The Dutch corporate governance code and its monitoring

The compliance of exchange-listed companies with the Dutch corporate governance code is generally high. This research takes three hypothetical changes to the current system as a starting point to investigate the question: is the Dutch system of regulating and monitoring corporate governance balanced in terms of costs and benefits?

Although compliance is generally high, this gives no guarantee for the future, and even now there are specific provisions of the code where compliance is relatively low. The current method of monitoring compliance – giving numbers aggregated over companies – provides government, parliament and the general public with information on trends in corporate governance. This monitoring keeps corporate governance on the agenda of policymakers and companies. It also helps to avoid ad hoc policymaking. Since ending this monitoring of compliance would yield only limited financial savings, there is no convincing case for not continuing monitoring of compliance with the Dutch corporate governance code.

The Dutch corporate governance code is currently embedded in Dutch law. Abandoning the legal embedding of the code seems a rather arbitrary response to possible areas of improvement in the current code. It seems to make more sense to investigate these potential improvements, e.g. expanding the possibilities for companies to tailor their information and improving the content of corporate governance reporting for shareholders.

Providing publicly available information on compliance with provisions of the corporate governance code at the level of individual companies (instead of only aggregated across all listed companies) would make information on corporate governance more easily accessible, which is especially relevant for (potential) shareholders. This would require an additional effort by the monitoring body and companies, certainly with respect to establishing which explanations for deviating from provisions of the code are considered valid. This kind of ‘naming’ may provide an additional stimulus for companies to comply with provisions of the code. Deciding whether naming or variations on it provide net benefits requires additional research into the effects on information provision, the value of information and ways of mitigating the risks of disproportionate effects.