REGULATORY FRAMEWORK

What requirements are set out in Book 2 of the Dutch Civil Code and the Dutch Corporate Governance Code?

BOOK 2 OF THE DUTCH CIVIL CODE

Book 2 of the Dutch Civil Code contains provisions on the Supervisory Board, but says very little about the duties of the Supervisory Board. Book 2 of the Dutch Civil Code does not contain any direct provisions on integrity supervision.

THE DUTCH CORPORATE GOVERNANCE CODE

For supervisory directors of listed companies, the Dutch Corporate Governance Code (2022, updated in March 2025) is relevant (hereinafter: the Code). The Code is not law[1] and does not apply to all private companies, nor to organisations in the public or semi-public sectors. The Corporate Governance Code nevertheless has a strong standard-setting effect, including for organisations other than listed companies. It is therefore useful to consider the principles of the Code, partly because it often serves as a reference framework for other, sector-specific codes. Examples of sector-specific codes include the Banking Code and the Code for Pension Funds in the financial sector. The healthcare sector (Healthcare Governance Code), housing corporations (Housing Corporations Governance Code) and the education sector (various codes for different types of educational organisations) also have sector-specific codes. In the following sections, we discuss a number of relevant aspects of the Dutch Corporate Governance Code. Supervisory directors are, of course, advised to check whether a specific code applies.
The principles underlying the Code state that good entrepreneurship and good supervision are essential conditions for stakeholders’ confidence in management and supervision. “This includes integrity and transparency of the Management Board’s actions and accountability for the supervision by the Supervisory Board.” This general principle is not developed further in the Code. The Code does not specify what should be understood by ‘integrity and transparency of the Management Board’s actions’, or whether and, if so, how you, as a supervisory director, should supervise this.

However, the Code does offer other points of reference: the principles state that the Code is based on the premise that the organisation is a long-term partnership of the various stakeholders involved in the organisation. The Code also states that: “the Management Board and the Supervisory Board have responsibility for weighing these interests (…)”. This is where the link to integrity is established. After all, acting with integrity requires stakeholders’ interests to be taken into account. On this point, the Code states: “If stakeholders are to collaborate within and with the company, they need to be confident that their interests are duly taken into consideration..”

[1] The purpose of the Code is, in conjunction with legislation and regulations, to establish a sound and transparent system of checks and balances within Dutch listed companies and, to that end, to regulate the relationships between the Management Board, the Supervisory Board and the general meeting/shareholders. Compliance with the Code is based on the ‘comply or explain’ principle.

In the principles described in the Code, we find various references or links to integrity. We discuss the relevant principles below.

Risk management and risk management accountability

Principle 1.2, ‘Risk management’, states that the Management Board is responsible for identifying and managing the risks associated with the company’s strategy and activities. In the context of risk assessment, the risks concerned should in any case cover strategic, operational, compliance and reporting risks. Principle 1.4, ‘Risk management accountability’, states that the Management Board discusses the effectiveness of the design and operation of the internal risk management and control systems with the audit committee and render account for this to the Supervisory Board. Supervisory directors’ involvement in, and attention to, integrity risks is relevant in this context because an integrity violation may jeopardise the achievement of strategic objectives and may even threaten the company’s continued existence.

Culture

Principle 2.5, ‘Culture’, states that the Management Board is responsible for creating a culture aimed at sustainable long-term value creation and that the Supervisory Board should supervise the activities of the Management Boardin this regard. The further elaboration states that attention must be paid, among other things, to social safety within the enterprise and to the ability to discuss and report actual or suspected misconduct or irregularities. It also states that the Management Board must draw up a code of conduct and monitor its effectiveness and compliance with it. With regard to the role of supervisory directors, it is stipulated that the Management Board should inform the Supervisory Board of its findings and observations with regard to the effectiveness of and compliance with the code.

Misconduct and irregularities

Principle 2.6, ‘Misconduct and irregularities’, begins with the provision that the Management Board and the Supervisory Board should be alert to signs of actual or suspected misconduct and irregularities. It is further stipulated that the Management Board establishes a procedure for reporting actual or suspected misconduct or irregularities, and take appropriate follow-up action on the basis of these reports. According to Principle 2.6, the Supervisory Board monitors the Management Board in this regard.

The further elaboration states that the Management Board should inform the chairman of the Supervisory Board without delay of any signs of actual or suspected material misconduct or irregularities within the company and its affiliated enterprise. It also stipulates that, if the actual or suspected misconduct or irregularity pertains to the functioning of a management board member, employees can report this directly to the chairman of the Supervisory Board.

Finally, it states that the Supervisory Board monitors the operation of the procedure for reporting actual or suspected misconduct or irregularities, appropriate and independent investigations into signs of misconduct or irregularities, and, if an instance of misconduct or irregularity has been discovered, an adequate follow-up of any recommendations for remedial action. It also states that, in order to safeguard the independence of the investigation, in cases where the management board itself is involved, the supervisory board should have the option of initiating its own investigation into any signs of misconduct or irregularities and to coordinate this investigation.

Preventing conflicts of interest

On preventing conflicts of interest, Principle 2.7 states: Any form of conflict of interest between the company and the members of its management board or supervisory board should be prevented. Adequate measures should be taken.. The Supervisory Board is responsible for the decision-making on dealing with conflicts of interest regarding management board members, supervisory board members and majority shareholders in relation to the company.

The elaboration of the principle stipulates, among other things, that the terms of reference of the supervisory board should contain rules on dealing with conflicts of interest and also which transactions require the approval of the supervisory board. It also states that decisions to enter into transactions in which there are conflicts of interest with management board members or supervisory board members that are of material significance to the company and/or to the relevant management board members or supervisory board members should require the approval of the supervisory board., and that such transactions are published in the management report.

IN SUMMARY:

The Corporate Governance Code and related sector-specific codes contain various implicit and explicit requirements for supervision by supervisory directors concerning how to act with integrity within and by the organisation. The more explicit guidelines provide the board with a framework for carrying out its duties and responsibilities, though they require further specification. For example, this may concern the question of which supervisory directors’ transactions and interests are material to conflicts of interest. It also requires supervisory directors to inform themselves about matters such as the reporting procedure and to have insight into the organisational culture.

The explicit requirements impose obligations on supervisory directors in relation to parts of the integrity policy, while they may not have sufficient insight into the policy as a whole or the coherence between its various parts.

The following chapters examine the reasons why it is important for you, as a supervisory director, to place the overarching topic of ‘integrity’ on the agenda in more detail. We do so first from the perspective of your core duties, including your role as the Management Board’s employer.