Sustainable long-term value creation
- The management board develops a view on sustainable long-term value creation by the company and accordingly determines a strategy and specific concrete objectives. New in the list of aspects to consider when developing the strategy are (i) the impact of the company where it concerns sustainability, including the effects on people and the environment, (ii) contributing to the countries in which the company operates through the payment of tax based on a fair share and (iii) the impact of new technologies and changing business models, including the risks involved such as cyber security.
- The updated Code does not define the concept of “sustainable long-term value creation” and therefore leaves it to the company’s management board to determine how and to what extent this concept applies to their company. Nevertheless, the Code gives some guidance in this respect as it, inter alia, includes that “sustainability” in this context refers to the balance between social, environmental and economic aspects of doing business, also known as the “three P’s”: people, planet and profit.
- To ensure that the interests of relevant stakeholders are taken into consideration when determining such aspects of the strategy pertaining to sustainability, the management board should draw up and publish on its website a policy for effective dialogue with these stakeholders. The company is expected to facilitate such a stakeholder dialogue unless, in the opinion of the management board, this would not be in the interest of the company.
- The concept of stakeholders has been broadened to include groups and individuals who directly or indirectly may be influenced by the attainment of the company’s objectives.
- When reporting its views on sustainable long-term value creation and corresponding strategy and objectives in its management report, the management board should include the effects of the company’s products, services and activities on people and the environment, as well as how the interests of stakeholders have been taken into account.
The role of shareholders
- Shareholders, including institutional investors, should acknowledge the importance of a strategy aimed at sustainable long-term value creation.
- Shareholders and the company should be prepared to engage in a dialogue. A shareholder may be requested to disclose its total share position (long, short and through derivatives) when seeking a dialogue outside of the context of the general meeting.
- Shareholders, including institutional investors, should exercise their voting rights on an informed basis and as they see fit. Shareholders holding greater short than long positions should not vote on their shares as they would benefit from a decrease in the share price.
- When preparing their engagement policy, institutional investors should acknowledge the strategy of the company aimed at sustainable long-term value creation. A report on how the engagement policy was implemented should be published by institutional investors at least annually, including a general description of the investors’ voting behavior and an explanation of the most significant votes and the use of the services of voting advisers.
- If the agenda for a general meeting contains one or more significant items, shareholders should reverse any stock-lending agreements prior to the record date.
Diversity and inclusion
- The management board, the supervisory board and the executive committee (if appointed) should be composed such that there is an appropriate balance between expertise, experience, competencies, personal qualities, age, sex or gender identity, nationality and (cultural) background.
- The company should have a firm-wide D&I policy which should include specific, appropriate and ambitious targets to obtain a good balance in gender-diversity and other D&I aspects that are relevant to the company. The policy also applies to a group (or category) of employees in executive positions, such to be determined by the management board.
- The corporate governance statement should include an explanation on the company’s D&I policy and its implementation. In addition to the targets as set out in the policy, the manner in which these will be achieved and the results of the policy in the previous financial year (which should now also include an insight into inflow, promotion and retention of employees), if and where relevant), the statement should include information on the gender composition of the boards, executive committee and group of executives to which the policy applies.
- The explanatory notes included in the Code as regards the remuneration policy and remuneration report address the statutory requirements that apply pursuant to articles 2:135a and 2:135b of the Dutch Civil Code, thereby indicating that in addition to the statutory provisions (if applicable) the best practice provisions of the Code can be adhered to as the scope of the Code is wider than that of the statutory provisions. Also, the concept of pay ratios has been further explained.
- The possible overlap between the 250-day statutory cooling-off period and the 180-day response period which follows from the Code has been addressed. The response time under the Code may not be invoked if the statutory cooling-off period was already invoked. It will ultimately be up to the court to rule on undesirable interplay between of the statutory cooling-off period and other protective measures.
- Following the report ‘Strengthening the Accountability Chain’ by Leiden University (commissioned by the Minister of Finance), several changes have been made where it concerns the internal audit function. These include an evaluation of the internal audit function by an independent party at least every five years, the internal audit function should report to a management board member (preferably the CEO) and the management board will first discuss with the audit committee before assessing the functioning of the internal audit function.
- There is a greater focus on behavior and culture within the company and the reporting on culture by the management board in its report.
In our edition of Quoted on this subject, expected to be published during Q1 2023, we will describe the updates to the Code in more detail.
Should you have any questions following this news item, please feel free to contact us – we are of course happy to assist and advice on any changes to companies’ governance and/or reporting standards in order to comply with the provisions of the revised Code.