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Compliance becomes more and more a key focus area of larger companies in Europe. In order to improve compliance, many jurisdictions introduced a ‘corporate governance code’ in the past. These codes have been improved over the years and form the basis of several other codes applicable for certain specific sectors. This article, provided by the cooperation of the Junior ADVOC practice group, contains an update and comparison of the trends in the corporate governances codes in the Netherlands, UK and Finland.

On 1st January 2017 the revised Dutch Corporate Governance Code (the “Dutch Code”) entered into force. The Dutch Code applies to all companies whose registered offices are located in the Netherlands and whose shares or depositary receipts for shares have been admitted to listing on a stock exchange or a multilateral trading facility (both on a regulated market or a comparable system). Note that the Dutch Code also applies to foreign companies being shareholder of a Dutch listed company.

The Dutch Code contains principles and best practice provisions that regulate relations between the management board, the supervisory board and the shareholders. The principles may be regarded as reflecting the general views on good corporate governance in addition to the statutory provisions.

The revised Dutch Code introduces a number of important changes as compared to the Dutch Corporate Governance Code of 2008. The most interesting amendments are:

Long term value creation
Pursuant to this new principle, the management board should focus on long-term value creation while making corporate decisions and should design and implement a strategy aimed at this;

Introduction of “culture”
The Dutch Code now requires managing and supervisory directors to design and introduce a set of corporate values, aimed at promoting integrity and long term value creation;

New accents in effective management and supervision
New requirements have been added with respect to the composition of the managing and supervisory boards, including requirements for diversity, independence and competence. New best practice provisions have been added regarding the evaluation of the performance of the supervisory board. Best practice provisions on misconduct and irregularities have been expanded and offer a broader scope of application than the provisions of the Act on ‘Whistleblowers’ (Klokkenluidersregeling).

Contrary to the consultation document, the revised Dutch Code does not prescribe that in takeover situations a special committee shall be installed.

Remuneration: clear and understandable
The principles and best practice provisions on executive remuneration are brought back to the core: the remuneration policy should be clear and understandable, it should take into account the viewpoint of the managing directors on their remuneration in order to involve the managing directors more directly in their remuneration and it should focus on long-term value creation for the company.

Reinforcement of risk management
The scope of the risk management statement in the management report has been expanded and must now contain not only financial reporting risks, but all material risks, which may affect the continuity of the company.

Apply or explain principle
As of 2018, Dutch listed companies will report for the first time on compliance with the revised Dutch Code. Compliance with the Dutch Code is in accordance with the ‘apply or explain’ principle. If a listed company chooses to deviate from the provisions of the Dutch Code, the reasons for the deviation must be explained and substantiated. It will be interesting to see if and how this revised Dutch Code will be applied in practice by the listed companies.

The UK Corporate Governance Code

The UK Corporate Governance Code (“Code“) is the principal framework for corporate governance in the United Kingdom.  The Code was first introduced in 1992 by the Cadbury Committee, up to the current Code adopted in April 2016. The Code is supplemented by the UK Stewardship Code, which sets out good practice for institutional investors when engaging with UK listed companies.

Both codes are subject to periodical review by the Financial Reporting Council (“FRC“) to ensure they remain relevant. The FRC acts as the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance.

What is the basis of the Code?
Alongside the Netherlands, the UK Code operates on the overarching concept of “comply or explain”. Accordingly the Code is not a definitive or exhaustive set of rules and its application can fluctuate.

The Code is divided into 5 key principles – Leadership; Effectiveness; Accountability; Remuneration; and Relations with Shareholders

Who is subject to the Code?
All quoted companies with premium listing (regardless of country of incorporation) are required to publish a statement of compliance in their annual reports to confirm that they have adhered to the Code. Through the overarching concept of “comply or explain”, a company must demonstrate how it has adhered to the Code, and non-compliance in any respect must be explained.

The Code does not apply to all public companies, nor to private companies. Quoted companies without a premium listing are subject to supporting codes that operate in line with the spirit and intention of the Code – such as Disclosure Guidance and Transparency Rules (DTR). Companies subject to the DTR must publish a corporate governance statement in their annual accounts that complies with DTR requirements, which includes disclosures made in compliance with the Code and the Companies Act 2006 (the “Act“). Unlisted, standard listed public companies and Alternative Investment Market (AIM) listed companies are not obliged to adhere to the Code and follow supplementary codes, such as the voluntary Quoted Companies Alliance (QCA) Code as best practice. Private companies are far less regulated on corporate governance reporting and do not require such a high degree of transparency, other than that which is required under the Act and by their constitutional documents.

Recent developments
Alongside the Dutch Code, significant revisions are scheduled for UK corporate governance 2017. This follows the issue of a Green Paper on corporate governance reform by the government’s Business, Energy & Industrial Strategy House of Commons Select Committee (“Committee”), focusing on executive pay, employee and customer voice, and corporate governance in large businesses. The Green Paper comes from an ongoing inquiry by the Committee focused on three key areas: 1) directors’ duties; 2) the composition of boardrooms, including worker representation and gender balance in executive positions; and 3) again, executive pay. The Committee’s inquiry has been prompted from recent well-publicized corporate governance failings, such as the collapse of British Home Stores.

In February 2017 the FRC announced a fundamental review of the Code to take account of the issues raised in the Green Paper.  The FRC’s proposals are currently in consultation and their review is expected to be published in the coming months. Areas of reform suggested by the FRC include more effective reporting on how directors have discharged their statutory duties to the company under the Act, greater accountability of large companies to stakeholders and closing gaps in the existing regulatory framework.

The outcome of these initiatives will become clearer later in 2017.

The Finnish Corporate Governance Code

On 1st January 2016 the revised Finnish Corporate Governance Code (the “Finnish Code”) entered into force. The Finnish Code is applicable to all companies that are listed on Nasdaq Helsinki Ltd (Helsinki Stock Exchange). According to the Rules of the Helsinki Stock Exhange, all issuers of shares that are traded on the official list must comply with the Corporate Governance Code. The Finnish Code applies to all companies whose registered offices are located in Finland.

The Finnish Code is a collection of recommendations on good corporate governance for listed companies.  The Finnish Code consist of recommendations on general meeting, board of directors, committees, managing director and the other executives, remuneration and other governance. The recommendations of the Finnish Code supplement the obligations set forth in the legislation. Overall the Finnish Code contains 28 recommendations.

The most important objectives of the Finnish Code have been promoting openness, transparency, and comparability as well as good corporate governance, in a manner that enhances the competitiveness and success of listed companies.

The structure of the Finnish Code: reducing the administrative burden
The Finnish Code consists of three sections: introduction, recommendations and reporting. The central focus has been on reducing the administrative burden of the companies by paying particular attention to the structure of the Finnish Code. The main focus has been on the structure and form of the recommendations. The number of recommendations in the Finnish Code has also significantly decreased.

Overview of Corporate Governance in Finland
The Finnish Code includes an overview of the Finnish corporate governance. The purpose of the brief overview provided in the introduction is to provide general background information to market operators.

The ‘comply or explain’ principle
The Finnish Code is to be applied in accordance with the ´comply or explain´ principle. If a company departs from the individual recommendations of the Finnish Code, the explanation must be sufficiently clear and detailed.

Mandatory Reporting Obligations: uniform and clear reporting guidelines
The Finnish Code contains guidance concerning reporting. These guidelines concerning reporting have been aggregated as a separate section in the Finnish Code. Companies shall issue a Corporate Governance Statement once a year. This reporting obligation is based on legislation. Companies cannot depart from the obligation on the basis of the ´comply or explain´ principle.