The Netherlands is one of the most progressive markets in Europe when it comes to corporate governance matters, with companies required to take ‘social acceptance’ into account when crafting their remuneration policies as part of integrating the revised Shareholder Rights Directive (“SRD II”). Yet despite growing investor interest in gender balance, the Netherlands has not set strict requirements for board-level diversity.
That is changing.
In February 2020, just as companies and investors were gearing up for the AGM season, the Dutch Government announced a bill that included a hard gender quota on board-level appointments. The preliminary draft bill was published in April, launching a consultation process over the following month.
Pursuant to this bill, Dutch companies listed on Euronext Amsterdam that do not have enough women directors to meet the 30% gender balance may only appoint a woman to a vacant position on the supervisory board; if proposed nominees do not lower the gap towards compliance, such appointments will be annulled.
The gender breakdown is based on a so-called ‘ingrowth quota’ and goes as follows: a supervisory board of 3 people has at least 1 woman and 1 man, in case of 4 or 5 members it must have at least 2 women and 2 men. However, it only applies to new appointments; should a male director be eligible for reappointment, he may be re-elected, even if it does not contribute to the achievement of the 30% female representation on the supervisory board.
Further, listed companies with more than 250 employees must set “appropriate and ambitious targets” for the number of female executives and senior managers. Large companies (based on asset value, net turnover and number of employees) are required to draw up a plan to achieve these goals and to inform the Social and Economic Council (“SER”) annually on their progress. The law is due to expire after eight years. It will be evaluated at the end of the fifth year, when it will be decided whether the provisions will expire or should be continued beyond the initial term.
Across the responses submitted by stakeholders, there is a high level of support for the underlying objective of the bill: companies should not only set clear targets and plan for diversity in their top positions, but also be transparent about the process, their commitment and the results. However, some believe that the proposed draft has room for improvement in a number of areas, such as with respect to diversity at executive level, enforcement of the quota for non-compliant companies, and procedures for diversity policy assessment, to name a few.
As of publication, the Ministry of Justice and Security and the Ministry of Education, Culture and Science are working on the legal regulations regarding the implementation of the SER advice into the Dutch Civil Code. This bill is subject to the same process as any other law: following the consultation, it is sent to the Council of State through the Council of Ministers, then on to the House of Representatives. Following examination by the House of Representatives, the bill can enter into force after approval by the Senate.
Background & Context
The Netherlands is following a trail blazed by its neighbours. The Norwegian government pioneered the discussion in December 2003, when a law requiring public limited companies’ boards to be comprised of at least 40% of each gender passed, and eventually fulfilled by 2008. A number of other European countries, including Germany, Belgium, Portugal, and France followed Norway’s suit over the following years. In some cases, requirements have become even stricter as the time went on. For example, Italy recently reinforced the board gender balance: the less represented gender must compose at least two-fifths of the members from 2020 onward, as opposed to the previous requirement of one-third.
In case of the Netherlands, the hard quota has been a long time coming. For the past decade, the Dutch legislature has tested out the waters on corporate gender diversity, but proved hesitant to introduce a binding gender requirement for boards. Back in 2013, a soft “one-third” board gender quota for large Dutch public and private limited companies came into force, on a comply or explain basis. By the end of the law’s initial three-year period, only about 14% of management boards and 18% of supervisory boards achieved the 30% level of female representation; the soft quota was reimplemented for another limited period, due to expire in 2020.
Public Discussion & Road to the Hard Gender Quota
As the new expiration date appeared on the horizon, a new round of debates about gender and board compositions commenced.
In October 2018, Dutch corporate governance forum Eumedion sent out a letter to listed companies with a plea for more women at executive and supervisory levels. A follow-up letter was distributed one year later, in which Eumedion’s executive director Rients Abma acknowledged the positive direction of travel as demonstrated by the increased number of female nominees, yet urged Dutch companies to adopt and publicly disclose a diversity policy with regard to succession planning, which would include a commitment to increase gender diversity “throughout the talent pipeline and to set an ambitious gender target (of at least 30%) especially at executive board and committee level”. Notably, only nine companies had 30% female directors at both levels at the time of the second letter.
The advice on a hard gender quota at supervisory level submitted by the SER to the cabinet in September 2019 served as a catalyst for political parties to engage in heated debates. Some, such as the lift-wing GroenLinks and Labour Party (“PvdA”), have been consistently pushing for the transposition of a binding requirement, citing other countries and their post-reform results. The social-liberal D66, previously less enthusiastic, started warming up to this idea too; shortly after, it released its own proposal outlining a timeframe of eight years, in which companies would re-elect their directors at least twice. The idea of a binding quota was gaining a momentum.
The discussion resonated with women who have already earned top positions in the Dutch business scene. Two renowned chief executives, PostNL’s Herna Verhagen and Wolters Kluwers’ Nancy McKinstry, admitted to changing their opinions on the need of such a regulation over time. Both managers stated that while they previously believed in meritocracy, it has become clear that the country is making progress at too slow a pace. Additionally, Ms McKinstry pointed out the common argument about a lack of qualified female board candidates is “simply not true”.
However, some were not supportive of the proposal. For example, Dr. Barbara Baarsma, professor of Economics at the University of Amsterdam and CEO of Rabobank Amsterdam, suggests that the need to tackle the bottom of the labour market before implementing quotas at the top, advocating for reforms in the areas of day care, flexible school- and work hours.
Political parties VVD, CDA and ChristenUnie considered it was not up to the government to intervene in business to this extent. The Socialist Party voiced concerns that introducing a requirement only for boards of listed companies diverts attention from other, as Jan Marijnissen further noted: ”Women’s emancipation should not only apply to the boardroom, but to all working women.” The input of the SP was decisive on December 3, 2019, when the House of Representatives was voting on the SER advice. Following weeks of discussions, the consensus between the parties was finally reached when enough parties agreed to a motion by Jasper van Dijk and Steven van Weyenberg to request from the cabinet an action plan to create equal opportunities for all women.
Commenting on the positive outcome, Minister Ingrid van Engelshoven said that it embodies “breaking through the old boys network and taking a big step towards equality and diversity at the top of the corporate world”.
Takeaways from the 2020 AGM Season
Based on the 2019 Dutch Female Board Index, seventeen companies did not have a single female non-executive director on their board, signalling the need for a significant board makeover in light of the upcoming regulation.
Following the 2020 AGM season, all but three Netherlands-incorporated companies listed on the AEX index, comprising the 25 most liquid companies of Euronext Amsterdam, now meet the upcoming legal quota. The remaining three are Adyen (one woman, three men), ABN AMRO (two women, three men) and WFD Unibail-Rodamco N.V. (one woman, four men). Adyen and ABN AMRO have expressed their commitment to lower the gender gap going forward. Prior to the AGM, ABN AMRO has stated that: “[we] will take the applicable gender diversity requirements into account when looking for suitable new members to fill vacancies. ABN AMRO will also continue to strive for greater diversity at other levels within the group.” The company further announced an additional seat on the board at a later stage in 2020, thus providing an opportunity to lower the gender gap with the new candidate.
In the case of Adyen, a company that went through an IPO in June 2018 and climbed to the AEX last year, the board states that it “[…] applies an equal chance policy as part of its Inclusion Policy. Under this policy, Adyen undertakes to provide equal employment opportunity for all persons without regard to aspects including race, color, creed, religion, sex, sexual orientation, the presence of any sensory, mental, or physical disability. Adyen will continue to actively steer on this matter. Amongst other, Adyen will start the search for a fifth female Supervisory Director to be appointed in 2020.”
Another case is that of WFD Unibail-Rodamco N.V., the Dutch half of the Unibail-Rodamco-Westfield Group. In the 2019 annual report, the company has acknowledged that the supervisory board’s “diversity objectives have been achieved, except for WFD UR NV’s diversity targets in terms of gender. This is primarily due to the selection of the current members of its SB based on the required profile and their backgrounds, experiences, qualifications, knowledge, abilities and viewpoints without positive or negative bias on gender. In the future, this will continue to be a basis for selection of new SB Members.” However, no clear explanation has been provided as to how the company will promote the representation of women at supervisory level going forward.
Looking at the AMX index, which consists of 25 mid-cap firms, the results are more scattered: here, we see one board with no female directors (Flow Traders), four with only one woman on the board (Altice Europe, Basic-Fit, BE Semiconductor, Pharming Group) and one at 25% gender diversity (SBM Offshore). On the day of its AGM, Pharming Group announced the nominations of two directors (one of whom is a female), subject to a shareholder approval at a later extraordinary meeting. However, these appointments will still fall short of the required 30% threshold.
The absence of any women on Flow Traders’ board will not come as a surprise to the company’s investors. At last year’s AGM the board faced questions about gender diversity, and 20.7% and 9.8% of shareholders voted against the reappointment of co-founder Roger Hodenius and chair Erik Drok, respectively. Speaking on board composition and succession planning at the 2019 AGM, Mr Drok emphasised the company’s Equal Opportunity Policy, which focuses on getting the right person for the job; while he acknowledged that they would not “receive first prize from our minister in terms of male/female diversity”, he further pointed out the current members of the board are from different backgrounds and of different nationalities. When the same question about gender diversity was asked at the 2020 AGM, the supervisory board took a different approach – rather than tout its Equal Opportunity Policy, directors assured investors that the company will be actively searching for suitable female nominees prior to the 2021 meeting.
Following the implementation of SRD II, Dutch companies already have plenty to discuss with their investors over the coming months. For boards that do not currently comply, or which are considering refreshment in the future, the prospective law on director gender ratio adds another item to the discussion agenda, reinforcing the importance of open dialogue and active engagement with stakeholders.
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Anna is an analyst covering the Netherlands and other Benelux markets.