The International Corporate Governance Network (ICGN), has written to the Dutch Economic Ministry and to the Dutch House of Representative’s economic affairs committee to express its significant concerns relating to the new legislation regarding takeover bids in the Netherlands. This was outlined in a letter of Minister Kamp to the Chair of the House of Representatives on 20 May 2017.

The ICGN said:  “Our specific concern relates to the proposed one year “legal timeout” for hostile takeovers. It is our view that this is an unduly harsh provision that damages shareholder protections to the detriment of good corporate governance, efficient markets and sustainable value creation. We believe introduction of such an extreme provision would work against the interests of institutional investors and their beneficiaries — including pension funds and pensioners.”

In the letter to Henk Kamp, minister of economic affairs and to the economic affairs committee the ICGN said the proposals would carry economic disadvantages and put Dutch companies and the Dutch market in an unfavourable light from the perspective of the global institutional investment community. As almost 90% of the shares in Dutch listed companies are owned by institutional investors, many of whom are based outside the Netherlands, this is an important concern, the ICGN said.

The ICGN added: “Given the size and the open nature of the Dutch economy it is important to maintain the trust of these investors in the Dutch corporate governance system.”

The investor group said that it was sympathetic to the fundamental concerns about the potentially negative impact of hostile takeovers, particularly in cases when a hostile bidder might introduce short-term changes that do not support – or may contradict – a company’s potential for long-term value creation. However, the ICGN said that takeovers, including hostile takeovers, are neither intrinsically good nor bad.

Done properly, takeovers – or, more generally the market for corporate control – can have a positive disciplining effect on companies and financial markets, and, as noted in Minister Kamp’s letter, they are “part of the economic process”. While we recognise the potential for abuse that could come from an acquiring company motivated by short-term horizons, we believe a one year “time out” period would be a disproportionate measure that would generate unintended consequences, particularly if this were to prohibit shareholders from calling for an extraordinary shareholders’ meeting or propose changes to the management or supervisory boards of Dutch companies.

The ICGN said it believes the negative consequences of the proposed legislation would impact the efficiency of the financial markets, entrench ineffective company managers and disenfranchise institutional investors. In its view the ICGN said this ran counter to the growing emphasis in European financial markets on investor stewardship — which encourages active and responsible engaging and exercising of shareholder rights.

“Indeed, we believe that institutional investor stewardship is one of the answers to this problem, to promote responsible long-term perspectives by investors in support of successful companies,” the ICGN added.

Concerns about the proposed law have also been expressed by the Dutch investor body Eumedion, and the ICGN said it is supportive of Eumedion. Like Eumedion, the ICGN urged the Dutch authorities to consider alternative, and less extreme, options to address your concerns about potential hostile takeover abuses.note that ICGN’s first policy priority is to promote long-term investment perspectives and sustainable value creation.

Last Updated: 9 June 2017