New law alters works council role in larger companies

Download article in original language : NL0410102NNL.DOC

A new law on law on supervisory boards in larger companies took effect in the Netherlands on 1 October 2004. This law changes the role of works councils in nominating members of supervisory boards, and has several other implications for the balance of power between shareholders, management and works councils.

A new law on law on company structure (Structuurwet), which governs the composition of the supervisory boards which must be set up in larger companies, took effect on 1 October 2004 (NL0407103F and NL0204102F). The law applies to companies with shareholder equity of at least EUR 16 million and a workforce of at least 100 employees. The most important changes in relation to the former legislation (NL9801154F) include the following:

  • the supervisory board will henceforth be appointed by the general meeting of shareholders. The supervisory board nominates candidates when a vacancy arises in the supervisory board. Candidates can be put forward by both the general meeting of shareholders and the works council (NL0309102T). Previously, the supervisory board appointed its own members;
  • the general meeting of shareholders can set aside a nomination. In such cases, the supervisory board must put forward a new nomination. Previously, the general meeting of shareholders could only submit an objection against a proposed appointment, after which the supervisory board could approach the courts to have this objection overruled;
  • the works council can nominate candidates for appointment to the supervisory board. An 'enhanced' right to nominate candidates applies to a maximum of one-third of the members of the supervisory board - this means that the supervisory board is obliged to accept such nominations. Previously, there was no such enhanced right to nominate candidates, but the works council did have the right to object. This right has now been scrapped; and
  • the general meeting of shareholders can dismiss the supervisory board. This option did not exist under the previous legislation.

The new law strengthens the position of the general meeting of shareholders within the company, both in terms of appointing the supervisory board and in other areas. For example, there is now a right of approval for the general meeting of shareholders concerning all management decisions that could potentially alter the nature or identity of the company and its activities to any significant extent (such as a takeover or price change).

It is not clear whether the new arrangements on two-tier board structures will stand the test of time. On 8 September 2004, the Minister of Justice, Piet Hein Donner, submitted a memorandum on the modernisation of Dutch company law to the Lower House of parliament. In so doing, it would appear that he aims to do away with the two-tier arrangements or, at the very least, drastically limit the number of companies subject to the relevant law. His viewpoint seems to envisage little room for works councils to be involved in company board structures in the future.

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