Finland and Netherlands opt to 'apply and explain'

12 January 2004

Two EU countries have joined the list of nations that have opted for the "apply or explain" principle of corporate governance whereby companies are allowed to deviate from the rules as long as they explain why they have chosen to do so.

The Dutch code comes into force on January 1 and draws from the report chaired by a former Unilever chief, Morris Tabaksblat, while the Finnish model is based on the result of a working party of leaders from the country's main business groups, and should be in force by next July.

In the Netherlands corporate board members will be obliged to undergo "training and education" to help them do their job properly, and the number of boards they may serve on will be limited.

Dutch finance minister Gerrit Zalm has called the Tabaksblat Code an important first step in restoring confidence in listed companies. 'The code strikes a good balance between complete freedom and restrictive legislation", he said, adding that a permanent committee is to be set up to monitor compliance.

In Finland there is a subtle if semantic difference from Dutch plans. The Finns took the expression "comply or explain" from British practice to describe their code, saying this meant that if a company had a "weighty" reason for non-compliance it would have to account for this in detail. The Finns are also requiring that this be published in a corporate governance section of each company's annual report.

The Finnish code, drawn up by the Helsinki Stock Exchange, the Central Chamber of Commerce and the Confederation of Finnish Industry and Employers also covers points such as organisation of the general meeting of shareholders, work of the board of directors, the election, number and term of directors, presentation of information on corporate governance systems, internal control, risk management and internal audit.

The Dutch code draws a clear distinction between management and supervisory board roles, while keeping the existing two tier system in place. Interestingly it limits to five the number of non-executive directorships held by any one person, with chairmanships counting as two directorships. This is likely to result in a rise in new blood coming on to boardrooms.

Full details of Dutch proposals click here
Full details of Finnish proposals click here