Two-tier boards

The management board runs the company and represents it externally. The supervisory board oversees the management board and the general state of affairs, and approves a defined set of decisions specified in law and the articles. Certain large companies are subject to the structuurregime, under which the supervisory board has enhanced powers.

The powers of each board come from three places, and those places are not interchangeable. The statute sets the framework, including the task of the supervisory board and the decisions reserved to it where the structuurregime applies. The articles add the company's own approval requirements and give them effect at corporate level. Board rules and, in private companies, the shareholders' agreement calibrate the remainder, including meeting mechanics, delegation and the way decisions are prepared. A restriction placed in the wrong instrument is a common defect in existing structures, because it produces a right that cannot be enforced in the way the parties assumed.

The design work begins with composition. A written profile setting out the competences the board requires, a selection process that runs against that profile, and a succession plan with staggered terms are what determine whether the supervisory board is capable of the oversight it is given. Where the company has audit, remuneration and selection committees, their composition follows from the same exercise, and where the structuurregime applies the involvement of the works council in appointments forms part of it.

The second half of the design concerns how the two boards interact. That covers the reserved matters requiring supervisory board approval, the information rights of the supervisory board and the cadence of its meetings, and the procedure for conflicts of interest and related-party governance, including transactions with a controlling shareholder. Each of these belongs in the articles or in the board rules according to whether corporate effect is needed, and that choice is addressed in more detail under Control and decision-making.

The large company regime (articles 2:152 et seq. DCC for NVs and 2:262 et seq. DCC for BVs) applies where a company meets three criteria: issued capital together with reserves above a statutory amount, a works council established at the company or at a dependent company (afhankelijke maatschappij), and at least 100 employees in the Netherlands employed by the company and its dependent companies together. The company files a statement (opgaaf) with the trade register after the adoption of its annual accounts, and the regime becomes mandatory once that registration has stood uninterrupted for three years. Where it applies to a two-tier structure, the company must have a supervisory board, that board appoints and dismisses the management board rather than the general meeting, and it approves a statutory list of major decisions. In a one-tier structure those enhanced powers attach to the non-executive directors. The works council has an enhanced recommendation right for one third of supervisory board seats.

Two points deserve particular attention. First, the regime can be triggered by growth without being noticed, and the obligation to notify the trade register and to implement the regime follows automatically. Second, exemptions and the mitigated regime exist, notably for international holding companies where the majority of employees work outside the Netherlands, and for certain joint venture structures. Both are best assessed in advance and documented, because an incorrect assessment leaves appointments made by the wrong body open to challenge.

Whether a two-tier structure works depends on practice rather than on drafting, and the practices that make the difference are straightforward. A defined profile and succession plan allow the board to be composed for the company's actual risks rather than by availability. An approval list short enough that each item receives real attention has a similar effect, since the purpose of the list is to secure genuine consideration of a limited number of decisions.

Standing information rights that do not depend on the management board's discretion, including direct access to the external auditor and to internal audit, prevent a board pack arriving two days before the meeting from setting the agenda. An annual self-evaluation, with an external review every three years or so, keeps the board's own functioning under review. Sufficient meeting time without the management board present gives difficult conversations somewhere to happen.