Twelfth edition netherlands board index 2012 Board trends and practices at leading companies: An analysis of AEX and AMX companies Contents Foreword 2 About Spencer Stuart 5 Highlights of the 2012 Netherlands Board Index 6 Key indicators of the Netherlands Board Index 8 In the spotlight: Board performance 10 About the Netherlands Board Index 14 Board composition 15 Women on boards of directors 20 Independence and directorships 22 Board tenure 23 Board structure 25 Board meetings 26 Board committees 27 Remuneration 31 Definitions 33 The research team 35 Data tables Board composition 36 Board remuneration 40 Audit committee 42 Nomination committee 44 Remuneration committee 46 Risk committee 48 1 Foreword Since the publication of the first Netherlands Spencer Stuart Board Index in 1996, the Dutch corporate governance debate has been guided by EU Directives and voluntary corporate governance codes. According to a report published in December 2011 in the Netherlands by the Monitoring Committee Corporate Governance, the Dutch corporate governance code “enjoys broad support in the business community.” As such, it appears that Dutch listed companies conform with most corporate governance principles laid out by voluntary codes in the Netherlands. Despite the acceptance of voluntary corporate governance standards by Dutch listed corporations, a number of new legislative measures have been introduced in the Netherlands in light of the financial crisis. Recently, the Dutch Civil Code was amended to formally introduce a number of changes to the governance of large and medium-sized companies and organisa- tions in the Netherlands. The following requirements have been introduced that will affect the corporate governance practices of all large Dutch companies: Limitations on the number of board positions Although the Dutch corporate governance code already limits the number of supervisory board positions a person can hold on listed corporations to five (chairman positions count as double), the new law introduces a similar limit for large companies and a number of other large organisations. In order to classify as a large company or organisation, at least two of the following three conditions must be met under the new law: > The value of the assets according to the balance sheet is more than EUR 17.5 million; > The net turnover for the financial year exceeds EUR 35 million; > The company employs 250 or more employees during the financial year. Over the years, many non-executive directors already have reduced the number of directorships on boards of directors of companies included in the Netherlands Board Index. The majority of directors currently occupy one non-executive directorship on boards* of the top 50 listed companies in the Netherlands. * Any reference to “boards” throughout this Board Index refers to supervisory boards unless we specify “executive boards”. 2 Gender equality and the representation of men and women on corporate boards Companies that meet the definition of a large company “are encouraged” under new legislation to have at least 30 per cent female directors on the management and supervisory boards of two-tier boards and the Board of Directors of one tier boards by 2016. The law also states that at least 30 per cent of directors be male in the case where women are in a majority on the board. Companies can deviate from this requirement if the reasons for non-compliance are explained in the annual accounts of the company. Many companies in the Spencer Stuart Board Index appear to be anticipating the recommendation of the legislature to increase the number of female directors on boards of large companies. Compared to the last edition of Spencer Stuart Board Index, the percentage of female non-executive directors has increased from 13.6 to 18 per cent of all non-executive board positions. Formal introduction of one tier boards Although previous editions of the Netherlands Board Index already included (mostly bi-national) companies with a one-tier board structure, new legislation provides companies in the Netherlands with the formal option to specifically choose between two governance models: the two-tier board model with a super- visory board and a separate management board and the one-tier board model. In this year’s version of the Spencer Stuart Board Index, six listed companies already operate with a one-tier board. The legal position of board members Under the new law, new executive board members of listed corporations are no longer regarded as employees of the company. As such, if an executive board member is dismissed, resignation fees cannot be awarded based on an employ- ment contract. Conflicts of interest Under the new law, the board as a whole will be authorized to make a decision if one of its members has a conflict of interest as long as the board member refrains from participating in decision-making in which he/she directly or indi- rectly may have a conflict of interest. This is different from the current situation in which the board as a whole is not authorized to make a decision if one of its members has a conflict of interest in the matter. 3 The Clawback Clause The Dutch corporate governance debate also has been dominated by pending leg- islation on the clawback of executive bonuses and profit-sharing arrangements. The Dutch corporate governance code states that if the variable pay is granted on the basis of incorrect financial or other data, the supervisory board should have the option of adjusting it, and the company should be entitled to reclaim from the management board member the variable pay granted on the basis of the incorrect data. In addition, the corporate governance code states that this clawback clause should be disclosed. The proposed law seeks to formalize these requirements. In line with these legislative initiatives, the European Commission launched a public consultation and published a green paper in 2011 on the composition, diversity and operations of the board, risk management, board evaluation and remuneration. In addition, the consultation looked into ways to increase the involvement of shareholders in the decision-making process of corporations and the effectiveness of voluntary corporate governance codes. At Spencer Stuart, we will continue to follow these developments closely and stand ready to assist you through our global network of corporate governance experts. Han van Halder [email protected] 4 About Spencer Stuart Spencer Stuart is one of the world’s leading executive search consulting firms. Privately held since 1956, Spencer Stuart applies its extensive knowledge of industries, functions and talent to advise select clients — ranging from major multinationals to emerging companies to nonprofit organizations — and address their leadership requirements. Through 54 offices in 29 countries and a broad range of practice groups, Spencer Stuart consultants focus on senior level executive search, board director appoint- ments, succession planning and in-depth senior executive management assess- ments. The premier firm for board counsel, recruitment and board review, we are the firm of choice for both leading multinationals and smaller organizations. For more than 25 years, our Board Practice has helped boards around the world identify and recruit independent directors and provided advice to chairmen, chief executive officers and nominating committees on important governance issues. In addition to our work with clients, Spencer Stuart has long played an active role in corporate governance by exploring — both on our own and with other prestigious institutions — key concerns of boards and innovative solutions to the challenges facing them. We publish a wide range of articles and publications on boards and governance issues, including the Spencer Stuart Board Indexes worldwide. For more infor- mation, visit www.spencerstuart.com 5 Highlights of the 2012 Netherlands Board Index More female non-executive directors 18% Although most companies do not yet meet the recommendation under proposed legislation to have at least 30% of its board positions occupied by women, the Board Index reveals an of non-executive directors increase in the number of female directors in the top 50 listed are women Dutch corporations. Eighteen percent of all non-executive board positions are now occupied by women compared with 13.6% in 2010. The Board Index found 13 companies (26%) that do not have female representation on their boards as of July 31, 2012. 38% Boards continue to internationalize Foreign directors occupy 38% of all board positions (executive and non-executive) in the Board Index. This number is even of all director positions higher for AEX where 49% of all executive and non-executive are foreign board positions are occupied by foreign directors. Fewer directors are defined as non- under 10% independent Less than 10% of all non-executive board positions identified Fewer directors are defined in the Board Index have been qualified as non-independent by companies in their annual reports. The Board Index found six as non-independent in companies (mostly with one-tier boards) with senior independ- annual reports ent board members. 6 More risk committees A trend is emerging with more boards establishing specialized 14% risk committees at the non-executive board level. While only two companies (4%) had established such a committee in 2008, 14% of all boards (seven companies) in the Netherlands Board Index of boards have a risk currently have a risk committee. committee Remuneration of directors continues to increase €209 000 Although remuneration levels continue to differ significantly between AEX and AMX directors, remuneration levels have Average cash remuneration increased. The average total cash remuneration of non-executive directors on AEX boards was €90,000 in 2011 (€71,000 in 2009) of non-executive chairmen compared with €45,000 for non-executive directors on AMX on AEX boards boards in 2011 (€40,000 in 2009). Non-executive chairmen of AEX companies have seen an increase of 59.5% in cash remuneration since 2007 compared with 40% for non-executive chairmen of AMX companies.