Management board

The management board manages the company (artt. 2:129 and 2:239 DCC) and represents it (artt. 2:130 and 2:240 DCC). The articles, board rules and shareholders' agreement (in private companies) calibrate how that power is exercised, including reserved matters, signing thresholds and conflict-of-interest procedures.

The articles can go further than calibration, in two specific ways that are frequently confused with one another. Under article 2:239(3) DCC the articles may provide that management board decisions are subject to the approval of another corporate body, most often the supervisory board or the general meeting, and that is how a reserved matters list acquires effect at corporate level. The articles may also provide that the board follows the instructions of another body, and the board must then follow them unless compliance would be contrary to the interests of the company and the business connected with it. For an NV that instruction right is narrower and reaches only the general lines of policy. An approval right withholds a decision, whereas an instruction right directs one, and the two call for different drafting.

Under articles 2:130 and 2:240 DCC the management board represents the company, and each individual director also has authority to represent it unless the articles provide otherwise. Restrictions in the articles are effective against third parties once registered with the trade register, while restrictions in board rules or a shareholders' agreement are not. That distinction matters constantly in transactions, because an internal signing threshold in a shareholders' agreement does not render a contract signed above it unenforceable, but it can expose the director to liability.

A limitation of authority to act jointly, or a provision in the articles that only certain directors may represent the company, is therefore the only reliable means of controlling external representation. Powers of attorney registered with the trade register perform the same function at a lower level. A missing approval does not change the position either: where the articles subject a decision to the approval of another corporate body, the absence of that approval does not affect the power of the board or of an individual director to represent the company, which under article 2:240(3) DCC is unlimited and unconditional. In a transaction we verify authority against the trade register extract and the articles rather than against the organisation chart, and where an approval is required, it is obtained and documented before signing.

For a BV, directors are appointed by the general meeting or, if the articles so provide, by a meeting of holders of shares of a particular class, under article 2:242(1) DCC. A class appointment right is subject to a statutory proviso: every shareholder with voting rights must be able to participate in the appointment of at least one director, so the mechanism cannot be used to exclude a shareholder from board appointments altogether. For an NV, appointment and dismissal are governed by the separate NV provisions, and under the structuurregime the supervisory board appoints and dismisses the management board. The BV also has a different mechanism, the binding nomination, under which the appointment is made from a nomination by a designated body unless the general meeting removes its binding character by the statutory majority.

Dismissal follows the allocation made for appointment, it requires a properly convened resolution, and the director has a right to be heard. Where the director is also an employee, dismissal from the corporate office generally ends the employment relationship as well, with the associated notice and transition payment obligations. The corporate resolution and the employment position are therefore prepared together rather than in sequence, and the convocation, the agenda and the opportunity to be heard are documented at the time, because that is what a later challenge is directed at.

Under articles 2:129(6) and 2:239(6) DCC a director with a direct or indirect personal interest conflicting with the interest of the company and the business connected with it does not take part in the deliberation and decision-making on that matter. The rule concerns participation rather than disclosure alone, so the director stands outside the decision and not only outside the vote. Where the conflict leaves the board unable to take the decision, it passes to the supervisory board or, failing that, to the general meeting, unless the articles provide otherwise.

The practical work lies in the procedure agreed before a conflict arises. That means a definition of what is reported and to whom, a standing item on the agenda, a register of notified interests, and a minute recording the conflict, the abstention and the basis on which the remaining directors decided. Remuneration, related-party transactions and transactions with a shareholder who also sits on the board are where the rule often bites in practice, and they are also where a contemporaneous record is worth most if the decision is examined later.

Board rules support the functioning of the board and can help protect individual directors when something goes wrong. Good rules deal with the allocation of portfolios among directors, the mechanics of convening and holding meetings including written resolutions, quorum and voting including how a tie is broken, delegation and the limits of it, the conflict-of-interest procedure, and the standard of minute-taking.

The standard of minute-taking is the point most easily overlooked and among the most valuable in practice. Where a director's conduct is later assessed against the proper performance standard in article 2:9 DCC, the contemporaneous record of what the board knew, what it considered and why it decided as it did is the evidence. Minutes that record only decisions, without the information considered and the alternatives weighed, leave a director defending a decision from memory several years later.