Order in ASMI case: Corporate Governance put on edge with respect to activist shareholders
Judgment of the Supreme Court, 9 July 2010, LJN:
BM0976
In its order in the ASMI case dated 9 July 2010, the Dutch
Supreme Court has set a more definite framework for the
relationships between the various company bodies - the corporate
governance - in a violent dispute on strategy between the
management board of ASMI International N.V. ('ASMI') on the
one hand, and a group of (activist) shareholders of ASMI on the
other hand. The Supreme Court has examined some basic corporate
governance issues, which makes this order important for
practice.
The Bedrijfsjuridische Berichten magazine of September
(2010/37) has published our interesting background article about
the order in the ASMI case dated 9 July 2010 entitled
"Order in the ASMI Case: Supreme Court Puts a Lid on
Activist Shareholders". You can read our article
here online (in Dutch) on the
KVdL-website. Below you will find a summary of the
article.
Responsibility for Strategy and Corporate
Governance
Following earlier case law, the Supreme Court has ruled that the
management board sets the strategy. The management board has to
determine itself to what extent it will enter into consultations
about this with external shareholders. It is true that the
management board has to render account of its policy to the general
meeting of shareholders ('GM') afterwards, but subject to
deviating statutory regulations or regulations under the articles
of association, the board is not obliged to involve the GM in its
decision-making process beforehand concerning acts to which the
management board is authorized.
With regard to the weighing of interests by the management
board, the Supreme Court considers it relevant that the interests
of all parties involved in the company are considered in the long
term, in accordance with the Corporate Governance Code 2008, which
is an expression of the predominant legal views in the
Netherlands.
Regarding the corporate governance, the Supreme Court has
furthermore observed that each company is free within the
boundaries of the law to set up its (company-law) organization.
According to Advocate General Timmerman, this fact prompts courts
to observe restraint when ruling on a corporate-governance
structure which is in accordance with the law.
Intermediary Role of the Supervisory Board
The Supreme Court has rendered a clear opinion on the role of the
Supervisory Board within a company. The Supreme Court has
established that by law the Supervisory Board is charged with the
supervision of the policy of the management board and the general
course of affairs of the company and the enterprise connected
therewith, and that it assists the management board with advice
(Section 2:140 (2) of the Dutch Civil Code). Next, the Supreme
Court has concluded that these statutory duties do not imply the
Supervisory Board's obligation to play a mediating role in
conflicts between management board and shareholders.
The Supervisory Board also does not have to render account to
the shareholders in this respect. The stipulations in the Corporate
Governance Code (Best Practice Provision III.1.6), that the
supervision of the Supervisory Board of the management board
extends to, amongst other things, the relationship between
management board and shareholders, has not led to a different
opinion here.
The Supervisory Board may be approached by shareholders with a
request for mediation, and must then act adequately according to
its own duties. According to the Supreme Court, an obligation of
active mediation by the Supervisory Board is on strained terms with
the freedom of policy of the Supervisory Board in the performance
of these duties. The Supervisory Board must have the freedom to
consider from case to case whether direct contact with the
shareholders and/or mediation between shareholders and management
board is desirable and in the best interest of the company and the
enterprise connected therewith.
Because of their statutory duties, each member of the
Supervisory Board and the management board is free in general to
appoint persons as (strategic) advisors. In addition, the GM: (a)
has the right to raise the topic of the choice of advisor or the
manner in which this advisor performs his activities to the body
that has appointed the advisor, and (b) keeps the authority to call
the management board and the Supervisory Board to account for the
policy conducted and the strategy followed.
Concluding Remarks
The confirmation of the primacy of the management board in itself
is not new (see for instance the ABN AMRO order of 13 July 2007, NJ
2007/434). What is new is the importance the Supreme Court
apparently attaches to the long term that must be observed with
regard to the company-law interest. Thus, the Supreme Court seems
to wish to restrain the growing influence of activist shareholders
in Dutch (listed) companies, which shareholders are mainly focused
on shareholders' value in the short term. As such this is an
important signal, which will be taken seriously abroad in
particular, amongst other things with respect to the question of
whether the activist investors mentioned will still be investing
their money in Dutch (listed) companies at the current scale.
Questions and/or Remarks?
Should you have any questions and/or remarks about corporate
governance issues and/or related disputes, please do not hesitate
to contact us.