Eumedion in the Dutch Corporate Governance and Sustainability Landscape

Hermes, N., Hooghiemstra, R. & van Veen, K., 2016, Groningen: University of Groningen. Faculty of Economics and Business.

Research output: Book/ReportReportProfessional

Eumedion is a Dutch foundation representing the interests of Dutch and foreign institutional investors with investments in Dutch listed companies. In particular, it represents the interests of these participants in the field of corporate governance and sustainability. The foundation was established in 2006 with the objective to maintain and develop good corporate governance and sustainability performance by listed companies and institutional investors in the Netherlands and Europe.
In this report, we address the following research question: To what extent has Eumedion contributed to the development and improvement of corporate governance and sustainability in the Netherlands during the 2006-2015 period? We analyze Eumedion’s contribution by using a theoretical framework that describes the process of developing norms of corporate governance and sustainability. These norms describe how (good) corporate governance and sustainability should look like. The process of developing norms can be broken down in three stages, i.e. norm setting, norm spreading and norm implementation. Our analysis describes how Eumedion is actively involved in all three stages.
The analysis in this report is based on a large data base consisting of documents that are publicly available from Eumedion’s website as well as documents we obtained from Eumedion’s secretariat and consists of Eumedion’s Corporate Governance Manual, policy plans (beleidsplannen), annual reports, position papers, comment letters, consultation documents, focus letters, company dialogues, company alerts, and annual evaluations of annual general meetings of shareholders (AMGs). Moreover, we collected information about the media attention for Eumedion. The data covers the period 2005-2016. Finally, we held interviews with fourteen important actors in the Dutch and international corporate governance field who shared their experiences with and ideas and perceptions about the activities of Eumedion.
Our analysis reveals the following results. In the norm setting stage, norms regarding corporate governance and sustainability are established. Eumedion has been actively involved in this process, first of all by writing consultation reactions and sending comment letters to Dutch and European institutions directly involved in setting norms. In particular, it is frequently communicating with the Dutch Ministry of Finance, the European Union Institutions and (committees of) the Dutch House of Representatives, because they are most important in setting corporate governance and sustainability norms. The analysis also shows that Eumedion is discussing a wide range of corporate governance and sustainability topics in its interactions with these institutions. Yet, over time the emphasis of topics discussed shifted from more traditional corporate governance topics (such as shareholder rights and remuneration) to financial and non-financial reporting and the role of the internal auditing function and external auditor. During the 2008-2012 it was particularly active on issues related to the financial markets and banking industry as a consequence of the global financial crisis. Finally, our analysis reveals that Eumedion has joined committees and boards of organizations that are important in establishing corporate governance and sustainaibilty norms, both in, as well as outside, the Netherlands.
Next to the consultation reactions and comment letter, Eumedion produces position papers (since 2008), which are aimed at boosting discussions about norm setting and/or changes. Eumedion has been very active in writing these papers, especially during the years 2014-2016, signaling its active role in debates as a thought leader. The majority of these papers deal with topics related to the powers of shareholders and disclosures. Eumedion is also active in several Dutch and international committees in which norm setting regarding corporate governance and sustainability is discussed and developed. Eumedion’s network of organizations in which it participates has widened considerably over the years.
During the second stage, norms are spread, or diffused, to the parties in the field who are supposed to act according to these norms. In order to make sure they act upon the norms, they should be made aware of them. Most importantly, Eumedion is active at this stage of the norm development process by annually issuing so-called focus letters, which are sent to Dutch listed companies and in which it communicates the most important topics for institutional investors for the next reporting and AGM season. Our review of these letters shows that they discuss a wide range of topics with an emphasis on the procedures regarding the organization of AGMs, content and accountability of remuneration policies, corporate risk analysis, risk management and control and reporting issues. The overview also shows that over the years the focus of the focus letters has shifted towards addressing risk and reporting issues. Evaluating the effectiveness of the focus letters suggests that they have had a significant impact on corporate governance behavior of Dutch listed companies and other related actors. The fact that Eumedion puts and keeps issues on the agenda of discussions about corporate governance between management and shareholders stimulates companies to address these issues.
During its early years (2006-2009) Eumedion was mostly involved in norm setting and norm spreading. Since 2009, it became more and more involved in the third stage of the norm development process. During this stage, it is evaluated whether and to what extent norms are being implemented by companies. Eumedion again is actively involved in this stage. First of all, it has annual dialogues with a selection of Dutch listed companies, during which it communicates its observations and discusses its opinion on how norms should be applied by a specific company. Moreover, in case of controversial proposals made by company management at the AGM it may start the so-called alert procedure, which may lead to sending out an official alert to the company and Eumedion’s participants. In this alert, it describes why it would like to see the proposal to be withdrawn or changed. Our evaluation of the use of company dialogues and alert service suggests that they played an important role in making norm implementation by participants a coordinated activity, i.e. it helped professionalizing the norm implementation process. They also helped Eumedion becoming increasingly influential in determining the debates over governance and sustainability both within the board room as well as during AGMs.
Combining the empirical evaluation of the documents with the content of the expert interviews reveals the following picture. First, although Eumedion is a small organization, it has been able to make a significant and positive contribution to all three stages of the norm development process in the Netherlands during the past ten years. It is taken into account as a serious partner in discussions during policy developments by important decision makers, management and supervisory board of companies and other relevant parties, both domestically as well as internationally. Moreover, Eumedion is seen as a serious knowledge centre and an active and respected organization representing shareholder interests.
Second, Eumedion has been actively involved in discussing a broad spectrum of corporate goverance and sustainability issues, i.e. from traditional corporate governance topics, such as shareholder rights and remuneration to corporate social responsibility and tax avoidance.
Third, Eumedion has helped creating an environment in which there is a permanent dialogue between company management and investors during, but certainly also outside, the AGM. It has been successful in getting and keeping important governance issues on the agenda, in establishing closer and more informative relationships between management and shareholders, and in helping to make sure that shareholders are taken more seriously. It has also stimulated institutional investors to take their role as engaged shareholders more seriously.
Fourth, with respect to the implementation of norms, Eumedion may have been less effective in some cases in changing company behavior because it is a relatively small player. For some of the companies with which it has a dialogue and/or sends out an alert, Eumedion represents only a small part of outstanding shares. Moreover, companies focus more on internationally operating proxy advisors such as ISS and Glass Lewis, because foreign institutional investors mostly look at the advice given by these proxy advisors, instead of looking at the alerts issued by Eumedion.
Fifth, Eumedion has a limited mandate to speak on behalf of its participants in its communication with companies. The issue of the mandate of the representative of institutional investors in the Netherlands has been on the table ever since its predecessor, the SCGOP was established; Eumedion as its successor “inherited” this discussion. It may signal controversial governance issues, yet its participants ultimately decide for themselves how they deal with these issues. Obviously, this reduces Eumedion’s direct power in influencing company behavior.
Sitxh, Eumedion focuses on corporate governance and sustainability. Since in many cases corporate governance and sustainability issues are not really integrated in portfolio management and analysis of both investors and companies, the effectiveness of Eumedion in representing interests of its participants with respect to these issues is reduced.
Looking at the future, we suggest Eumedion to elaborate on the following three issues. First, given its experience and knowledge in the field of corporate governance and sustainability, it can play an important role in facilitating the discussion on how to integrate CSR decisions in portfolio management decisions, both within companies and institutional investors, as well as between companies and their investors. In communications they have with both these parties, it could more forcefully stress the fact that firm value and CSR are complements rather than substitutes, at least in the long-term.
Second, Eumedion could focus on stimulating, and perhaps even leading, the current debate on engaged share-ownership, both within and outside the Netherlands. Recently, Eumedion has voiced its concerns about the lack of an engaged and stable shareholder base in Dutch listed companies and the potential consequences of this for the long-term sustainability of these companies and its owners. It has also raised its voice in criticizing the use of loyalty shares as a way to create a stable shareholder base. This signals Eumedion has a clear stance in the debate on how to deal with developing an engaged and stable shareholder base. It could therefore become one of the thought leaders on this issue in the coming years.
Third, the fact that it has a limited mandate to act on behalf of its participants is a weakness of the model of interest representation used in the case of Eumedion. Strengthening its position as a representative of its participants vis-à-vis company management would leverage the effectiveness of the association in the process of norm implementation. This would also mean that Eumedion is allowed and is able to take a more activist position in case of controversial proposals and/or decisions made by company management. Participants of Eumedion may therefore reconsider the foundation’s mandate to make it more powerful in discussions with company management.
Original languageEnglish
Place of PublicationGroningen
PublisherUniversity of Groningen. Faculty of Economics and Business
Publication statusPublished - 2016


  • Corporate Governance, Institutional investors

ID: 40679035