The issue of nominees having sufficient time to properly fulfil their duties is increasingly becoming the subject matter of legislation. These rules and regulations often impose restrictions on the possibilities of (re)appointment in respect of board positions. Furthermore, the issue faces increased scrutiny in practice as well, most notably from investors and voting advisory firms.
Rules and regulations restricting the maximum number of board positions have become even more complex during the summer of this year. The existing rules that applied to listed companies and so-called "large companies" have been extended by similar regulations for pension funds and "significant" banks and investment institutions.
This means that there are four regulations currently in place. The scope of these regulations has not been carefully synchronized as a result of which there might be a concurrence of rules. This alert is intended to provide an overview of the four regulations and briefly addresses the issue of concurrence between the regulations.
Main features of the regulations
Listed companies / Code-regulation
The Dutch Corporate Governance Code (the "Code") was the first regulation limiting the number of board positions that managing or supervisory directors could hold within Dutch listed companies. The Code is based on the "comply or explain principle". However, due to the mandatory nature of the Dutch Civil Code regulation ("Civil Code regulation") as explained below, Dutch listed companies that also qualify as a "large company" within the meaning of such regulation, can no longer deviate from the Civil Code regulation on this point: the Civil Code regulation, having effectively the same purpose, prevails.
Managing directors of Dutch listed companies cannot hold more than two supervisory positions nor can they act as chairman of the supervisory board thereof.
The maximum number of supervisory boards of Dutch listed companies that an individual may be a member of is limited to five, however, for these purposes, the chairmanship of a supervisory board counts as double.
The provisions in the Code with respect to supervisory directors also apply to non-executive directors in a one-tier management structure.
The Civil Code regulation does not limit the number of managing or executive board positions.
"Large companies"/ Civil Code regulation
The Civil Code regulation provides mandatory regulation, which limits the number of board positions that directors can hold within "large" public companies, private companies and foundations.
The question whether the nominee director is eligible for such a position shall have to be assessed at the time of appointment or re-appointment.
As with the Code regulation, a person cannot be appointed as managing or executive director of a large legal entity, if that person holds more than two supervisory positions with other similar large legal entities. The same applies if such person acts as chairman of the supervisory board (or board in a one-tier management structure) with another large legal entity.
A person cannot be appointed as supervisory or non-executive director or member of a supervisory body of a large legal entity, if that person holds five or more supervisory positions with other large legal entities. A position as chairman of a supervisory board (or board in a one-tier management structure) or supervisory body shall count as double for this purpose.
As with the Code regulation, the number of managing or executive board positions is not limited.
The regulation does not apply to cooperatives, mutual benefit associations, associations and foreign legal entities. Furthermore, positions held within such legal entities do not count for intended appointments in large public or private companies or foundations.
An appointment in violation of this particular regulation is void, but it does not invalidate the decision-making in which the director concerned participated. However, if the nominee director holds a position with a pension fund or "significant" bank or investment company, it is necessary to establish that the specific regulations for these sectors do not result in any additional complications.
Pension funds / Pension funds regulation
On 1 July 2014, a limitation regulation was adopted that specifically applies to pension funds (the "pension funds regulation"). Although the Civil Code regulation does not apply to pension funds, positions held within a pension fund may count for intended appointments that fall within the scope of the Civil Code regulation or the "significant" banks or investment institutions regulation (as described below).
A managing director or member of a supervisory body of a pension fund may not hold more than one full-time equivalent ('FTE') managing and supervisory board positions. The regulation includes a weighing factor in order to determine the time involved of the position concerned. In that respect, a distinction is made between large and small pension funds and large legal entities. If the various positions, for example as a managing director or as a member of a supervisory board, together with the envisaged appointment exceeds one FTE, the pension fund cannot proceed with the intended appointment.
The table below sets forth the FTE weighing calculation per position and entity.
||Large legal entity
||Large pension fund
(>10 billion assets under
|Small pension fund
(≤10 billion assets under
|Chairman of the managing
|Chairman of a supervisory
|Member of a supervisory
As with the Civil Code regulation, the question whether the nominee director is eligible for the position shall have to be assessed at the time of appointment or re-appointment. Similarly, an appointment in violation of the regulation is void, but it will not invalidate the decision-making in which the member concerned participated.
"Significant" banks and investment institutions / CRD IV regulation
As of 1 August 2014, the Financial Supervision Act (the "FSA") includes a limitation regulation that specifically applies to banks and investment institutions that qualify as "significant" (the "CRD IV regulation"). Although the Civil Code regulation does not apply to "significant" banks and investment institutions, positions held in such organisations may count for intended appointments that fall within the scope of the Civil Code regulation or the pension funds regulation.
Managing directors and supervisory officers of "significant" banks or investment institutions shall not hold more than one of the following combinations of directorships at the same time, including the position with the significant bank or investment institution:
• one management board position and two supervisory positions; or
• four supervisory positions.
Based on the wording of the FSA, we assume that it concerns positions within organisations, including positions within, for example, cooperatives. The wording of the FSA furthermore suggests that only the position of managing or executive director and supervisory or non-executive director shall count.
Since the provision is based on the CRD IV Directive, we assume that positions outside the Netherlands shall also count. The Directive does not make a distinction as far as the size of the institution in which the nominee director concerned holds such position is concerned.
The only specific exception provided by the Directive concerns directorships in organisations which do not pursue predominantly commercial objectives.
Unlike the Civil Code regulation and the pension funds regulation, the CRD IV regulation is not linked to the moment of appointment or re-appointment with a "significant" bank or investment institution. Managing or executive directors and supervisory or non-executive directors within these institutions are continuously required to observe the limitation imposed by the directive, regardless of whether his or her appointment or re-appointment is at stake.
An appointment in violation of this regulation is not void. The Directive provides for an enforcement procedure under administrative law, which, for example, means that in the context of a suitability assessment, designation orders can be given or (incremental) penalties can be imposed.
The main rule is that the regulation that applies to the legal entity that intends to appoint a director shall be followed. However, in the event that the intended appointment concerns a large legal entity or pension fund and the nominee director holds a position with a significant bank or investment company, the CRD IV regulation shall have to be applied as well because managing directors and supervisory officers of these entities are continuously required to comply with the regulation.
Supervisory positions held with pension funds shall have to be taken into consideration on a weighted basis in accordance with the pension funds regulation as set out above when assessing the intended appointment of a nominee director for a large entity under the Civil Code regulation.
Positions held with significant banks and investment companies shall only count for the Civil Code regulation if the bank or investment company concerned also qualifies as large entity.
For more information please contact one of the following persons at Stibbe.
 A public or private company or foundation is "large" for these purposes if on two consecutive balance sheet dates, without interruption thereafter, at least two of the following three criteria apply: (i) the value of the assets according to the balance sheet with explanatory notes exceeds EUR 17.5 million (based on the acquisition or manufacturing price); (ii) the net turnover exceeds EUR 35 million; and (iii) the average number of employees is at least 250.
The CRD IV Directive does not provide a specific interpretation of the definition "significant", but describes that individual circumstances and the nature, scale and complexity of the institution's activities need to be examined. The European Central Bank has published a list of supervised banks, which are considered to be "significant". Dutch banks that are considered to be significant include, amongst others, ABN AMRO, Rabobank, and ING. The Dutch Central Bank may designate other banks. Similar criteria for investment institutions have not (yet) been drawn-up. The Netherlands Authority for the Financial Markets (AFM) may assess when an investment institution should be considered "significant".