transparency on corporate social responsibility
4.4 Implementation in Dutch law 1 Amendment Dutch company code
In 2005, article 1.14 was incorporated in article 391, paragraph 1, Book 2 DCC by a Dutch implementation act.20 Book 2 DCC contains the Dutch Company Code. The Dutch legislator did not literally copy article 1.14, but used similar wording. Legislative history does not explain why the wording deviates slightly from the original text, nor does it contain any discussion on this point. Legal authors have not expressed any specific opinion on this. It could, therefore, be argued that this deviation has no meaning.21
4.4.2 Legislative history
The legislative history accompanying the implementation act is not very extensive, although some parts are worth noting here. The Dutch legislator
16. Article 211 EC Treaty (pursuant to the Lissabon Treaty, this article has been deleted). 17. Article 226 EC Treaty (pursuant to the Lissabon Treaty: article 258 EC Treaty). See P. Craig
and G. de Búrca, EU Law, text, cases, and materials(University Press: Oxford 2003), p. 400.
18. E.g.ECJ 10 December 1968, C-7/68 (Commission vs. Italian Republic); ECJ 21 June 1988, C-416/85, (Commission vs. United Kingdom); and ECJ 10 April 1984, C-324/82 (Commis- sion vs. Belgium).
19. Article 228 (pursuant to the Lissabon Treaty, presently article 260 EC Treaty), §§ 1 and 2 EC Treaty. ECJ 12 July 2005, C-304/02 (Commission versus France), Jur. 2005, p. I-06263. 20. Wet uitvoering IAS-Verordening, IAS 39-richtlijn en moderniseringsrichtlijn, effective as of
27 July 2005 and applicable to annual reports over the book year 2005. See on this Act: H. Beckman,‘Wijzigingen in het jaarrekeningenrecht’[Changes in annual accounting law], in
Ondernemingsrecht, No. 154, 2005, p. 445.
21. T.E. Lambooy,‘Aspecten maatschappelijk verantwoord ondernemen in jaarverslag; Trans- parantie over MVO op Europees niveau’, inOndernemingsrecht, 3, 2006, p. 93, note 5.
issued ambivalent signals: on the one hand it explained that the amendment meant an extension of the existing reporting requirements,22 on the other hand the legislator stressed that the amendment did not materially change anything. From this it could be concluded that the legislator was concerned that it might be criticised for placing a larger administrative burden on Dutch companies. Seen in this light, it seems logical that the legislator emphasised various times that the amendment to the DCC section on annual reporting did in fact not contain anything new.
In respect of the new reporting requirement on environmental matters, the legislator referred to the Commission Recommendation 2001/453/EC (see section 4.2.4). However, at the same time it stated that companies that already issue environmental reports pursuant to the Environmental Management Act need not worry about the new obligation because they already report on environmental issues and can refer to that.23
In respect of the new reporting requirement on “employee matters”, the legislator referred to the existing practice to report on the work force, that is the number of personnel, pursuant to article 2:391 paragraph 2 DCC.24
4.4.3 Environmental reporting obligations
In the opinion of the author, the Dutch legislator did not act very bravely nor accurately, by referring to environmental reports. In fact, such an environmental report is only required from companies that have a large industrial production facility in the Netherlands which is potentially harmful to the local environment
22. The legislator uses the words‘additional requirements’and he also refers to the Commission Recommendation. See legislative history: Kamerstukken II 2003/04, 29 737, No. 3 (Explanatory Memorandum, Memorie van Toelichting, hereinafter: ‘MvT’), pp. 23-24. See also Beckman, supra note 21, p. 446, who is of the opinion that the reporting requirements have been considerably augmented by the Act. See also Koning/Kiersch 2007 (T&C BW), article 2:391 DCC, note 1. Furthermore, Slagter,supranote 3, p. 482. 23. MvT, pp. 14, 15, 23-25;Kamerstukken II2003/04, 29 737, nb. 7 (Memorandum,Nota naar
aanleiding van het verslag; hereinafter: ‘Nota’), p. 12. See also Lambooy (2006),supra
note 21. See on environmental reporting obligations: T.E. Lambooy, ‘Duurzaamheids- verslaggeving door bedrijven als onderdeel van het jaarverslag?’, inOndernemingsrecht, 16, 2004, pp. 629-636, § 7. This environmental reporting obligation links to the European EMAS Regulation. See in this respect EEG nb. 1836/93, PbEG L 168/1 d.d. 10 July 1993 and T.E. Lambooy and T.P. Flokstra, ‘Kleur bekennen middels jaarverslag’ [Nail one’s colours to the mast by means of the annual report], inDe Naamlooze Vennootschap, 06, 1997, pp. 159-166. A comprehensive economic study has been performed by C. Hibbitt,External Environmental Disclosure and Reporting by Large European Companies(Limperg Instituut: Amsterdam, 2004).
(presently approximately 330 facilities).25 The reporting requirement only con- cerns the environmental issues of the Dutch facility. Consequently, the environ- mental aspects of operations abroad do not have to be reported on. Also, there is no link between the environmental report and the annual accounts of a company, which makes it difficult for analysts and banks to really value such information. In addition, the obligation was first to make two environmental reports: one for the public and one, with more technical details, for the governmental institution that provides the production licence, usually the provincial authorities. Recently, in 2005, the requirement to compile a public report has been rescinded with a view to reducing the administrative burden for companies.26 Consequently, the environmental report produced pursuant to the Environmental Management Act to which the Dutch legislator referred can, in the opinion of the author, not be compared to the new EU wide requirement for companies to include information on environmental matters related to their worldwide operations in their annual report. It would have been more accurate if the Dutch legislator were to have pointed to (i) the importance of CSR, (ii) the call for sustainability reporting (see also section 4.5.6 below on the GRI), and (iii) specifically the EP resolutions requesting the Commission and the Council to adopt legislation on CSR and to assure transparency on the worldwide behaviour of EU companies as regards environmental, social and ethical standards.27
4.4.4 Reporting on employee matters
The same could be said in respect of the Dutch legislator’s comment that the new obligation to report on employee matters is identical to that included in article 2:391, paragraph 2 DCC. This explanation does not seem very consistent, since paragraph 2 was to remain unchanged. Since, in addition to the existing paragraph 2, the act implementing the Modernisation Directive in Dutch law has introduced a new paragraph 1 that requires reporting on‘employee matters’, one could deduce that something else is meant than the already existing and unchanged text. The existing text prescribed the inclusion of information on the work force meaning, how many employees work for the company. As argued in section 4.2.5 above, the author believes that the new text has a different and much broader meaning.
Any reference in Dutch legislative history to the existing practice of preparing a so-called ‘Social Report’ pursuant to the Labour Conditions Act, should also be put in the right legal perspective. Such a Social Report is addressed
25. Chapter 12 of the Dutch Environmental Management Act (WetMilieubeheer), and the Decree Environmental Management (Besluit Milieubeheer). Current information available at: http:// www.answersforbusiness.nl/product/laws/Milieu?infoBranch=30&branch=52&subject=187 &searchType=2&localproduct=Environmental+regulations&sop=&organisationtype=Gemeente, accessed on 30 March 2010.
26. Staatsblad, 2005, p. 317. 27. Seesupranote 8.
to the company’s employees. It does not have to be publicly released. More importantly, a Social Report only relates to production facilities in the Nether- lands. A company does not have to include information on its foreign production sites. In addition, the report mainly describes the safety and health situation rather than providing a full picture of all matters relevant from a CSR perspective.28 4.4.5 Proposed amendment referring to OECD MNE Guidelines
The Labour Party had proposed an amendment to the act implementing article 1.14 of the Modernisation Directive in the DCC.29 They put forward a new clause requiring Dutch companies to also disclose in their annual report whether they act in compliance with the OECD MNE Guidelines on CSR,30 and if not, to explain why not. They basically wanted to introduce the same formula, “comply or explain”, as many European countries have chosen in respect of companies’compliance with corporate governance codes of conduct. Dutch law also requires that listed companies disclose in their annual report whether they comply with the Dutch corporate governance code of conduct, the Tabaksblat Code and if not, why not.31 The Minister responsible for the implementation act made a show by arguing that the OECD MNE Guidelines cover a completely different subject and that the Guidelines should not infringe upon the territory of financial reporting. The Minister opined that this act only contained technical changes and that the proposed amendment needs to be discussed extensively in Parliament because it would mean a material change to existing laws. Not long before the adoption of the implementation act the amendment was withdrawn, most probably as a result of a political trade-off.32 4.4.6 Exemptions
In accordance with the option provided in the Modernisation Directive (section 4.2.8), under Dutch law, small and medium sized companies are exempted from the new requirement to provide information on non-financial key perfor- mance indicators. Dutch law already, in general, exempts small companies from
28. Lambooy (2004),supranote 23, §§ 2.3 and 2.4.
29. Kamerstukken II2003/04, 29 737, No. 11 (Amendement Douma).
30. See: www.oecd.org, visited on 1 July 2010. See also D. Leipziger, The Corporate Responsibility Code Book(Greenleaf Publishing Limited: Sheffield, 2003), pp. 52-67. 31. Article 2:391(5) DCC and the Decree of 27 December 2004 appointing the Tabaksblat Code,
Staatsblad, 2004, 747. See also Directive 2006/46/EC, Article 1, sub 7, on the insertion of a new Article 46a in the Fourth Directive. Furthermore, compare H. Beckman,Jaarrekening en Verantwoording (Kluwer: Deventer 2007), oratie [introductory lecture], Groningen University, p. 29.
32. Legislative history:Handelingen II2004/05, nb. 47, pp. 3034 and 3035 andHandelingen II
preparing and publishing an annual report.33 In respect of medium sized compa- nies, the implementation act now provides an exemption.34 This exemption was motivated by the legislator with the argument of reducing administrative burden. 4.4.7 Existing Dutch accounting guidelines on CSR transparency
Before the implementation of article 1.14 of the Modernisation Directive in Dutch law, companies were already stimulated to address CSR matters in their annual reports. In 2003, the Dutch Council for Annual Reporting, published Guideline 400 in which it advised companies and their advisors to include CSR issues in their annual reports.35 This Guideline contains a very clear description of the various CSR subjects that are to be included. The Dutch Council for Annual Reporting also published a practical tool, the so-calledHandreikingon how to report on these non- financial CSR issues. It is fair to say that the Dutch Council for Annual Reporting Guidelines have no legal effect other than that courts can take these into consideration in their interpretation of existing accounting laws. However, it would have been useful and practical if the Dutch legislator had referred to this Guideline 400 in its explanatory memorandum to the implementation act.
4.4.8 Legal consequences
The fact that a large company must now include non-financial key performance indicators in its annual report, rather than in an environmental, social or other type of report, has legal relevance. A company’s non-compliance exposes it to certain legal risks. Under Dutch law, various parties, for instance stakeholders of the company, could commence an action against a company that fails to comply with article 2:391 DCC. Although there have been no cases tried in respect of the new obligation to include non-financial information in the annual report, in Table 4.1 a brief overview of the actions which are theoretically possible in respect of annual reports is provided.
33. Article 2:396(1) and (6) DCC. To qualify as a small company, a company has to meet two or three of the following criteria in two subsequent book years (figures as per 2008): (i) the value of the assets on the balance sheet does not exceed EUR 4,400,000, (ii) the net turnover does not exceed EUR 8,800,000, and
(iii) the average number of employees during the book year is less than fifty.
34. Incorporated in Article 2:397, § 7 DCC. To qualify as a medium sized company, a company has to meet two or three of the following criteria in two subsequent book years (see § 1 of Article 397):
(i) the value of the assets on the balance sheet does not exceed EUR 17,500,000, (ii) the net turnover does not exceed EUR 35,00,000, and
(iii) an average number of employees during the book year is less than two hundred fifty. 35. Current text: Richtlijn 400, 2005, in Richtlijnen voor de jaarverslaggeving (Kluwer: Deventer 2007). See T.E. Lambooy, ‘Maatschappelijk verantwoord ondernemen in de jaarverslaggeving’, in Vennootschap & Onderneming, 2003-12. See, in general on the Dutch Council for Annual Reporting Guidelines: Slagter,supranote 3, p. 474.
Table 4.1 Legal actions under Dutch law
Type of action Based on
section(s)
By whom Possible results
Annual report pro- ceedings before Enterprise Chamber of the Amsterdam Court 447 up to 453,36393 and 394, Book 2 DCC
Any interested party:37share- holders, employees and, under circumstances, unions, creditors, financiers or NGOs.
Advocate General of the Amsterdam Court of Appeals. AFM.
Respectively, Court or- der to adjust the contents of the annual report, to provide information (only AFM), to appoint an accountant, or to publish the report or Enquiry proceeding
before the Enterprise Chamber of the Amsterdam Court.38
344 up to 359, Book 2 DCC
Right to start action attributed in article 2:345-347, DCC to specific persons, such as share- holders holding 10 % or more of the company’s capital, employee association/union.
Advocate General of the Amsterdam Court of Appeals.
Investigation into the matters of the company by independent researchers appointed by the Court. Provisions imposed in accordance with article 2:356, DCC (f.i. to annul a general meeting resolution with rele- vance to the annual report)
Proceedings to establish directors liability re. mislead- ing annual report
139 and 249, Book 2 DCC
Affected third party Order to compensate
damages Tort proceedings (including prospec- tus liability) 162 (and 194), Book 6 DCC
Affected third party Order to compensate
damages Fraud/forgery (valsheid in geschrifte) 225 and 51 of the Dutch Criminal Law Code (DCRC)
Public prosecutor Judgement: imprison-
ment (up to 6 years), penalty (up to EUR 67,000). Section 23, paragraph 4 DCrC. Higher penalty possible pursuant to paragraph 7 provided with sufficient motivation.
36. Since 31 December 2006,Staatsblad, nb. 569, pp. 10-13. See also: Kiersch, 2007, T&C BW, Article 2:447, DCC, note 3.b.
37. Slagter,supranote 3, pp.543-545; P. van Schilfgaarde and J. Winter,‘Van de BV en de NV’
(Kluwer: Deventer, 2006), §§ 109-110.
38. The enquiry proceeding is a typically Dutch proceeding at the Enterprise Chamber in Amsterdam. The Enterprise Chamber is part of the Amsterdam Court of Appeals.