Professor Axel Hagedorn’s inaugural lecture for the Law Faculty at the University of Amsterdam
Madam Rector,
Mr Dean,
Members of the Board of the German Institute,
Esteemed Colleagues,
Family, friends, and highly valued listeners,
Introduction
My interest in a comparative law analysis was piqued in the early 80s, when I was working for the lawyer for the German Embassy in Sri Lanka. Comparisons of law broaden one’s perspective on the law itself, as well as the practice of law. Making a comparative legal analysis gives one a more thorough understanding of one’s own legal system, and enables one to examine it with a critical eye. The aspect of Sri Lankan legal practice that remains most prominent in my memory relates to the service of a summons. It was common for the defendant – to the extent he could afford it – to greet the bailiff at the door with the exact amount of rupees needed and then to save up again for a few months before the bailiff showed up on his doorstep again to serve the summons. The bailiffs were always busy.
For more than twenty years now, I’ve gained a great deal of experience of the differences between the legal cultures of Germany and the Netherlands, both the differences in the letter of the law and the differences of interpretation in practice.
Regardless of which area of law is involved, there are so many differences between the German and Dutch legal systems that I experience a new difference nearly every day. In Germany, no lawyer would be surprised to learn that another lawyer has telephoned the judge who will be hearing a civil-law matter. No one would see that as affecting the judge’s impartiality in that case. In the Netherlands, a lawyer in a pending case would never dream of calling the judge, and moreover, it would not be permitted. In recent years, the case involving project developer Chipshol has shown us just what implications a telephone conversation with a judge can have.
One major difference between Germany and the Netherlands can be found in the area of criminal prosecution. Criminal prosecution plays a much larger role in the economic legal system in Germany than it does in the Netherlands. In Germany, a public prosecutor who has knowledge of a crime is generally bound to prosecute that crime (mandatory prosecution principle [legaliteitsbeginsel]). 1 For example, in cases in which the perpetrator bears little culpability for a crime, the German Public Prosecution Service can more easily opt to dismiss the case or to impose a fine.2 The German Public Prosecution Service is not free to decide whether a crime will be prosecuted, because German law does not contain a provision that is comparable to the Dutch discretionary principle [opportuniteitsbeginsel]. It would be very interesting to investigate the influence these completely different principles have on such things as the structure of the two countries’ judicial systems or their clear-up rates. It may be that the differences in these principles also affect their citizens’ willingness to report a crime. From a social perspective, it might also be interesting to see whether what I assume to be a more expensive public prosecution system in Germany is justified by the sense of safety and security felt by the public. In my experience, companies report crimes much more often in Germany. The entity reporting the crime is entitled to examine the criminal file and thus the results of the Public Prosecution Service’s investigation. This also contributes to the willingness to report a crime, since that information can also be used in civil-law proceedings.
Corporate Governance
Today I want to discuss a single topic from the perspectives of comparative law and legal culture. The discussions surrounding what became known as corporate governance, also regularly referred to as ‘proper’3 or ‘sound management’ started in the early 90s.4 Corporate governance concerns, first, the relationships between bodies within a company, namely the management board, supervisory board, and the general meeting of shareholders. My goal is to compare the corporate governance rules laid down in the Dutch and German corporate governance codes and to put them in perspective. I note at the outset that there are definitely differences between them, and that those differences are sometimes significant. One provoking question is whether the differences in regulations regarding the Dutch and German corporate governance codes affect the quality of governance structures. I also want to discuss the effects of corporate governance codes on non-listed com-panies in Germany and the Netherlands, because these are very different as well.
History and creation of corporate governance codes
The term ‘corporate governance’ became a significant issue largely in connection with major accounting scandals, such as Enron and Worldcom.5 In Germany, Vodafone’s acquisition of Mannesmann 2000 caused a major dust-up due to the bonuses that were being paid to managing and supervisory directors after the successful acquisition. These events led to a headline-making criminal case.6 In the Netherlands, the Ahold side-letter issue in early 2003 is a story we all know.
The calls for rules on sound corporate governance at large companies grew louder and resulted in the need to formulate a code for self-governance. The general view was that companies themselves would have to draft rules and criteria to ensure transparency and integrity.7
The scandals prompted this discussion in the Netherlands and Germany and led to the implementation of corporate governance codes.8
The Dutch Corporate Governance Code (NCGC)
The Dutch committee began its work on formulating a corporate governance code in March 2003,9 with the first code for listed companies being published in December 2003 and entering into effect starting in January 2004. This first code was commonly known as the Tabaksblat Code, named after Morris Tabaksblat, the chair of the committee at that time. Afterwards, the Corporate Governance Code Monitoring Committee was established to take stock of compliance with the corporate governance code and prepare amendment proposals. The Corporate Governance Code 2008 has applied in the Netherlands since then.
It is important to note that the corporate governance code is not an independent set of rules, but has been incorporated into Dutch law, specifically, in Book 2 of the Dutch Civil Code. Case law, such as that rendered by the Enterprise Section of the Amsterdam District Court, has also contributed to legal developments in this field.
The objective of the Dutch corporate governance code is to use certain principles and detailed best practice provisions to establish a sort of instruction manual for sound corporate governance and, by doing so, to change the way managing directors, supervisory directors, and shareholders conduct themselves.10 The best practice provisions are specific, detailed versions of more general principles. In this respect, it is important to know that the Dutch corporate governance code is not a statute, but a general administrative measure11 that obliges listed companies to include a statement in their annual reports regarding whether or not they have complied with the code.
In that context, the principles and best practice provisions need not be applied to the letter. The rule here is that a company must ‘comply or explain’. In other words, listed companies are thus obliged ‘to include a statement in their annual report regarding their compliance with the code and to provide a well-founded statement regarding the principles and best practice provisions aimed at the management and supervisory boards that were not applied to those bodies’.12 The Dutch code contains 22 principles and 128 practice provisions. 13
Noteworthy in this context is the text of Book 2, Section 9, paragraph 1, of the Dutch Civil Code, which reads: ‘Every managing director is obliged to the legal entity to properly perform his duties.’, which is not included in the Dutch corporate governance code. In my view, this provision is the foundation of good governance and the Dutch corporate governance code as it is applied to management boards should be seen as an elaboration of this basic rule.
On the other hand, there are laws that contain more rules that directly impact corporate governance structures and that are considered both politically and socially desirable. For example, Book 2, Section 132a, of the Dutch Civil Code contains restrictions on the number of positions a managing or supervisory director is permitted to hold at a large company. The rationale for these restrictions is that past failures on the part of managing and supervising directors have also been blamed on their having held too many management and supervisory positions.
Another important difference from Germany is the provision laid down in Book 2, Section 166, of the Dutch Civil Code, which directs that at least 30% of the available seats on a management or supervisory board must be held by women and 30% must be held by men. In the Netherlands, this is simply a target figure and listed companies who fail to meet this requirement are not penalised. In short, corporate governance in the Netherlands is not limited to the corporate governance code. Because they are subject to the comply or explain principle when drafting their annual reports, listed companies in the Netherlands are required to test their governance models more extensively than nonlisted companies.
Example of how the Dutch corporate governance code works
I want to present you with a specific example of how the Dutch corporate governance code works in order to better clarify how the Netherlands differs from Germany. The following principle describes the desired composition of the supervisory board: ‘The Supervisory Board is structured in such a way that its members can function critically and independently of one another, the management board, and any special interest.’14 Obviously, this general principle is open to interpretation. What does ‘independently’ mean in this context? The decision was taken to include various best practice provisions in the Dutch code, precisely so that terms such as the independence criterion in this example could be described in more detail. For example, a supervisory director may not have been a managing director or employee of the same company in the five years before15 or receive personal remuneration.16 This obligation is expanded in the best practice provision to include the supervisory director’s spouse, registered domestic partner or other life partner, foster child, and relative by blood or marriage to the second degree.17 In other words, the detailed best practice provisions in the Netherlands are also open to interpretation. The quality of the rules seems to be somewhat undermined by their quantity and the attempt to phrase them exhaustively.18
The question also arises of whether the detailed provisions do justice to societal developments and the evolution of corporate law.19 I am critical of this because, in the introduction to the Dutch corporate governance code, the authors state their intention to discourage and avoid a ‘checklist mentality’ and state this as the code’s first principle.20 The rationale underlying the code should guide its interpretation. I seriously doubt whether the multitude of rules in the Dutch code contributes to achieving that objective. Managing directors cannot be expected to be aware of and comply with such an extensive system of rules. We have also learned from experience that managing and supervisory directors engage the services of internal and external experts in order to meet their obligations under the code.21
The German Corporate Governance Code (DCGK)
In Germany, the discussions regarding sound corporate governance that arose in 200222 led to the implementation of the Deutscher Corporate Governance Kodex – the German corporate governance code – the most recent amendments to which entered into force on 24 June 2014.23
One would expect the similar names to imply similar contents, but that is not the case. One substantial difference between the German and Dutch cor-porate governance codes lies in their structure. Thanks to the large number of best practice provisions, the Dutch code is 60 pages long and contains almost 19,000 words, while the German code only contains 3,500 words. This begs the question of whether – contrary to the image the Netherlands often has of Germany – the German authors of the code were less than thorough in their work. I can answer this seemingly obvious question in the negative. Perhaps the answer can be found in Goethe:
„Wer Großes will, muß sich zusammenraffen;
In der Beschränkung zeigt sich erst der Meister,
Und das Gesetz nur kann uns Freiheit geben.“24
I will explain why that statement is insufficient.
The German authors of the corporate governance code opted to use a different structure.25 The German corporate governance code does not contain any best practice provisions, but rather recommendations of various degrees that are comparable to the Dutch principles. This is based on the premise that our German counterparts prefer to leave exact interpretation of a certain concept, and the ‘best practice’ for applying it, to practice and want to be able to apply that concept flexibly.26 There are also more stringent references in Germany to the fact that the aim is to make the German corporate governance system transparent and comprehensible for investors. This important aim is laid down in the beginning of the preamble to the German Code and was underscored by Chairperson Manfred Gentz during the most recent presentation by the German monitoring committee in June 2014.27
It is striking that the preambles of both the German and the Dutch codes assert that the relevant code is founded on national and international ‘standards’ 28 or ‘best practices’29 of sound corporate governance. Perhaps this would have been phrased more modestly had the authors considered the fact that two codes based on the same international standard should not substantively differ from one another. How could a single standard require Dutch listed companies to take over 150 code provisions into account in their reporting, but require German listed companies to comply with or explain only 105 provisions?30
The German code also explicitly refers to the role of employees. In contrast to Dutch practice, large German companies are subject to Mitbestimmung, which requires that one third or one half of all the seats on supervisory boards of large companies must be held by employee representatives.31
The German code is also based on the comply or explain principle.32 Listed companies are permitted to deviate from the code, but they must explain their reasons for doing so.
Another important difference is that the German code makes a distinction between recommendations that must generally be complied with and recommendations that are more in the nature of suggestions for effecting sound corporate governance. The German code refers to Soll-Empfehlungen and Sollte-Empfehlungen. Only the recommendations that are defined as Soll- Empfehlungen are phrased in such a way that they are subject to the comply or explain principle and part of the statutory disclosure requirement.33
In addition, the German code contains suggestions phrased using the term ‘sollte’, which can be translated as ‘should’. Companies can deviate from these provisions without providing an explanation.
Important statutory rules regarding sound corporate governance are also incorporated into the German code.34
Unlike the Dutch code, the German code does not refer to ‘integrity’. The chairperson of the committee nevertheless made it very clear at the last presentation in 2014 that integrity is a key aspect of corporate governance by citing and explaining the concept of the ‘ehrbare Kaufmann’ – the honourable businessman.35
Examples of substantive differences
Given the scope of this inaugural lecture and the time allotted for it, I will only provide a few examples of substantive differences between the German and Dutch codes.36
1. The Dutch code directs that a managing director’s severance pay cannot exceed an amount equal to his annual salary unless such a restriction would be manifestly unreasonable in the circumstances.37 The best practice provision limits this amount to the fixed portion of his salary.38 The German code limits the severance payment to an amount equal to twice his annual salary, which is defined as including his entire remuneration and not just the fixed portion.39
2. Under the Dutch code, a managing director can be appointed for a maximum period of four years,40 while the German code recommends that appointments for the maximum term of five years should not be standard practice.41
3. Think back to the earlier example regarding the independence of a supervisory director and how detailed that independence is described in the Dutch code. To refresh your memory: ‘The Supervisory Board is struc-tured in such a way that its members can function critically and independently
of one another, the management board, and any special interest.’ This obligation is then explained in enormous detail and the best practice provision expands it to include the supervisory director’s spouse, registered domestic partner or other life partner, etc.
The German Code lays down the following principle:
‘Dem Aufsichtsrat soll eine nach seiner Einschätzung angemessene Anzahl unabhängiger Mitglieder angehören. Ein Aufsichtsratsmitglied ist im Sinne dieser Empfehlung insbesondere dann nicht als unabhängig anzusehen, wenn es in einer persönlichen oder einer geschäftlichen Beziehung zu der Gesellschaft, deren Organen, einem kontrollierenden Aktionär oder einem mit diesem verbundenen Unternehmen steht, die einen wesentlichen und nicht nur vorübergehenden Interessenkonflikt begründen kann. Dem Aufsichtsrat sollen nicht mehr als zwei ehemalige Mitglieder des Vorstandes angehören. Aufsichtsratsmitglieder sollen keine Organfunktion oder Beratungsaufgaben bei wesentlichen Wettbewerbern des Unternehmens ausüben.’ 42
The German code limits the concept of independence to those with whom the supervisory director’s personal or business relationship is such that it could create an essential and permanent conflict of interest with the company. The German Code makes no reference whatsoever to the supervisory director’s family members or other relations. This does not mean that a supervisory director’s independence can never be called into question in a specific case, such as when his or her spouse maintains a substantial financial relationship with the company. The German code is far less detailed and leaves interpretation in the hands of the company’s managing and supervisory directors.
At the same time, it is precisely the general nature of the provision that would enable the potential dependence linked to a potential conflict of interests to have farther-reaching implications in Germany. Ultimately, both systems allow room for interpretation.
4. The German corporate governance code also differs from the Dutch code when it comes to the position of a former managing director. The German corporate governance code directs that former managing directors of a company may serve as supervisory directors of that same company if two years have passed between the time the candidate worked for the company as a managing director and the time he is appointed as a supervisory director or if shareholders holding more than 25% of the company’s shares nominate that candidate to serve as a supervisory director.43 This is viewed as an exception to the rule that can be approved by the general meeting of shareholders. As noted earlier, the Dutch code prescribes a strict term of five years.44
5. The theme of diversity45 and the proportionate holding of positions by women are referred to multiple times in the German Code46 without ever indicating that a certain quotum or sanction applies. The Dutch code only refers to the criteria of gender and age with regard to the principle of expertise and composition of a supervisory board.47 The corresponding best practice provision uses the term ‘diversity’ with regard to the policy governing the composition of a supervisory board.48 No reference is made to a quotum for women or to any sanctions. As noted, the Netherlands has a regulation in place that merely sets a target figure of 30% women for large companies.49 This means that no sanctions will be imposed if a company fails to meet this target.
Starting in 2016, a far more stringent statutory rule will apply in Germany. 50 If one of the 108 large listed companies in Germany fails to meet the 30% standard in allocating the seats on its management or supervisory board, that seat will not be able to be held by anyone else. The German government has announced that, starting in 2017, this rule will be expanded to include other, non-listed companies in Germany. The German rules are thus much farther-reaching than those in the Netherlands and it remains to be seen whether the Netherlands will implement a similar statutory rule. This is an example of how the German and Dutch codes differ not only on substantive points, but also in term of the limits the two countries set on self-governance through corporate governance codes.
This serves to show that the differences between the German and Dutch corporate governance codes for listed companies are greater than claimed in some cases. These differences relate to how the codes are structured, but also to the difference in the amount of attention the two countries devote to particular principles. At the same time, both codes strive to achieve increased transparency and integrity. Before drawing any more conclusions, there is one more relevant aspect I want to discuss. Despite the differences in scope and substance between the two corporate governance codes, studies in both Germany51 and the Netherlands52 show that companies listed on the various exchanges generally show a high degree of compliance with the relevant code. In other words, they generally conduct themselves in line with the comply or explain principle.53 Applying this principle has in any case led to more discussions about corporate governance at general meetings of shareholders, with shareholders now questioning deviations from the codes.54
In contrast, the degree of compliance says nothing about the quality of the relevant statements and thus nothing about the quality of transparency or integrity. In that context, it speaks volumes that in 2014, for the first time, none of the 25 AEX-listed funds was nominated for the FD Henri Sijthoff prize for best financial reporting, which has been awarded every year since 1954. In its report, the jury stated the following: ‘Annual reports commonly include boilerplate texts, which means that the pictures they paint of the company and the market are often rosier than is actually the case.’55
In 2013, the Dutch Corporate Governance Code Monitoring Committee named the explanation of deviations from the code as one of the most important findings in the final report.56 In the Netherlands, for example, it is becoming increasingly common for listed companies to refer to internal company regulations without linking them specifically to the substantive requirements of the code.57
The German monitoring committee also notes that a high degree of compliance does not necessarily mean that companies agree with all of the recommendations, and that there are many recommendations in certain domains that are rejected by the majority or a large number of the companies in question. 58
For example, studies in both countries indicate that most companies do not comply with the recommendations regarding remuneration structure, including severance pay.59 Listed companies still seem to have no problem coming up with good reasons why they have implemented a given remuneration structure. Or, putting it another way: the degree of compliance with the relevant corporate governance code is not an indicator of the integrity of a company’s remuneration structure.
And so the essential question that arises in my mind is: does the larger number of regulations in the Dutch corporate governance code result in a proportionally higher level of transparency and integrity? I been unable to find anything that would prompt me to conclude that having more provisions to comply with under the Dutch code has led to an increase in transparency. I found nothing in the scholarly literature that criticises the limited scope of the German code. In fact, last month, the most important German bar association, Deutscher Anwaltverein, recommended cutting the German code down.60 Furthermore, my research has not indicated that listed Dutch companies are viewed as being more transparent simply because they are required to comply with many more provisions.
When considering the issue of integrity in corporate governance, there are no indications that the larger number of provisions in the Dutch code ensures a higher degree of qualitative integrity than the German code.61 Implementing corporate governance codes as self-regulatory tools has not stopped companies in both countries – and by ‘companies’ I mean managing and supervisory directors – from failing to perform their duties properly.
I note that the implementation of corporate governance codes in both countries has resulted in meaningful discussion about, and awareness of, sound corporate governance and reporting, as well as in listed companies’ compliance with those principles in certain domains.
I want to share with you the following assumptions that should be further studied:
1. Up to now, no evidence has been shown that the more detailed regulations in the Dutch corporate governance code has resulted in more transparency and integrity in the Netherlands than in Germany.
2. There is some doubt as to whether corporate governance codes can effect a qualitative change in the conduct of managing and supervisory directors rather than simply creating a checklist mentality.
Governance codes for non-listed companies
There is a tendency, both in Germany and the Netherlands, to demand new laws when something goes wrong. I am convinced that the solution lies not so much in new rules as in consistently enforcing the rules that are already in place. By way of explaining and substantiating this conviction, I want to take you on a brief tour of governance among non-listed companies.
In the Netherlands, the corporate governance code for listed companies has led to a multitude of comparable codes in every imaginable sector. There are now governance codes for a broad spectrum of sectors, including charities, health care, education, cultural institutions, and for cooperative businesses in the agricultural industries. The various sectors have often opted to implement corporate governance codes that are similar in structure to those for listed companies.
It is almost as though an industry would be violating some kind of moral obligation by not implementing a governance code, which could incite distrust of that industry.
I have always wondered why all these sectors suddenly decided that they needed a governance code. How did they manage and supervise companies before these codes existed? Were management boards opaque and unsound before governance codes were implemented? And the question that then arises, of course, is – if that was indeed the case, has the implementation of governance codes changed that situation? Similar to the situation with listed companies – can managing and supervisory directors maintain an overall view of such a large number of regulations for these sectors?
In other words: are the codes significantly improving the performance of managing and supervisory directors in all these industries and are they increasing the levels of integrity and transparency of institutions other than listed companies? And how will professional managing directors deal with all the different codes if their work covers multiple industries? This development has been much more limited in Germany. The federal government has implemented a corporate governance code for publicly held participating interests,62 and municipalities have implemented an extremely limited code which sharply differs from the federal code.63 Although no corporate governance codes have been implemented in the various market sectors, that does not diminish the fact that the subject of corporate governance is receiving all due attention.
A report published a short time ago by the Parliamentary housing corporation committee known as Ver van huis – a name which translates literally as ‘far from home’ but actually means something along the lines of ‘going nowhere’ – revealed a great deal about housing corporations in the Netherlands. This committee surveyed fifteen housing corporations and discovered that a great deal had gone wrong at both management and supervisory level. The facts are staggering. Hundreds of millions of euros of taxpayers’ money lost as the result of misconduct on the part of managing and supervisory directors. The committee discovered serious failures at every turn, from ineffective corporation managers to ineffective supervision at various levels to reactive attitudes regarding supervisory integrity.64
Naturally, there are differences between the Dutch and German housing corporation systems. One difference is the Dutch guarantee system, through which housing corporations stand surety for one another. If a housing corporation cannot meet its obligations, the other housing corporations stand surety for those obligations. There is no such system in Germany, where each housing corporation is responsible for its own financial accounting and the obligations shown in its accounting records.
There is also a large difference in scale between the housing corporations in Germany and those in the Netherlands. As far as I have been able to discover, one of the largest housing corporations in Germany owns nearly 17,000 homes.65
One of the largest housing corporations in the Netherlands, Ymere, owns approximately 84,000 rental homes.66 It’s quite a phenomenon: Germany has a population five times larger than that of the Netherlands, but the largest Dutch housing corporation is five times as large as its German counterpart. This, in itself, shows that Dutch housing corporations have a much stronger market position than their German counterparts. It follows from this that the role of housing corporations in the Dutch low-income housing sector is many times greater than their role on the corresponding German market.67
The primary job of housing corporations is the same in both countries, in that both are responsible for low-income housing.
The housing corporation sector in the Netherlands accepted the housing corporation governance code in 2007. According to the Parliamentary survey committee’s preliminary report, the instances of misconduct were not limited only to the period prior to the implementation of the housing corporation governance code. The report supports my contention that the implementation of a governance code was apparently unable to prevent ineffectiveness or misconduct on the part of managing and supervisory directors. This justifies the conclusion that the housing corporation governance code has had an insufficient impact on the conduct of managing and supervisory directors, and thus an insufficient impact on transparency and integrity.
Interestingly, there are no comparable stories of misconduct on the part of managing and supervisory directors of housing corporations in Germany. Naturally, it cannot be excluded from the realm of possibility that instances of mismanagement and breaches of integrity are occurring at German housing corporations, but I have yet to see any signs that this is the case. This is not to say that instances of misconduct involving taxpayer money are unknown in Germany. The managing and supervisory directors of the airport in Berlin and at the Elbe Philharmonic Hall in Hamburg are known to have engaged in such mismanagement, for example.
German corporations are generally also subject to a corporate governance code.68 That code applies to all corporations, and thus also to housing corporations. In practice, this code plays a subordinate role. The code is also not available to the public.69 In fact, the code primarily consists of the applicable statutory provisions. Managing and supervisory directors of housing corporations are therefore primarily bound by the law, and their duties and obligations are laid down in rather concise and general terms in the German Housing Corporations Act [Genossenschaftsgesetz] and the housing corporations’ own articles of association. Management boards are often required by law and those articles of association to act with due observance of the principle of Sorgfalt eines ordentlichen und gewissenhaften Kaufmanns – which is comparable to the Dutch statutory obligation to properly perform one’s duties [een behoorlijke taakvervulling]70 or the ehrbare Kaufmann – the honourable businessman – standard I referred to earlier.
Final remarks
As we approach the end of this lecture, its seems as though the scope of corporate governance provisions does not ensure transparency or, in particular, the integrity of managing directors or professionalism of their supervision. If that is the case, it is because other factors have played a role in effecting this. Are different supervisory methods applied? Does public scrutiny or transparency, such as the influence a housing corporation’s members have on its management board, play a greater role? Does the risk of criminal prosecution under the German mandatory prosecution principle motivate managing and supervisory directors to act with integrity? Do criminal law provisions play a role? Do cultural contexts, such as the Dutch polder model, play a role in supervisory enforcement? Or is it just the opposite, does the formal German hierarchy affect supervision?
These are questions that I cannot answer for you today, but they are certainly topics that will lend themselves to further study during my tenure.
Acknowledgements
In concluding, I would like to express my thanks to a number of people. I am most grateful to have been appointed by this university to the position of special professor of German-Dutch legal relations. I thank the university’s board, and in particular, the rector, Dymph van den Boom, and the board of this faculty, and especially the dean, Edgar du Perron, for entrusting me with this position. Naturally, I also thank the Appointments Committee who nominated me for this wonderful position. I am grateful to the Board of the German Institute and its scientific director, Ton Nijhuis, for their initiative in creating this chair.
Thanks also go to my colleagues, Simon van der Sluijs and Renso van Wieringhen Borski, for their valuable feedback on earlier versions of this inaugural lecture.
I thank Van Diepen Van der Kroef Advocaten for giving me the freedom to combine theory and practice in this way. I owe special thanks to our firm’s founder, Arthur van der Kroef, for his early interest in German-Dutch legal relations, which allowed me to follow my passion for this subject for so many years.
Finally, to my lovely Doris, Max and Faye. I’m so happy that all of you are here with me today. Together we are strong.
Thank you.
Notes
1. § 152, paragraph 2, Strafprozessordnung reads: ‘Sie [die Staatsanwaltschaft, AH] ist, soweit nicht gesetzlich ein anderes bestimmt ist, verpflichtet, wegen aller verfolgbaren Straftaten einzuschreiten, sofern zureichende tatsächliche Anhaltspunkte vorliegen.’ Regarding the German mandatory prosecution principle, see Löwe-Rosenberg- Beulke, Strafprozessordnung, Walter de Gruyter and co. Edition 26, § 152, no. 8, et seq.
2. §§153 and 153a, Strafprozessordnung.
3. See the subtitle of the 2008 Dutch Corporate Governance Code.
4. The beginning of the preamble to the German code refers to ‘guter und verantwortlicher Unternehmensführung’.
5. In 2002, this led to a new corporate financial reporting law in the United States, the Sarbanes-Oxley Act.
6. The criminal case pursuant to § 266 Strafgesetzbuch (Untreue) against the supervisory board was dismissed in favour of the imposition of an individual monetary penalty (§ 153a Strafprozessordnung). For example, the former supervisory directors of Mannesmann Josef Ackermann had to pay a fine of EUR 3.2 million.
7. See B. Steins-Bisschop & M.A.W. Römkes, ‘Integrity and transparency as fundamental Notions of good governance but are they enforceable?’, Tijdschrift voor vennootschapsrecht, rechtspersonenrecht en ondernemingsbestuur 2014 (Journal of Corporate Law, the Law Governing Legal Entities, and Corporate Governance 2014), issue 5, p. 150, et seq.; Asser/Van Solinge & Nieuwe Weme, 2-IIa, 2013/32 refers to transparency, accountability, independence, expertise, and integrity as the most important aspects of corporate governance.
8. The Dutch Corporate Governance Code, in the most recently amended version dating from 2008 (NCGC), and the German Corporate Governance Code, in the most recently amended version dating from 2014 (DCGK).
9. B. Bier, P. Frentrop, M. Lückerath-Rovers & D. Melis, Overzicht Corporate Governance in Nederland 2003-2013 (An Overview of Corporate Governance in the Netherlands from 2001 to 2013; prepared at the behest of the Corporate Governance Code Monitoring Committee), Nyenrode Business University, 2013, p. 5.
10. Preamble, point 5, NCGC.
11. As referred to in Section 2:391(5) Dutch Civil Code [BW].
12. NCGC, p. 8; underscoring in quote added.
13. B. Hof, M. Kerste, N. Rosenboom, W. Rougoor & A. de Jong, Het Nederlandse stelsel van corporate governance code en monitoring (The Dutch Corporate Governance Code and Monitoring System; prepared at the behest of the Ministry of Economic Affairs [Ministerie van Economische Zaken]), SEO Report no. 2012-92, Amsterdam, December 2012, p. 17.
14. Article III.2 NCGC.
15. Best practice provision III.2.2 a) NCGC.
16. Best practice provision III.2.2 b) NCGC.
17. Best practice provision III.2.2 NCGC.
18. J. Winter, Mr. P. van Schilfgaarde Van de BV en de NV, 16th printing, Deventer: Kluwer 2013, p. 258, et seq., criticises the ambitiousness of this provision, asserting that it places too much emphasis on the independence of supervisory directors and thus could allow the supervisory board to become too dependent on the management board; see M.J. Van Ginneken, ‘De onafhankelijke commissaris’ (The Independent Supervisory Director), Ondernemingsrecht (Corporate Law) 2012, 134, containing critical notes regarding the independence of supervisory directors.
19. This criticism has been expressed before, see, for example, F.B.J. Grapperhaus, ‘De beursgenoteerde bestuurder en de Code’ (The Managing Director of a Listed Company and the Code), Ondernemingsrecht 2004, 37, p. 111; E.P.M. Vermeulen, ‘De ‘vergeten’ derde dimensie van corporate governance en de rol van juristen’ (The ‘Forgotten’ Third Dimension of Corporate Governance and the Role of Lawyers), Tijdschrift voor de ondernemingsrechtpraktijk 2014 (Journal of Corporate Law Practice 2014), number 1, p. 38, et seq.
20. NCGC, p. 6.
21. M. Tabaksblat noted in 2004: ‘The Code will keep lawyers very busy.’, see M. Tabaksblat, ‘Het rapport van de Commissie corporate governance’ (The Report of the Corporate Governance Committee), Ondernemingsrecht 2004, 36, p. 109.
22. The first publication, dating from 26 February 2002, on the website of the committee that developed the German code: www.corporate-governance-code.de.
23. See http://www.dcgk.de/de/kodex.html.
24. From Das Sonett by Johann Wolfgang von Goethe.
25. The phrasing in SEO Report no. 2012-92 (Het Nederlandse stelsel van corporate governance code en monitoring) is misleading: ‘The German and Dutch codes are substantively similar at principle level.’, p. 51. The report does not provide sufficient details on the differences and there is no reference to the absence of best practice provisions in the German code.
26. H.M. Ringleb, T. Kremer, M. Lutter & A. von Werder, Deutscher Corporate Gouvernance Kodex, Munich: C.H. Beck oHG 2014, Edition 5, no. 27 and no. 87, et seq.
27. Speech by M. Gentz to the ‘13. Konferenz Deutscher Corporate Governance Kodex’, Berlin, 25 June 2014, p. 6, http://www.dcgk.de/de/kommission/die-kommission- im-dialog/detailansicht/rede-gentz-kodex-konferenz-126.html.
28. Preamble, first paragraph, DCGK.
29. Preamble, point 4, NCGC.
30. The German code contains 105 Soll-Empfehlungen, A.v. Werder & J. Bartz, ‘Corporate Governance Report 2014’, Der Betrieb: Betriebswirtschaft 2014, no. 17, p. 905 (907).
31. Companies with statutory two-tier status [structuurvennootschappen] as defined in Sections 2:153 and 2:263 Dutch Civil Code include the right of the works council [ondernemingsraad] to nominate candidates for the supervisory board.
32. This has been the case in any event since 2009; see also H.M. Ringleb, T. Kremer, M.Lutter & A. Von Werder, Deutscher Corporate Gouvernance Kodex, Munich: C.H. Beck oHG 2014, Edition 5, no. 59.
33. § 161 Aktiengesetz is comparable to the aforementioned Dutch rule contained in Section 2:391(5) Dutch Civil Code.
34. The German code published on the website of the Berlin Center of Corporate Governance makes various distinctions between statutory norms, recommendations, suggestions, and explanations www.bccg.tu-berlin.de. This institute of the TU Berlijn is led by A. von Werder, member of the German Corporate Governance Code Regierungskommission.
35. Speech by M. Gentz to ‘13. Konferenz Deutscher Corporate Governance Kodex’, Berlin, 25 June 2014, p. 8: ‘Solche Akzeptanz wird durch den Kodex gefördert und gewonnen durch faires Verhalten gegenüber Vertragspartnern, Mitarbeitern und Wettbewerbern, das nicht nur die eigene Handlungsfreiheit nutzen will, sondern die Grenzen von Freiheiten respektiert und damit auch die Freiheiten der Anderen anerkennt. Das erwünschte und durch den Kodex und seine Intentionen geförderte Verhalten ist das eines „ehrbaren Kaufmanns“, der im eigenen Interesse Unternehmerfreiheit nicht nur für sich in Anspruch nimmt, sondern sie generell fördert, verteidigt und nicht missbraucht.’ http://www.dcgk.de/de/kommission/die-kommission- im-dialog/detailansicht/rede-gentz-kodex-konferenz-126.html.
36. For a detailed comparison, see also A. Hagedorn & W. Bonnet-Vogler, ‘Corporate Governance – Die Kodifizerung und Ausübung guter Unternehmensführung in Deutschland und den Niederlanden: ein Vergleich’, in de Groot/Janssen, Festschrift anlässlich des sechzigjährigen Bestehens der Deutsch-Niederländischen Juristenkonferenz, Berlin: LIT 2009, pp. 215-237.
37. Principle II.2 NCGC.
38. Best practice provision II.2.8 NCGC.
39. Article 4.2.3 DCGK.
40. Best practice provision II.1.1 NCGC.
41. Article 5.1.2 DCGK.
42. Article 5.4.2 DCGK.
43. Article 5.4.4 DCGK.
44. Best practice provision III.2.2 a) NCGC.
45. Diversity under the DCGK is generally viewed in terms of cultural and gender equality.
46. Article 4.1.5 DCGK, as a management board responsibility for staff management; Article 5.1.2 DCGK, as a supervisory board responsibility for the composition of the management board; Article 5.4.1 DCGK, regarding the composition of the supervisory board.
47. Principle III.3 NCGC.
48. Best practice provision III.3.1 NCGC.
49. As referred to in Section 2:166 Dutch Civil Code for public limited companies and Section 2:276 Dutch Civil Code for private limited companies; in connection with European law on gender equality, this 30% quotum also applies to men.
50. The German Cabinet of CDU and SPD decided this on 11 December 2014 and will soon submit the relevant statute to the Bundestag (Lower House of the German States General). The law is expected to pass both houses of the German Parliament.
51. M.S. Rapp & M. Wolff, Kodexakzeptanz 2014: Analyse der Entsprechenserklärungen von DAX- und MDAX-Gesellschaften zum Deutschen Corporate Governance Kodex April 2014; this study is based on the published Entsprechenserklärungen referred to in paragraph 161 Aktiengesetz.
52. G. van der Laan, S. Sapulete, A. van den Berg, W. Kaufmann & H. van Ees, ‘Corporate Governance in Nederland: Een Onderzoek naar de Stand van Zaken in het Boekjaar 2012 en de Ontwikkelingen ten opzichte van het Boekjaar 2011’ (Corporate Governance in the Netherlands: A Study of the Status in the 2012 Financial Year and the Developments Compared with the 2011 Financial Year), Nalevingsrapport Corporate Governance 2013 (2013 Corporate Governance Compliance Report), Tilburg University, 12 December 2013, based on the published explanatory statements.
53. Regarding the effectiveness of this rule, see, for example, R. Abma & M. Olaerts, ‘De effectiviteit van de comply or explain-regel in Nederland’ (The effectiveness of the comply or explain rule in the Netherlands), Tijdschrift voor vennootschapsrecht, rechtspersonenrecht en ondernemingsbestuur 2011, issue 5, p.103, et seq.
54. R.Abma & M. Olaerts, ‘De effectiviteit van de comply or explain-regel in Nederland’, Tijdschrift voor vennootschapsrecht, rechtspersonenrecht en ondernemingsbestuur 2011, issue 5, p.103 (p. 107, et seq.)
55. ‘Kwaliteit jaarverslagen grote beursfondsen schiet tekort’ (Quality of Annual Reports of Large Listed Funds Fall Short), Het Financieel Dagblad, 10 November 2014, http://fd.nl/economie-politiek/901964/kwaliteit-jaarverslagen-grote-beursfondsen- schiet-tekort; E.A.J. van de Merwe, F. van der Wel & R.M.S.M. Munsters, FD Henri Sijthoff-prijs 2014 Het juryrapport, http://fd.nl/binaries/26/11/54/leeshier- het-juryrapport.pdf.
56. Corporate Governance Code Monitoring Committee, ‘Report 2013’, Slotdocument Commissie Streppel 2013 (Final Document of the Streppel Committee, 2013), August 2013, www.corpgov.nl/slotdocument-streppel; see also Nalevingsrapport Corporate Governance 2013, Tilburg University, 12 December 2013, p. 9, et seq.
57. G. van der Laan, S. Sapulete, A. van den Berg, W. Kaufmann & H. van Ees, ‘Corporate Governance in Nederland: Een Onderzoek naar de Stand van Zaken in het Boekjaar 2012 en de Ontwikkelingen ten opzichte van het Boekjaar 2011’, Nalevingsrapport Corporate Governance 2013, Tilburg University 12 December 2013, p. 10.
58. A.v. Werder & J. Bartz, ‘Corporate Governance Report 2014’, Der Betrieb: Betriebswirtschaft 2014, no. 17, p. 905 (p. 908).
59. For the Netherlands, see Nalevingsrapport Corporate Governance 2013, Tilburg University, 12 December 2013, p. 6; B. Hof, M. Kerste, N. Rosenboom, W. Rougoor & A. de Jong, Het Nederlandse stelsel van corporate governance code en monitoring (at the behest of the Ministry of Economic Affairs), SEO Report no. 2012- 92, Amsterdam, December 2012, p. 22 et seq.; for Germany: A.v. Werder & J. Bartz, ‘Corporate Governance Report 2014’, Der Betrieb: Betriebswirtschaft 2014, no. 17, p. 905 (pp. 909 and 912).
60. Deutscher Anwaltverein (DAV with 67,000 members) proposes eliminating 19 recommendations and amending 12 recommendations: DAV, Stellungnahme des Deutschen Anwaltvereins durch den Ausschuss Handelsrecht zum Deutschen Corporate Governance Kodex, No. 69/2014, December 2014, http://anwaltverein.de/ downloads/DAV-SN69-2014.pdf.
61. B. Steins-Bisschop, ‘Een voorbeeld van tekortschietende corporate governance’ (An Example of Inadequate Corporate Governance), Tijdschrift voor vennootschaps- en rechtspersonenrecht 2013, issue 3, p. 94 et seq.: B. Steins-Bisschop studies how integrity can be made mandatory in corporate governance codes.
62. Grundsätze guter Unternehmens- und Beteiligungsführung im Bereich des Bundes, of 1 July 2009.
63. U. Papenfuß & S. Müller, ‘Große Regelungsunterschiede in Public Corporate Governance Kodizes’, Zeitschrift für Corporate Governance, February 2013, p. 18 et seq.; M. Plazek, D. Weber & F. Schuster, ‘Public Corporate Governance Kodizes im Vergleich’, Public Governance, Winter 2012, p. 6 et seq., www.publicgovernance. de.
64. Hoofdrappport Parlementaire enquête woningcorporaties (Main Report on the Parliamentary Housing Corporations Survey), Lower House of the States General, Session Year 2014-2015, no. 33606, p. 9 et seq.
65. Wohnungsgenossenschaft Aufbau Dresden e.G. (status as at 2013).
66. ‘Ymere has approximately 90,000 rental units, approximately 81,000 are homes, according to the website https://www.ymere.nl/ymere/index.asp?id=276.
67. For a comparison of housing corporations in the Netherlands, Germany, and the UK, see also R. de Jong & J. v. d. Molen, Governance sociale huisvesting in Europa (Governance of Low-Income Housing in Europe; prepared at the behest of the Association of Housing Corporation Regulators [Vereniging van Toezichthouders in Woningcorporaties]), Zoetermeer, April 2014.
68. Corporate Governance Kodex für Genossenschaften (status as at 20 November 2013), prepared by Deutscher Genossenschafts- und Raiffeisenverband e.V.
69. The Deutscher Genossenschafts- und Raiffeisenverband e.V. (DGRV) only provides copies of the code upon request; the code cannot be viewed on the DGRV website.
70. As referred to in Section 2:9 Dutch Civil Code.
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