Corporate Governance Code 2022

The Corporate Governance Code Monitoring Committee (the Committee) recently published an updated version of the Dutch Corporate Governance Code (the Code 2022). The Code 2022 differs in some important aspects from the previous version: the Corporate Governance Code 2016 (the Code 2016). In this article the four main changes are discussed.

The changes are made in response to many important social developments that have occurred since the Code 2016, including the growing awareness of the importance of a sustainable future and corporate responsibility. To align with these and other societal movements and respond to upcoming developments, the Code has been updated.

i. Sustainable long-term value creation

The first amendment that stands out is that sustainable long-term value creation is the focus of the 2022 Code. The Code 2022 requires company directors to formulate a vision, strategy and objectives with regard to the sustainable long-term value creation of the company. Directors are expected to consciously consider the consequences of their decisions long-term, not only from the perspective of stakeholders but also from an environmental, social and sustainable perspective. In this way, the Code 2022 seeks to motivate companies to contribute to contemporary societal challenges such as combating climate change.

Previous versions of the Code already referred to long-term value creation, but now the word 'sustainable' is added. What exactly should be understood by sustainable is deliberately left undefined by the Committee. This is because the exact interpretation of the phrase depends heavily on the nature of the company. It is the task of management board and supervisory board members to give further substance to this comprehensive concept. In addition, the concept is coloured by relevant (future) laws and regulations. By leaving the concept undefined, the Code 2022 aims to be future-proof.

The 2022 Code further sets new requirements for the composition of the annual management report with regard to - among other things - the sustainable long-term value creation. For instance, in the management report, the board has to consider what effects the company's products, services and activities have had on people and the environment, how the interests of stakeholders have been taken into account and, what actions have been taken in that regard to minimise the negative impact.[1] The supervisory board and the audit committee oversee the sustainability reporting.[2]

ii. Diversity and inclusion

The Code 2022 further introduces a change in terms of diversity and inclusion. The Code prescribes that the composition of the management board, the supervisory board and, if any, the executive committee must be such that there is a degree of diversity appropriate to the company in terms of expertise, experience, competences, other personal qualities, gender or gender identity, age, nationality, and (cultural) background.[3] Companies are expected to have a diversity and inclusion (D&I) policy. This policy should in any case set specific, appropriate and ambitious targets in order to achieve a good balance in gender diversity and the other D&I aspects of relevance to the company with regard to the composition of the management board, the supervisory board, the executive committee (if any) and a category of employees in managerial positions (“senior management”) to be determined by the management board. It should address all aspects and personality characteristics in which people differ, such as gender identity, age, ethnicity, occupational disabilities and sexual orientation.[4]

The company reports on its policy at the end of the financial year in the so-called 'corporate governance statement'.[5]  This statement should in any event focus on the results achieved in the past year with regard to the policy on diversity and inclusion. Furthermore, the statement should include information on the composition in terms of gender of the management board, supervisory board, executive committee and senior management.

iii. The role of the shareholders

The Code 2022 also brings changes that affect the interrelationship between the company and its shareholders. The amendment aims to encourage dialogue between company and shareholders. The Code 2022 prescribes that shareholders and the company should be willing to engage in dialogue with each other. In doing so, the company should facilitate the dialogue and shareholders should act in such a way as to enable a constructive dialogue. Finally, shareholders are expected to recognise the importance of a strategy focus on sustainable long-term value creation of the company.[6]

iv. Technological developments

Finally, the Code 2022 pays attention to the global transformation in the field of digitalisation. According to the Code 2022, companies should be aware of the risks associated with the digitalisation of our society. In fact, companies bear responsibility for the application of new technologies and must handle them with care.

Managing and supervisory directors are expected to have experience and expertise with regard to digitisation. If this knowledge and experience is lacking, they are expected to undergo adequate training for this purpose.[7]

Effective date and recommendation

The Code 2022 came into effect on 1 January 2023. Companies will have to formulate a strategy and objectives on sustainability and diversity and inclusion in the short term. Reports for the 2023 financial year must then report on the extent to which these objectives have been achieved. It is recommended that at general meeting in 2024, the 2023 management report on the outline of the corporate governance structure and compliance with the Code be included as a separate agenda item.

[1] Best practice rule 1.1.4. Code 2022.

[2] Principle 1.5 and related best practice rules Code 2022

[3] Principle 2.1 Code 2022.

[4] Best practice rule 2.1.5 Code 2022 and the accompanying explanation.

[5] Best practice rule 2.1.6 Code 2022.

[6] Principles 4.2 and 4.4 Code 2022.

[7] Best practice rules 2.1.4 and 2.4.6 Code 2022.