Bill implementing the Shareholders’ Rights Directive: what it means for Dutch listed companies

On 2 April 2019, the bill implementing the revised Shareholder Rights Directive was adopted by the Lower House of Parliament. The bill was amended to take into account a number of modifications to the initial draft. The implementation of Directive 2017/628/EU to encourage long-term shareholder engagement is now in the home stretch. The Upper House will have to act quickly, however, given that the deadline for implementation of the directive in national law is 10 June 2019. This newsletter sheds light on the latest amendments and explains how the bill will affect listed companies. Please see our newsletters of November 2018 and March 2018 for more detailed information about the most important changes.

Adopted Amendments

Greater majority for decisions relating to remuneration policy

The bill now stipulates that a majority of at least 75% is required to approve a change to the company’s remuneration policy, unless the articles of association provide for a lower majority. According to the drafters, this amendment will make it easier for the general meeting of shareholders (GMS) to block changes to the remuneration policy. And as a result, this should lead to a more sustainable and responsible policy and encourage long-term shareholder involvement.

Automatic appointment to the remuneration committee of supervisory board members recommended by the works council

Within companies which are subject to the structure regime (structuurvennootschappen), the works council (ondernemingsraad or OR) has by law a strengthened right to recommend a third of the members of the supervisory board (raad van commissarissen or RvC). This amendment ensures that if the supervisory board establishes an incentives or remuneration committee from amongst its members, the board members appointed further to the works council’s recommendation will automatically sit on this committee.

Advisory vote on the remuneration report required for all listed companies

The bill provides that the remuneration report must be submitted to the AGM for an advisory vote. In the last draft bill, an exception was provided for listed SMEs: they only had to discuss the remuneration report at the AGM. The amendment does away with this exception. All listed companies must also explain in their next remuneration report how the vote on the preceding report was taken into account. It should be noted that a negative advisory vote by the AGM on the remuneration report has no consequences for the remuneration granted to individual directors.

Opinion of the works council on the remuneration policy in listed companies

The works council has the right to render an opinion on the proposed remuneration policy adopted by the AGM at least every four years. If the works council’s opinion is not followed or not followed in full, a written justification for derogating from the opinion shall be provided to the AGM.

Mention of how directors’ remuneration fits into the remuneration policy

The bill introduces new requirements for the content of the remuneration policy. This amendment adds an additional requirement, namely that, henceforth, the remuneration policy must explain how the identity, mission and values of the company and its affiliated companies, the company’s internal remuneration ratios and those of its affiliates, and public consensus have been taken into account. As a result, the remuneration policy should become more stakeholder-oriented.

What it means for Dutch listed companies

Listed companies incorporated in the Netherlands are advised to check which of these changes will have consequences for them. It should be noted that companies listed only outside Europe fall outside the scope of the new rules, including after the latest amendments. Please find below two points for attention as well as information about when these obligations should be fulfilled.

1. Submission of a remuneration report

The obligations relating to the remuneration report will apply as from entry into force of the new legislation. This means that a remuneration report must be prepared for the first full financial year and submitted to the AGM for an advisory vote.

2. Evaluation of remuneration processes and policy

It is advisable to assess whether remuneration processes and policy require adjustment as a result of the new rules. Please find below an overview of the most important changes:

• It must be assessed whether the remuneration policy meets the new – more detailed and stringent – rules. The remuneration policy should comply with the new requirements as from its introduction in mid-2019; there is no transition period for compliance. As the new rules will enter into force after the regular AGM season, we consider it reasonable to submit any policy changes to the 2020 AGM and that listed companies not be obliged to call an extraordinary general meeting solely for this reason. In our opinion, listed companies that (wish to) hold their AGM after the implementation date should consider putting the amended remuneration policy to a vote this year and make the necessary arrangements to do so.
• In addition, it should be noted that the remuneration policy must now be approved by the AGM at least every four years, rather than only in the event of changes, and the works council must be asked to render an opinion on the remuneration policy beforehand. The requirement of approval every four years by the AGM will apply as from entry into force of the new legislation. This means that a remuneration policy which does not comply with the new rules must be aligned to them as soon as possible and submitted to the 2020 AGM for approval. A remuneration policy which is already compliant must be submitted to the AGM two years after the date on which it took effect. Thus, for example, if the policy has been in effect for two years on the date of entry into force of the bill, it will need to be submitted to the AGM in two years’ time.
• The supervisory board, or the board of directors for companies with a one-tier management structure, will have the right to approve material transactions with related parties. Shareholders will have no right to vote on approved material transactions. Listed companies must disclose material transactions with related parties no later than conclusion of the transaction. These provisions apply as from entry into force of the new legislation.
• Attention should also be paid to the procedure for voting at the AGM as shareholders who vote electronically are now entitled to subsequently verify whether their vote has been validly registered and counted. This provision also applies as from entry into force of the new legislation.
• Finally, it is advisable to determine whether the composition of the remuneration committee needs to be adjusted given that the supervisory board members appointed further to the recommendation of the works council must now sit on the committee. Once again, no provision has been made for a transition period. Depending on deliberations in the Upper House, it should for the time being be assumed that such supervisory board members must form part of the remuneration committee as from the entry into force of the bill. It should be noted, however, that this provision will not apply to all listed companies per se, only to so-called structure NVs.

The bill has been sent to the Upper House for consideration and, in principle, can no longer be amended, only accepted or rejected. Nevertheless, the bill could still be modified by means of an amending bill, should this prove necessary. The Upper House’s preliminary examination will take place on 21 May 2019. The directive must be implemented no later than 10 June 2019. We will of course keep you informed of further developments.