On the Supposed Independence of Two‐tier Boards: formal structure and reality in the Netherlands

Abstract

This paper outlines the formal structure of Dutch two-tier boards and compares the formal structure with the reality of board practices of the largest Dutch companies listed at the Amsterdam Stock Exchanges. This comparison questions the supposed independence of two-tier boards.

Are OECD-prescribed “good corporate governance practices” really good in an emerging economy?

“…Supervisory board OECD principles suggest that a two-tier board structure, which is used by firms in Germany, the Netherlands, and Denmark, represents a good corporate governance practice because it separates management boards from supervisory boards, thereby diversifying control of corporate affairs and balancing the power of insiders (Franks, Mayer, & Wagner, 2006;Maassen & van den Bosch, 1999;Melis, 2000). In Germany in particular, the supervisory board plays a crucial role in corporate governance, including appointing and dismissing BoD members, and codetermining corporate decisions (Commission of the German Corporate Governance Code, 2010).…”

The Independence Paradox: (im)possibilities facing non‐executive directors in The Netherlands

“…Tricker, 1994;Maassen and Van den Bosch, 1999;Van Manen and Hooghiemstra, 1999;Weimer and Paape, 1999;Moerland, 2002). Notwithstanding such difference in formal structure, the two systems have converged in the past decades.…”

Bringing corporate governance to international joint ventures

“…Recent research in corporate finance, for instance, has examined the theoretical determinants of corporate board size (e.g., Boone et al, 2007;Linck, Netter, and Yang, 2008), and similar research could determine how the size or composition of IJV boards reflects parent firms' information needs, monitoring costs, or other theoretical considerations. It would also be valuable to investigate other dimensions of board structure such as duality, committees, or two-tier structures involving executive and nonexecutive directors (e.g., Baliga, Moyer, and Rao, 1996;Westphal, 1998;Maassen and Van Den Bosch, 1999;Ellstrand, Tihanyi, and Johnson, 2002;Adams, Hermalin, and Weisbach, 2009). Many of the findings on board size, demography, and so on are mixed in prior research, so the IJV context might also provide a fresh testing ground for these research questions in the corporate governance literature at large.…”