Independence

Blog

5 November 2018

Independence seems to be a clear term. Also in the world of corporate governance. However, it is only window dressing. In the practice of corporate governance independence actually appears to be a very intractable term.

It can be read in almost all corporate governance codes that supervisory directors must be independent. The Corporate Governance Code of Curacao therefore determines in section 2.9 that the Supervisory Board has such composition that supervisory directors can, vis-à-vis each other, the board and any particular interest whatsoever, act in an independent and critical manner.

“Above all, there is a juncture between an appointment and loyalty. As a supervisory director loyalty vis-à-vis the person who appointed you is out of the question. The interest of the business represents your only loyalty”

In the codes independence is usually elaborated fairly one dimensionally: relations of blood or affinity within or with the supervisory board, the board or business partners are abject. Unfortunately, it is not that simple. In the day-to-day practice a supervisory director may encounter all sorts of challenges on his or her path. You are appointed by the General Meeting of Stockholders (GMS) but what are then your loyalties vis-à-vis the GMS? How about your loyalty when you are appointed by or on behalf of a specific stockholder? And when that specific stockholder asks you for specific business information, can you make it available? What if a proposed resolution of the supervisory board is not in the interest of the person who nominated or appointed you? Should you protest? Should you also be honest about the background of your choice? As a supervisory director you have become quite fond of a member of the board. In reality this person is not functioning very well. Will you then take action in a timely fashion? These are all questions that supervisory directors often answer by themselves. Most of the codes contain very little about these kinds of dilemmas. How should you deal with them?

Above all, there is a juncture between an appointment and loyalty. As a supervisory director loyalty vis-à-vis the person who appointed you is out of the question. The interest of the business represents your only loyalty.
In constitutional law we use the term ‘without mandate’. Representatives of the people are elected by all of us. They nonetheless decide entirely autonomously in Parliament (section 56 subsection 3 Constitution of Curacao). They do not need to accept instructions from anyone, not from their electorate and not from their party. The same applies to supervisory directors in their relationship with those who appointed or nominated them. The guideline, the interest of the business, is laid down in the law. According to section 19 subsection 7 of Book 2 of the Civil Code of Curacao, during the performance of its duties the supervisory board departs from the interest of the legal person.

Unfortunately, we added something to the law in Curacao, St. Maarten and the BES Islands that creates confusion. The Dutch legislation does not contain this provision. This addition (also in section 19 subsection 7 of Book 2 of the Civil Code) indicates that in his decisions the supervisory director can also advocate ‘the interests of those who appointed or nominated him and to let (have) the said interests weigh relatively heavily’. If you read this provision properly in its context then you subsequently note that the law nonetheless prioritizes the interest of the business. Namely, when taking the interests of the person who appointed the supervisory director into account, the law provides the restriction ‘in consideration of the previous sentence’. This sentence indicates that as a supervisory director you must adhere to the interest of the business. Unfortunately, not all supervisory directors know how to read well. In my opinion, this provision can therefore be deleted with immediate effect. This provision caused more confusion than positive results. To every supervisory director, independence should mean that you make a contribution, entirely at your own discretion, towards the decision-making in the interest of the business.

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