Netherlands Board Index Board trends and practices at leading companies: An analysis of AEX and AMX companies. 13th edition

Transcription

1 2014 Netherlands Board Index Board trends and practices at leading companies: An analysis of AEX and AMX companies 13th edition

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3 Contents Foreword 2 About Spencer Stuart 6 Highlights of the 2014 Netherlands Board Index 7 Key indicators of the Netherlands Board Index 10 In the spotlight: Chairman and non-executive director succession 12 About the Netherlands Board Index 16 Board composition 17 Women on boards 23 Independence and directorships 26 Board tenure 28 Board structure 30 Board meetings 31 Board committees 34 Remuneration 36 Definitions 39 The research team 41 Data tables International comparison table 42 Board composition 44 Board remuneration 48 Audit committee 50 Nomination committee 52 Remuneration committee 54 Risk and other committees 56 1

4 Foreword The Netherlands have seen a significant number of corporate governance developments since the publication of the last Netherlands Board Index in Despite efforts to self-regulate a number of corporate governance practices, several provisions of the Dutch Corporate Governance Code from January 1, 2009 have been codified in company law with the introduction of legislative measures to strengthen the corporate governance system in the Netherlands. Most notably, the Management and Supervision Act ( Wet Bestuur en Toezicht ) took effect on January 1, The Act formally introduces the possibility of adopting a one-tier board structure in the Netherlands and limits the number of supervisory directorships a director may hold. The Act also introduces a conflict of interest provision for directors, establishes targets for board diversity in terms of the gender of directors and introduces a change in the legal position of directors of listed companies. Limitation to the number of board seats and board diversity Under the new law, non-executive directors may not hold more than five positions in supervisory boards or one-tier boards of a large corporation. 1 Non-executive chairman positions on boards of large corporations count as two positions. Holding positions with more than one entity within the same corporate group counts as one position. Executive directors positions with large corporations are limited to two nonexecutive board positions. The law also states that a CEO or other executive director may not be a chairman of the supervisory board or a one-tier board of another large corporation. The restriction does not appear to be a major obstacle to directors on boards of companies in this edition of the Board Index as a vast majority of directors occupy only one board position within the top 50 listed corporations in the Netherlands. Non-executive positions at foreign companies do not count either. In a similar vein, the law has introduced a provision to ensure a balanced representation of men and women on management, supervisory and one-tier boards. Under the law, a balanced representation of both genders exists if at least 30% of the board seats are filled by either male or female directors. Although the 30% rule is not obligatory by law, corporations are required to explain in their annual 2 1 A corporation is considered large when two of the following three criteria are met: The value of the assets according to the balance sheet is more than 17.5 million; the net turnover of the corporation is more than 35 million and/or the corporation has on average more than 250 employees.

5 report why the board does not meet the gender test. The voluntary 30% rule will end on January 1, 2016, allowing for the measure to be evaluated. Legal position of directors The law also has changed the legal position of directors, since newly elected executive board members of listed corporations are no longer employees of the company. As a result, executive directors will not enjoy any protection under Dutch labour law as their relationship with the corporation is governed by a service agreement and Dutch company law. Existing labour contracts are not affected by the new law. The law also introduces the provision that the board as a whole is authorised to make a decision if one of its members has a conflict of interest as long as the board member refrains from participating in decision-making in which he/she directly or indirectly may have a conflict of interest. Board structure The Management and Supervision Act has made it is easier for corporations to introduce one-tier boards as their governance model by amending the articles of association of the corporation. With the new law, non-executive directors on one-tier boards have different roles and a different legal position compared with non-executive directors on two-tier boards. Non-executive directors on one-tier boards are an integral part of the management ( het bestuur ) of the corporation. This is different from non-executive directors on two-tier boards as they operate in a separate supervisory board that is independent from executive directors on the management board of the corporation. Although more companies may work with a one-tier board in the future, the number of corporations with a one-tier board in the Board Index has been relatively stable over the years; a number of corporations already operated under this governance model prior to the introduction of the amendments to the law. This pertains mainly to those companies that have a dual nationality such as AirFrance KLM, ArcelorMittal, Reed Elsevier, Royal Dutch Shell and Unilever. Changes to the composition of boards of directors As we have reported over the years, many Dutch listed corporations have anticipated the pending changes in legislation. The majority of non-executive directors have already reduced their number of directorships on supervisory boards and corporations have increased the percentage of female non-executive directors on 3

6 boards, although most boards in the Board Index do not yet meet the gender test. As of August 1, 2014, 92% of the companies do not pass the 30% gender test, despite the fact that an increasing number of female directors have been elected to the boards of the top 50 companies in the Netherlands. The Claw Back Act The Claw Back Act came into force on January 1, 2014 to align the interests of management with the long-term objectives of the corporation. The law gives corporate boards greater powers in reclaiming and adjusting bonuses awarded to a director to avoid excessive acquisition bonuses, if bonuses were awarded based on incorrect information such as inflated sales projections or when such bonuses are no longer warranted given market conditions. The Corporate Governance Act ( the Frijns Act ) The Corporate Governance Act took effect on July 1, 2013 to promote dialogue between shareholders and directors. The new bill lowered the threshold for shareholders to report shareholdings from 5% to 3% of the corporation s issued share capital or control interest. In addition, investors gross short positions of 3% or more in Dutch companies listed on a European regulated market need to be reported and the right of shareholders to nominate items for the agenda of the general meeting of shareholders has been increased from 1% to 3% of the corporation s issued share capital. Listed corporations now have the possibility to identify shareholders holding between 0.5% and 3% of issued shares as well. The Audit Firm Supervisory Act An amendment to the Audit Firm Supervisory Act (WTA) will come into effect on January 1, 2016, which introduces a mandatory rotation of the external auditor every eight years in the Netherlands. 2 An earlier amendment to the same bill already introduced the segregation of audit and non-audit services as of January 1, 2013 with a transitional period of two years. The Board Index has noted that audit committees are already considering a change of the corporation s auditor in anticipation of the audit firm rotation requirement, while a number of corporations already have changed the auditor. 4 2 The Dutch Government has announced that it will amend the Act (possibly before January 1, 2016) by extending the rotation period to 10 years.

7 Future corporate governance developments As directors and regulators absorb the changes in the regulatory corporate governance framework in the Netherlands, and international corporate governance standards continue to converge, we realise that these changes are not merely legislative and formalistic. The introduction of new governance models requires significant resources and expertise, for example changes in boardroom practices, shareholder relations and long-standing relationships of audit committees with corporations audit partners. The new limitations on directors involvement in the governance of large corporations and new diversity standards necessitate advanced succession planning and possibly a review of boards selection procedures and profiles. At Spencer Stuart, we continue to follow these developments in corporate governance closely, both in the Netherlands and globally, and stand ready to assist you through our global network of boards specialists. Han van Halder hvanhalder@spencerstuart.com 5

8 About Spencer Stuart Spencer Stuart is one of the world s leading executive search consulting firms. Privately held since 1956, Spencer Stuart applies its extensive knowledge of industries, functions and talent to advise select clients ranging from major multinationals to emerging companies to nonprofit organizations and address their leadership requirements. Through 55 offices in 30 countries and a broad range of practice groups, Spencer Stuart consultants focus on senior-level executive search, board director appointments, board reviews, succession planning and in-depth senior executive management assessments. The premier firm for board counsel, recruitment and board review, we are the firm of choice for both leading multinationals and smaller organizations. For more than 25 years, our Board Practice has helped boards around the world identify and recruit independent directors and provided advice to chairmen, chief executive officers and nominating committees on important governance issues. In addition to our work with clients, Spencer Stuart has long played an active role in corporate governance by exploring both on our own and with other prestigious institutions key concerns of boards and innovative solutions to the challenges facing them. We publish a wide range of articles and publications on boards and governance issues, including the Spencer Stuart Board Indexes worldwide. For more information, visit 6

9 Highlights of the 2014 Netherlands Board Index 30% gender rule The Board Index found one two-tier board with at least 30% female executive directors on the managing board and at least 30% female non-executive directors on the supervisory board. Three companies have a minimum of 30% of female directors on their one-tier boards regardless of their position (executive or non-executive) as of August 1, % AEX and AMX companies do not satisfy the 30% gender rule More female directors sought A preliminary estimate suggests that 62 executive and non-executive board positions will need to be filled by female directors if 30% of the 473 board positions in the Board Index are to be occupied by female directors. 62 The number of new female director recruits needed to meet the 30% gender rule Age differences (non-executives) Female non-executive directors are on average 6.7 years younger than male non-executive directors (63.9 years). With the election of more female non-executive directors and the increasing years of service of female non-executive directors, age differences among male and female non-executive directors are likely to be less in the near future years The average age of female non-executive directors 7

10 Highlights of the 2014 Netherlands Board Index 70% The percentage of two-tier boards with foreign nonexecutive directors -30.4% The reduction in executive directors on AEX boards Foreign directors The Board Index found 29 companies with foreign directors on their supervisory board. This is some 70% of all companies with a two-tier board. All one-tier boards have foreign directors on their boards. Executive directors on AEX boards AEX companies have seen a reduction of 30.4% in the number of executive directors on their boards since One reason for this phenomenon may be prevalence of one-tier boards among AEX companies as they tend to have fewer executive directors than two-tier boards. 18% The percentage of companies with a one-tier board 12% The percentage of boards with a risk committee Two-tier boards still dominate Despite the introduction of amendments to the Management and Supervision Act, the number of corporations with a one-tier board in the Board Index has been relatively stable over the years. Risk committees The Board Index does not observe a further rise in the number of risk committees. While only two companies (4%) had established such a committee in 2008, 12% of all boards in the Netherlands Board Index (6 companies) currently have a risk committee compared with 14% in

11 AMX nomination committee meetings The Board Index notes a significant increase in the average number of nomination committee meetings of AMX boards from 2.1 times in 2011 to 3.8 times in 2013, an increase of 81%. Other than audit committees, nomination and remuneration committees of AEX companies no longer necessarily meet more frequently than similar committees at AMX companies boards. 81% The increase in nomination committee meetings of AMX boards Non-executive director pay Non-executive directors (excluding chairmen) received on average 77,000 in cash remuneration in 2013, compared with 61,000 in This is an increase of 26.2% over the last five years (or an annual increase of 5% since 2009) Average cash remuneration of non-executive directors 9

12 Key indicators of the Netherlands Board Index The Board Index contains a set of indicators we follow to describe changes in board practices in the Netherlands. These include the composition, demographics and cash remuneration of executive and non-executive directors. ALL COMPANIES AEX COMPANIES AMX COMPANIES Average number of directors Executive directors Non-executive directors Total number of directors Average number of directors by gender Male directors Female directors Nationality of directors Average number of Dutch directors Average number of foreign directors Board structure Two-tier boards 41 (82%) 19 (76%) 22 (88%) One-tier boards 9 (18%) 6 (24%) 3 (12%) Average number of board meetings One-tier board meetings Supervisory board meetings with management board Supervisory board meetings without management board These refer to meetings of the supervisory board, or parts of these meetings, when managing board members are not formally present.

13 ALL COMPANIES AEX COMPANIES AMX COMPANIES Board committees Average number of board committees Number of companies with audit committee 47 (94%) 25 (100%) 22 (88%) Number of companies with remuneration committee 47 (94%) 25 (100%) 22 (88%) Number of companies with nomination committee 46 (92%) 25 (100%) 21 (84%) Number of companies with risk committee 6 (12%) 4 (16%) 2 (8%) Average number of committee meetings Audit committee meetings Remuneration committee meetings Nomination committee meetings Risk committee meetings Average cash remuneration ( 000) CEOs Executive chairmen Executive directors Non-executive chairmen Non-executive directors See the definition section of the Board Index for the definitions of CEOs and executive chairmen. 11

14 In the spotlight Chairmen and non-executive director succession The need for careful planning of supervisory board succession is greater today than it has ever been. Under pressure from investors, regulators, governance watchdogs and the media, supervisory boards must demonstrate their willingness to evolve if they are to remain relevant in a fast-changing world. This requires a greater level of foresight and succession planning than is generally found in most supervisory boards today. Building a balanced board In recent years, the proportion of AEX and AMX CEOs appointed from inside the company has been slowly falling, from 76% in 2013 to 66% this year. This suggests that boards are not getting better at managing CEO succession. The trend, incidentally, is similar for AEX and AMX companies, although AEX companies have a higher percentage of internal successions than AMX companies. The same picture can be seen when it comes to supervisory boards managing their own succession: they still seem to have some way to go. In the past, supervisory boards have tended to address non-executive director succession only on an as-needed basis, when facing an impending vacancy. Supervisory boards that take this approach, however, may be putting themselves at a disadvantage; by the time they start looking for a replacement non-executive director it may be too late to secure the best person. Just as with CEO succession, by planning further ahead it is possible for supervisory boards to widen the net, increase their options and secure the very best talent at the time when it is most needed. This is very much the case in the Netherlands where companies usually prefer to appoint a sitting non-executive director as chairman. However, this is changing. The principle of long-term planning should apply as much to the supervisory board as it does to the business itself. One of the primary tasks of the nomination committee should be continually to review supervisory board composition in light of the medium- to long-term strategy and focus on what mix of expertise will best help the company move in that direction as efficiently as possible. Supervisory boards can accomplish this by thoughtfully and deliberately managing non-executive director succession; those that plan a long way ahead, rethink role 12

15 specifications and explore fresh options (avoiding potential conflicts) are most likely to end up with the strongest supervisory boards. Building a balanced supervisory board takes time. Except in crisis conditions, supervisory boards evolve slowly, although the existence of term limits for Dutch listed companies does mean that supervisory board membership is reasonably fluid. Term limits mean that there is enough natural attrition to make succession planning not just worthwhile, but essential. On average, non-executive directors rotate off AEX and AMX supervisory boards in any 12-month period, creating regular openings that allow supervisory boards to refresh themselves and expand or strengthen their skills. In the US, by contrast, ever-extending retirement ages and lack of term limits have resulted in static boards that struggle to adapt and change in synch with the business. A recent Spencer Stuart study of board turnover and shareholder returns for S&P 500 companies found that a moderate amount of turnover correlates with higher shareholder returns. Companies that added three or four directors over a three-year period outperformed their industry peers, suggesting an optimal amount of turnover. The worst performers tended to be companies with either no director changes at all in three years or companies with five or more board changes. Regular, planned and non-disruptive changes to board composition is positive for the health of a business. Developing a skills matrix When working with clients to develop supervisory board succession plans over the long term, Spencer Stuart often uses a board profile matrix to examine the demographics and professional backgrounds of current board members and to identify gaps or voids in the board s composition (vis-à-vis the company strategy and peers). As a starting point, the supervisory board should stay up to date on the timing of anticipated vacancies (due to retirement, term or age limits, etc.). In most cases, non-executive director departures are known well in advance, giving the supervisory board the opportunity to plan for specific needs, for example ensuring continuity and relevant expertise on committees. 13

16 In the spotlight The skills matrix should take into account regulatory and listing requirements, committee needs, the strategic direction of the business, and the need to bring a diversity of perspectives to boardroom discussion. Developing a skills matrix > > Think holistically about non-executive director recruitment as opposed to one-off recruitments. > > Develop a matrix of the overall skills and experience required for the supervisory board based on an analysis of the skills and experience necessary to support the strategy. > > Inventory the skills, contributions, and diversity of current supervisory board members to identify any gaps to be filled. > > Use a skills matrix to ensure all the bases are covered when recruiting. > > Outline specific requirements for key committee chairs. Advance planning Supervisory boards need to think holistically about non-executive director recruiting rather than in terms of one-off appointments. Planning for vacancies should start at least 12 months in advance of a supervisory board seat coming free. Ideally, supervisory boards look much further out and consider the implications of multiple departures over a 2 5 year period. The process begins with the supervisory board reviewing and confirming the desired expertise and qualifications for new non-executive directors. The annual board evaluation provides a natural platform from which to identify the areas of knowledge the supervisory board should possess in the coming years based on the company s strategic direction and the competitive landscape. Most supervisory boards choose to partner with a search firm to identify potential non-executive director candidates. Search firms know the career plans of many senior leaders and are in a good position to discreetly test executives interest in a new supervisory board role and his or her future availability. They can also look globally at new, younger candidate pools such as executives with, for example, digital experience. Whether it is the supervisory board chairman or the search consultant who has the initial conversation, the key thing is to approach candidates well in advance to alert them to the supervisory board s interest. This is particularly important in the case of CEOs who are often inundated with supervisory board invitations; 14

17 they may have a set of restrictions and preferences for outside supervisory board service, as well as retirement plans, which either disqualify them or make their candidacy particularly attractive. The earlier these things are on the table, the better. Planning for diversity One important category in the matrix is diversity. Supervisory boards recognise that having diverse perspectives on the board expands their options and helps provide richer advice to management. This may come in the form of diversity in age, gender, race, ethnicity and geographic knowledge. The ideal supervisory board mix will vary depending on the needs of the company and could include non-executive directors with significant listed company (supervisory) board experience, non-executives with specific sector and geographic expertise, and non-executives with international business experience. Some supervisory boards find that their diversity is enhanced as a by-product of hiring new types of non-executive directors, especially younger, active executives who can bolster the supervisory board s knowledge of areas such as digital, social media and mobile payments, or operating effectively in growth markets. The latter, plus the introduction of a law that restricts the number of board seats per person, as well as a guideline to reach 30 per cent female representation in 2016, has resulted in a growing number of first-time non-executive directors who have been appointed to AEX and AMX companies in 2013 and Conclusion Forward-looking supervisory boards prioritise the task of planning for nonexecutive director succession. They continually review the supervisory board s skill sets in light of the company s strategy and actively pursue the necessary capabilities and experience. They use the annual board evaluation as a natural platform to review the composition of the whole supervisory board and identify the expertise that it will need in the future. The best supervisory boards are also made up of non-executives who are willing to make way for new non-executive directors when fresh skills and experiences more closely aligned to the strategic goals of the company are called for. 15

18 About the Netherlands Board Index The Netherlands Board Index is a census of 50 of the largest companies listed on the Dutch segment of the NYSE EuroNext and includes those companies which are part of the AEX and AMX indices. Information on the composition and structure of boards, committees, board tenure and directorships reflects in most instances the situation as of August 1, Information on board and committee meetings and remuneration reflects the situation as of December 31, Measured as of December 31, 2013: > > Board Meetings > > Board Committee Meetings > > Board Remuneration Measured as of August 1, 2014: > > Board Composition > > Female Representation > > Board Independence > > Directorships > > Board Tenure > > Term of Office > > Board Structure > > Board Leadership > > Board Committees Information in the Board Index is based on the 2013 annual reports that have been published in 2014, minutes and agendas of (extra-ordinary) meetings of shareholders and Internet investor relations pages (last visited on August 1, 2014). Detailed information on the top 50 boards in the Netherlands is available in the appendices. Composition of the Board Index The composition of the Board Index is determined by the composition of the AEX and AMX indices of the NYSE EuroNext as of August 1,

19 Board composition The number of directors This year s Board Index has examined a total of 473 board positions on the boards of 50 AEX and AMX companies as of August 1, A total of 302 non-executive directors occupy 327 positions on boards of these companies (a director can have more than one position). This is an average of one board position per director. Executive directors occupy the other 146 positions. The Board Index found that 13.5% (64) of the 473 board positions are occupied by non-executive or executive directors who were appointed to the board in the 12 months prior to August 1, A total of 23.4% (15) of the new board members are female. Of the 64 new directors, 48.4% do not have Dutch nationality. The balance of boards All board positions AEX-listed companies AMX-listed companies One-tier boards Two-tier boards Non-executive directors Executive directors Most non-executive board positions examined by the Board Index (247 positions) continue to be on the 41 two-tier boards included in this year s Board Index. The remaining 80 non-executive board positions (24.5%) are occupied by directors on the nine one-tier boards included in the Board Index. 17

20 Board size This year s Board Index confirms the trend that the number of executive directors on boards of AEX companies continues to decrease. AEX companies have on average 3.2 executive directors on their management boards in 2014 compared with an average of 4.6 positions in 2006; a 30.4% reduction. One reason for this phenomenon may be the prevalence of one-tier boards among AEX companies. Despite that one-tier boards are on average larger than the combined number of directors on the supervisory and executive boards, they tend to have fewer executive directors. One-tier boards have on average 1.6 executive directors compared with 3.2 executive directors on managing boards. One-tier boards have on average 8.8 non-executive directors compared with six supervisory board members on two-tier boards. In general, however, it can be said that more Dutch companies with a two-tier governance system are moving to smaller executive boards consisting of a CEO and CFO only. In addition, they usually have an executive committee (non-statutory) consisting of the CEO, the CFO and a number of divisional and/or regional senior executives and corporate staff directors. The size of boards of AMX companies, which have fewer one-tier boards, has been relatively stable since Board size and composition of AEX- and AMX-listed companies overall aex-listed companies AMX-listed companies Non-executive directors Executive directors 18

21 The age of directors Executive directors of the top 50 companies, regardless of their gender, are on average nine years younger than non-executive directors. The average age of an executive director is 53.2 years. The average age of a non-executive director is 63 compared with 62.2 years old in Senior independent directors on one-tier boards are on average 65.8 years old. Age and gender of directors The age difference between male and female non-executive directors has decreased from nearly nine years in 2012 to 6.7 years in Female non-executive directors are on average 57.2 years old compared with the average age of 63.9 years of male non-executive directors. With the election of more female nonexecutive directors and the increasing years of service of female non-executive directors, it can be expected that age differences among non-executive directors will be less in the near future. Female executive directors are 4.5 years younger than male executive directors. Male non-executive directors Female non-executive directors Male executive directors Female executive directors In AEX-listed companies In AMX-listed companies In all companies More foreign directors on boards The Board Index found 12 companies with no foreign directors on their supervisory boards. This is 29.3% of all companies with a two-tier board. All one-tier boards have foreign directors on their boards. Nine two-tier boards (22%), mostly at AMX companies, have only Dutch directors. They neither have foreign directors on their supervisory board nor foreign executive directors on their management board. They are 100% Dutch. 19

22 The Board Index nevertheless observes an increase in the number of foreign directors, whether they are executive or non-executive. More than one-third (42.1%) of all positions on the boards of the top 50 companies are occupied by foreign directors in 2014 (compared with 38.1% in 2012). These findings support the trend that boards in the Netherlands continue to be more international in scope and character. Statistical focus: Foreign directors The Board Index found 27 nationalities, with most foreign directors in order of popularity coming from the United States, France, United Kingdom, Germany, Belgium and Canada. Air France KLM, Aperam, ArcelorMittal, Arseus, Gemalto, OCI, Reed Elsevier, Royal Dutch Shell, Unibail-Rodamco and Unilever are considered bi-national companies. Some of these bi-national companies merely have a listing in the Netherlands but hardly any or no operational activities in the country. For the purposes of the Board Index, all non-dutch directors at these companies are treated as foreign directors. The Board Index found eight directors with multiple nationalities. Foreign directors (executive and non-executive positions combined) occupy a majority of board seats on AEX boards for the first time in the history of the Netherlands Board Index. More than half (51.5%) of all director positions on AEX boards are foreign. 20

23 Nationality Total Executive directors Non-executive directors Australia 1 0.2% 1 0.7% 0 % Austria 3 0.6% 2 1.4% 1 0.3% Belgium % 5 3.4% % Canada 6 1.3% 2 1.4% 4 1.2% Canada + United States 1 0.2% 0 0% 1 0.3% China 2 0.4% 0 0% 2 0.6% Columbia 1 0.2% 0 0% 1 0.3% Denmark 1 0.2% 0 0% 1 0.3% Ethiopia 1 0.2% 1 0.7% 0 0% Finland 2 0.4% 0 0% 2 0.6% France % % % France + United States 1 0.2% 0 0% 1 0.3% Germany % % % Germany + United States 1 0.2% 0 0% 1 0.3% Greece 1 0.2% 0 0% 1 0.3% India 5 1.1% 1 0.7% 4 1.2% Ireland 1 0.2% 1 0.7% 0 0% Italy 1 0.2% 0 0% 1 0.3% Italy + United States 1 0.2% 0 0% 1 0.3% Luxembourg 3 0.6% 0 0% 3 0.9% Mexico 4 0.8% 0 0% 4 1.2% Netherlands % % % Netherlands + United States 2 0.4% 2 1.4% 0 0% Norway 1 0.2% 1 0.7% 0 0% Pakistan 2 0.4% 1 0.7% 1 0.3% Singapore 2 0.4% 0 0% 2 0.6% South Africa 1 0.2% 0 0% 1 0.3% Spain 3 0.6% 0 0% 3 0.9% Sweden 5 1.1% 1 0.7% 4 1.2% Sweden + United Kingdom + France 1 0.2% 1 0.7% 0 0% Switzerland 2 0.4% 0 0% 2 0.6% United Kingdom % 8 5.5% % United Kingdom + United States 1 0.2% 0 0% 1 0.3% United States % 4 2.7% % Total: % % % 21

24 Foreign non-executive directors On average, AEX companies continue to have significantly more foreign nonexecutive directors on their boards (4.2) than AMX companies (1.7), although AMX boards are starting to catch up. The percentage of foreign non-executive directors on AEX boards is 55.2% compared with 51.5% in The percentage of non-executive directors on AMX boards saw a significant increase from 22.7% in 2012 to 31.1% in Foreign executive directors AEX companies have twice as many foreign executive directors on their boards (1.4) than AMX companies (0.7). The percentage of foreign executive directors on AEX boards is 42.5% compared with 25.8% for AMX boards (34.9% for all 50 boards combined). 22

25 Women on boards Women continue to gain ground on boards Women continue to gain ground on boards, but most companies do not yet pass the 30% gender test. The number of female directors on boards of the top 50 companies continues to increase with the greatest growth in the number of female directors on boards of AMX companies. Women occupy 16.9% of all 473 board positions (executive and non-executive positions combined) in the Board Index compared with 14.3% in 2012 and 10.6% in The 30% gender test Despite the increase in the number of female directors, a majority of companies has yet to pass the 30% gender test. Introduced by the Dutch Act on Management and Supervision ( Wet Bestuur en Toezicht ), a balanced representation of both genders exists if at least 30% of the board seats are filled by either male or female directors. Although the 30% rule is not obligatory by law, corporations are required to explain in their annual report why the board does not pass the gender test. Women on boards as a percentage of all directors 17.9% 19.5% 8.6% 11.6% 13.2% 7.1% 9.2% 13.4% 2.8% 3.9% women on the boards of aex-listed companies women on the boards of amx-listed companies 23

26 The Board Index found one two-tier board with at least 30% female executive directors on the managing boards and at least 30% female non-executive directors on the supervisory board. Three companies have a minimum of 30% of female directors on their one-tier boards regardless of their position (executive or non-executive) as of August 1, This suggests that 92% of the companies are not in compliance yet with the 30% gender requirement as of August 1, The Board Index found nine companies with at least 30% female non-executive directors on their boards compared with four companies that have at least 30% female executive directors. The Board Index could not find any female directors on the boards of 15 companies as of August 1, Female non-executive directors Women occupy 21.4% of all non-executive board positions on boards of the top 50 companies compared with 5% in 1996 and 18% in If calculated for AEX companies only, women occupy 25% of all non-executive board positions (21.4% in 2012) compared with 16.3% at AMX boards (12.9% in 2012). This suggests that companies will have to recruit a significant number of female non-executive directors to pass the 30% test in the near future. Female executive directors Women hold 6.8% of all executive board positions on boards of the top 50 companies in the Board Index compared with 4.3% in 2010 and 5.9% in If calculated for AEX companies only, women occupy 6.3% of all executive board positions (7.7% in 2010 and 8.9% in 2012). 24

27 While no female executive directors were found on boards of AMX companies in 2010, this year s Board Index identifies five female executive directors on boards of AMX companies (7.6%). Despite this growth, a significant number of female executive directors will need to be elected if AMX companies boards are to pass the 30% gender test. New female director recruits A preliminary estimate suggests that 62 executive and non-executive board positions will need to be filled by female directors if 30% of the 473 board positions in the Board Index are to be occupied by female directors. Positions currently held by directors Position Directors Female Percentage Number of female positions as 30% of total positions New positions to be filled by female directors Executive % Non-Executive % Total %

28 Independence and directorships The number of independent directors is stable The Board Index did not find significant changes in the number of independent directors on the boards of the top 50 companies. A minority of 33 directors (10.2)% of the non-executive director positions are designated to be non-independent in companies annual reports. This compares with 9.8% in Independent directors held 90% of the non-executive board positions for which independence was disclosed. Nearly 2% of the non-executive directors (6 directors) were identified as a senior independent director. The Board Index found six companies (all with a one-tier board) with one senior independent board member. The Board Index found one company with a one-tier board where the non-executive chairman of the board is the CEO and executive chairman of another company in the Board Index. This company also has a one-tier board. Note: The term non-independent is used for non-executive directors who do not meet the independence criteria of the Dutch corporate governance code or who are designated as such in the annual reports. The independence of two nonexecutive directors (0.6%) is unknown. 26

29 Fewer board memberships per director The Board Index finds a decrease in the number of board memberships of directors, a trend that continues to emerge over the years. Most non-executive directors (270 directors) only occupy one board position in the top 50 companies included in the Board Index. The Board Index did not find any non-executive director occupying more than four board positions within the top 50 companies surveyed. Positions held by a non-executive Number of individual non-executive directors Number of non-executive positions 1 non-executive position % % 2 non-executive positions % % 3 non-executive positions 3 1.0% 9 2.8% 4 non-executive positions 2 0.7% 8 2.4% Total % % Note: 295 non-executive directors hold 327 non-executive directorships or 1.1 per director in 2014 (1.2 in 2012). For this analysis, the companies in the Board Index are used to calculate the number of non-executive directorships. Positions on boards of foreign and domestic listed and non-listed companies not in the Board Index have not been included in the analysis. As a result, the average number of directorships may be greater than reported in the Board Index. Chair positions are not counted double. 27

30 Board tenure Average tenure of directors is stable Directors tenure appears to have been stable since The average nonexecutive director and non-executive chairman serves one term of four years. Non-executive directors of AEX companies currently serve an average of 4.5 years on the board (as of August 1, 2014). Executive directors tenure The average CEO has served 4.8 years as of August 1, CEOs of AEX companies serve an average of 3.8 years compared with an average of 5.9 years of CEOs on AMX companies. Statistical focus: Board tenure Tenure Total positions CEOs Non-executive chairmen Executive chairmen Non-executive directors Executive directors < Unknown Total: Average Average Difference * Note: The table indicates that most directors (291) are serving their first term of four years in office. A total of 72 directors are in their first year of office. Few directors (15) serve more than 12 years on a board of companies included in the Board Index. 28 *Two executive chairmen have a tenure of more than 12 years, skewing the averages given the small number of observations (7 positions).

31 Tenure by the numbers Total Non-executive chairman Non-executive director CEO Executive chairman Executive director AEX Non-executive chairman Non-executive director CEO Executive chairman Executive director AMX Non-executive chairman Non-executive director CEO Executive chairman Executive director Note: The tenure is unknown for 3 non-executive chairmen and 13 non-executive directors. The tenure is also unknown for 3 CEOs, 1 executive chairman and 3 executive directors. 29

32 Board structure The Board Index found nine companies that are governed by a one-tier board in the top 50 companies. Although the number of boards with a one-tier structure has been relatively stable over the years, the number of companies that have adopted such a structure also continues to be relatively small. The process of changing the governance structure of the board is a complex and time consuming matter that takes considerable planning and adjustments. Reed Elsevier NV is listed on the NYSE EuroNext as part of the AEX Index and adopted a unitary board structure in May In light of new legislation, it can be expected that more boards will consider a one-tier board structure. As of August 1, 2014, the Board Index found one-tier boards at the following nine companies, equal to 18% of the total population: AEX companies > > Arcelor Mittal > > Gemalto > > OCI > > Reed Elsevier > > Royal Dutch Shell > > Unilever AMX companies > > Air France KLM > > Aperam > > Arseus One one-tier board combines the positions of CEO and chairman. The two-tier board model with a separate supervisory board and a management board remains the dominant model this year in the Board Index with 41 companies (82%) using this governance model. Number of companies with a one-tier board AEX AMX

33 Board meetings Non-executive directors on supervisory boards meet frequently Non-executive directors on two-tier boards continue to meet more frequently than directors on one-tier boards. While supervisory boards meet on average ten times annually, one-tier boards meet slightly less than eight times each year. These numbers are excluding additional board committee meetings directors may attend. Three companies met 20 times or more in 2013, with one company s supervisory board meeting up to 34 times. When corrected for these anomalies, the average number of supervisory board meetings was 8.8 times in 2013, suggesting a decline in the number of board meetings of two-tier boards compared with 2011 (10.5 meetings annually). All AEX AMX One-tier boards: average number of meetings per year Two-tier boards: average number of meetings per year Supervisory board meetings with management board Supervisory board meetings without management board Board committees The Board Index has observed few changes in the usage of board committees over the last two years. Once established, committees are rarely abolished and few new committees are established. As such, board committees are a stable element of the governance structure of listed corporations in the Netherlands. Boards of the top 50 companies have established a total of 149 board committees compared with 146 committees in AEX boards work with more committees than AMX boards. All AEX companies have board committees, which either separately or in combination with another board committee perform the functions of the audit committee, the remuneration committee and the nomination committee. Two boards work with five separate board committees. Two AMX boards do not have separate board committees as the board as a whole performs the functions of the committees. 31

34 Total number of committees Number of companies with N committees AEX boards AMX boards Total Total Note: Not all AEX companies have separate board committees that perform the function of the audit, the remuneration and nomination committees. Some companies have these functions combined in one committee. Three boards of AEX companies work with two separate board committees performing the function of the audit, the remuneration and the nomination committees. The average number of board committees at AEX companies is 3.4 as of August 1, 2014 (also 3.4 in 2012) compared with 2.6 committees at AMX companies (2.4 in 2012). Most boards of the top 50 companies have established separate audit, remuneration and nomination committees. Limited growth of risk committees Although the Board Index reported in 2012 an emerging trend with more companies establishing specialised risk committees at the non-executive board level, the Board Index does not observe a further rise in the number of risk committees. While two companies (4%) had established a non-executive risk committee in 2008, 12% of all boards in the Netherlands Board Index (6 companies) currently have a risk committee compared with 14% in

35 Statistical focus: Committees Committees Committees Average Meetings With audit responsibility 47 With remuneration responsibility 47 With nomination responsibility 46 With risk management responsibility 6 Americas Committee 1 2 Audit Committee 46 5 Audit & Risk Committee 1 5 Chairman's and Nominations Committee 1 3 Corporate Governance Committee Corporate Governance, Nomination & Remuneration Committee 3 5 Corporate Governance, Nomination & Selection Committee 1 2 Innovation and Sustainability Committee 1 3 Finance Committee 1 4 Nomination Committee Nomination & Corporate Governance Committee 2 3 Nomination & Governance Committee 2 2 Past Events Committee 1 2 Preparatory Committee 1 6 Product Committee 1 3 Public Affairs Committee 1 5 Real Estate Committee 1 - Remuneration Committee Remuneration & HR Committee 1 - Remuneration & Management Resources Committee 1 6 Remuneration & Nomination (Selection) Committee Remuneration & (Organisation) Development Committee 1 5 Risk Committee Social Responsibility Committee Strategy Committee Strategy and M&E Committee 1 4 Sustainability, Performance and Strategy Committee 1 5 Technical Committee 1 5 Technology Committee 1 4 Note: The Board Index found 29 different types of committees. 33

36 Committees Board committee meetings Separate audit committees met an average of five times in 2013 which is nearly the same (4.7) in The average remuneration committee met 4.1 times in 2013 (4.2 times in 2011). Nomination committees met on average 3.8 times in 2013 (3.1 in 2011). Separate risk committees met on average 4.8 times in 2013 (4.5 times in 2011). One-tier boards average more board committees One-tier boards have an average of 3.3 committees compared with 3.7 committees in Two-tier boards average 2.9 committees (2.8 in 2012). Number of companies Total number of committees Average number of committees Minimum number of committees Maximum number of committees Total one-tier boards Total two-tier boards Total The audit committee All AEX and 22 AMX companies have an audit committee as of August 1, 2014 (or a committee that combines the audit committee function with another board committee). Audit committees of AEX companies met an average of 5.4 times annually in 2013 (5 times in 2011) compared with 4.4 meetings for audit committees of AMX companies in 2013 (4.5 times in 2011). Financial expertise on audit committees The Board Index found that 17 companies (or 36.2% of companies with an audit committee) have disclosed that the audit committee has at least one non-executive financial expert as its member in The number of financial experts on audit committees may be greater than reported in the Board Index since not all companies may disclose information of this nature in annual reports and on their investor relations pages on the Internet. 34

37 Committee meetings The Board Index could not identify any significant changes in the number of board committee meetings of AEX boards since 2005, but notes a significant increase in the number of nomination committee meetings of AMX boards from 2.1 times in 2011 to 3.8 times in 2013; an increase of 81%. Other than audit committees, nomination and remuneration committees of AEX companies no longer necessarily meet more frequently than similar committees at AMX companies boards. Total AEX audit committees AMX audit committees AEX remuneration committees AMX remuneration committees AEX nomination committees AMX nomination committees Note: Figures are based on board committees that are not combined. The remuneration committee Twenty-five AEX and 22 AMX companies have a remuneration committee as of August 1, 2014 (or a committee that combines the remuneration committee function with another board committee). Separate remuneration committees of AEX companies met an average of 4.1 times annually in 2013 (4.7 times in 2011) compared with 4.2 meetings of remuneration committees of AMX companies in 2013 (3.6 times in 2011). The nomination committee Twenty-five AEX and 21 AMX companies had a nomination committee as of August 1, 2014 (or a committee that combines the nomination committee function with another board committee). Separate nomination committees of AEX companies met an average of 3.8 times annually in 2013 (4 times in 2011) compared with 3.8 meetings of nomination committees of AMX companies in 2013 (2.1 times in 2011). This is an 81% increase in the average number of nomination committee meetings of AMX boards. 35