www.TheDefiningTension.com

[No. 15] Deadlocks and Responsibility in Inquiry Proceedings

Today at 16.15 hrs CET, Frank Veenstra will defend his PhD thesis on deadlocks and responsibility in inquiry proceedings at the Rijksuniversiteit Groningen.

Veenstra basically focuses on two issues:

1. Whether the right of inquiry is suited to deal with, and solve, deadlock cases in 50/50 situations (typically in small private companies).
2. Whether, and if so to what extent, remarks by the Enterprise Chamber in inquiry proceedings - that do not deal with personal liability of directors - about responsibility of directors for certain misconduct may play a role in subsequent liability proceedings. that are brought before a different court.

The first issue, I believe, hasn't really been a big issue in the past years. Many cases before the Enterprise Chamber exactly deal with these 50/50 deadlock type of controversies (around 94% of the cases involve private companies), and the court seems to be handling them in a pretty efficient manner. The second issue was a fairly big issue in the 90s following the Supreme Court's Ogem Holding decision (January 10, 1990, NJ 1990, 466), until the Supreme Court rendered its 2005 Laurus decision that aimed to clarify things and took much - granted: not all - of the initial concerns away. Here's the money quote.

3.7 (...) Zoals de Hoge Raad in zijn beschikking van 27 september 2000, nr. OK 80, NJ 2000, 653, heeft geoordeeld, houdt het in de wet vastgelegde stelsel van het recht van enquête twee afzonderlijke procedures in (in HR 6 juni 2003, nr. R 02/078, NJ 2003, 486 ook aangeduid als: twee fasen). Wat betreft de tweede procedure, waarin de ondernemingskamer, indien uit het verslag van de door haar benoemde onderzoekers van wanbeleid is gebleken (art. 2:355 BW), de in art. 2:356 BW genoemde voorzieningen kan treffen, heeft de Hoge Raad in zijn beschikking van 10 januari 1990, nr. 21, NJ 1990, 466, overwogen dat de vaststelling van de ondernemingskamer dat van wanbeleid sprake is - behoudens cassatie - bindend is, ook in andere procedures, voor diegenen die in de tweede procedure zijn verschenen en òfwel tot toewijzing van hetgeen verzocht en/of gevorderd is hebben geconcludeerd òfwel daartegen verweer hebben gevoerd, zonder dat daarmee tevens is vastgesteld of en in hoeverre dit wanbeleid aan die individuele verweerder kan worden verweten en deze daarvoor aansprakelijk kan worden gesteld (rov. 5). De Hoge Raad overwoog tevens dat het begrip "wanbeleid" in art. 2:355 BW kennelijk betrekking heeft op wanbeleid van de rechtspersoon, en dat wanbeleid van de organen van een rechtspersoon of degenen die daarvan deel uitmaken, aan de rechtspersoon moet worden toegerekend (rov. 7.4).

3.8 Deze overwegingen dienen als volgt te worden verstaan. Indien personen die deel uitmaken van de organen van de rechtspersoon door derden die als gevolg van wanbeleid schade hebben geleden aansprakelijk worden gesteld in een afzonderlijke, op art. 6:74 en/of art. 6:162 en/of art. 2:138/248 BW gebaseerde, procedure, is de vaststelling van de ondernemingskamer dat van wanbeleid van de onderzochte rechtspersoon sprake is - behoudens cassatie - weliswaar bindend voor diegenen die in de tweede procedure van de enquête zijn verschenen en ofwel tot toewijzing van hetgeen verzocht en/of gevorderd is hebben geconcludeerd ofwel daartegen verweer hebben gevoerd, maar dit impliceert niet de persoonlijke aansprakelijkheid van de leden van de organen van de rechtspersoon voor dat wanbeleid. De door de ondernemingskamer vastgestelde feiten staan in een aansprakelijkheidsprocedure ook niet op voorhand vast, zelfs niet behoudens tegenbewijs. Het oordeel van de ondernemingskamer dat van wanbeleid sprake is geweest, kan daarin onder omstandigheden wel de bewijsrechtelijke betekenis hebben dat de rechter, mede gelet op de inhoud van het door de onderzoekers opgestelde verslag en het daarover in de tweede procedure van de enquête gevoerde debat, voorshands bewezen acht dat de aangesproken persoon tegenover de rechtspersoon zijn taak niet heeft vervuld op de wijze waarop een redelijk bekwame en redelijk handelende functionaris die taak in de gegeven omstandigheden had behoren te vervullen.

Anyway, here's the abstract of the research, which provides nice insights in a lot of case law and is a welcome contribution to the book series of the Institute for Corporate Law.

Hoewel de enquêteprocedure hiervoor niet is bedoeld, wordt zij veelvuldig aangewend ter doorbreking van impasses tussen aandeelhouders van kleine vennootschappen tussen wie de verhoudingen ernstig en blijvend zijn verstoord. In deze uitgave is onderzocht of de enquêteprocedure gelet op haar aard, inrichting en de bevoegdheden van de Ondernemingskamer geschikt is om deze impasses te doorbreken. De Ondernemingskamer heeft voorts in verschillende enquêteprocedures het handelen van de afzonderlijke functionarissen beoordeeld. Hierop is in de literatuur kritisch gereageerd. Gevreesd wordt dat de desbetreffende overwegingen belangrijke betekenis kunnen hebben in latere aansprakelijkheidsprocedures, hetgeen bezwaarlijk wordt geacht omdat de enquêteprocedure slechts één feitelijke instantie kent terwijl de onderzoeksfase niet van bijzondere procesrechtelijke waarborgen is voorzien. In deze uitgave is onderzocht op welke wijze en in welke mate de overwegingen van de Ondernemingskamer kunnen doorwerken in aansprakelijkheidsprocedures.

[No. 14] EC Parliament on Empty Voting and Hidden Ownership

The European Parliament's Policy Department just published a report on empty voting and hidden ownership. The report, entitled "The Use of Shareholder Voting Rights During the General Assembly of Company Shareholders ", can be downloaded here. It will be interesting to see whether and to what extent the European Commission will follow the policy recommendations, which include enhancing transparency on economic interests. To be continued.

[No. 13] A Cool Country

Steve Bainbridge has a funny post about Spyker's acquisition of Saab, including some footage by the chaps from Top Gear, who also happen to throw in a comment or two on the Netherlands. The good professor hopes we at TDT don't take offense. Steve, no worries; although the English are well known for their sense of humor, I think - but I'm obviously 100% biased here - the Dutch know a quality joke when they spot one (and there's one right below). And just in case, we have VC Strine's comment that we're a cool country to back us up.

[No. 12] The Competition Commisioner Designate and a Report on Quantification of Damages

Last week European Parliament questioned Competition Commissioner designate Joaqín Almunia. A summary of the hearing can be found here. Almunia answered inter alia questions about collective redress. Almunia supported the view of some MEP´s that Parliament should be more involved in the design of EU collective redress measures. This statement must be seen against the background that the current draft proposal of Competition Commissioner Kroes was not sent to Parliament after an intervention from Barosso because of criticism from some MEP´s (see Post nr. 57-2009). This means that the current proposal will probably not come into effect any time soon. Almunia stated in respect of collective redress that "it will be important to develop effective co-ordination procedures and to avoid abuse, as has happened in the US class action system." Again: to be continued.

Meanwhile the Commission's ambition for more private enforcement has not disappeared. Last week a study on the quantification of harm caused by competition law infringements was published by the Commission. This report was promised by the Commission on the occasion of the proposal about private enforcement which I mentioned above. The purpose of the study is to provide national judges with some guidance to be better able to calculate antitrust damages. In the study various methods of damage calculation are described. The best method to be applied depends inter alia on the available data. In most cases it will be possible to use more than one method. The report also describes a couple of (hypothetical) case studies and indicates how the damage in these cases could be calculated. Although it is a rather technical report with – not surprisingly – a lot of economic models, I think it is a helpful report for judges and lawyers when it comes to a calculation of damages in case of antitrust infringements.

[No. 11] (Inter)National Links

1. In my inaugural lecture, delivered last Thursday, I argued that the Supreme Court and the Enterprise Chamber should provide guidance to corporate fiduciaries for future conduct in their rulings whenever possible and useful (Step 2), not just decide the case before the court in a fair manner (Step 1). I used three dark areas of Dutch corporate law to illustrate my point, including the danger zone of director liability. In that area, the Supreme Court to date hasn't been really inclined to take Step 2. Coincidentally, the court issued an opinion yesterday in a director case where it could have provided more guidance, but chose to dismiss the case simply by an order (i.e., without any elaboration of the reasons why, a so-called section 81 RO case). For what it's worth, the caption of the case reads as follows.

Ondernemingsrecht. Art. 2:8 en 2:9 BW. Voorovereenkomst tot van de hand doen activa van vennootschap gesloten tijdens surséance van betaling buiten medeweten aandeelhouder. Aansprakelijkheid bestuurder vennootschap jegens aandeelhouder? Heeft aandeelhouder recht op vergoeding van door hem in zijn hoedanigheid van aandeelhouder geleden schade? Schending plicht tot ambtshalve aanvullen rechtsgronden? Bewust profiteren van de wanprestatie van een ander? (81 RO).

A missed opportunity IMHO.

2. Let's turn to the States. In last year's post No. 133 I wrote about the legal entity concept, triggered by a case pending before the SCOTUS about campaign-finance, in which the opinion was issued January 21. I'm not going to digg into it here, but instead refer to ProfessorBainbridge.com where the case was discussed in extenso, with tons of links to other SCOTUS watchers. For even more input check-in here.

3. And then there's the Delaware Chancery Court, that issued interesting opinions on January 14, 2010 re Robotti & Company, LLC v. Liddell (HT Francis Pileggi) and on January 11, 2010 in In re The Dow Chemical Company Derivative Litigation (id). Both opinions show that courts are in fact able to decide cases by using a consistent legal framework, that gives corporate fiduciaries a fair amount of ex ante guidance (on what the law expects of them in terms of conduct and how the courts will decide cases in this respect). It's not a case of "can't do", but of "don't wanna". Now please read 1. again.

4. In post No. 8, I wrote about the Commitee De Wit, the investigative committee composed of politicians that is diving into the reasons why the financial crisis emerged the way it did and what should be done to prevent such a crisis from happening again. Lastweek, several hot-shots were heard including former Ministry of Finance and current ABN Amro CEO Gerrit Zalm. Unlike the others who were on the stand last week, Zalm was pretty nice on Nout Wellink: the president of De Nederlandsche Bank, accused by many - with hindsight, that is - of not having reacted adequately (I'm being polite here) when things turned ugly in the fall of 2008.

Wellink will be invited in the coming period to share his views with the committee, so he'll get his chance to get even. But still, he seems to have tripped between a rock and a hard place.

[No. 10] And Again: The Right of Inquiry and the Business Judgment Rule

Ok, here we go again (sigh).

In the latest WPNR (2010/6827, p. 58-64: "Voorontwerp aanpassing enquêterecht"), Fons Leijten adds his comments to the pile of responses generated by the recent draft proposal by the Ministry of Justice, that aims to make some important but relatively modest statutory changes to the right of inquiry. In doing so, he also says a few things about the business judgment rule as proposed by the Ministry of Justice. Unfortunately, (also) Fons doesn't respond to my reasoning in Facetten van verantwoordelijkheid in hedendaags ondernemingsbestuur, Deventer: Kluwer 2009, no. 3.3.3, explaining why it is legally possible and makes sense policy wise to introduce a Dutch business judgment rule in inquiry proceedings. A similar analysis will appear soon in a contribution to the liber amicorum in honour of Huub Willems (authored by Maarten Kroeze and me). Fons mentions it in footnote 37 of his column, but doesn't respond at all due to - how convenient... - insufficient space in his piece to do so. Anyway, I applaud the effort but believe his arguments as to the business judgment rule seriously miss the mark, for reasons I explained there, here and in my dissertation (Rechterlijke toetsing van bestuurlijk gedrag, Deventer: Kluwer 2007, Chapter VI).

Oh, for a nice review of a Delaware Supreme Court footnote discussed at TDT here, go and check Insights - The Corporate & Securities Law Advisor (Volume 23, No. 11, November 2009), citing the post in footnote 3. (HT Joe Christensen). Good stuff.

[No. 9] The Janus Head of Corporate Law

From the (Dutch) EUR press release issued today:

Oratie Mr. dr. B.F. Assink

Titel oratie
'De Januskop van het ondernemingsrecht - Over faciliëren en reguleren van ondernemerschap'

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Leerstoel:
Ondernemingsrecht

Datum
21 januari 2010 11:00

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Locatie:
Woudestein, aula

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Faculteit
Faculteit der Rechtsgeleerdheid (FR)

Ondernemingsrecht moet transparant en voorspelbaar

Rechters dienen ondernemingsrecht gestructureerd vorm te geven

Voor ondernemers is het belangrijk dat het ondernemingsrecht helder en transparant is. Rechters hebben hierin een belangrijke taak: niet zozeer de wetgever, maar zíj moeten vooral het voor de dagelijkse praktijk relevante ondernemingsrecht gestructureerder gaan vormgeven. Dit stelt prof.mr. Bastiaan F. Asssink in zijn oratie 'De Januskop van het ondernemingsrecht - Over faciliëren en reguleren van ondernemerschap', waarmee hij op donderdag 21 januari 2010 zijn leerstoel Ondernemingsrecht aanvaardt in de Faculteit der Rechtsgeleerdheid.

In zijn rede slaat Assink de brug tussen ondernemerschap en ondernemingsrecht.
Assink ziet ondernemerschap als een complexe zaak. De ondernemer moet via innovatieve activiteiten waarde zien te creëren, maar tegelijkertijd tussen vele regels en wetten manoeuvreren in een globaliserende wereld die steeds meer vergt, waarbij bovendien de foutentolerantie van de buitenwacht sterk afneemt.

Intussen wordt het ondernemingsrecht in toenemende mate onvoorspelbaar, omdat rechtsvragen steeds vaker aan de hand van de wisselende omstandigheden van het geval beantwoord dienen te worden door de rechter, waarbij deze zich bij voorkeur beperkt tot een zaaksgebonden beslissing.

Het ondernemingsrecht is volgens Assink te vergelijken met een Januskop, omdat het twee gezichten heeft. Aan de ene kant facilieert het ondernemingsrecht dat ondernemers economische bedrijvigheid kunnen ontplooien om waardevermeerdering te creëren. Aan de andere kant tracht het ondernemingsrecht het gedrag van betrokkenen te reguleren en waardevernietiging tegen te gaan.
Ondernemingsrecht kan niet zorgen voor succesvol ondernemingsbeleid – dat is des ondernemers – of een ‘betere’ wereld. Het kan wel zoveel mogelijk rekening houden met de complexiteit van ondernemerschap, door te bevorderen dat de Januskop daaraan zo min mogelijk bijdraagt. Hier valt een verbeterslag te maken.

Assink bepleit in zijn oratie als oplossingsrichting dat de rechter de complexiteit van het ondernemingsrecht actief tegengaat, door de eisen die het recht stelt aan de ondernemer gestructureerder uit te lichten, waardoor die eisen transparanter en voorspelbaarder worden. Hij onderbouwt zijn pleidooi met een voorstel tot vastere invulling van notoire grijze gebieden, waaronder het richtsnoer voor de ondernemer (het ‘belang van de vennootschap’) en de gevarenzone van bestuurdersaansprakelijkheid.

Over prof.mr. Bastiaan Assink
Assink richt zich aan de EUR, naast het onderwijs, op onderzoek naar gedragsnormering van actoren binnen vennootschap en onderneming. Hij promoveerde in 2007 cum laude aan de Erasmus Universiteit Rotterdam op een werkmethode voor een evenwichtige beoordeling door de rechter (waaronder de Ondernemingskamer) van het gedrag van ondernemende bestuurders.

Assink is verbonden aan het Instituut voor Ondernemingsrecht, een wetenschappelijk studiecentrum op het gebied van het vennootschapsrecht, rechtspersonenrecht en ondernemingsrecht van de Faculteit der Rechtsgeleerdheid van de Erasmus Universiteit Rotterdam en van de Rijksuniversiteit Groningen. Hij is voor een dag per week als advocaat verbonden aan NautaDutilh in Amsterdam in de sectie corporate litigation, met een focus op de cassatiepraktijk.

Nadere informatie:

Persvoorlichting EUR, Sandra van Beek & René Quist, tel. (010) 408 1216,
e-mail: press@remove-this.eur.nl

dinsdag, 19 januari 2010

For the invitation go here. See you next Thursday in Rotterdam?

[No. 8] Some Catching Up To Do

Last week was awfully hectic, as I'm preparing for this Thursday's event. Now that most of the thinking and writing is done, here's some catching up on my part.

1. In the coming three weeks, an investigative committee composed of politicians - the Committee De Wit - that is diving into the reasons why the financial crisis emerged the way it did and what should be done to prevent such a crisis from happening again, will begin with sessions in which persons will be heard re the credit crunch. These are not witness hearings taken under oath, in view of the powers granted to the committee. If the committee does want to hear people under oath, it will have to have it's status changed to inquiry committee, which is a different species.

Some of the persons that will show up are ABN Amro CEO Gerrit Zalm, president of De Nederlandsche Bank Nout Wellink, GroenLinks politician Kees Vendrik and Rabobank director Bert Bruggink. One of the persons who will not show up - because he refuses to appear - is former Fortis director Maurice Lippens, who played a big role in the 2007 take-over battle re ABN Amro (in which Fortis was part of a consortium, together with RBS and Banco Santander). The Islandic financial watch-dog - Icesave anybody? - apparently also refuses to send representative to the hearings. The committee will present its findings this March.

The second part of the committee's activities covers the initiatives taken by the cabinet to tackle the crisis, especially the actions taken by the Minister of Finance, including the financial support given to ING and Aegon, the nationalisation of Fortis/ABN Amro and the whole Icesave breakdown. The committee wil present its findings of the second tranche late 2010.

As a starter, a nice retrospective on the financial crisis can be found here, starting in 1999 (the Interne Bubble), touching on the whole mortgage business and explaining the course of events in 2007 and 2008. More background footage is available in this video.

De Wit is part of the party that proposed recently (i) to add 'financial mismanagement' to the Dutch Criminal Code (apparently with a maximum prison penalty of six years) and (ii) to increase personal liability for bankers when their business judgments don't pan out. I'm very sceptical about these initiatives, as explained here. If only for this reason, the findings of the Committee De Wit will be of interest.

2. Last week the full text of the Bill on Private Company Law Reform was published, as sent to the First Chamber of parliament (the last step in the legislation process). Essential parts of the bill were discussed on TDT, e.g., here and here. In view of legislation technicalities, July 1 2010 as introduction date of this bill may be a bit on the optimistic side.

[No. 7] Huub Willems About the Legislator's Intention to Give the Right of Inquiry a Make-Over

In last year's post No. 175 I discussed the gist of the recent proposal to tweak some elements of the right of inquiry, one of the - if not the - most popular Dutch avenues for corporate litigation. Some elements are quite hotly debated, others far less. The business judgment rule phenomenon has also generated discussion (see, e.g., here and here).

In this weekends Economy section of NRC Handelsblad, former president of the Enterprise Chamber Huub Willems added some further input to the discussion (the whole interview is also available online for registered readers). He is particularly sceptical of the upside of lifting the bar for activist shareholders of large companies to address the court (by requiring a larger amount of stockownership per section 2:346 DCC). His gut-feeling is that under the proposed regime, the litigating shareholders in the well-known cases would also have been able to pass the courtroom doors. Here's a snippet from the interview with Willems.

Maatregelen van minister Hirsch Ballin (Justitie, CDA) om het activistische aandeelhouders moeilijker te maken naar de rechter te stappen, zullen weinig effect hebben. Dat zegt oud-voorzitter Huub Willems van de Ondernemingskamer van het Amsterdamse gerechtshof in een gesprek met NRC Handelsblad.

Minister Hirsch Ballin stuurde afgelopen herfst voorstellen naar betrokken partijen waarin het voor aandeelhouders van grote ondernemingen lastiger wordt om de Ondernemingskamer te vragen een enquête naar wanbeleid in te stellen. Activistische aandeelhouders spannen die procedures aan omdat de Ondernemingskamer bij een enquête ook onmiddellijke voorzieningen mag treffen, zoals het verbieden van beschermingsconstructies of het ontslaan van commissarissen.

Volgens de voorstellen van Hirsch Ballin moeten aandeelhouders 1 procent van het aandelenkapitaal van de bedrijf in eigendom hebben om een zaak te kunnen aanspannen. Bij grote ondernemingen betekent dat al snel dat ze voor tientallen miljoenen euro’s aan aandelen moeten hebben gekocht.

„Mijn natte vinger zegt dat bij alle zaken die ik behandeld heb, de partijen ook onder het nieuwe regime voldoende kapitaal zouden hebben gehad”, zegt Willems, nu plaatsvervangend raadsheer bij de Ondernemingskamer.

De Sociaal-Economische Raad had in 2007 geadviseerd veel hogere drempels vast te leggen voor aandeelhouders. Ook in de Tweede Kamer gingen stemmen op om de macht van aandeelhouders aan banden te leggen. Het gevoel bestond dat Angelsaksische hedgefondsen in Nederland te makkelijk naar de rechter konden stappen. Dat was nadat het Britse hedgefonds TCI bij ABN Amro met 1,5 procent van de aandelen het bestuur van de bank in grote problemen had gebracht.

A similar argument was made by M. Romyn in his comment to post No. 175, also adding some numbers along the way.

The Minister's explanatory notes to the proposal claim (on page 6) that in almost all of the cases involving publicly traded corporations shareholders relied on the current low treshold to gain access to the Enterprise Chamber.

That's a gross overstatement. Of the six "attention drawing" cases you mentioned in your post, not less than half involved shareholders owning 10% or more, i.e. ASMI (28,5%), Rodamco (23,9%) and Stork (> 10,4%). Laurus, in which a single shareholder owned 34%, might be added as well.

The Social-Economic Council report that the Minister refers to to justify his proposal to make it more difficult to start an inquiry procedure specifically mentions (on p. 36) ABN Amro and Stork as "infamous cases that had unpredictable consequences for the policies and strategies of the corporations involved". But those corporations would not have been helped one bit, had the Minister's proposal been the law of the land when their cases were decided.

In the case of Stork, Centaurus had standing as it owned 10,4% of shares, not because of the E 225,000 treshold. In the case of ABN Amro, where CEO Rijkman Groenink voluntarily offered his bank's independence after receipt of a simple letter from The Children's Investment Fund, that fund owned sufficient shares to go to Court under the new proposal, i.e. more than 1%. Thus, the proposal does nothing to reduce the disproportionality that the Minister appears to be so concerned about.

Moreover, as shareholder's advocates VEB correctly point out in this morning's FD newspaper, the E 20 million minimum value requirement may make it much more difficult to initiate an inquiry procedure when a corporation goes belly-up and its shares become worthless.

This may show that the proposed amendment to section 2:346 DCC doesn't tilt the whole playing field, but it doesn't convince me that the proposed amendment is without merit. It's a difficult discussion to pursue based on gut-feeling, without a sound factual basis covering the whole body of case law so far (i.e., without taking into account the research conducted by Kroeze et al).

[No. 6] Once More: the Right of Inquiry and the Business Judgment Rule

1. As I have explained at several places in the last three years, it is well possible (from a legal point of view) and makes good sense (from a policy point of view) to introduce a Dutch business judgment rule in Dutch corporate law, specifically in inquiry proceedings and in certain director liability proceedings. See, e.g.:

• Rechterlijke toetsing van bestuurlijk gedrag, Deventer: Kluwer 2007, chapter VI;
• Ondernemingsrecht 2008-6, no. 66; and
• Facetten van verantwoordelijkheid in hedendaags ondernemingsbestuur, Deventer: Kluwer 2009, no. 3.3.3.

2. In last year's post No. 190, I said a few things about the recent draft proposal by the Ministry of Justice, that aims to make some important but relatively modest statutory changes to the right of inquiry. The explanatory notes to the draft basically suggest that, when the Enterprise Chamber is asked to rule whether 'well founded reasons' (gegronde redenen om aan een juist beleid te twijfelen) or 'obvious mismanagement' (wanbeleid) exist as to matters that fall in the business judgment realm, the focus points applied in US case law could be helpful in this respect in the Dutch setting (thereby referring to the Delaware business judgment rule). This suggestion was inspired by a 2008 report from the Dutch Social-Economic Council, arguing for introduction of a Dutch business judgment rule in inquiry proceedings.

3. Not surprisingly, this suggestion in the explanatory notes is a step in the right direction in my view. As I explained in that post, Prof. Gerard van Solinge's remarks earlier in November - at least that's how I interpreted them - that the draft proposal effectively cut-off the SER's suggestion to restyle the court's review model in the business realm, were incorrect. So far so good.

4. This week Van Solinge published a two-page column in WPNR (Naar een evenwichtig enquêterecht, 2010/6825, p. 1-2) about the draft proposal and the explanatory notes, also touching on the above issue. He now takes as a given that the explanatory notes indeed include the - what I would call - 'Dutch business judgment rule' suggestion, but proceeds with arguing that this suggestion is wrong. I won't rehash here the reasons why Van Solinge's arguments are not convincing at all, but do offer a summary.

• The explanatory notes do not suggest to copy the Delaware business judgment rule 1-to1, but to finetune the Dutch system with elements of the Delaware system that are of added value policy wise. In other words, to shape an autonomously operating Dutch version of the business judgment rule, well embedded in Dutch corporate law.
• This obviously doesn't imply that the Enterprise Chamber - or counsel to the parties before the court - should continue to look at corporate case law developments in Delaware and take those into account, let alone explicitly, when deciding cases. We're talking about an autonomously operating model of judicial scrutiny here.
• And yes, doing so would imply that the way director conduct is reviewed would become a more structured exercise, that is the whole idea behind it in the first place. But no, that would not mean the court could only move in a mechanical fashion, that it would become an inflexible excercise; circumstances of the case at hand would still - and inevitably! - play an important role, while the framework of the business judgment rule still consists of standards, not rules.
• It simply isn't true that the Delaware business judgment rule is only applied in director liability proceedings, so his argument that for this reason the right of inquiry is not suited for a Dutch business judgment rule is of no moment.
• The fact that not all disputes before the Enterprise Chamber in inquiry proceedings concern business judgment related disputes, doesn't take away the fact the a court when confronted with such issues has to deal with them in a fairly predictable and responsible way; a Dutch business judgment rule would facilitate that. This is also a non sequitur.
• Although the suggestion in the explanatory notes does not relate to a proposed amendment of statutory wording, the suggestion should be seen against the backdrop of the core notions 'well founded reasons to doubt the correctness of the company' (section 2:350(1) DCC) and 'obvious mismanagement' (section 2:355(1) DCC). The fact that the explanatory notes do not propose to change the wording of these core notions (correctly in my view; see Ondernemingsrecht 2008-6, no. 66, p. 236: "Aan de bestaande enquêterechtelijke begrippen (...) dient niet te worden gemorreld. De door mij bepleite systematiek van bestuurlijke gedragsnormen en gerelateerde rechterlijke toetsingsnormen kan worden ingepast in deze vertrouwde, overkoepelende normatieve begrippen waarover veel rechtspraak bestaat."), does not take away the fact that it falls well within the legislator's powers to clarify its views on how these notions should be applied.

If you read Facetten van verantwoordelijkheid in hedendaags ondernemingsbestuur, Deventer: Kluwer 2009, no. 3.3.3 you will see that introduction of a Dutch business judgment rule indeed is well possible and preferable policy wise (Van Solinge doesn't respond to my analysis in that publication, that predated his). I do want to clarify that a Dutch business judgment rule would not be applicable when the Enterprise Chamber has to decide whether or not to take a provisional measure (section 2:349a(2) DCC). I explained this in Ondernemingsrecht 2008-6, no. 66, p. 234-235). Van Solinge incorrectly suggests that I argued differently, in his footnote 7.

5. Discussion about this important topic is a good thing, even a must; no doubt about that. But let's stop putting forward uninformed/flawed arguments in this whole discussion, to attack the suggestion that is on the table to start working on a Dutch business judgment rule, and get to the point: do we believe it is advisable to have a Dutch business judgment rule or not, policy wise (as it is legally possible)? That is the core issue, not really addressed by Van Solinge or other sceptics so far. My answer is a bold YES, for reasons explained elsewhere. So far, I haven't seen any convincing arguments supporting a clear no. Maybe this suggests there aren't any really...

[No. 5] The State's '08 Rescue of Fortis Bank and the Liability Aftermath II

In last year's post No. 165 I wrote about the Dutch state's '08 rescue of Fortis and the liability aftermath, more specifically about 16 rulings by the The Hague District Court in 16 liability cases brought by disgruntled Fortis shareholders against the state. The result was a 0-16 victory for the defendant.

In the meantime two more analyses of the rulings have been published. The first one comes from Arnoud Pijls and can be found in Ondernemingsrecht 2009, nr. 175. The second one, that was published today and carries the title I Want My Money Back (a clear reference to former UK MP Margaret Thatcher), comes from Wouter den Hollander of the Publiekrecht en Politiek blog.

[No. 4] Shareholder Access to the Agenda of Shareholders' Meetings in Listed Companies: Une Quantité Négligée [Updated]

This post comes from

Frans G.K. Overkleeft

1. Much has been argued about the role of activists such as hedge funds in the overall system of checks & balances in listed companies. Recently, these discussions have gained a new meaning by the advent of the global credit crisis and the ensuing question as to whether or not this crisis could be attributed to a failure of corporate governance. Still, there is a tendency in the acadmemic debate to zero in on specific aspects of shareholder activism without properly placing such aspects in the overall picture. Arguments on shareholder activists typically focus on how these activists exert their influence through accumulating a block of voting rights through securities lending or comparable hybrid instruments of empty voting, through media campaigns and "dear board" letters and through acting in concert with other investors. In the U.S., shareholder activism sometimes cumulates in a proxy fight, i.e. an election contest between members of incumbent management and a slate of possible new directors nominated by activist shareholders. In most continental European countries, however, such election wars are rare. In this part of the world, shareholder activists typically resort to attempting to induce management to alter the overall strategy of the company or to adopt a number of specific measures to increase shareholder value such as a divesture of part of the company's businesses or an outright sale of the entire business. Sometimes pressure is applied, mostly in one-on-one meetings with management but also occasionally in the context of a shareholders' meeting. When we talk about instances of shareholder activism, we generally talk about how shareholders vote. What we tend to forget, is to analyze who decides what issues get voted on. That's were my topic of today comes in: shareholder access to the agenda for shareholders' meetings. Mostly overlooked, a quantité négligée if you wish, but quite interesting nonetheless.

2. The right of shareholders to request the board of a listed company to put a specific item on the agenda for consideration during an upcoming meeting of shareholders can serve as a useful instrument for shareholder activists in pursuit of their desired results, especially if the item is to be put to a vote. In the U.S., shareholders typically have access to the company's agenda through use of the mechanism provided by SEC Rule 14a-8. This mechanism allows shareholders to submit agenda proposals, which are then to be voted on by all the shareholders. Still, employing the 14a-8 mechanism doesn't get activists very far: because the notion of 'board supremacy' is firmly embedded in virtually all of the U.S. states' corporate law, it is generally recognized that such proposals are of little practical relevance and even if adopted would not prompt the board into action. In the U.S., a shareholder activist will typically have to seize control or at least make a credible threat to do so before any of his desired actions will indeed be taken. Thus, shareholder proposals gather little attention in the U.S. and directors of U.S. listed companies will generally not lose a lot of sleep over them.

3. The situation in The Netherlands, however, is quite different. Basically, a shareholder - provided that he meets the share ownerhip threshold and that all formalities have been duly observed - pursuant to the statutory agenda access right introduced in 2004 may request any item to be put on the agenda. These items can be discussed, but can also be put to a shareholder vote. At the moment, there is no real substantive check as to which of such items may be voted on. Consequently, these items may also include issues which normally fall within the scope of the board's authority, such as proposals regarding the strategy of the company or proposals relating to a possible entire- or partial sale of the business. Sometimes, these proposals can be framed as outright instructions from the shareholders to management. Even though it is generally held that such resolutions adopted by the general meeting of shareholders would not be considered binding vis-à-vis management, such resolution may still exert a significant amount of pressure on management. This is best exemplified by the events surrounding the takeover battle for ABN AMRO, where TCI through exercising its agenda access right secured a shareholder vote which demanded that ABN AMRO should examine a possible sale- and breakup scenario of the business. Also, putting matters to a shareholder vote would attract the attention of institutional investors as well as renowned voting advisory businesses such as RiskMetrics to these matters, meaning that once a resolution has been adopted, it will be hard for the board of the company to ignore. The power to "just say no" will be limited, if not non-existent. This is something which was not envisaged at the time the agenda access right was drafted by the legislature, which merely viewed the agenda access right as a tool for facilitating discussions during the actual general meetings. In particular cases, the exercise of the agenda access right may lead to a de facto shift in power from a company's board to its shareholders.

4. Is this a problem? Maybe, maybe not. The Dutch Journal of Company Law (Ondernemingsrecht) has just published my article on this topic (Vol. 2009, Issue 17, no. 168, p. 714-723), in which I have argued that while all discussion topics proposed by shareholders should be included as agenda items, the board of Dutch listed companies should have the possibility to refuse placing a voting proposal on the agenda on substantive grounds. But there may also be good grounds to argue that this de facto shift of control from management to shareholders is not such a bad thing after all. Whatever direction we may choose in this respect, however, we need to make sure that it is a well-informed and sensible decision. Let’s start by putting all relevant issues in the proper context and by analyzing the playing field of shareholder influence in listed companies in its entirety instead of getting lost in details. In other words, there is a lot of work to be done!

UPDATE

Steve Bainbridge offers his thoughts on the subject, concluding that:

resolutions are becoming more important as a form of effective shareholder activism. Of course, given my negative views on shareholder activism, I'm not at all persuaded this is a positive trend. On this much, I thus agree with Overkleeft's conclusion:

Whatever direction we may choose [with respect to increasing or decreasing shareholder power], ... we need to make sure that it is a well-informed and sensible decision. Let’s start by putting all relevant issues in the proper context and by analyzing the playing field of shareholder influence in listed companies in its entirety instead of getting lost in details.

[No. 3] The Upshot of Blogging

Steve Bainbridge offers a post on his "love" for the Delaware Supreme Court 1971 decision re Sinclair Oil v. Levien. Actually the post, that isn't his shortest ever but offers some nice insights on standards of review related stuff (which I believe is enough in itself to spend 5 minutes reading time on), is a response to one of Jay Brown's regular 'Delaware bashing' contributions to the blogosphere. The whole thing made me think of that movie called The Usual Suspects; it's not a surprise really to see on which side of the debate they end up. What Steve's response really proves to me is the upshot of blogging, namely responding in a compact, up-to-date and easy accessible way to corporate law related developments. Something we at TDT digg very much.

[No. 2] That's a First Timer...

Or so it seems: a high level employee at ABN Amro Bank in charge of Human Resources and actually allocating bonuses, leaving the bank because he's fed-up with the whole bonus bonanza and the fact that nothing has changed since previous years.

Bankier Kilian Wawoe verlaat ABN Amro uit onvrede over de bonuscultuur in de financiële sector. Als senior personeelsmanager heeft hij het afgelopen jaar geen verandering gezien in de wijze waarop financiële instellingen omgaan met bonussen. Dat zegt Wawoe in een interview met de Volkskrant. ‘Ik ben ervan overtuigd dat je bonussen moet verbieden. Dan kan ik niet nog een jaar aan het circus meedoen, als ik mezelf serieus neem tenminste.’

Onjuiste prikkels

Wawoe constateerde na onderzoek dat de bonussen vaak onjuiste prikkels geven. Hij wil met zijn bevindingen proberen buiten de bank een nieuw beloningsmodel te ontwikkelen. Bij ABN Amro was hij verantwoordelijk voor het personeelsbeleid van diverse buitenlandse vestigingen. Bankiers spreken zich zelden openlijk uit tegen bonussen. Ook na de maatschappelijke ophef, verdedigen banken het nut van bonussen. Banken hebben soms bonussen tijdelijk geschrapt of verlaagd, maar nooit afstand willen doen van variabele beloningen.

Zelfregulering niet afdoende

De Nederlandse banken vinden dat ze door zelfregulering de ernstige uitwassen van bonussen kunnen voorkomen. Wawoe vindt zelfregulering niet afdoende. ‘Mensen zijn nu eenmaal niet gemaakt voor zelfkritiek, bankiers ook niet.’ Verandering is daarom nodig van buitenaf, meent Wawoe. De overheid heeft haar kans na het uitbreken van de kredietcrisis echter verspeeld, bang om het aandelenbelang in de banken te schaden.

(De Volkskrant)

The article refers to the employee - Kilian Wawoe - as a "banker", but I'm not sure folks from HR qualify as such. Surely not every person who works at a bank is a banker. But anyway, his solution? Simply ban bonuses in the banking realm, don't even try to regulate them like policy makers seem to attempt. Talking about a different tack.

I have written before about bonus related complaints, coming from the corners of politicians, policy makers and even the president of the Dutch National Bank. The situation relaxed a bit since then, from the bankers' side of things that is. No doubt:

• Wawoe's remarkable step (a first timer after all);
• his harsh criticism on the Maas Committee that drafted the Banking Code 2009, that was received quite well by the Dutch cabinet (one of the funny quotes from the article is Wawoe's complaint that while the dikes were breaking, the Maas Committee proposed to paint them blue; an original solution, but one that won't work at all);
• his doubts about the position of the government, that - he argues - lost momentum post October 2008 to really do something about the whole bonus hassle, because of its shareholding in ABN AMRO/Fortis and the financial ramifications of actually doing something about the whole bonus hassle; and
• his plans to dive into the bonus issue and come up with a better solution than the ones proposed to date;

will stirr up things in the coming period.

For what it's worth, a poll among over 4000 persons results in over 90% of the votes cast saying that Wawoe did the right thing and set a right example. Maybe there's still some momentum left ...

[No. 1] Second Season

Happy 2010 to all readers of The Defining Tension!

After a productive first year, resulting in 221 posts from the editors and TDT's guest authors (thanks to all of you), we're off to our second season. In the course of 2009 we were able to generate attention in the blogosphere and in academic publications (in- and outside the Netherlands), which is one of the goals of the blog and we're quite happy about that development. Hopefully we can continue to do so this coming year and beyond. To make things not too complicated, we've decided to restart the numbering of the posts at the beginning of each year, which makes this post No. 1.

During the holidays legal developments that require serious attention tend to be a bit slow, at least in Dutch circles. But luckily there's Conrad Black - with a criminal case pending before the SCOTUS - who shares some personal observations re the last decade (dubiously referring to president Barack Obama as a potential "as a shoe-shine boy") and Richard Finlay's response, remarking that "Mr. Black is not a civilized man, but rather a crook who fleeced his own shareholders and perverted the course of justice." If you have 5 minutes to spare, consider reading his whole piece dubbed Conrad Black's Race to the Bottom.

As to substance that really has added value for readers interested in corporate law developments, I should add a reference to Francis Pileggi's Top 5 Corporate and Commercial Cases from Delaware for 2009. Useful as always.