Master Thesis
The rights of an employee as an internal stakeholder
in corporate governance
A comparative research on behalf of a company that operates in the European,
American and MENA region
Supervisor Tilburg University
Master
Author
Student number/ANR
Date
: Mrs. J. Li
: International Business Law
: Saϊda Boutkabout
: U1242637 /ANR 818910
: 22 August 2013
2013
Foreword
This thesis is written as completion to the master International Business Law, at Tilburg
University. The master program combines quality theory with a distinctly practical and realworld approach, offering an outstanding preparation for a legal career in the international
arena. Furthermore, it develops knowledge in the key subjects of business law, commercial
law, competition law, and economic regulation. The program provides an integrated
knowledge of the fields within law and jurisdiction, along with their neighboring academic
disciplines, particularly economics.
The subject of this thesis is about the rights of an employee as an internal stakeholder in a
corporate governance area. The research is a compare on behalf of a company that
operates in the European, American and MENA region. I have chosen to write from an
employee perspective, because the main literature prefers a shareholders perspective rather
than a stakeholders perspective.
Since December 2012, I have been conducting research on the topic. I have experienced
this period as very interesting and instructive. At the beginning I had little knowledge of
English legal writing and corporate governance in the MENA region. However, I have been
able to achieve a result I am very satisfied with.
I would like to thank my supervisor Jing Li from Tilburg University for her useful suggestions and
guidance in writing the thesis. I would also like to thank Henk Bruisten, Assistant General
Counsel of ING Group N.V. and Özge Yurdal, Manager Legal Affairs of ING Emeklilik A.S.
Their valuable insights, directions and help gave me needful guidance to complete the
research and write this thesis.
Saϊda Boutkabout
Maassluis, August 2013
2
Table of contents
1.
Introduction
4
2.
Chapter 1
1.1
1.2
1.3
: Corporate Governance
: European region
: American region
: Middle East region
5
5
6
7
3.
Chapter 2
2.1
2.2
2.3
2.4
2.5
: Institutions of Corporate Governance
: Board of Directors
: Supervisory Board
: Managers
: Shareholders
: Internal Stakeholders “Employees”
8
8
9
10
11
13
4.
Chapter 3
3.1
3.2
3.2.1
3.3
3.3.1
3.4
3.4.1
: Regulation
: OECD Principles of Corporate Governance
: Corporate Governance sources of law ; USA
: Sarbanes-Oxley Act of 2002
: Corporate Governance sources of law ; Europe
: Netherlands ; Code Tabaksblat
: Corporate Governance sources of law ; MENA region
: Corporate Governance codes
14
14
15
15
16
16
17
17
5.
Chapter 4
4.1
4.2
4.3
4.4
: Comparison
: ING
: ING Group N.V.
: ING North America Insurance Corporation
: ING Emeklilik A.S.
20
20
21
23
23
6.
Chapter 5
: Conclusion
25
7.
Bibliography
List of abbreviations
Books and Reports
Internet sources
27
27
28
30
3
Introduction
Corporate governance has become a very important subject in the European and American
region. The American Congress quickly responded on the Enron and WorldCom 1 scandals by
adopting the Sarbanes-Oxley Act of 20022. The New York Stock Exchange also adopted new
rules for listed corporations, and together it was one of the biggest reorganization in U. S.
corporate governance history3.
If we look at the situation in the United States and a few other European countries, who also
had to deal with financial scandals (such as the Parmalat case), they are examining their
own system of corporate governance in an attempt to reduce such scandals.
Several researches are concentrated on a shareholders view rather than a stakeholders view
in corporate governance.4.
It is generally known that one of the reasons how countries attract their foreign capital is
because of their system of corporate governance and how their corporate management is
forced to respect the legal rights of others such as investors and minority shareholders 5.
The rights of employees, as internal stakeholders, have not been discussed much in the
literature. It would be interesting to know to what extent their say is when it comes to e.g.
(major) decisions that can affect the company. And how do corporations deal with the
corporate governance standards of their country and does this differ from region to region?
I will start with a brief description of the corporate governance system in the European,
American and MENA region. Followed by explaining the several institutions of corporate
governance in general. These institutions will be discussed in the essence of the European,
American and MENA region. In the third chapter, the basic source for corporate governance
will be described; the OECD Principles of Corporate Governance. Furthermore, the different
sources of law regarding corporate governance regulation have been presented for the
different regions. A compare of the ING Group entities that operate in the above mentioned
regions, will give a view of their corporate governance rules. In particular, the rights of an
employee as an internal stakeholder of that entity if applicable.
1
Widen, 2003, p. 961; Elson and Gyves, 2003, p. 855; Enriques and Volpin, 2007, p. 123
Sarbanes-Oxley Act of 2002, H.R. 3763, 107th Cong. (2002).
3
Economic Survey of Europe, 2003 No. 1
4
Chilosi, Alberto and Damiani, Mirella, Stakeholders vs. shareholders in corporate governance, 20. March 2007
5
Jeswald W. Salacuse, CORPORATE GOVERNANCE IN THE UNECE REGION, UN/ECE, Geneva, December
2002, page 4
2
4
Chapter 1
Corporate Governance
The last decade, corporate governance has been much discussed. Several scandals of
prominent international corporations have been mainly the cause of this 6. Parmalat, Enron
and Ahold are a few examples of corporations with bad corporate governance. To avoid this
type of scandals in the future and to bring back the confidence of the investors, there has
been a change regarding the regulation of corporate governance 7.
Before I get into that, it is important to define the term ‘corporate governance’ first. It is quite
difficult to define the term with one simple definition. The OECD defines it as “Procedures and
processes according to which an organisation is directed and controlled”8. The corporate
governance structure explains the rights and responsibilities for the different parties in the
organization, such as the board of directors, (senior) managers, shareholders and other
stakeholders. Corporate governance is also defined in the literature as ‘about reducing
deviance by corporations where deviance is defined as any actions by management or
directors at odds with the legitimate, investment-backed expectations of investors9.
The basis corporate governance problem arises whenever investors want to have control
differently from the managers.
The narrow view of corporate governance is the traditional view in economics and corporate
finance ,and it is also known as the shareholder view. Corporate governance here, is
concerned with ensuring the firm is run in the interests of shareholders.
The broader view of corporate governance is concerned with ensuring that firms are run in
such a way that society’s resources are used efficiently, also known as the stakeholder view.
With broader objectives, corporate governance does not concentrate solely on companies
and their owners, but takes into consideration a broader spectrum of stakeholders (for
example, employees, environment, and local community). The objective is that everybody
can potentially be better off by using resources accountably and in a reasonable manner.
Furthermore, there can be difficulties in motivating one party (the "agent"), to act in the best
interests of another (the "principal") rather than in his or her own interests, also called the
agency theory.
Despite the various definitions in the literature, they all agree on the same thing regarding
corporate governance; it basically appears from the separation of ownership and control in
modern corporations.
1.1
European region
Most European countries, have a one-tiered board system regarding corporate governance.
However, Germany and the Netherlands10 have a two-tiered board system. Historically, the
core idea behind the two-tier model was to strictly separate the controlling institution from
6
Maassen & Bosch, 2011, p. 45
Mallin, 2010, p. 1
8
http://stats.oecd.org/glossary/detail.asp?ID=6778
9
The Promis of Corporate Governance , J. Macey, 2007, p. iii
10
And also Austria, Denmark, Finland, Norway, Poland and Switzerland.
7
5
the managing institution. When implementing the laws governing the stock corporation in
Germany in the late 19th century,
it was the legislator’s intention to protect both shareholders and the public interest11. This strict
separation of control and managerial tasks was regarded as one of the major advantages12
of the two-tier system.
In a two-tiered board system, the management board (executives) and the supervisory
board (non-executives) are separated. A management board oversees the company and
provides general direction, while a supervisory board must approve of major business
decisions. Half the supervisory board is elected by shareholders while the other half represents
employee interests. It appoints the management board.
An empiric study13 on 22 European corporate governance codes shows that the prevailing
majority of European codes orientate themselves to stakeholders and the corporation. Most
European corporate governance codes do not refer to agency theory and its focus on
shareholder interest. Rather, they focus on the conflict of interests between shareholder and
stakeholder.
1.2
American region
In the Anglo-Saxon or “Anglo-American” tradition, the corporate concept is based on a
fiduciary relationship between shareholders and managers. With regard to capital-related
features of corporate governance, the Anglo-Saxon countries are known to offer welldeveloped mechanisms. In the U.K. and USA, not only are there few large shareholders but
the second, third and smaller shareholdings are not appreciably smaller than the largest 14.
The Anglo-American tradition has a one-tiered board system that is often ruled by nonexecutive directors chosen by shareholders. There is one difference between the US and the
U.K. regarding corporate governance; in the U.K., in general the Chief Executive Officer
(CEO) does not have a double role by being also the Chairman of the Board, while in the
USA, the CEO is often also the Chairman of the Board15.
11
Klaus J Hopt (n 1) 230–231.
See, eg, Udo C Brändle and Jürgen Noll (n 1) 1359–1360; Uwe H Schneider, ‘Die
Revision der OECD Principles of Corporate Governance 2004’ (2004) 49 Die Aktiengesellschaft
429, 432; cf Paul L Davies (n 10) 436
13
Corporate Governance, Values, Management and Standards: A European Perspective, J. Wieland, 2005, p.
65-72
14
The Emerging European Corporate Governance Model: Anglo-Saxon, Continental, or still the century of
Diversity?, L. Cernat, 2004, p.146
15
Bowen, William G, The Board Book: An Insider's Guide for Directors and Trustees, W.W. Norton &
Company, New York & London, 2008
12
6
1.3
Middle East region
The MENA (Middle East and North Africa) region extends over 7000 miles from Morocco to
Iran. Within this region there are 20 distinctive territories16. The countries in the region are
characterized by several elements:
o state enterprise, rather than private enterprise, dominating the economy with
uncompetitive and inefficient resource share and low levels of free trade
o weak private enterprise and overregulation of business activity
o few secure property rights
o high unemployment
o a large informal sector with high levels of corruption and favoritism in some countries
The legal systems in the MENA region can be classified into three categories:
o Civil Law : This law system is based on Roman Law and gives priority to written law
using a systematic codification of general law.
o Common Law and Customary Law : This is based on English common law concepts
and uses case-law as the normal method of expression of general law.
o Religious Law : This system is based on holy writings. For example, the Jewish and
Muslim legal system are an autonomous legal system based on the Torah and the
Quran.
The countries within the MENA region have a wide diversity of regulation and codes relating
to corporate governance practice. Figure 1 shows the corporate governance codes that
have been developed in the MENA region.
In the Middle East the one-tier board structure is predominant17.
Figure 1
16
Algeria, Bahrain, Egypt, Iraq, Iran, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi
Arabia, Syria, Tunisia, Turkey, United Arab Emirates(UAE), the West Bank and Gaza and Yemen.
17
Corporate Governance in the Middle East -Another Arabic Spring? Udo C. Braendle, 2012, p.4
7
Chapter 2
Institutions of Corporate Governance
In this chapter I will outline the institutions of corporate governance. By institutions I mean
those repeated mechanisms that allocate authority and effect, modulate and control the
decisions made at the top of the firm. These relationships at the top of the firm concern, the
Board of Directors, Supervisory Board, senior managers, shareholders and internal
stakeholders. They will be discussed in the essence of the European, American and MENA
region.
2.1
Board of Directors
The Board of Directors is an economic institution that, in theory, helps to solve the agency
problems inherent in managing an organization. They monitor management on behalf of
shareholders. The Board of Directors’ main tasks are:
o They often have to approve major business decisions and corporate strategy(i.e.
investments and acquisitions, disposal of assets, tender offers etc.)
o They are in charge of executive compensation, oversight of risk management and
audits.
o They can also offer advice and connections to management
o They usually operate through committees
In some one-tier board models, such as in the Anglo-Saxon countries, executive directors are
dominated by a majority while other boards are composed of a majority of non-executive
directors. Furthermore, some of them can have a structure that separates the CEO and chair
positions of the board or combine these roles18. One-tier boards can also use of board
committees like audit, remuneration and nomination committees.
The Netherlands, adopted the two-tier model, the executive function is separated from the
monitoring function. The Supervisory Board is composed of non-executives and they may
represent for example institutional investors. The management board usually consist of
executive directors. Directors can not combine the CEO and chairman roles, because the
CEO has no seat in the Supervisory Board19. The Dutch Civil Code provides four legal regimes
that rule the governance structure of corporations:
o The common regime (“Gewoon Model”)
- applicable to small and medium-sized corporations; gives them a choice
between a governance structure with only a management board entirely
composed of managing directors and a two-tier board model with an executive
management board and an additional Supervisory Board comprised entirely of
(non-executive) supervisory directors.
o The structure regime (“Structuurmodel”)
- applicable to corporations that meet criteria related to the number of employees
and the amount of subscribed capital; a substantial part of the control are
relocated to the mandatory Supervisory Board
o The mitigated structure regime (“Verzwakt Structuurmodel”)
18
19
CEO-duality
Gregory Francesco Maassen, An International Comparison of Corporate Governance Models, 2002, p. 146
8
o
applicable to multinationals, corporations that are part of a foreign holding
structure and group companies20; transfer of rights is less extensive
The exempted regime (“Vrijgesteld Model”)
- applicable to multinationals, corporations that are part of a foreign holding
structure and dutch and foreign parent companies of international groups of
companies; transfer of rights is less extensive
These regimes provide alternative governance models in the Netherlands.
The situation in the MENA region is quite different as in the Netherlands, the IFC and
Hawkamah survery (2008)21 placed that:
o 49% of respondents delegated the responsibility of developing the corporate
governance policy to the board. The typical board size in the region was found to be
between the 8 and 10 directors.
o 87% of listed companies stated that the board was responsible for setting the
corporate strategy
o 89% of listed companies’ boards approve the remuneration of the CEO and board
members
o 87% of listed company boards identify and evaluate risk management
o 14% of listed companies have a company secretary
The IFC and Hawkamah survey (2008)22 identified that over 50% of respondents had either no
independent directors or a solitary independent director, showed in figure 2.
Figure 2
2.2
Supervisory Board
The Supervisory Board’s role is:
o Appoint, supervise and remove members of the management board
o Ensure firm’s compliance with the law
o Ensure compliance with its articles of association and its business strategies
o Brings actions of the company against the management board
In the Anglo-Saxon countries, usually with a one-tier board system, the Board of Directors
manages the company in general. Supervisory Boards are a key element for two-tier board
20
Article 2:155 DCC
Corporate Governance MENA Survey, Hawkamah/IFC (2008)
22
Corporate Governance MENA Survey, Hawkamah/IFC (2008)
21
9
systems. The Supervisory Board in a two-tier board system contains practically no insiders and
has an independent chairman.
Most listed companies or with more than one shareholder have two boards. In the
Netherlands the Supervisory Board (“Raad van Commisarissen”) is optional In the case of
public and private limited companies and co-operative societies. It may be contracted in
their own articles of association.
The management board (“Raad van Bestuur”) controls day-to-day operations. The chairman
of the management board is the most prominent director and CEO. He is regularly not
involved with the Supervisory Board (no CEO-duality). The Supervisory Board in the
Netherlands generally consists of outsiders (in the sense of non-managers). The Board legally
must contain at least three board members In a structure regime23.
An individual member of the Supervisory Board normally leaves the board for two reasons:
o his/her (extended) membership period is over
o he/she reaches the age of 70.
In a Supervisory Board that operates under the condition of a structural regime an individual
board member can be dismissed by court (‘Ondernemingskamer’ of the ‘Gerechtshof’ in
Amsterdam), because of neglect of his/her tasks or changed circumstances. The General
Meeting may express that it has lost its confidence in the Supervisory Board by means of a
resolution passed with an absolute (normal) majority of the votes, and the holders have to
represent at least one-third of the issued share capital. This resolution shall immediately result
in the removal (dismissal) of all the members of the Supervisory Board24.
An individual board member can be suspended only by the whole Supervisory Board. The
Supervisory Board has the authority to appoint, suspend 25 or dismiss26 members of the
management board.
Like the Anglo-Saxon countries, the MENA region prefers a one-tier board system. The IFC and
Hawkamah survey identified that over 50% of respondents of listed companies, had either no
independent director or a solitary independent director 27. Therefore most listed companies in
the MENA region don’t have Supervisory Boards.
2.3
Managers
Under the Anglo-Saxon model, managers serve as internal agents with investors’ interest in
mind, in order to maximize their financial capital return. The Board of Directors monitors the
management on behalf of shareholders. Managers are entrusted with the actual operation
duties of the vehicle. If the vehicle crashes, managers are held responsible. This often face
moral hazards, because their private and individual benefits may run opposite the collective
interests of the firm. An effective Board of Directors can function as a check on management
23
Article 2:158 DCC
Article 2:161a DCC
25
In firms not acting under the structural regime, the authority to suspend the board of management is in the
hands of the supervisory board. The annual General Meeting of the shareholders has the authority to appoint or
dismiss the management board members.
26
Although this rarely happens (which is probably not a big surprise given the influence of management on the
composition of the board).
27
Corporate Governance MENA Survey, Hawkamah/IFC (2008)
24
10
control, in this way an implicit incentive exists to align one’s own interests as a manager with
those of the firm in order to gain the favor of directors and build a reputation. Poorly
performing managers suffer greater risk of firing, reputation loss in the managerial labor
market, and ultimately takeover of the organization (in firms with low ownership
concentration) or more active adversarial monitoring from large shareholders28.
The two-tier board system in a few European countries is characterized by a clear distinction
and separation between the monitoring/supervising functions on the one hand and the
executive functions (managing the corporation) on the other. In the Netherlands, the
management boards manage the corporation by creating policies and lead the corporation
from day to day. Furthermore, they represents the company in several deals with third
parties. One or more individuals form together the management board29.
The following duties are specifically assigned to the management board 30:
o make sure that the financial statement is fair and clear regarding the financial position
of the company;
o draft the financial statement and submit it to the shareholders' meeting;
o filing the financial statement, including a statement of the certified accountant
concerning its audit of the financial statement, with the Chamber of Commerce.
In the MENA region, companies have between one and five managers. In this region it is
important to have a clear distinction between the different roles of shareholders, the board of
directors, and managers. Each party should have very clear and detailed rights and
responsibilities. There has to be a balance between the roles. In the MENA region, companies
do not prefer outside directors who might access sensitive company information. The
management is responsible for providing useful information about the corporation, so the
directors can make effective use of that information31.
2.4
Shareholders
The shareholders in the Anglo-Saxon model supply finance to the corporation and hold a
monetary stake in the firm. As ‘principals’, their return directly correlates with the economic
performance of the firm. This means that the first interest of the shareholders is the
maximization of capital return on investment. They are granted important control rights within
the corporation, the significance of which is often determined by the size of their financing 32.
Shareholders have the right to vote for the election of directors and on certain fundamental
matters:
o mergers involving the corporation (after the Board of Directors’ approval)
o amendments to the articles of incorporation (after the Board of Directors’ approval)
o the sale of substantial assets of the corporation
o liquidation
28
B.Kogut, The small worlds of corporate governance, London (2012), p. 57,58
Ferdinand Mason and Casper Haket, Corporate Governance and Directors’ Duties, Boekel De Nerée NV,
2008, p. 1-4
30
http://www.mondaq.com/x/2212/Duties+And+Liability+Of+Managing+Directors+Of+Dutch+Corporations
31
Advancing Corporate Governance in the Middle East and North Africa, Center For International Private
Enterprise Global Corporate Governance Forum, February 2011
32
B.Kogut, The small worlds of corporate governance, London (2012), p. 56
29
11
A given shareholder bears all the cost monitoring but receives a benefit equal only to his or
her fractional ownership.
In the Netherlands, shareholders play a very important role in the corporate governance of
Dutch listed companies. The Dutch parliament has decided that shareholders can express
their say on the company’s strategy by making use of their right at the general meeting of
shareholders33. The most remarkable one is the right to appoint and discharge Board
Members and members of the Supervisory Boards34.
Shareholders have the right to put items on the agenda of the general meeting of
shareholders. According Article 114a Book 2 DCC, shareholders that hold shares and
represent at least 1%35 of the issued shares have this right. The right to approve the major
transactions the company has entered into, is also a big shareholder right36.
In the MENA region, most of the controlling shareholders are individuals (in many cases
related to political figures or Royal families), influential institutions or families. Controlling
shareholders closely monitor the management of its company, so it can have a positive
impact on the corporate governance of the company. The interests of controlling
shareholders might conflict with the minority shareholders’ interest. The conflict becomes big
when the controlling shareholders abuse the company's resources by extracting private
benefits at the expense of other shareholders37.
Most countries in the MENA region have the same rules regarding shareholder’s rights38:
o General meetings must be notified to shareholders and the accompanying
documents sent in advance; a minimum period of notice is specified (except in
Kuwait and Tunisia);
o Shareholders have the right to participate and vote at the general meeting39;
o Mergers require approval of the general meeting;
o Shareholders can participate in decisions on fundamental corporate governance
changes (such as issuance of new shares, convertibles and stock options, reduction of
share capital /redemption of shares);
o Shareholders have the right to approve annual accounts;
o Shareholders can vote on distribution of profits;
o Shareholders have the right to redress.
33
Parliamentary Proceedings II 2008/09, 32 014, No. 3.
LJN: AZ6440,Ondernemingskamer Gerechtshof Amsterdam , 15/2007 (Stork)
LJN: BA4395,Ondernemingskamer Gerechtshof Amsterdam , 451/2007 (ABN AMRO)
34
Articles 132/134/142/144 Book 2 DCC
35
Currently in the process of holding shares representing at least 3%
Parliamentary Proceedings II 2008/09, 32 014, No. 3.
36
Article 107a Book 2 DCC
37
Corporate Governance in the Middle East and North Africa: An Overview, Maged Shawky Sourial
Ministry of Foreign Trade, Cairo, Egypt, p. 21
38
MENA-OECD Working Group, OECD/OCDE, p.14
39
http://www.oecd.org/daf/corporateaffairs/corporategovernanceprinciples/49012924.pdf
12
2.5
Internal Stakeholders “Employees”
A stakeholder is the person who holds the stake that others are pledging on some event.
People are more likely to take an interest in a process when they consider that they have a
stake in its outcome. The stake does not necessarily have to be financial 40. The original list of
stakeholders includes shareowners, employees, customers, suppliers, lenders and society. In
this paper the stakeholders’ view will be limited to the employees.
In the Anglo Saxon countries, like the US, U.K., Canada and Australia, corporate governance
is concentrated on shareholders41. Under this corporate governance system, employees find
it hard to have good faith in their management, because the managements’ behavior relies
on constant market investigation. Most U.S. economists accept the shareholder theory’s
premises unquestionably, and the nation’s business schools have seemingly embraced the
shareholders’ view. However, it is startling to note that there is evidence that public
perceptions may not comport with those of economists and the financial community 42.
Many European countries, such as the Netherlands, have –as stated before- a stakeholders’
view regarding their corporate governance system. Not only shareholders, but employees as
well are an important interest group of the corporation. In the specifically Dutch system of
labor relations with its strong focus on consensus, trust and the involvement of stakeholders,
the Board of Directors have traditionally rather an exceptional position and responsibility of
policy-making, monitoring and control not only on behalf of the shareholders but also on
behalf of the company as a whole. The management board must take into account all the
shareholder and the stakeholders’ interests and the Supervisory Board has to control the
Board of Directors, and like the management board act in the best interests of the company,
operating independently from all the shareholders and stakeholders43. In the Netherlands, the
Dutch works council represents employees in a corporation. On the one hand, the works
council must stand up for the interests of all personnel. On the other, the works council is
legally obliged to operate for the sake of the firm at large44.
In the MENA region, some companies have specialized development programs for future
leaders. An important component of these programs is a way to identify employees who
have the right talent and experiences to lead the company. This has proven being helpful in
hiring senior managers from within the company, which is less expensive. It also motivates
employees; they know that there are career options inside the company for them45.
Some corporations are organized in a way that even though the company is a family-owned
and managed business, any individual with the right talent can make it to a high rank, such
as a CEO46.
40
Dr. Elaine Sternberg, The Stakeholder Concept: A Mistaken Doctrine, University of Leeds (1999), p. 6
http://www.ieseinsight.com/doc.aspx?id=866
42
H. Jeff Smith, The Shareholders vs. Stakeholders Debate, July 15, 2003
43
Rienk Goodijk, Corporate Governance and Works Councils: A Dutch Perspective, October 2011, Volume 1,
p.7
44
A. Van den Berg, The Dutch works council from an Institutional Economics Point of View: an Efficient
Solution to the Governance Structure Problem?, August 2003
45
http://www.cipe.org/publications/bookstore/pdf/advancingCGinTheMENA.pdf
46
The Center for International Private Enterprise and the Global Corporate Governance
Forum, February 2011, p.17
41
13
Chapter 3
Regulation
Hundreds of laws and regulations, exist from different parts of national and international
governments and define policies regarding corporate governance. Numerous pages of
regulations in most countries describe the permitted activities of different organizations
regarding corporate governance. In this chapter the Sarbanes-Oxley Act of 2002 for the
American region, the Code Tabaksblat for the Netherlands (Europe) and the corporate
governance codes in a general perspective for the MENA region, will be described as the
sources of law regarding corporate governance regulation. But not before I start with a
description of one of the basic sources for corporate governance, the OECD Principles of
Corporate Governance.
3.1
OECD Principles of Corporate Governance
The Organisation for Economic Co-operation and Development (OECD) has worked on an
overview of corporate governance standards and guidelines. They did this with several
national and international governments and organizations. A set of non-binding principles
express the views of Member countries47 on the issue of corporate governance.
According to the OECD, “the Principles are meant to assist Member and non-Member
countries in their efforts to balance and improve the legal, institutional and regulatory
framework for corporate governance in their countries, and to provide guidance and
suggestions for stock exchanges, investors, corporations, and other parties that have a role in
the process of developing good corporate governance”48. Therefore, they are a good basis
for OECD Member countries for the development of good corporate governance.
Corporate governance is of course influenced by controlling shareholders, for example
individuals, and family businesses, which means that it can have a big affect on corporate
behavior. Employees and stakeholders also have an important role in the corporation’s
success49.
According to the Principles50, the role of stakeholders should obtain the following elements:
o “The rights of stakeholders that are established by law or through mutual agreements
are to be respected”.
o “Where stakeholder interests are protected by law, stakeholders should have the
opportunity to obtain effective redress for violation of their rights”.
o
“Performance-enhancing
permitted to develop”.
mechanisms
for
employee
participation
should
o
“Where stakeholders participate in the corporate governance process, they should
be
47
The original member countries of the OECD are Austria, Australia, Belgium, Canada, Czech Republic,
Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan , Korea, Luxembourg, the
Netherlands, New Zealand , Norway, Mexico, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland,
Turkey, the United Kingdom and the United States.
48
OECD, OECD Principles of Corporate Governance (2004), p.2
49
OECD Principles of Corporate Governance (2004), Preamble
50
OECD Principles of Corporate Governance (2004), part IV, p.21
14
have access to relevant, sufficient and reliable information on a timely and regular
basis”.
o “Stakeholders, including individual employees and their representative bodies,
should be able to freely communicate their concerns about illegal or unethical
practices to the board and their rights should not be compromised for doing this”.
o “The corporate governance framework should be complemented by an effective,
efficient insolvency framework and by effective enforcement of creditor rights”.
3.2
Corporate Governance sources of law ; USA
Traditionally, regulation regarding corporate law in the USA belongs to the individual states.
Classical corporate governance subjects such as separation of powers between institutional
organizations, appointment of the board etcetera are managed by state law. Because of
several scandals such as Enron51, WorldCom52 and other corporate scandals, a United States
federal law has been introduced; The Sarbanes-Oxley Act of 2002 (SOX).
3.2.1
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (SOX) is named after Senator Paul Sarbanes and
representative Michael G. Oxley. The act contains 11 titles, ranging from additional corporate
board responsibilities to criminal penalties, and requires the Securities and Exchange
Commission (SEC) to execute rules on requirements that match with the law. It contains a lot
of measures regarding the financial information of listed companies. It has to be accurate
and publicly disclosed on time53.
Section 302 is an important part of the SOX regarding corporate governance. The signing
responsible officers must state that they are "responsible for establishing and maintaining
internal controls" and "have designed such internal controls to ensure that material
information relating to the company and its consolidated subsidiaries is made known to such
officers by others within those entities, particularly during the period in which the periodic
reports are being prepared”54. SOX’s most important element is section 404, which says that it
is management’s responsibility to maintain a sound internal-control structure for financial
reporting and to assess its own effectiveness55.
The management boards of listed companies would like to protect (internal) stakeholders
and shielding their companies from lawsuits. Furthermore, develop better information about
company operations in order to avoid making bad decisions. For example, using SEC Form
51
Dharan, Bala G.; William R. Bufkins (2004). Enron: Corporate Fiascos and Their Implications ,Foundation
Press.
52
Lynne W. Jeter (2003). Disconnected: Deceit and Betrayal at WorldCom, Wiley
53
Ernst & Young Report, The Sarbanes-Oxley Act at 10, Enhancing the reliability of financial reporting and
audit quality, 2012, p. 12
54
SOX 15 U.S.C. § 7241(a)(4)
55
SOX 15 U.S.C. § 7262
15
20-F, to standardize the reporting requirements of foreign-based companies so that investors
can evaluate these investments alongside domestic equities56.
Organizations with strong governance provide discipline and structure; bring ethical values in
employees and train them in the proper procedures. In the USA, the focus of corporate
governance is (for the most part) on shareholders, therefore there is no specific section in the
SOX for internal stakeholders rights (employees), regarding corporate governance. However,
the SOX grants protection to employees expressing concern or disclosing information
regarding corporate fraud57.
3.3
Corporate Governance sources of law ; Europe
Europe has achieved a great deal in terms of addressing disclosure, shareholder protection,
and board structures and responsibilities since the adoption of its Action Plan for Modernizing
European Company Law and Enhancing Corporate Governance in the EU (2003) 58. In the
next paragraph I will concentrate on the corporate governance regulation fulfilled in the
Netherlands; the Code Tabaksblat.
3.3.1
Netherlands ; Code Tabaksblat
Corporate governance has been a big item for several years. Because of the 40
recommendations of the Peters Committee (1997), the attention for corporate governance
questions increased59. The Dutch corporate law system rather has a stakeholder view than a
shareholder view when it comes to Executives and Supervisory Boards of companies.
A basic review of Dutch corporate law to re-position shareholders was through a
combination of changes in 2004 to Book 2 of the Dutch Civil Code (“DCC”), a Corporate
Governance Code published by the Tabaksblat Committee (2003) and case law of the
Enterprise Chamber of the Amsterdam Court of Appeal (the “Enterprise Chamber”). This court
has a wide authority to “order investigations into the affairs of companies and to order quick
measures to be taken during the proceedings”60.
Application of the Corporate Governance Code in 2003 through a comply-or-explain
mechanism is as of 2004 according to a Royal Decree61 mandatory for Dutch listed
companies. The Code was adopted by a committee chaired by Mr. Tabaksblat, consisting of
representatives of listed companies, shareholder associations and independent governance
experts62. The acceptance of the Code made it more easy by the several corporate
governance scandals in 2003.
56
ING Groep N.V. Annual Report on Form 20-F
18 USC §1514A. Civil action to protect against retaliation in fraud cases.
58
May 2003 Action Plan on Modernizing Company Law and Enhancing Corporate Governance in the EU COM
(2003) 284 final.
59
“Corporate Governance in Nederland; De Veertig Aanbevelingen”.
60
Jaron van Bekkum, Steven Hijink, Michael Schouten and Jaap Winter, Corporate Governance in the
Netherlands, 2009, p.3
61
Article 2:391 DCC; kamerstukken I 2002/03, 28 179, nr. 309
62
http://www.ejcl.org/143/art143-17.doc
57
16
The Code contains principles and best practice provisions that regulate relations between
the management board, the Supervisory Board and the shareholders (i.e. the general
meeting of shareholders). The interests of the employees should be taken into account when
the interests of all stakeholders are weighed in connection with compliance with the Code 63.
Employees play a relatively prominent role in Dutch corporate governance. The influence of
employees within companies is mainly exercised through works councils. Works councils are
corporate bodies, in addition to the managing board, the Supervisory Board and the general
meeting of shareholders64. The most important role of the works council in Dutch corporate
governance system, goes together with major corporate decisions, like decisions regarding a
control change over the company, a company’s business change, and acquire or give
important loans65. The Works Council Act (WCA) provides a mandatory advice procedure for
these type of decision in Article 25 WCA. The works council’s advice is not binding, but if the
Board’s decision disagrees with the advice or if the Board has not informed the works council
regarding the advice in a correct way, the works council may have the decision reviewed by
the Enterprise Chamber66. The judge has a marginal review67. The Enterprise Chamber may
require management to “withdraw (parts of) the decision or to undo any consequences and
may even prohibit management from executing the decision”68.
3.4
Corporate Governance sources of law ; MENA region
The focus of attention on corporate governance in the MENA region is a relatively new
phenomenon. Only a few years ago there were no corporate governance codes in the
region. Now 11 countries have them and more are introducing them. Hawkamah 69, The
Institute for Corporate Governance, was established in 2004 as a regional organization to
channel and focus the growing interest. They work with the regulatory authorities to develop
future corporate governance framework in countries in the region.
3.4.1
Corporate Governance codes
Countries in the MENA region have started to introduce national corporate governance
codes. While some jurisdictions have adopted a single corporate governance code
applicable to all companies, a number of countries now have codes addressing
specifically State Owned Enterprises (SOE’s) or Small and Medium Enterprises (SME’s). These
codes are predominantly based on the OECD Principles of Corporate Governance and the
63
Jaron van Bekkum, Steven Hijink, Michael Schouten and Jaap Winter, Corporate Governance in the
Netherlands, 2009, p.15
64
http://www.ejcl.org/143/art143-17.doc
Under the Works Councils Act (Wet op de Ondernemingsraden; WCA) a company established in the
Netherlands – regardless of its legal form – is obligated to institute a works council if, in short, it employs more
than 50 employees within the Netherlands (Article 2 WCA).
65
http://www.eurofound.europa.eu/emire/NETHERLANDS/WORKSCOUNCIL-NL.htm
66
Article 26 WCA
67
Article 26 section 4 WCA
68
http://www.ejcl.org/143/art143-17.doc
69
http://www.hawkamah.org/about_hawkamah/vision_mission_values/index.html
17
OECD Guidelines on Corporate Governance of State-Owned Enterprises and some have
been developed with the input of the OECD.
It is in the state’s interest to ensure that, in all enterprises where it has a stake, minority
shareholders are treated equitably, since the SOE’s reputation will influence its capacity to
attract outside funding and impact on the value of the company. That is why the SOE should
ensure that other shareholders do not perceive the state as an unfair owner 70.
The governance of SME’s compared to the governance of larger companies listed on the
stock exchange is different in a number of ways. For example, the owners of SME’s may have
personal relationships in addition to business relationships whereas this is not the case with
listed companies and exit from ownership of an SME may be often difficult financially and
emotionally.
According to the OECD, the balance of corporate governance requirements in general
contained in national corporate and securities legislation and regulations and those
contained in voluntary codes and listing requirements is different in the countries operating in
the MENA region71. In Oman, Egypt, and a few other jurisdictions, listing requirements have
over the years become more strict72. In Syria, governance rules are summarized in the
Corporate Governance Act, which unlike most codes in the region, is mandatory. Other
hand, there are jurisdictions that have chosen to advance their frameworks through other
ways, such as unforced initiatives73.
The statutes of codes are different in the MENA region. In Algeria, Egypt and Tunisia,
corporate governance codes were introduced unforced, but in Saudi Arabia, Oman, Jordan
and Qatar they apply to listed companies on a "comply or explain" basis 74. In Saudi Arabia, a
number of articles of the code are mandatory for listed companies 75. In Egypt, while the
code is not mandatory, some of its articles have been incorporated in the listing requirements
of the stock exchange76.
In parallel with the practices worldwide, Turkey has established the corporate governance
principles77. These principles basically refer to publicly held joint stock companies. But, it is also
possible that other joint stock companies and institutions, active in private and public sector,
can implement these principles. The implementation of the principles is not compulsory78. The
“comply or explain” approach is valid within the principles. But some principles are just
recommendations mentions by the (R) letters on the sides79. With respect to non-conformity
with these principles, which are only recommendations, there is no disclosure required.
However, the principles that are marked as recommendations may be useful to the “comply
or explain” approach in a mid and long term. The principles also include rules beyond the
70
OECD Guideline, Principle 3
Survey on Corporate Governance Framework in the Middle East and North Africa, OECD, 2005, p.3
72
http://www.arabnews.com/oman-takes-strict-approach-islamic-banking-rules
73
http://www.oecd.org/daf/ca/corporategovernanceprinciples/49012924.pdf
74
http://www.oecd.org/daf/ca/RoleofMENAstockexchanges.pd
75
Latham & Watkins LLP, Doing business in Saudi Arabia, 2010, p. 5
76
Survey on Corporate Governance Framework in the Middle East and North Africa, OECD, 2005
77
Corporate Governance Principles of Turkey
78
M.Ararat, M. Ugur, Corporate governance in Turkey: an overview and some policy recommendations, 2003,
Vol. 3 Iss: 1, p. 56
79
T. Barut, The Corporate Governance of the Turkish Joint Stock Companies and Harmonisation with European
Union Acquis, 2011, p.1
71
18
current regulations, and they have been prepared so they can fill the gaps in corporate
governance practices80.
Family-controlled groups of companies are a common feature of the Turkish business scene,
often with a high degree of cross-ownership between companies.
Commercial courts and dispute resolution bodies that can judge on corporate governance
related matters do not overall exist in the MENA region. Except Egypt and Morocco have
specialized commercial courts for these matters81.
Regarding stakeholders’ rights, the rights of employees are quite limited in this region. In
Algeria and Syria, the current regulation does not use the definition of a "stakeholder"82.
Recognition of employee rights is more common in state-owned companies. In Turkey,
stakeholders of the company can consist of shareholders, as well as employees, creditors,
customers, suppliers, trade unions, various non-governmental organizations, etcetera83. But,
since the shareholders are ruled in a special area within the scope of the principles, the
stakeholders are limited to third persons who are in a close relationship with the company for
the meaning of that area84.
Stakeholders’ rights in Turkey are in general covered by the country’s own regulation, such as
law of obligations, law of labour etc). In Turkey, the stakeholder’s rights are not protected
properly by the Turkish Commercial Code; however, the Draft Code by complying with
international standards enacts stakeholder rights too85.
The Capital Markets Board of Turkey (CMB) principles represent a statement of governance
practices which reflect international good practice standards. Regarding stakeholders’ rights
they briefly state that:
o
o
o
“The stakeholders benefit from sound management and protection of the capital of
the company. Disclosure of the company’s operations to the public in an honest,
reliable and transparent manner therefore enables the stakeholders to be informed
about the status of the company. Within this context, the strict adherence to the
corporate governance principles is both vital and essential from the stakeholders’
point of view “.
“Taking into consideration the fact that effective communication and cooperation
between the company and its stakeholders is advantageous for the company in the
long term, the company should respect the rights of its stakeholders that is protected
by law and mutual arrangements and contracts and secure stakeholders’ rights”.
“To be able to minimize any possible conflicts of interest that may arise between the
company and its stakeholders and within the stakeholders, well-balanced
approaches should be adopted and these rights should be considered as
independent”86.
80
The Capital Markets Board of Turkey (CMB) has issued the Corporate Governance Principles of Turkey. June
2003, p.7
81
Survey on Corporate Governance Framework in the Middle East and North Africa, OECD, 2005, p.4
82
http://www.oecd.org/daf/ca/corporategovernanceprinciples/49012924.pdf
83
Capital Standards, Principles & Recommended Best Practices for Public Companies, 2010, p.3
84
IFC Stakeholder Engagement, A Good Practice Handbook for Companies Doing Business in Emerging
Markets, 2007, p. 105
85
Journal of International Commercial Law and Technology Vol. 3, Issue 2 (2008), p.4
86
CMB Principles, June 2003, Amended February 2005, p.35
19
Chapter 4
Comparison
In this chapter a comparison will be made regarding Internationale Nederlanden Groep
(ING) with its subsidiaries based in the American, European and MENA region. The corporate
governance structure of each entity will be described from an internal stakeholders view; the
employees.
4.1
ING
ING is a Dutch international financial company, at the moment offering banking (Figure 3 ING
Bank), investments, life insurance and retirement services (Figure 4 ING Insurance/IM).
With more than 84,000 employees, they serve over 61 million private, corporate and
institutional customers in over 40 countries in Europe, the Americas, Asia/Pacific and the
Middle East.
ING’s strategic priorities are: “strengthening their financial position, restructuring, streamlining
the portfolio, repaying state aid and building both stronger banking and
insurance/investment management businesses, all based on sound business ethics and
good corporate citizenship”87.
Figure 3 ING Bank88
87
88
http://www.ing.com/Our-Company/About-us/Mission-Strategy.htm
No. of employees: over 64, 000 / No. of customers: over 33 million
20
Figure 4 ING Insurance/IM89
ING’s aim is to have a corporate governance structure that is transparent and does justice to
the interests of all its stakeholders: customers, employees, business partners, shareholders and
society as a whole. They believe that good corporate governance entails a careful balance
between the short-term and long-term interests of the company.
ING has a two-tier board system that consists of the Executive Board and the Supervisory
Board90:
o The Executive Board is responsible for day-to-day management of the business and
long-term strategy.
o The Supervisory Board is responsible for controlling management performance and
advising the Executive Board. The Supervisory Board is made up exclusively of outside
directors.
In the next paragraphs, the corporate governance structure of the subsidiaries based in the
American, European and MENA region will be further described.
4.2
ING Group N.V.
ING Groep N.V., a publicly-listed company, is the parent of two main legal entities: ING Bank
N.V. (ING Bank) and ING Verzekeringen N.V. (ING Insurance).
89
90
No. of employees over 18,000 / No. of customers over 28 million
ING Group Sustainability Report 2012, p.75
21
ING is currently trying to separate its banking and insurance operations. The separation is part
of the Restructuring Plan required by the European Commission in order to gain approval for
the help the Dutch state received in 2008/200991.
On the banking side, they intend to be strong, a major bank in Europe, with leading internal
full-service banking positions in attractive, stable home markets, as well as a leading
commercial bank in the Benelux with a strong position in Europe 92.
On the insurance side, the focus will be to optimise returns and value for the business as they
prepare for separation. They will focus on earning their customers’ faith through clear
products, value for money and top service. This will reflect their universal customer ideal:
“saving and investing for the future should be easier”93.
For the corporate governance structure and practices, ING Group uses the Corporate
Governance Code as a reference94. ING Group has a two-tier board system. Its
management board is the Executive Board and the Supervisory Board is advising and
supervising the Executive Board95. Generally, members of the management board are
employees of the company, but members of the Supervisory Board are mainly former state or
business leaders and sometimes former members of the Executive Board96. Members of the
Executive Board and other officers or employees of the company cannot be a member of
the Supervisory Board at the same time, because members of the Supervisory Board must
approve specific decisions of the Executive Board 97. Under the Corporate Governance
Code, all members of the Supervisory Board with the exception of not more than one person,
should be independent98. All members of ING Group’s Supervisory Board, with the exception
of one person99, are independent within the meaning of the Corporate Governance Code.
The Articles of Association of ING Group provide that there are “no quorum requirements to
hold a general meeting, although certain shareholder actions and certain resolutions may
require a quorum”100.
General meetings are being held each year in April or May, and the following points are
being taken into consideration:
- to discuss the business progress in the previous financial year based on the reports
prepared by the Executive Board and the Supervisory Board;
- to decide on the distribution of dividend payments;
- the appointment and/or re-appointment of members of the Executive Board and
the Supervisory Board;
- other details requiring “shareholder approval under Dutch law, and any other
matters proposed by the Supervisory Board, the Executive Board or shareholders or
holders of depositary receipts in accordance with the Articles of Association”101.
91
http://europa.eu/rapid/press-release_IP-09-1729_en.htm
ING Bank Fact Sheet May 2013 / http://onebank.intranet/ingbankglobal/About/Pages/About-ING-Bank.aspx
93
Annual Report 2012 ING Group N.V.
94
The Corporate Governance Code can be downloaded from the website of the Dutch Corporate Governance
Code Monitoring Committee (www.commissiecorporategovernance.nl)
95
ING Group Legal Charter, version 1.0
96
P.L. Davies, The Board of Directors: Composition, Structure, Duties and Powers, 2000, p. 5
97
ING Group Articles of Association, Article 12
98
Principle III.2.2 Dutch Corporate Governance Code
99
Luc Vandewalle
100
http://www.ing.com/Our-Company/About-us/Corporate-Governance/Corporate-governance-and-the-NYSElisting-standards.htm
101
Annual Report 2012 ING Group N.V.
92
22
ING Group seeks feedback from their stakeholders, such as employees, on different issues
and try to engage in a constructive dialogue102. This enables them to learn which issues are
most important to them and how they can best align the interests of their business with the
employees’ interests103. They prefer to take an integrated approach towards stakeholder
engagement. This means that they have an ongoing dialogue about their role in society, their
products and services, their business performance and other issues. This is done at both the
business unit and Group level104. The instruments they use to conduct this dialogue include:
regular information sessions for private and corporate clients on customer protection;
stakeholder dialogues on topics like financial regulation and corporate responsibility105.
4.3
ING North America Insurance Corporation
ING North America Insurance Corporation (ING NAIC), located in Minneapolis, offers
insurance and financial products including fixed and variable annuities, life insurance,
individual life reinsurance, and retirement savings plans. It also provides policy brokerage,
investment planning, mutual funds, wealth management, and employee benefits
administration. The company was incorporated in 1983 and is based in Atlanta, Georgia. ING
NAIC operates as a subsidiary of ING U.S. Inc.
ING NAIC is governed under the corporate business laws of the state of Delaware.
The corporate governance rules applicable to U.S. companies are different than the one
applied in The Netherlands. Most U.S. companies use a one-tier board structure. Under Dutch
company law and the Corporate Governance Code, shareholder approval is only required
for equity compensation plans (or changes thereto) for members of the Executive Board and
Supervisory Board, and not for equity compensation plans for other groups of employees 106.
There are no other (single) corporate governance rules for ING NAIC. The Bylaws (and parts
of the Articles of Incorporation) provide the governance policies for the entity.
ING NAIC has no employees. ING U.S., which is also a subsidiary of ING Group, has the same
stakeholder engagement as ING Group N.V. as described in paragraph 4.2.
4.4
ING Emeklilik A.S.
ING Emeklilik Anonim Şirketi (ING Emeklilik), is located in Istanbul, and its objectives are to
carry out private pension, life and personal accident insurance as well as reassurance
activities within the scope of the restrictions which are, and which will be, introduced by the
Private Pension, Insurance and Capital Market legislations as well as other relevant legislation,
and to carry out all legal transactions, deeds and tasks included within the field of activity of
the company107. ING Continental Europe Holdings B.V. directly holds 99.96% share capital of
the company which, therefore, makes ING Emeklilik a subsidiary of ING Group.
102
ING Group Sustainability Report 2012, p. 14
http://scp.be.intranet/eip/ingportal/showdoc.jsp?docid=415805_EN&menopt=nfe%7Cnew
104
http://www.ing.intranet/eip/ingportal/showdoc.jsp?docid=415794_EN&menopt=nfe|new
105
http://www.ingforsomethingbetter.com/ Stakeholder engagement
106
Annual Report 2012 ING Group N.V.
107
Article 3 AoA of ING Emeklilik
103
23
The company business is managed and administered by the Board of Directors consisting of
6 (six) members including 5 (five) members elected by the General Assembly, as per the
provisions of the Turkish Commercial Code and the Private Pension Savings and Investment
System Law, and the Company General Manager who is a natural member. Any member of
the Board of Directors, representing an entity, which is a partner of the company, shall
automatically lose his/her membership in the Board, if and when such entity is no longer a
partner108. The Board of Directors shall convene as the company business requires, and in any
case at least six times in a given year109.
With respect to Corporate governance rules, ING Emeklilikis not subject to Corporate
Governance Rules issued by Turkish Capital Markets Board, as ING Emeklilik is not a publicly
open company. Corporate governance rules in only apply to companies subject to Capital
Markets Law such as listed companies, publicly open companies and companies whose
shares are traded at the stock exchange. However, some publicly closed companies, such as
ING Emeklilik, prefer to have their own corporate governance rules but such implementation
is not very common. The one ING Emeklilik using is the same as what other ING Group
companies have adopted. Therefore there is no difference in that respect.
108
109
Article 11 AoA of ING Emeklilik
Article 12 AoA of ING Emeklilik
24
Chapter 5
Conclusion
In this thesis the rights of an employee as an internal stakeholder in corporate governance is
analyzed. The research question is about to what extent their say is when it comes to e.g.
(major) decisions that can affect the company. And how do corporations deal with the
corporate governance standards of their country and does this differ from region to region?
To come up with an answer for this question, I started with a brief description of the corporate
governance system in the European, American and MENA region. Followed by explaining the
several institutions of corporate governance in general. These institutions have been
discussed in the essence of the European, American and MENA region. In the 3rd chapter, the
basic source for corporate governance has been described; the OECD Principles of
Corporate Governance. Furthermore, the different sources of law regarding corporate
governance regulation have been presented for the different regions. A compare of the ING
Group entities that operate in the above mentioned regions, give a good view of their
corporate governance rules. In particular, the rights of an employee as an internal
stakeholder of that entity if applicable.
Demands on companies are rapidly increasing. Stakeholders have distinct expectations from
companies, such as transparency, openness, accountability and sound social, environmental
and ethical behavior. There is less trust in companies which leads to more public scrutiny.
Employees increasingly want to work for a company they feel proud of. There is no doubt
that Europe and the MENA region have looked at the developments regarding the scandals
in the American region on the field of corporate governance. The Sarbanes-Oxley Act was
the response as a reform of the U.S. corporate governance. The Sarbanes-Oxley Act might be
stricter than the corporate governance policy adopted in Europe, however, the Code
Tabaksblat has clearly followed its own direction. American entities have to follow the
applicable corporate governance rules on their entity and Dutch entities who are listed on
American Stock Exchange, always had to meet additional requirements.
Since the American region adopted a one-tier board system, employees find it hard to have
good faith in their management, because the managements’ behavior relies on constant
market investigation110. This is because the corporate governance policies in this region are
typically focused on the shareholders. Within ING North America Insurance Corporation, the
American subsidiary of ING Group, has no employees which means they are no other single
corporate governance rules for this entity. In North America, unlike Western Europe,
employee representation
has traditionally been through a single system, unions and collective bargaining. However, it is
recommending to even set up, for example, a voluntary employee representation. An
introduction of Works Council will facilitate communication with employees, increase
employee commitment, and force advanced planning.
In the Netherlands, the employees are seen as an important group of the corporation.
At ING Group N.V. many of their stakeholders rightly emphasize ING’s responsibility to
minimize risk. At the same time, however, measured risk-taking is an inherent part of the
business of a financial services provider. Despite the dilemma(s), they consider it their
responsibility as a financial institution to carefully weigh the interests of their (internal)
110
http://www.ieseinsight.com/doc.aspx?id=866
25
stakeholders and to do their very best to meet their expectations. But while having a real
understanding of stakeholder expectations is one thing, it is quite another thing to effectively
translate these expectations into solutions and match them with business strategies.
Particularly relevant in this respect is providing insight into how to use or apply the input in
designing the solutions that the (internal) stakeholders expect of the company.
Most companies in the MENA region adopt a one-tier board system. Stakeholders’ rights and
the acknowledgement of employee’s rights, seems to be limited in the MENA region. For the
Turkish entity, ING Emeklilik, there is no particular policy regarding internal stakeholders’ rights
in their corporate governance policy. However, there is an article in the Turkish Commercial
Code related to this issue:
The article 463 states that “As a financing method for Joint-Stock companies, the New
Commercial Code brings the conditional capital increase system, through the exercise of
which, the company's creditors such as holders of bonds or other debt securities and its
employees may partake in its equity”.
Although The Article 463 TCC enables companies to give shares to its employees ,almost all
companies in Turkey do not prefer to use this right for their employees. Since, if they give
shares to its employees, that means they need to give more taxes.
Besides that if they give share to its employees ,companies know that these employees will
have the right to participate the General Assembly and they think this situation can cause
different problems. Due to these kind of situations, companies in Turkey do not prefer to give
(for example) shares to its employees.
Regarding works councils, it would be in the game only if the employees have collective
agreements. ING Emeklilik employees have individual employment agreements therefore it is
not relevant in their case.
Since the company is in the process of several developments, the conclusions drawn is based
on only one particular case study; but may also shed light on other corporate governance
mechanisms, as described in previous chapters.
I believe that there is no system that has the best corporate governance policy, because the
corporate governance rules in each region is not universally applicable to every
corporation/economy. Each region has its own rules because of their economy and religious
or cultural habits. However, they can all learn from each other and its worth to look at each
others policy from a positive point of view.
26
Bibliography
List of abbreviations
B.V.
CEO
CMB
DCC
EU
IFC
IM
Inc.
ING
ING NAIC
MENA
N.V.
OECD
SEC
SME
SOE
SOX
TCC
U.K.
U.S.
USA
WCA
Besloten Vennootschap
Chief Executive Officer
Capital Markets Board of Turkey
Dutch Civil Code
European Union
International Finance Corporation
Investment Management
Incorporated
Internationale Nederlanden Groep
Internationale Nederlanden Groep North America
Insurance Corporation
Middle East and North Africa
Naamloze Vennootschap
Organization
for
Economic
Co-operation
and
Development
Securities and Exchange Commission
Small and Medium Enterprises
State Owned Enterprises
Sarbanes–Oxley Act of 2002
Turkish Commercial Code
United Kingdom
United States
United States of America
Works Council Act
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Books and Reports
Advancing Corporate Governance in the Middle East and North Africa, Center For
International Private Enterprise Global Corporate Governance Forum, February 2011
Annual Report 2012 ING Group N.V.
Ararat, M., and Ugur, M., Corporate governance in Turkey: an overview and some policy
recommendations, 2003, Vol. 3 Issue 1
Barut, T., The Corporate Governance of the Turkish Joint Stock Companies and Harmonisation
with European Union Acquis, 2011
Bowen, William G, The Board Book: An Insider's Guide for Directors and Trustees, W.W. Norton
& Company, New York & London, 2008
Braendle, U.C. , Corporate Governance in the Middle East -Another Arabic Spring?, 2012
Capital Standards, Principles & Recommended Best Practices for Public Companies, 2010
Cernat, L., The Emerging European Corporate Governance Model: Anglo-Saxon, Continental,
or still the century of Diversity?, 2004
Chilosi, Alberto and Damiani, Mirella, Stakeholders vs. shareholders in corporate governance
Corporate Governance in the Middle East and North Africa: An Overview, Maged Shawky
Sourial Ministry of Foreign Trade, Cairo, Egypt
Corporate Governance MENA Survey, Hawkamah/IFC 2008
Corporate Governance, Values, Management and Standards: A European Perspective, J.
Wieland, 2005
Davies, P.L., The Board of Directors: Composition, Structure, Duties and Powers, 2000
Dharan, Bala G.; William R. Bufkins , Enron: Corporate Fiascos and Their Implications,
Foundation Press, 2004
Dr. Elaine Sternberg, The Stakeholder Concept: A Mistaken Doctrine, University of Leeds 1999
Elson, C. M. and Christopher J. Gyves, The Enron Failure and Corporate Governance Reform,
WAKE FOREST L. REV., 2003
Enriques, L. and Paolo Volpin, Corporate Governance Reforms in Continental Europe, Journal
of Economic Perspectives. Volume 21, Number 1, 2007
Ernst & Young Report, The Sarbanes-Oxley Act at 10, Enhancing the reliability of financial
reporting and audit quality, 2012
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Ferdinand Mason and Casper Haket, Corporate Governance and Directors’ Duties, Boekel
De Nerée NV, 2008
Goodijk, R., Corporate Governance and Works Councils: A Dutch Perspective, October 2011,
Volume 1
Gregory Francesco Maassen, An International Comparison of Corporate Governance
Models, 2002
H. Jeff Smith, The Shareholders vs. Stakeholders Debate, July 15, 2003
Hopt, Klaus J., ‘The German Two-Tier Board: Experience, Theories, Reforms’ in Klaus J Hopt and
others (eds), Comparative Corporate Governance: The State of the Art and Emerging
Research ,OUP, Oxford 1998
IFC Stakeholder Engagement, A Good Practice Handbook for Companies Doing Business in
Emerging Markets, 2007
ING Group Sustainability Report 2012
Jeter, L.W., Disconnected: Deceit and Betrayal at WorldCom, Wiley, 2003
Journal of International Commercial Law and Technology Vol. 3, Issue 2, 2008
Kogut, B., The small worlds of corporate governance, London 2012
Latham & Watkins LLP, Doing business in Saudi Arabia, 2010
LJN: AZ6440,Ondernemingskamer Gerechtshof Amsterdam , 15/2007 (Stork)
LJN: BA4395,Ondernemingskamer Gerechtshof Amsterdam , 451/2007 (ABN AMRO)
Maassen, G.F., F.A.J. Van Den Bosch, Corporate Governance in Internationaal Perspectief, in:
S.C. Peij et al. (eds.), Handboek Corporate Governance, Deventer: Kluwer, 2011
Macey, J. The Promis of Corporate Governance ,2007
Mallin, C., Corporate Governance, 3rd edition, 2010
May 2003 Action Plan on Modernizing Company Law and Enhancing Corporate Governance
in the EU COM, 2003
MENA-OECD Working Group, OECD/OCDE
Parliamentary Proceedings II 2008/09, 32 014, No. 3.
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Salacuse, J.W., CORPORATE GOVERNANCE IN THE UNECE REGION, UN/ECE, Geneva,
December 2002
Survey on Corporate Governance Framework in the Middle East and North Africa, OECD,
2005
The Capital Markets Board of Turkey (CMB) has issued the Corporate Governance Principles
of Turkey. June 2003
The Center for International Private Enterprise and the Global Corporate Governance, Forum,
February 2011
Udo C Brändle and Jürgen Noll (n 1) 1359–1360; Uwe H Schneider, ‘Die Revision der OECD
Principles of Corporate Governance 2004’ (2004) 49 Die Aktiengesellschaft 429, 432; cf Paul L
Davies (n 10) 436
Van Bekkum, J., Steven Hijink, Michael Schouten and Jaap Winter, Corporate Governance in
the Netherlands, 2009
Van den Berg, A., The Dutch works council from an Institutional Economics Point of View: an
Efficient Solution to the Governance Structure Problem?, August 2003
Widen, W.H., Enron at the Margin, The Business Lawyer, 2003
Internet sources
http://europa.eu/rapid/press-release
http://europa.eu/rapid/press-release_IP-09-1729_en.htm
http://onebank.intranet/ingbankglobal/About/Pages/About-ING-Bank.aspx
http://scp.be.intranet/eip/ingportal/showdoc.jsp?docid=415805_EN&menopt=nfe%7Cnew
http://stats.oecd.org/glossary
http://stats.oecd.org/glossary/detail.asp?ID=6778
http://www.arabnews.com/oman-takes-strict-approach-islamic-banking-rules
http://www.cipe.org/publications/bookstore/pdf/advancingCGinTheMENA.pdf
http://www.ejcl.org/143/art143-17.doc
http://www.eurofound.europa.eu/emire/NETHERLANDS/WORKSCOUNCIL-NL.htm
http://www.ieseinsight.com/doc
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http://www.ing.intranet/eip/ingportal/showdoc.jsp?docid=415794_EN&menopt=nfe|new
http://www.ingforsomethingbetter.com/stakeholderengagement
http://www.mondaq.com
http://www.oecd.org/daf/ca/RoleofMENAstockexchanges.pdf
www.commissiecorporategovernance.nl
www.ing.com
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