanschot Bankiers NV 97. Theodoor Gilissen Bankiers NV 45. FGH Bank NV 98. Toyota Motor Finance (Netherlands) B.V. 46. Fidis Nederland B.V. 99. Triodos Bank NV 47. Netherlands Development Finance 100. TuranAlem Finance BV Company-FMO 48. Friesland Bank N.V. 101. Van Lanschot NV 49. GarantiBank International NV 102. Volkswagen Financial Services N.V. 50. GE Artesia Bank 103. Volkswagen International Finance NV 51. GMAC International Finance B.V 104. WestlandUtrecht Bank NV 52. GWK Travelex N.V. 105. WestlandUtrecht Effektenbank NV 53. Helaba Finance BV 106. Yapi Kredi Bank Nederland N.V

40

Appendix 2: Selected Dutch banks from Bankscope

1 ABN AMRO Bank N.V. 2 Amsterdam Trade Bank 3 Anadolubank Nederland NV* 4 Bank Insinger de Beaufort NV 5 Bank Mendes Gans NV* 6 Bank Nederlandse Gemeenten 7 BinckBank NV 8 Credit Europe Bank N.V. 9 Demir-Halk Bank (Nederland) N.V-DHB Bank 10 F. Van Lanschot Bankiers NV 11 FMO - Netherlands Development Finance Company 12 Friesland Bank N.V. 13 GarantiBank International NV 14 GE Artesia Bank 15 Hof Hoorneman Bankiers N.V. 16 ING Bank NV 18 Nederlandsche Bank NV (De) 19 Nederlandse Waterschapsbank NV 20 NIBC Bank NV 21 Rabobank Nederland-Rabobank Group 22 Royal Bank of Scotland NV (The)-RBS NV 23 Robeco NV 24 SNS Bank N.V. 25 Staalbankiers NV 26 The economy bank 27 Theodoor Gilissen Bankiers NV 28 Triodos Bank NV 29 Westland Utrecht bank 30 Yapi Kredi Bank Nederland N.V

41

Appendix 3: Results for all Dutch banks

number of Number of Percentage number of Number of Percentage board independent independent board independent independent members board board members board board members members members members ABN AMRO Bank N.V. 7 0 0,0% 7 3 42,86% Amsterdam Trade Bank - - - 2 2 100,00% Anadolubank Nederland NV* ------Bank Insinger de Beaufort NV ------Bank Mendes Gans NV* - - - 2 0 0,00% Bank Nederlandse Gemeenten 3 2 66,7% 3 2 66,67% BinckBank NV 3 1 33,3% 4 3 75,00% Credit Europe Bank N.V. 3 0 0,0% 5 0 0,00% Demir-Halk Bank (Nederland) 3 0 0,0% 2 0 0,00% N.V-DHB Bank * F. Van Lanschot Bankiers NV 5 2 40,0% 4 3 75,00% FMO - Netherlands 3 1 33,3% 3 1 33,33% Development Finance Company Friesland Bank N.V. 3 1 33,3% 3 2 66,67% GarantiBank International NV 2 1 50,0% 2 1 50,00% GE Artesia Bank* 3 0 0,0% 3 0 0,00% Hof Hoorneman Bankiers N.V. 3 2 66,7% 3 2 66,67% ING Bank NV 8 1 12,5% 7 1 14,29%

Nederlandsche Bank NV (De) 5 4 80,0% 5 1 20,00% Nederlandse Waterschapsbank 3 1 33,3% 3 1 33,33% NV NIBC Bank NV 4 1 25,0% 5 4 80,00% Rabobank Nederland-Rabobank 6 3 50,0% 6 2 33,33% Group Royal Bank of Scotland NV (The)- - - - 5 0 0,00% RBS NV Robeco NV 6 2 33,3% 5 5 100,00% SNS Bank N.V. 6 1 16,7% 4 2 50,00% Staalbankiers NV 3 1 33,3% 3 2 66,67% The economy bank* 2 1 50,0% 2 1 50,00% Theodoor Gilissen Bankiers NV - - - 2,0 2,0 100,00% ** Triodos Bank NV 2 0 0,0% 3 1 33,33% Westland Utrecht bank*** - - - 2 0 0,00% Yapi Kredi Bank Nederland N.V 1 0 0,0% 2 0 0,00% Averages 3,8 1,3 32,9% 3,6 1,5 44%

* only annual reports of 2006 until 2010 available. ** consolidated in KBL European Private Bankers annual report *** no data before 2010 due to its former consolidation in ING's annual statements

42

Appendix 4: Results for Dutch bank sample

Date: 1-1-2007 Date: 1-1-2012 Number Number of Percentage Number Number of Percentage of board independent independent of board independent independent members board board members board board members members members members 1 ABN AMRO Bank N.V. 7 0 0 % 7 3 42,9 % 2 Bank Nederlandse Gemeenten 3 2 66,7 % 3 2 66,7 % 3 BinckBank NV 3 1 33,3 % 4 3 75 % 4 Credit Europe Bank N.V. 3 0 0 % 5 0 0 % 5 Demir-Halk Bank (Nederland) N.V- 3 0 0 % 2 0 0 % DHB Bank * 6 F. Van Lanschot Bankiers NV 5 2 40 % 4 3 75 % 7 FMO - Netherlands Development 3 1 33,3 % 3 1 33 % Finance Company 8 Friesland Bank N.V. 3 1 33,3 % 3 2 66,7 % 9 GarantiBank International NV 2 1 50 % 2 1 50 % 10 GE Artesia Bank* 3 0 0 % 3 0 0 % 11 Hof Hoorneman Bankiers N.V. 3 2 66, 7 % 3 2 66,7 % 12 ING Bank NV 8 1 12,5 % 7 1 14,3 % 13 Nederlandsche Bank NV (De) 5 4 80 % 5 1 20 % 14 Nederlandse Waterschapsbank NV 3 1 33 % 3 1 33,3 %

15 NIBC Bank NV 4 1 25 % 5 4 80 % 16 Rabobank Nederland-Rabobank 6 3 50 % 6 2 33,3 % Group 17 Robeco NV 6 2 33 % 5 5 100 % 18 SNS Bank N.V. 6 1 16,7 % 4 2 50 % 19 Staalbankiers NV 3 1 33,3 % 3 2 66,7 % 20 The economy bank* 2 1 50 % 2 1 50 % 21 Triodos Bank NV 2 0 0 % 3 1 33,3 % 22 Yapi Kredi Bank Nederland N.V 1 0 0 % 2 0 0 %

Average 3,82 1,14 29,9% 3,82 1,68 43,5%

* only annual reports of 2006 until 2010 available

43

Appendix 5: Dutch bank sample divided by bank type

Bank Specific type Commercial Banks 1 ABN AMRO Bank N.V. Commercial Bank 2 BinckBank NV Commercial Bank 3 Credit Europe Bank N.V. Commercial Bank 4 Demir-Halk Bank (Nederland) N.V-DHB Bank Commercial Bank 5 F. Van Lanschot Bankiers NV Commercial Bank 6 Friesland Bank N.V. Commercial Bank 7 GarantiBank International NV Commercial Bank 8 GE Artesia Bank Commercial Bank 9 ING Bank NV Commercial Bank 10 NIBC Bank NV Commercial Bank 11 Rabobank Nederland-Rabobank Group* Cooperative Bank 12 SNS Bank N.V. Commercial Bank 13 The economy bank Commercial Bank 14 Triodos Bank NV Commercial Bank 15 Yapi Kredi Bank Nederland N.V Commercial Bank

Government banks 16 Bank Nederlandse Gemeenten Specialised Government Credit Institution 17 FMO - Netherlands Development Finance Multilateral Government Bank Company 18 Nederlandsche Bank NV (De) Central Bank 19 Nederlandse Waterschapsbank NV Specialised Government Credit Institution

Investment banks 20 Hof Hoorneman Bankiers N.V. Private Banking & Asset Management Europe 21 Robeco NV Bank Holding Company 22 Staalbankiers NV Private Banking & Asset Management

*Every establishment of the cooperation of Rabobank provides the same financial products as a commercial banks, therefore Rabobank will be considered as a commercial bank in this thesis.

44

Appendix 6: Dutch bank sample divided by size

Size classification

Large banks (0.5%>)

ING Bank NV 2,7309% ABN AMRO Bank N.V. 1,9578% Rabobank Nederland-Rabobank Group 1,7874%

Medium banks (0.005%-0.5%) Nederlandsche Bank NV (De) 0,3905% Bank Nederlandse Gemeenten 0,3083% SNS Bank N.V. 0,2166% Nederlandse Waterschapsbank NV 0,1436% NIBC Bank NV 0,0857% F. Van Lanschot Bankiers NV 0,0572% Friesland Bank N.V. 0,0304% Credit Europe Bank N.V. 0,0238% Robeco NV 0,0199% FMO - Netherlands Development Finance 0,0104% Company GarantiBank International NV 0,0101% GE Artesia Bank* 0,0089% Staalbankiers NV 0,0080% Triodos Bank NV 0,0079% BinckBank NV 0,0074% Demir-Halk Bank (Nederland) N.V-DHB Bank * 0,0059%

Small banks (<0.005%) Yapi Kredi Bank Nederland N.V 0,0044% The economy bank* 0,0018% Hof Hoorneman Bankiers N.V. 0,0004%

45

Appendix 7: Dutch bank sample divided by profitability

Average Return on Average Assets 2006-2011 High profitability (1%+) Hof Hoorneman Bankiers N.V. 9,097% FMO - Netherlands Development Finance Company 2,574% BinckBank NV 1,938% Yapi Kredi Bank Nederland N.V 1,456% Nederlandsche Bank NV (De) 1,442% The economy bank* 1,095% GarantiBank International NV 1,086% Medium profitability (0%-1%) Credit Europe Bank N.V. 0,890% ABN AMRO Bank N.V. 0,779% Demir-Halk Bank (Nederland) N.V- DHB Bank * 0,524% Triodos Bank NV 0,434% F. Van Lanschot Bankiers NV 0,432% Rabobank Nederland-Rabobank Group 0,427% NIBC Bank NV 0,341% ING Bank NV 0,315% Robeco NV 0,301% Bank Nederlandse Gemeenten 0,215% Nederlandse Waterschapsbank NV 0,133% SNS Bank N.V. 0,057% Losses (-0%) Friesland Bank N.V. - 0,008% GE Artesia Bank* -0,134% Staalbankiers NV -0,217%

46

Appendix 8: Reference list for company data on Dutch banks

1. Company websites 2. ABP press release (15 September 2011). Henk Brouwer new chairman of ABP board of trustees. Retrieved from: http://www.abp.nl/en/about-abp/press-service/new- chairman-abp-board-of-trustees.asp 3. ABN-Amro Annual report 2006, 2008, 2010, 2011. 4. Achmea press release (8 October 2004). Benoeming bij Staalbankiers. 5. AFM Persbericht. 21 August 2007. Gert van Wakeren benoemd tot lid Raad van Bestuur Friesland Bank. 6. Amsterdam Trade Bank annual report 2006, 2011, company website 7. Anadolubank Nederland NV Annual report 2007, 2010, company website 8. ASN Bank jaarverslag 2011, 2006 9. Bankscope 10. Bank Insinger de Beaufort annual 2006, 2011, company website 11. Bank Nederlandse Gemeente, BNG, Annual report 2006, 2011. 12. Banking Review (10 October 2010). “Deze dochter heeft het huis overduidelijk verlaten”. Retrieved from: http://www.bankingreview.nl/?portlet=bankingreview&page=kennisbank/artikel&id=24 415 13. Beurs.nl (23 Januari 2008). Bestuurslid Van Scheijndel vertrekt bij KAS Bank. Retrieved from: http://www.aandelenwebgids.nl/nieuws/3/775_bestuurslid-van-scheijndel- vertrekt-bij-kas-bank.html 14. BNG Press releases 2008. 19th March 2008. New Chairman of the board at BNG. Retrieved from: http://w2.bng.nl/smartsite.shtml?ch=&id=65302 15. Binkckbank Annual Report 2011, 2006 16. Credit Europe Bank Annual report 2011, 2006, 2000 17. Credit Europe Bank company website 18. Demir-Halk Bank – DHB Bank Annual report 2010, 2006, 2007 19. De Nederlandse Bank annual report 2006, 2011, company website.

47

20. Economie Nieuws (29 September 2004) KAS Bank wijst Albert Roell aan als nieuwe CEO. Retrieved from: http://economie.nieuws.nl/180240# 21. Elsevier (6 February 2008). Biografie Nout Wellink. Retrieved from: http://www.elsevier.nl/web/10156962/Artikel/Nout-Wellink.htm 22. Finance Dublin (n.d.). Speaker Biography, Arnold Schilder. Retrieved from: http://www.financedublin.com/conference/2007-01/speaker_biog.php?id=277 23. Friesland Bank Annual report: 2006, 2011, 24. Friesland Bank Press release. 23 June 2010. New Chairman of the Board of Management of Friesland Bank. 25. Friesland Bank Press release. 23 June 2010. Beuvink benoemd tot voorzitter Raad van Bestuur Friesland bank. 26. Garantibank Annual Report 2006, 2011. Company website 27. GE Artesia Bank Annual report 2006, 2011, company website 28. Hof Hoorneman Bankies Annual report 2006, 2011. 29. Hof Hoorneman press release. 21 October 2010. Benoeming directive VPV Bankiers NV. 30. ING Annual report 2006, 2011, company website. 31. Kas Bank Annual report 2006, 2011. 32. KAS Bank Press release. April 2009. Sikko van Katwijk to join KAS BANK’s managing board. 33. KAS Bank Press release. December 2009. Rolf Kooijman nominated as CFO at KAS BANK. 34. KAS BANK press release (27 December 2005). Nico Blom nieuwe bestuurder van KAS BANK. 35. LinkedIn page Alexander van Ketwich. Retrieved from: http://nl.linkedin.com/in/vanketwich 36. Linkedin profile Anton Den Held. Retrieved from: http://nl.linkedin.com/pub/anton-den- held/7/292/66 37. LinkedIn Profile Eric hollanders. Retrieved from: http://nl.linkedin.com/pub/eric- hollanders/7/6a3/281 38. Linkedin page Frederik-Jan Umbgrove. Retrieved from: http://nl.linkedin.com/pub/frederik-jan-umbgrove/0/532/93b

48

39. LinkedIn profile Fried van ’t Hof. Retrieved from: http://nl.linkedin.com/pub/fried-van-t- hof/4/420/871 40. LinkedIn Profile Jan-Pieter Pak. Retrieved from: http://nl.linkedin.com/pub/jan-pieter- pak/5/103/b07 41. LinkedIn profile Laura Pool. Retrieved from: http://nl.linkedin.com/pub/laura- pool/16/514/89a 42. LinkedIn profile Piet Hoorneman. Retrieved from: http://nl.linkedin.com/pub/piet- hoorneman/4/a39/716 43. Linkedin profile Sarp Akkartal. Retrieved from: http://nl.linkedin.com/pub/sarp- akkartal/14/306/961 44. Management scope for specific details in biographies of: Constant Korthout, Floris Dekcers, Arjan Huisman. Retrieved from www.managementscope.nl 45. Netherlands Development Finance Company – FMO Annual report; 2003, 2006, 2008, 2011 46. Preesman, L. (14 September 2007). DNB director Dirk Witteveen dies. Investment and Persions Euope website. Retrieved from: http://www.ipe.com/news/dnb-director-dirk- witteveen-dies_25367.php 47. KAS BANK press release (18 April 2006). KAS BANK versterk bestuursstructuur, benoeming Hans Kadiks. 48. Nederlandse Waterschapsbank annual report 2011, 2006, company website 49. NIBC Annual report 2006, 2011, company website. 50. Kerkhof, J. (20 October 2008). Michael Enthoven; Ex-NIBC-topman keert terug in bankwereld. Fem Business, year 11, no. 42. 51. NRC (22 March 2011). Oud-bankier Bert Heemskerk (67) Overleden. Retrieved from: http://www.nrc.nl/nieuws/2011/03/22/oud-bankier-bert-heemskerk-67-overleden/ 52. Ordnance Suvery (n.d.). Piers White MBE, Non executive Director. Retrieved from: http://www.ordnancesurvey.co.uk/oswebsite/about-us/our-directors/piers-white.html 53. Rabobank Annual report 2006, 2011. 54. RBS N.V. Annual report 2011, company website

49

55. Robeco annual report 2006, 2011, company website. 56. Smits, M. (28-2-2002). Pim Vermeulen gaat gemeenten miljarden lenen. FEM De Week, jaargang 5, nummer 39. 57. SNS bank annual report 2006, 2011, company website 58. SNS REAAL annual report 2006 59. SNS REAAL persbericht (19 January 2012). Benoeming directievoorzitter SNS Bank. 60. Staalbankiers company website. 61. Steen, van, P. (2001). Nederland waterland is te klein voor de Nederlandse Waterschapsbank. ABP Wereld. 62. The economy bank NV Annual report 2004, 2006, 2011, company website. 63. Triodos bank annual report 2006, 2011, company website 64. Van Lanschot Annual report 2006, 2008, 2011 65. Van Lanschot persbericht (5 sept 2008). Wijzigingen in Raad van Bestuur Van Lanschot en in directive en Raad van Commissarissen Kempen en Co. Retrieved from: http://www.kempen.nl/uploadedFiles/Corporate/Kempen/PublicatiesMedia/Persbericht en/2008/20080905%20Wijzigingen%20RvB%20VL%20en%20Directie%20RvC%20Kempen .pdf 66. Van Lanschot press release (4 may 2005). Paul Loven nominated as a member of the board of managing directors of van Lanschot. 67. Van Lanschot press release: (26 March 2009). Peter Zwart, member of the board of managing directors, to leave van Lanschot. 68. VBnet (22 November 2011). WestlandUtrecht Bank losgeweekt van ING. Retrieved from: http://www.vbnet.nl/archief-vb-selectie/vb-selectie-2010-11/westlandutrecht-bank- losgeweekt-van-ing.21710.lynkx?thema=Home 69. VPRO Buitenhof (22 June 2008). Hans ten Cate; lid raad van bestuur Rabobank Nederland. Retrieved from: http://www.vpro.nl/programma/buitenhof/afleveringen /39475511/items/39729764/ 70. Westland Utrecht Annual report 2007, 2011, company website 71. Yapi Kredi bank annual report 2006, 2011, company website.

50