DUTCH UPDATE: Corporate Governance: Focal points for directors

*Originally distributed on March 26, 2020

In these difficult times, directors are expected to adopt a proactive attitude. Amongst other actions, the managing and supervisory directors of Dutch companies should consider taking the following steps from a Dutch corporate governance perspective:

  • Ensuring the health and safety of employees and other relevant stakeholders;
  • Proactively and periodically assessing the impact of COVID-19 on the company, from both a short-term and long-term perspective, taking into account various scenarios with regard to the evolution of the crisis and considering appropriate adjustments to the strategy;
  • Carrying out adequate risk analyses, ensuring proper monitoring and possibly updating the risk management and control systems;
  • Drawing up a continuity plan in the event of a shortage of key personnel; checking the provisions of the company’s articles of association on the absence or impediment of directors;
  • Conducting tests/simulations and possibly updating action plans and business contingency plans;
  • Evaluating the company’s distribution and share buyback policy as well as capital allocation and liquidity in general. Taking risk mitigation measures to protect the company’s capital and financing, for example, by lowering or scrapping dividends, granting stock dividends instead of cash dividends, or applying for government assistance (such as the extended Garantie Ondernemersfinanciering programme);
  • Ensuring the adequacy of electronic means of communication for the sake of business continuity;
  • Communicating frequently with, and seeking guidance from, relevant supervisory authorities and other government bodies;
  • Keeping shareholders and other stakeholders, such as employees, the works council, lenders, customers and suppliers, informed of business activities, the impact on strategy and other important developments;
  • Discussing with relevant stakeholders the expected impact of the crisis and measures;
  • Assessing possible new business opportunities created by the crisis;
  • Evaluating compensation plans, including option and share plans, and assessing whether adjustments are necessary, for instance due to unforeseen employee cash needs;
  • Ensuring that minutes of board meetings continue to be carefully kept, including in view of potential future claims;
  • If necessary, updating the financial guidance (including the possible issuance of a profit warning) and disclosures in financial reporting, prospectuses and other documents published by the company (for example, regarding risk factors);
  • Discussing with the accountant about safeguarding going concern status;
  • Overseeing timely publication of the financial statements, even if they have not yet been adopted;
  • For NVs, if the (management) board considers it likely that the company’s equity will decrease to an amount equal to or lower than half the share capital, calling an EGM to discuss the measures to be taken, if so required.

Disclosure of price sensitive information

Under the European Market Abuse Regulation (MAR), EEA listed companies must disclose price sensitive information without delay. Given the potential impact of COVID-19, deviations from previously disclosed prospects or targets (so-called ‘guidance’) and significant deviations from previous forecasts, generally accepted market expectations or ratings may qualify as inside information.

Each listed company is required to investigate the impact of COVID-19 on its previously disclosed forecast or generally accepted market expectations. In the event of a significant deviation, a disclosure obligation may arise under MAR. In practice, we see that many companies are not yet sure of the precise impact and are choosing to release a statement to the effect that they are closely monitoring the situation and its effects. The AFM has also indicated that it is keeping a close eye on disclosures by listed companies.