Shareholders’ Voting at General Meetings: Evidence from the Netherlands

Abstract

We study annual general meetings of shareholders in the Netherlands. The Dutch corporate governance system is characterized by relatively concentrated shareholdings and large stakes owned by pension funds, banks and insurance companies. The legal protection of shareholders is poor due to the presence of takeover defenses, such as certificates, which deprive shareholders from their voting rights. An analysis of the minutes of 245 general meetings in the period 1998–2002 reveals that on average 30% of the equity capital is represented at the meeting. All proposals at the meeting are sponsored by the management and only 9 out of 1,583 proposals are rejected or withdrawn. Our analyses show that pension funds are the most active and critical shareholders at the meetings, while certificates effectively restrict shareholder rights. Our main conclusion is that the general meetings do not provide shareholders in the Netherlands any significant influence on management.

Appendix

Proposals at the general meeting

Adoption of annual accounts and discharge

The general meeting adopts the annual accounts (Section 101 of Book 2 of the Dutch Civil Code). Unconditional adoption of the annual accounts by the general meeting normally implies a discharge of management board members and supervisory board members from liability for the performance of their duties. Under Dutch law, this discharge is not absolute and is not effective as to matters not disclosed at the shareholders meeting. Since 2001 Dutch companies are legally required to separate the adoption of annual accounts and the discharge from liability into two (sub-)proposals at the general meeting.

Distribution of profits

The management board, subject to the approval of the supervisory board, determines the proportion of company profits that is to be retained. The remaining profits are at the disposal of the general meeting, which has to approve of the distribution of profits that is proposed by the management board (Section 105 of Book 2 of the Dutch Civil Code).

Issue of shares and pre-emptive rights

The general meeting has the power to issue shares and to determine the price and further terms and conditions of each issue of shares. They may delegate this power to another corporate body which will have the exclusive power to issue shares following such a delegation. Corporate bodies include the general meeting, a priority shareholders’ meeting, the management board, the supervisory board and the joint meeting of the management and supervisory board (Sections 78a and 189a of Book 2 of the Dutch Civil Code). This delegation is valid for a period of up to 5 years (Section 96 of Book 2 of the Dutch Civil Code). Each shareholder has a pre-emptive right to subscribe for new shares in proportion to the number of shares held. However, the general meeting has the power to limit or exclude any pre-emptive rights of shareholders and may delegate such authority to another corporate body (Section 96a of Book 2 of the Dutch Civil Code). The resolution to limit or exclude any pre-emptive rights legally requires a majority of at least two-thirds of the votes cast in a meeting of shareholders if less than 50% of the issued share capital is present or represented, and a normal majority otherwise.

Share repurchase

The general meeting can also authorize another corporate body to repurchase shares (Section 98 of Book 2 of the Dutch Civil Code). This authorization is for a period of up to 18 months and includes references to the maximum shares to be acquired, the manner in which such acquisition may take place and the acquisition price range.

Amendments to articles of association

In principle, the general meeting has the powers to amend the articles of association of the company (Section 121 of Book 2 of the Dutch Civil Code). However, the articles of association of the company may contain provisions that limit the ability of the general meeting to amend the articles of association. These provisions can only be amended through a unanimous decision at a general meeting where all of the issued share capital is present or represented.

Reduction of share capital

The general meeting may resolve, subject to the relevant provisions of Dutch law and the articles of association, to reduce the outstanding share capital by canceling shares through an amendment of the articles of association. A resolution to reduce the share capital legally requires a majority of at least two-thirds of the votes cast in a meeting of shareholders if less than 50% of the issued share capital is present or represented (Section 99 of Book 2 of the Dutch Civil Code).

Appointment of an external accountant

A Dutch company has to be audited by an external accountant (Section 393 of Book 2 of the Dutch Civil Code). The accountant submits the outcome of his investigation to the corporate body, which is to adopt the account. The general meeting may appoint the external accountant.

Remuneration of supervisory board members

Legally the general meeting decides on the remuneration of management board members and supervisory board members (Section 135 of Book 2 of the Dutch Civil Code) unless the company’s articles of association state otherwise. In law practice, the general meeting determines the remuneration of supervisory board members whereas the supervisory board usually determines the remuneration and further terms of employment of each member of the management board.

Appointment, suspension and dismissal of board members

In principle, the general meeting decides on the appointment, suspension and dismissal of management board members and supervisory board members (Sections 132 and 134 of Book 2 of the Dutch Civil Code). A subset of Dutch companies is subject to the structured regime as defined in Sections 158–164 of Book 2 of the Dutch Civil Code that transfers decision power from the general meeting to the supervisory board. Any company operating under the structured regime is required to have a supervisory board whose mandate includes the adoption of the annual accounts, the appointment and dismissal of the members of the supervisory board, the appointment and dismissal of the members of the management board and the approval of specific resolutions of the management board. In the event of a vacancy for a supervisory board position under the structured regime, the general meeting, the works council and the supervisory board may each put forward a non-binding nomination for a candidate for the position. The general meeting and works council may each lodge an objection to the proposed appointment of a supervisory board member. Appointment may nevertheless carry through if the Enterprise Chamber of the Amsterdam Court of Appeal dismisses these objections. Each member of the management board may be suspended or removed at any time by the supervisory board, provided that the general meeting of shareholders is consulted before such removal. Under the structured regime members of the supervisory board can only be dismissed by the Enterprise Chamber of the Amsterdam Court of Appeal on the grounds of having neglected their duties or for other serious causes.