The one- and two-tier board structure related to its nationality mix

related to its nationality mix

A European investigation into the nationality mix of corporate boards

of large listed British, Dutch and German Multinational Enterprises

Groningen, 17 August 2006

University of Groningen

Faculty of Management and Organization Landleven 5 Zernikecomplex Paddepoel 9747 AD Groningen Janine Elbertsen Student number: s1496840 E-mail: J.J.Elbertsen@student.rug.nl

Master Thesis International Business & Management First supervisor: Dr. K. Van Veen

The one- and two-tier board structure

related to its nationality mix

A European investigation into the nationality mix of corporate boards

of large listed British, Dutch and German Multinational Enterprises

ABSTRACT

This research analyzes the implications of the characteristics of the one- and two-tier board structure for the nationality mix among corporate boards from an European perspective. Differences and similarities in law, codes of corporate governance, formal structure and formal roles, election procedures, ownership patterns, and the influence of shareholders have been analyzed and compared across three countries. Data collected from 1443 corporate board members of listed companies in the United Kingdom, the Netherlands and Germany has served to determine measures of nationality mix on three levels, namely the executives, the non-executives and the total corporate boards. The results reveal that, on all three levels, Dutch corporate boards are the easiest accessible boards for foreigners, followed by the UK, and finally German corporate boards. In addition, the differences in formal structure and roles seem not to influence the nationality mix, whereas the ownership pattern, and the influence of shareholders revealed to have a minor impact on the nationality mix. The analyses support the arguments that the pattern of nationality mix is mainly caused by the presence of special election mechanisms like co-optation in the Netherlands, and co-determination in Germany. Whereas none of these special election mechanisms fully reflects the system present in UK boards, the UK can be seen as representing what we could call a “shareholder system”.

Keywords: Corporate Governance, corporate boards, one-tier, two-tier, nationality mix, the United Kingdom, the Netherlands, Germany, International Management

TABLE OF CONTENTS Page 1. INTRODUCTION 5 1.1. Problem Statement 6 1.2. Research Objectives 7 1.3. Methodology 8 1.4. Thesis Outline 9 2. LITERATURE REVIEW 10

2.1. The One- and Two-tier Board Models defined 10

2.2. Previous Research on Board Models 11

2.3. Previous Research on Nationalities in Corporate Boards 12

2.4. Theoretical Framework 13

2.4.1. Agency theory and related theoretical perspectives. 14

2.4.2. Upper echelon theory. 16

3. ONE- AND TWO-TIER BOARDS; DIFFERENCES, 18

SIMILARITIES, AND RECRUITMENT CONSEQUENCES

3.1. The Origins and Development of the One- and Two-tier Board 18 Structure

3.2. Law, Codes, and Practice in One- and Two-Tier Countries 19

3.2.1. Company law. 19

3.2.2. Codes of corporate governance. 20

3.2.3. The relationship between law, codes, and practice in one- and 21 two-tier countries.

3.2. The Formal Organizational Structure of One- and Two-tier 22

Corporate Boards

3.3.1. The formal organizational structure of UK one-tier boards. 23 3.3.2. The formal organizational structure of Dutch and German two-tier 24

boards.

3.3.3. The formal organizational structures compared. 25

3.4. The formal Roles of Boards in One and Two-Tier Companies 26

3.4.1. The roles of one-tier corporate boards in the UK. 26

3.4.3. The role of the Executive and Supervisory board in Germany. 28

3.4.4. Comparison of the formal roles of corporate boards. 28

3.4.5. Consequences of differences in board roles for the nationality mix of 28 corporate boards.

3.5. The Selection Procedure and Accessibility of One- and Two- tier 30 Corporate Boards

3.5.1. The selection procedure of UK one-tier boards. 31

3.5.2. The selection procedure of Dutch two-tier boards. 31

3.5.2.1. The Co-optation system. 32

3.5.3. The selection procedure of German two-tier boards. 32

3.5.3.1. Co-determination. 33

3.5.4. Comparison of selection procedures and accessibility of one- and 33 two-tier boards.

3.6. The Influence of Shareholders and Ownership Structures on One- 38 and Two-tier Boards

4. RESEARCH METHODOLOGY 40

4.1. Data Collection Process 40

4.2. Sample and Methodological Choices 41

4.3. Variables and Measurement 44

4.3.1. Independent variables. 44

4.3.2. Dependent variables. 44

4.4. Choice of Statistical Tests 45

5. DESCRIPTIVE RESULTS 46

5.1. Corporate Board Size across the UK, the Netherlands and Germany 46

5.1.1. Corporate board size and its resulting trends. 48

5.2. Foreigners among Corporate Boards 49

5.3. Nationalities among Corporate Boards 51

6. STATISTICAL RESULTS AND INTERPRETATION 55

6.1. Results Hypotheses 1 and 4 56

6.2. Results Hypothesis 2 57 6.3. Results Hypothesis 3 57 6.4. Results Hypothesis 5 58 6.5. Results Hypothesis 6 59 6.6. Results Hypothesis 7 60 6.7. Results Hypothesis 8 61 6.8. Results Hypothesis 9 62 6.9. Results Hypothesis 10 62 6.10. Results Hypothesis 11 63 6.11. Results Hypothesis 12 64

6.12. Interpretation of the Results 65

6.12.1. Interpretation concerning the ratio of foreign executives and the 65 nationality mix among executives.

6.12.2. Interpretation concerning the ratio of foreign non-executives and 67 the nationality mix among non-executives.

6.12.3. Interpretation concerning the ratio of foreign corporate board 68 members and the nationality mix among corporate board members.

7. CONCLUSIONS 70

7.1. Main Conclusions and Discussion 71

7.2. Limitations and Future Research 73

7.3. Concluding Remarks 74

REFERENCES 75

APPENDIXES 78

A. Selected Listed British, Dutch, and German Companies 78

B. Code Book of the Database 79

C. Tables and Charts 85

1. INTRODUCTION

Nowadays, business is becoming more and more global and companies have to deal with many competitors from various geographical areas around the world. To be able to sustain this fierce competition, companies are more or less forced to engage in business in foreign countries. Besides, the appearance of the EU also leads to an easier transfer of personnel across borders. Further, since the 1990s, issues of corporate governance have gained much attention in today’s business (Birkner, 2005). These trends imply the need for more multicultural teams to manage this diversity in cultures, values, languages, perceptions, and so on, which emerge with the globalization of business. Various researchers (Carter & Lorsch, 2004; Distefano & Maznevski, 2000; Kuin, 1972; Tugendhat, 1972) already recognized this need of having different nationalities to provide effective teams in the management of MNEs. Franko (1973) adds to this that “geocentric” multinationals should be build, in which a mix of nationalities is present.

Moreover, there could be reasons why certain countries are faster in appointing managers from different nationalities than other countries. Glunk, Heijltjes & Olie (2001) argue, for example, that national context influences the composition and functioning of Top Management Teams (TMTs). Further, the appointment of managers of other nationalities might influence the quality of the corporate team. Yet, when considering the management of companies across the world, it becomes immediately clear that there do exist large differences in corporate governance. It can be stated that it is mainly the board structure that differs across these countries, and which determines how boards are constituted. An interesting fact is that it is not solely the law of a country that prescribes whether a company has to adapt a one-tier board or a two-tier board structure. It principally are the normative governance guidelines, like the Codes of Corporate Governance, that initiate and recommend on the type of board structure. However, it remains puzzling what exactly are the reasons for having many or just a few foreigners, and so different nationalities, at the corporate boards of companies.

1.1. Problem Statement

In the past, extensive research has been conducted in the field of International Management. In most cases, the focus was on power, decision-making and leadership of the individual leader (Bryman, 1996), the CEO as an individual (Khurana, 2002) or on characteristics of TMTs in different countries (Glunk et al., 2001), or on the relationship between TMTs and firm performance (Postma et al., 1999). Further, there does exist research in this area focusing solely on TMTs (e.g. Glunk et al., 2001) or focusing solely on Supervisory boards (e.g. Postma & Van Ees, 2000).

As might become obvious, there is lack of research concerning the whole corporate board, so the TMT (also called the Executive Board) as well as the Supervisory Board. It is the whole corporate board, and not solely the Executive board that is responsible for the ins and outs of the company. One of the most striking differences is the type of board structure. Whereas countries in which companies apply a one-tier board have both types of managers (so executives and non-executives) situated in one body, countries applying a two-tier board structure have the executives arranged in an Executive board, and the non-executives arranged in a Supervisory board. Besides this large difference in corporate governance, there do exist other characteristics, which could help reveal the differences in nationality mix across corporate boards. Examples of these characteristics are the different roles performed by the executives and non-executives, as well as the presence of different selection procedures (e.g. co-optation and co-determination) across boards.

Besides the lack of researching the whole corporate board, another lack of research lies in the field of Comparative Corporate Governance. Unfortunately, previous research in this area mainly concentrates on a comparison of two extreme different cases, like the United States (one-tier) with Germany (two-tier) (e.g. Bühner, Rasheed, & Rosenstein, 1998). A pure European perspective about the ins and outs of the one- and two-tier board structure is practically nonexistent.

corporate governance have an impact on the appearance of other nationalities in one- and two tier corporate boards across Europe.

1.2. Research Objectives

To be able to follow the line of reasoning in this thesis, it is necessary to be aware of the fact that this thesis is a ‘first’ effort to integrate different streams of research. It combines International Management with Comparative Corporate Governance research by examining the relationships between the type of board structure (one- or two-tier) and its nationality mix.

Firstly, the characteristics of the one- and two-tier board structure across countries will be analyzed by means of an in-depth description. Second, the thesis will give a more holistic and sophisticated view by including the Supervisory board, if present in a country, in the comparison of the nationality mix. This approach is refreshing and new as it has not been researched in this combination before. Furthermore, this thesis is interesting as Corporate Governance plays a crucial role in the functioning of organizations. This is also the reason why Corporate Governance can be seen as a fundamental issue of “ Bedrijfskunde”. Further, this research could help management with the first steps in determining the nationality mix of their boards. Furthermore, the discovery of a certain pattern in the nationality mix of corporate boards across countries can be very useful as it can serve as a good basis for future research into issues of corporate boards and its nationality mix.

In short, the above-described objectives can be incorporated into the formulation of the following research question:

What do the characteristics of a one- or two-tier board structure imply for the nationality mix of corporate boards?

To be able to answer the research question, a number of investigative questions will be used to structure the research. The answers to these questions will ultimately lead to the answer of the main research question. The following investigative questions are relevant for this thesis:

1. How can the one – and two tier board be defined?

2. What theories are important with relation to the structure and composition of one- and two-tier boards?

4. What is the relation between the law, the Codes of Corporate Governance and the way in which companies put the laws, and the recommendations of the codes, into practice?

5. What differences and similarities can be observed between the one- and two- tier board structure? Do they vary per country?

• What are the differences in formal structure and formal roles of corporate boards in a one- and a two-tier board companies?

• How does the selection procedure take place in one- and two-tier boards? 6. What do these differences and similarities imply for the nationality mix of corporate

boards?

7. Does one of the two types of board structure lead to more openness (openness in terms of the presence of more nationalities) among corporate boards?

8. What kind of relationship does exist between the one- or two-tier board structure and the nationality mix of corporate boards across countries?

9. What pattern in the nationality mix of corporate boards can be observed? 10.What does this pattern in nationality mix imply?

1.3. Methodology

After reviewing and analyzing previous literature on board structure, and by recognizing the absence of a pure European perspective, the UK, the Netherlands, and Germany have been selected for this research. The main argumentation for this choice is the fact that these three countries have the right amount of variation to find out differences. This variation can be found in these countries due to the fact that the UK can be seen as a typical one-tier board country, Germany as a typical two-tier country, and the Netherlands as a country that applies a two-tier board, but also has elements from the one-tier board structure (Maassen & Van den Bosch, 1997).

thesis. Ultimately, this literature will be used to explain the pattern in nationality mix that becomes visible in one-and two-tier boards.

Sub-questions eight and nine will be answered by empirically testing what kind of pattern in nationality mix exists in the UK, the Netherlands and Germany. This will be done by constructing a large database consisting of information concerning board members and their nationalities1. Finally, statistics will be applied to obtain measures for the nationality mix. The main answer to these questions will be the pattern of nationality mix across these three countries. Sub-question ten is intended to give a more managerial perspective to the thesis, and could help explaining the underlying reasons for the observed pattern in nationality mix across countries. Moreover, managers can see in which countries there are more nationalities involved. They can compare it with their own business and maybe use the nationality mix of these companies as an example.

So, in short, this thesis will both have a theoretical (descriptive) as well as an empirical component as this seems to be the best way to handle the research question.

1.4. Thesis Outline

The introduction of this thesis discussed the problem statement, the research objectives, the main research question and some important methodological issues. Chapter 2 elaborates on important literature and previous research on corporate governance and international management and continues with the theoretical framework in which this research can be placed. Important theories in the field of this research will be addressed. Chapter 3 deals with the differences and similarities, as well as the recruitment consequences within one-and two-tier boards, which ultimately results in the formulation of a set of hypotheses. Chapter 4 elaborates on the research methodology. The database construction, the selection of the companies, and the choice of the variables will be explained. Chapter 5 deals with the descriptive results, whereas chapter 6 incorporates the statistical results. Finally, in chapter 7 conclusions will be drawn and discussed. Furthermore, this chapter concludes with some limitations and recommendations for future research.

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2. LITERATURE REVIEW

Corporate Governance and International Management are both widely examined fields of research in economic and management literature. Bleicher & Paul (1986) give a definition of management, as well as of governance. They state that “management is concerned primarily, but not exclusively, with internal relationships and processes. It is more a hands-on activity focused on specific goal-attainment over a definite period of time in a prescribed organization structure” (Bleicher & Paul, 1986:4). Seen in the perspective of this thesis, it is the corporate board that is accountable for the management of the company. The quality of this management can be partly determined by the presence of different nationalities in these boards. The internal relationships between the executives and non-executives might reveal more about this. The prescribed organizational structure in this research is the one- or two-tier board structure.

“Governance, on the other hand, is concerned largely though not exclusively, with relating the corporation to the institutional framework in which it functions” (Bleicher & Paul, 1986:4). To be more specific Corporate Governance covers “the internal organization and power structure of the firm, the functioning of the board of directors both in the one-tier and the two-tier system, the ownership structure of the firm, and the interrelationships among management board, shareholders, and other stakeholders, in particular the company’s workforce and its creditors” (Hopt, Kanda, Roe, Wymeersch & Prigge, 1999:V). As becomes clear, Corporate Governance in general deals with many various aspects, like the stock exchanges, the legislation, institutional investors and the composition of corporate boards. For this thesis the differences in functioning and the interrelationships among the corporate boards and its shareholders, as part of the Corporate Governance literature, play a crucial role as these might contribute to having more or less nationalities in corporate boards across countries.

2.1. The One- and Two-tier Board Models defined

board structure is based on the one-tier board of the USA (Postma & Van Ees, 2000). Furthermore, Maassen (1999) argues that there are much similarities between the USA system of corporate governance and the one of the UK. Various authors (e.g. Glunk et al., 2001; Maassen, & Van den Bosch, 1997) define a one-tier board as a structure in which executive and non-executive managers work together on only one board. Bleicher & Paul (1986) also use this definition of a one-tier board structure, but also use other synonyms for the executive and executive members. Executive members are also called inside directors, and non-executive members outside directors.

On the other hand, the Continental European two-tier board model can be found in countries like the Netherlands, Germany, Austria, Sweden and Denmark (Glunk et al., 2001; Maassen & Van den Bosch, 1997) and can be defined as a structure in which executive and non-executive managers work in two separated boards (Glunk et al., 2001). The executives constitute the Executive board2 and the non-executives form the Supervisory board3 (Postma et al., 1999; Postma et al., 2001). As already stated in the beginning of this thesis, this research will focus solely on the one-and two-tier board structures prevalent in the UK, the Netherlands and Germany.

2.2. Previous Research on Board Models

Previous literature reveals that board structure and related topics have been researched in many countries and in many variations. Whereas some researchers (e.g. Bleicher & Paul, 1986; Maassen, 1999; Maassen & Van den Bosch, 1997) studied the convergence of the one- and two-tier board model in a broader (international) perspective, others focused on a particular aspect of this research area, like, for example, the functioning of the corporate governance system in various countries (Charkham, 1994) or comparisons of stakeholder relationships in various countries (Gelauff & Den Broeder, 1996). Besides, there have been researchers (e.g. Postma, Van Ees & Sterken, 2001) that researched specific relationships, like for example, the relationship between performance and size of Executive boards in two-tier companies.

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The Dutch term for Executive board is “Raad van Bestuur” and the German term for Executive board is “Vorstand”.

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2.3. Previous Research on Nationalities in Corporate Boards

From the above literature, which is meant to give an impression of the existing research areas in the field of corporate boards, it becomes obvious that board structure has been a topic that has gained much attention and has become popular since the 1990s. It is also a fact that the issue of nationality composition has been widely ignored. However, and as internationalization has become an important topic in today’s economy, this topic should receive more attention. Therefore, and as this nationality aspect is the focus of this thesis, a review about literature on nationality aspects of corporate boards should not be absent in this thesis.

First of all, it is worth mentioning that there does exist a large body of research focusing on various types of heterogeneity simultaneously (e.g. age, educational and functional background, management experience, tenure, etc.)(e.g. Wiersema & Bantel, 1992)) and research in which the nationality heterogeneity is completely excluded (e.g. Hambrick, Cho & Chen, 1996).

Second, there exists research in which the nationality aspect was not the main focus of research, but part of research focusing on more and other demographic traits combined with structural, performance or strategic indicators. The research of Caliguiri, Lazarova & Zehetbauer (2004) focused on discovering a relationship between national diversity of corporate boards in the USA and four indicators of a firm’s internationalization. They did not solely focus on nationality, but also on the number of countries in which the companies where active. For each case they found a positive significant relationship. Another researcher, (Birkner, 2005) included nationality of TMTs in his research concerning the change and dynamics in German firms. Also in this case, nationality was just a minor part of the research, and was only used in combination with other demographic and structural indicators (e.g. international experience, age, company tenure, functional background and size). The research of Elron (1997) comes close to research on nationality diversity. This author studied the effect of cultural heterogeneity of TMT performance on MNC and subsidiary performance. The results provide support for the importance of cultural heterogeneity for the functioning of TMTs and their subsidiaries.

echelon perspective4 into the international context are practically non-existing. They recognize the need for such research and examined national diversity in TMTs in Sweden and the Netherlands. They concluded that the internationalization of the TMT does not parallel the internationalization of the firm. Moreover, these authors state that “the internationalization of TMTs is a relatively recent phenomenon” (Heijltjes et al., 2003: 93). Other research (Hambrick, Davison, Snell & Snow, 1998) also recognized the importance for studying nationality (at the individual as well as group-level) of multinational groups.

To finish, next to this literature on nationalities among boards, there does exist an executive search firm, named Spencer Stuart5, which is specialized in the worldwide recruitment of managers. The documents issued by this company give an impression concerning the nationalities represented among corporate boards in the UK, the Netherlands and Germany. One large disadvantage of these documents is that the nationalities are not linked to the individual managers within the company, which considerable decreases the value of these documents. This makes it impossible to discover the exact nationality mix across boards and across countries. This thesis, in combination with the database will provide this possibility and so contribute to the already existing literature.

To summarize, this thesis will examine the internal relationships and characteristics of corporate boards in one-and two tier board systems. Moreover, the consequences of these characteristics will be used to explain the nationality mix of corporate boards in the countries studied. To understand how this research fits into the broader stream of literature, the following theoretical framework will discuss the theories relevant for this research.

2.4. Theoretical Framework

The theoretical idea of this research is to examine the relationship between the one- and two-tier board structure and the nationality mix of corporate boards in three different European countries. In other words, to combine an element of Corporate Governance, here the one-and two-tier board structure, with a relatively unexplored background and board composition characteristic of managers; namely its nationality (mix). Moreover, this research will map out the pattern in nationality mix across corporate boards in these three countries. Further, its pure European perspective, can be seen as an extension of the Corporate Governance literature of, for example, Maassen (1999), who focused on a comparison of corporate governance models in the USA, the UK, and the Netherlands. On the other hand, as

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The upper echelon perspective will be discussed in chapter 2.4.2.

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this thesis will also take into account the Supervisory boards, it will go beyond researching solely TMTs, like, for example, Glunk et al. (2001) did in their research on the UK, Denmark, and the Netherlands.

In time, many different theories have been developed on topics concerning Corporate Governance and International Management. The most important theories related to this research are the agency theory (and important varieties thereof) and the “upper echelon theory” . These theories will be explained below.

2.4.1. Agency theory and related theoretical perspectives6. Agency theory plays an important role in research on corporate governance. In general, this theory states that there are two groups in a corporation, who are more or less connected to each other. The first group consists of principals (the risk-bearing shareholders) and the other group of agents (the managers with a special expertise)(Aguilera & Jackson, 2003). The fact that the objectives of these two distinct groups can differ, as well as the danger that the agent will act according to his own interests, can cause a so-called agency-problem. To be specific, an agency-problem can be defined as a conflict of interest between the shareholders (principals) and the management (agents) of a company. An agency-problem can, for example, occur in case the board fails to maximize shareholders’ wealth or to reduce agency costs (Zahra & Pearce II, 1989). To avoid this agency-problem, agency theory emphasizes that “the board of directors can be seen as an internal governance and monitoring mechanism for alignment of shareholders and management, which can discipline or remove ineffective management teams” (Postma et al.,1999:6).

The influential study of Berle & Means (1932) already addressed this agency-problem and introduced the separation of management and control. Subsequent research examined the impact of this separation and focused on the board of directors, as the mechanism between the management and the stockholders (Bühner et al., 1998). This separation can be interpreted as following: management of the company should be the task of the Executive board, and control over the company should be in the hands of the Supervisory board.

Practically all research that deals with Corporate Governance of boards does explicitly or implicitly make use of the agency theory. One example of this is the study of Barkema (1996), which examined the effects of board control and compensation mix on strategic orientation. An interesting element of this paper is that is refers to Hofstede (1983) who states

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that “agency theory is more valid in the United States than it is in most European countries, where managers are less individualistic and more risk adverse” (Barkema (1996:128). Other research also questions the applicability of the agency theory to European countries (e.g. Boyd, Carroll, & Howard, 1996), as it states that the cultural dimensions researched by Hofstede (1983, 1993) vary substantially between, for example, the USA and European countries. According to the authors, these differences influence the likelihood for the occurrence of agency problems.

Besides the agency theory, which is one of the most prevalent theories in research on corporate boards (Zahra & Pearce II, 1989), there do exist theories that complement or oppose agency theory. First, there is the resource dependency theory which complements the agency theory. Whereas the agency theory can be seen as a conflict perspective, the resource dependency theory can be seen as a consensus perspective (Maassen, 1999). Resource dependency theory stresses “the institutional function in which the board helps to link the organization to its external environment and secure critical resources”(Postma et al.,1999:6). So, the board helps to provide timely information to the executives (Zahra & Pearce II, 1989). In this consensus view, the roles of management and control in boards are not so strictly separated. This becomes more obvious in a one-tier structure7.

Next to this theory, the so-called managerial hegemony theory is worthwhile mentioning as it incorporates components of both the agency theory and the resource dependency theory. Managerial hegemony theory focuses on power relationships in corporate boards. The theory explains that the service and control role are both important within corporate boards (Zahra & Pearce, 1989). This corresponds with the resource dependency, as well as the agency theory. However, it derives from it by claiming that the ultimate power is exercised by the executives, and not by the board as a whole. The managerial hegemony theory incorporates this dominant power of the TMT (Executive board) in the corporate governance structure. According to Birkner (2005) “managerial hegemony theory puts forward that the board has a rather passive role and is governed by executive managers” (Birkner, 2005:39). So on the one hand, managerial hegemony theory grants some power to the board of directors, whereas on the other hand this power is limited because ultimately the board of directors still rely and depend on the managers (especially the CEO).

Second, there does exist theory that opposes agency theory, namely stewardship theory. This theory claims that managers do not act in their self-interest and that company

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management should be in hand of a group of managers. This theory explains that it is not necessary to have managers occupied with the control function, as there is simply no need for this control of management (which is in line with managerial hegemony theory). “Managers are good stewards of the corporation and diligently work to attain high levels of corporate profit and shareholder returns” (Donaldson & Davis, 1994: 159 quoted in Dalton et al. 1998: 198). This theory supports insider-dominated boards in contrast to the agency theory (Dalton et al., 1998).

Short and to the point, the importance of the agency theory for this thesis lies in the fact that the filling in of the corporate board seats, and then especially the seats of the non-executives, should be of such a quality that this team of managers is competent to control management and to satisfy the requirements of the diverse stakeholders. The inclusion of board members of other nationalities could be an important factor in inspiring confidence of all shareholders, inclusive the shareholders situated in other countries. This confidence in management will reduce, or even ban, the agency-problem, which makes company management most effective. However, it might also be possible that in case of specific teams, managers only trust people of their own “kind”, which might reduce the importance of appointing managers from other nationalities, and which could result in the same trust in management and the same reduction of the agency-problem.

2.4.2. Upper echelon theory. Besides the agency theory, the “upper echelon theory” of Hambrick & Mason (1984) is relevant. Whereas, the literature before the 1980s focused mainly on the CEO, or the individual leader, in the 1980s a new stream of research emerged called the “upper echelon- perspective”. According to the “upper echelon” theory, the combination of the characteristics of board members and their resulting capabilities are more important than that of the individual board member (Birkner, 2005). Moreover, this theory states that outcomes, choices and performance of companies can be predicted by taking a critical look at background characteristics of managers (Hambrick & Mason, 1984). The theory lists characteristics of managers that can be observed and which could serve as indicators of the added value of a manager to the company. Characteristics like age, organizational tenure, functional background, education, socioeconomic roots, and financial position are often mentioned (Hambrick & Mason, 1984) and studied (Birkner, 2005; Carpenter & Fredrickson, 2001; Postma et al., 1999).

functional background, international experience, company tenure, etc) in German companies concluded that “the basic assumptions of the upper echelon perspective with respect to TMT demography, TMT capabilities and strategic positioning of the US American market also holds true for the German context of the analysis” (Birkner, 2005: 152). Next to this, Olie & Van Iterson (2004), who also researched TMTs’ team characteristics and member characteristics, claim for more international comparative research in this field with a more European perspective. Actually, this is precisely what this thesis does.

So, in short, the upper echelon theory states that organizational outcomes are a reflection of the top managers in the company (Glunk et al., 2001). In the view of this theory, “top managers have to deal with the internal and external constituencies of the firm, which ultimately define the array of possible actions and empower the top to formulate and execute those actions” (Glunk et al. 2001: 298). In continuation of this it can be stated that the presence of other nationalities or the specific nationality mix in corporate boards could influence the quality of management of the company, and consequently also the organizational outcomes, which is exactly the idea behind the upper echelon theory.

3. ONE- AND TWO-TIER BOARDS; DIFFERENCES, SIMILARITIES, AND RECRUITMENT CONSEQUENCES

In this chapter, the differences and similarities of the one- and two-tier board structure covering the UK, the Netherlands and Germany, will be explored. These differences might lead to variations in the presence of foreigners, and different nationalities among corporate boards. One central aspect in this thesis will be the recruitment procedure of board members, as this is one of the features which can be directly linked to differences in nationality mix of corporate boards. This aspect and others, in combination with the theories discussed in the previous chapter, will enable the construction of a set of testable hypotheses, which ultimately serve to understand the association between type of board structure and its nationality mix. To discover these similarities and differences, an in-dept investigation into the one- and two-tier board systems and its features is necessary.

3.1 The Origins and Development of the One- and Two-tier Board Structure

It was the appearance of the MNE that raised the interest in corporate governance issues (Bleicher & Paul, 1986). As an MNE spreads its activities all over the world, it also has to face differences in corporate governance issues. Due to this international orientation of companies, subjects like corporate regulations, corporate boards, corporate control, and listing requirements (Tricker, 1994) gained ground. However, the case may be that just since the 1990s, there is an ongoing debate about corporate governance issues (Birkner, 2005). Besides, the appearance of the European Union and its enlargements further reinforced the debate on corporate governance. As mentioned before, only one aspect of corporate governance, namely the one- and two-tier board structure, will be examined in this thesis.

From the above-mentioned, it can be concluded that the two types of board structures emerged at different geographical places at different points in time, which can lead to different interpretations, and so different features, of the two systems. These different features might show a different nationality mix in the one- and two tier corporate boards.

3.2. Law, Codes, and Practice in One- and Two-Tier Countries

Another interesting aspect concerning the corporate governance of boards in companies in the examined countries is the relationship between the law, the Codes and the way companies put these regulations into practice. Differences and similarities concerning this relationship may also account for the way one- and two-tier boards are constituted and whether these boards are composed of members of other nationalities or not.

3.2.1. Company law8. Company law states rules to which the companies that have their registered office in that country should comply with. The UK Corporation law states that listed UK companies should apply a one-tier board. The UK law defines that UK public companies established after 1 November 1929, are legally force to have at least two directors (Pettigrew & McNulty, 1998). By doing so, it does not distinguish between executives and non-executives, or their legal responsibilities (Maassen 1999). The reason behind these minimum requirements is the concept of self-regulations, which is present in the UK (Tricker, 1984). In contrast to the UK, Dutch Corporation law does state that a Supervisory board is mandatory for most listed firms situated in the Netherlands (Postma et al., 1999). However, Dutch Corporation law does provide some variations, concerning the structure of corporate boards, which will explained in more detail in chapter 3.3.2. This formal structure of Dutch companies, and its particularities, can be found in Book 2 of the Civil Code (Burgerlijk Wetboek). Finally, Germany is known for having a rather detailed uniform Corporation law (Bleicher & Paul, 1986). According to German Company law, an AG has two boards, namely an Executive board and a Supervisory board (Prowse, 1994). So, “Germany’s constitutional model legally mandates two-tier board structures” (Aguilera & Jackson, 2003: 543), which can be found in the German “Aktiengesetz”. Further, German law stipulates the specific responsibilities and sizes of the corporate board. It states, for example, that a Supervisory board should have at least six members. Further, German law requires that corporate boards should comprise 16 to 20 managers (Carter & Lorsch, 2004).

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3.2.2. Codes of corporate governance9. Besides regulatory standards, as provided by the Company law of countries, there do also exist quasi-regulatory (voluntary) standards, the so-called Codes of Corporate Governance. To understand the concept of codes of good governance a definition is at place. Aguilera & Cuervo-Cazurra (2004) give a detailed definition of codes of good governance. They state that: “Codes of Good Governance are a set of ‘best practice’ recommendations regarding the behavior and structure of the board of directors of a firm. They have been assigned to address deficiencies in the corporate governance system by recommending a comprehensive set of norms on the role and composition of the board of directors, relationships with shareholders and top management, auditing and information disclosure and the selection, remuneration, and dismissal of directors and top managers” (Aguilera & Cuervo-Cazurra, 2004: 418). Worldwide, 52 countries have issued a code of good governance (Tabaksblat, 2003).

The most recent codes of good governance are, the Combined Code on Corporate Governance (2003) in the UK, the Dutch Corporate Governance Code, also referred to as Tabaksblat Code (2003) (which replaces the 40 recommendations on corporate governance in the Netherlands by the Peters Committee (Peters, 1997)) in the Netherlands, and the Cromme Code (2002) in Germany (which replaces the German Code of Corporate Governance (GCCG, 2000). The contents of all three codes can be seen as containing main and supporting principles, as well as provisions concerning listing rules. All three codes include the “comply or explain” principle, which means that companies need to state in their annual report that they comply with the code. In case they do not fulfill one of the code recommendations they need to explain why they cannot comply. This disclosure principle provides transparency and confidence in management.

The most striking difference is that the UK code recommendations are based upon a one-tier board, and the Dutch and German code on a two-tier board. The Dutch code even comprises guidelines for tier boards, as companies sometimes are allowed to apply a one-tier board. However, the provisions, which do hold for the Supervisory board in the two-one-tier structure, do also apply to the non-executive managers in the Dutch one-tier board structure. Further, The GCCG (2000) highlights some aspects which can be seen as distinctive features of the German two-tier board model: it includes standards for employee and shareholder representation in corporate boards. Further, it becomes obvious that the selection procedure of board members is totally different in the countries studied.

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So, although the codes of corporate governance of the UK, the Netherlands and Germany vary slightly in contents (whereas one code is detailed on some items, another code only deals with the same item in a superfluous way), in general, the contents show similarities in its coverage. It can be concluded that all three codes serve the same aims: (1) to provide transparency, and (2) to provide accountability.

3.2.3. The relationship between law, codes, and practice in one- and two-tier countries. First, it can be stated that each codes is constituted around the Company law and board structure prevailing in the particular country. Whereas UK Company law only states minimum requirements related to the structure and composition of the corporate boards (Maassen, 1999), German Company law is the most detailed Company law compared to the UK and the Netherlands.

Second, each of the three codes do provide basic guidelines about the board structure of companies situated in that particular country, which can be seen as an elaboration of the existing laws. Whereas the law, for example, gives minimum requirements concerning the size of boards, the codes sometimes recommend on maximum size. But, as stated by Bleicher & Paul (1986) “Although Company law provides the basic set-up for the top corporate structure, real operations tend to blur the legal structure” (Bleicher & Paul, 1986: 14). In practice, in all three countries, the codes are mainly meant for listed companies. Moreover, research (Spencer Stuart, 2004a; 2004b; 2005a; 2005b) reveals that although the recommendations of the codes are voluntary, most publicly traded companies in all three countries comply with the recommendations in the codes. The fact that most listed companies comply with the code is also stimulated by the fact that the listing rules require the ‘comply or explain’ mandatory disclosure in the annual reports of these companies (Aguilera & Cuervo-Cazurra, 2004). Further, compliance with the codes is stimulated by the existence of numerous codes of good practices, guidelines and legislation from investors, and professional and industry organizations existing in the European Union and the USA (Spencer Stuart, 2005b).

companies apply the codes recommendations concerning the composition and structure of their boards (Spencer Stuart, 2004a; 2004b).

An interesting aspect is that the Dutch Tabaksblat Code (2003) (and also Peters(1997)) recommends to provide more demographic information (inclusive the nationality) in company reports. This was not so explicitly mentioned in the codes of the UK and Germany. Research (Spencer Stuart, 2004a) showed that in practice, Dutch companies do reveal more information concerning their managers. In line with the Tabaksblat Code, most companies disclose the gender (99%), the age (95%), the nationality (93%), the tenure (86%) and the independence of non-executive managers (49%) (Spencer Stuart, 2004a). This difference in recommendation is interesting for this thesis, as the encouragement of other nationalities to the corporate boards can have effects for the presence of other nationalities in boards across countries.

In short, whether a company in a certain country has a one-tier or a two-tier board structure is not (totally) a choice of the company itself. The board structure is more or less determined by the Company law of a country, and/or voluntary adapted by a company as stated in existing codes of corporate governance in a particular country. Further, the “comply or explain” principle forces the companies to move into the direction of the provisions made in the country code. In fact, codes can be seen as an addition to law as they provide new recommendations for good corporate governance without immediately changing the law of the country. Whereas changing the law takes time, the recommendations for good practice can be implemented immediately (Aguilera & Cuervo-Cazurra, 2004).

serve as a basis for differences and similarities concerning the nationality mix across corporate boards. Therefore, an overview of the formal structure per country will be at place.

Figure 1. The One- and Two-tier Board Structure Source: Postma & Van Ees (2000: 6).

3.3.1. The formal organizational structure of UK one-tier boards. Within UK corporate boards, no separation of executives (also called insiders) and non-executives (also called outsiders) is present. This means that no formal separation between decision control (so approval and monitoring of the implementation of decisions) and decision management (so the initiation and implementation of decisions) can be found (Maassen & Van den Bosch, 1997). As all managers should make decisions, and simultaneously supervise these decisions, it can be stated that one ultimate level of responsibility exists for the whole corporate board.

Seen from a theoretical point of view, the formal organization of one-tier boards can be explained by the resource dependency theory and the stewardship theory (Maassen, 1999)10. According to the resource dependency theory, boards act in consensus and provide all necessary information to each other. The stewardship theory assumes that board members are working in the best interest of the various stakeholders. Preceding from these theories,

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there is no need to separate the executives from the non-executives. Interestingly, this feature of having both executive and non-executives in one board and its consequences, is an aspect of corporate governance largely debated during the last years.

3.3.2. The formal organizational structure of Dutch and German two-tier boards. The Dutch and German two-tier board organizational structure both exists of a formal separation of executives and non-executives into two legal bodies. This separation makes it possible to separate decision control by non-executive managers in the Supervisory board, and the decision management by the Executive board (Maassen & Van den Bosch, 1997). So, in two-tier boards, the responsibility lies in the hand of two separate formal bodies. Besides, in both countries, members are not allowed to serve simultaneously on the Supervisory board, as well as on the Executive board.

An interesting element of the Dutch formal organizational structure is that it offers some flexibility concerning the establishment of a Supervisory board. The Dutch structure concerning the Supervisory board is characterized by three distinct models, which are implemented in the Dutch Civil Code (Gelauff & Den Broeder, 1996; Maassen, 1999; Postma & Van Ees, 2000). These distinct models are known as the structural regime (“Structuurmodel”), the mitigated structural regime (“Verzwakt Structuurmodel”), and the common model (“Gewoon Model”). The type of model largely determines the influence of the Supervisory board (Postma et al. 2001). Companies that have the obligation to apply to the structural regime, and have to implement a Supervisory board, are limited liability companies with a subscribed capital of approximately 13 million Euros, at least 100 employees in the Netherlands, and the presence of a workers council. However, firms that do not belong to the structural regime, are free to opt for this regime. In the perspective of this thesis the structural regime is the most important one, as this research concerns large listed companies. Postma & Van Ees (2000), for example, state that two third of listed companies have to apply a Supervisory board according to the structural regime. Further, Dutch companies are largely visualized by having a two-tier system (Postma et al., 1999).

Seen from a theoretical point of view, this formal separation of boards in two bodies in the Netherlands and Germany can be explained by the agency theory11, which is known to apply a conflict-perspective (Maassen, 1999). The separation of management from control is important as it reduces the agency-problem, which can be explained here as the danger that corporate managers behave in their own interests and not in the interest of the various stakeholders. The formal separation into two legal bodies tries to avoid this problem.

3.3.3. The formal organizational structures compared. From this chapter, it can be concluded that the main difference in board structures is the formal separation of boards into two legal bodies or not. Whereas in the Netherlands, conditions like the type of company, the subscribed capital, the amount of employees in the home country, the presence of a workers council, and the international scope of the company determine whether a Supervisory board has to be present or not (Gelauff & Den Broeder, 1996), in Germany the condition for having a Supervisory board is the size of the company. In the UK, simply all companies have a one-tier system with a board of directors (Postma, Van Ees, Gerritsen & Sterken, 1999).

Similarities can be found in the fact that both the one-tier as well as the two-tier formal organizational structure incorporate executives as well as non-executives.

Seen from a theoretical perspective, one could assume that the occurrence of an agency problem is considered to be larger in two-tier boards than in one-tier boards. An explanation for this is the fact that in two-tier boards the control of the Supervisory board is more strictly and legally separated, whereas this separation between ownership and control is not so obviously present in one-tier boards.

To finish, this main difference, so the legal separation of the board into two bodies or not, can have consequences for the composition of the boards across the three countries, and the roles applied by the corporate board members. This can result in variations in the nationality mix among corporate boards. These aspects will be discussed in the subsequent sections.

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3.4. The formal Roles of Boards in One- and Two-Tier Companies

Literature largely distinguish between three type of roles performed by corporate boards, namely (1) a service role (also called institutional role), (2) a monitoring role, and (3) a strategic role (e.g. Maassen, 1999; Maassen & Van den Bosch, 1997; Postma et al., 1999; Postma & Van Ees, 2000). Whereas the service role “helps to link the organization to its external environment and to secure critical sources” (Postma & Van Ees, 2000:4), the monitoring role refers to the control and governing of the company, which means the alignment of management and shareholders by the corporate board (Postma & Van Ees, 2000). Finally, the strategic role incorporates the strategic decision-making of corporate boards (Postma & Van Ees, 2000).

Seen from a theoretical perspective, the service role can be linked to the “resource dependency theory” (Maassen, 1999; Postma et al., 1999; Postma & Van Ees, 2000), as this theory links the company to its environment and assure that the resources needed are also available. The monitoring role can be explained by the agency theory (Maassen, 1999; Postma et al., 1999; Postma & Van Ees, 2000), as this theory tries to avoid the agency-problem, by having the board of directors as a mechanism standing up for both management and shareholders. Finally, the strategic role can be seen from a strategic choice perspective (Postma & Van Ees, 2000), in which not only the executives, but also the non-executives are involved in the strategy formation of the company.

In line with the formal organizational structure discussed in the previous sub-chapter, it might very well be the case that the presence of the formal separation of decision management and decision control also leaves its traces in the distribution of roles among corporate boards across countries. Therefore, this section analyzes differences and similarities in roles occupied by boards, which might be helpful in explaining the presence of other nationalities among corporate boards.

& Paul (1986). Besides these tasks, the non-executives are occupied with the appointment, removal and remuneration of executive managers (Combined Code 2003). Further, they have to ensure their own information gathering.

Moreover, Tricker (1984) sees advantages in the fact that there are non-executives in the one-tier boards. According to this author, the duties performed by non-executives give a broader and fresher perspective for decision-making of the whole corporate board. The non-executive managers consider issues from an external viewpoint and could possess special knowledge. Furthermore, the fact that the one-tier boards do not work in two separate bodies enables these non-executives managers to obtain information, needed to perform this monitoring role, in a rather easy way (Glunk et al., 2001).

In short, it can be concluded that the UK corporate boards perform all the three roles identified in literature, namely the service, strategic, and monitoring role.

3.4.2. The roles of the Executive and Supervisory board in the Netherlands. According to the Dutch code (Tabaksblat, 2003), the Executive board is responsible for the company’s objectives, strategy, policy, and results. Literature (e.g. Glunk et al., 2001; Maassen & Van den Bosch, 1997) adds to this view, that the Executive board is responsible for the legal representation of the company and that its members are collectively responsible. Moreover, the Executive board is in charge of the company’s day-to-day management (Postma et al., 2001). Besides, the Executive board is accountable to the Supervisory board as well as to the general meeting of shareholders. Further, the Executive board has to provide the Supervisory board with all information needed to perform its tasks (Tabaksblat, 2003).

According to the Dutch code (Tabaksblat, 2003), the role of the Supervisory board is to supervise the policies and decisions of the Executive board. Another role is to assist the Executive board by providing advice. In contrast to the Executive board, the Supervisory board is responsible for the quality of its own performance. An additional task of the Dutch Supervisory boards is that they are in charge of nominating, appointing, suspending and dismissing the Executive board members (Postma et al., 2001).

3.4.3. The role of the Executive and Supervisory board in Germany. According to the German code (Cromme, 2002) and other literature (e.g. Bühner et al., 1999; Harbison & Myers, 1959) the German Executive board is responsible for the management of the company, which includes policy making, planning, risk taking and other entrepreneurial roles (Harbison & Myers, 1959). It should develop the company’s strategy, cooperate with the Supervisory board, and ensure that the strategy will be implemented.

The German Supervisory board, on its turn, should monitor and advise the Executive board in the management of the company (Cromme, 2002). Further, the Supervisory board should take part in important decisions the Executive board has to make (Bleicher & Paul, 1986). However, the involvement of German Supervisory boards in decision-making does only take place in an indirect way, as the Supervisory board is not allowed to get directly involved in the management (Bleicher & Paul, 1986). Besides these tasks, the Supervisory board has to supervise the composition of the Executive board (GCCG, 2000).

In brief, the German Executive board performs the service and strategic role, whereas the German Supervisory board performs a monitoring role.

3.4.4. Comparison of the formal roles of corporate boards. Reviewing the roles of corporate boards in the three countries studied, it can be concluded that all three roles are present in UK one-tier boards, as well as in Dutch and German two-tier boards. The difference is the absence of a separation of roles for executives and non-executives in one-tier boards in the UK. This separation becomes more obvious in the two-tier boards of the Netherlands and Germany. In other words, in UK one-tier boards, executives and non-executives together perform the service, strategic as well as monitoring role (Maassen, 1999), whereas Dutch and German Executive boards perform the service and the strategic role, and the Dutch and German Supervisory boards perform the monitoring role (Maassen, 1999). So, in sum, differences mainly lie in the distribution of the roles in one-and two-tier corporate boards and not in the formal roles themselves.

can have different effects for the presence of foreigners among executives, and so, the presence of other nationalities among executives.

As becomes clear from the description of the roles of board members, it are the non-executives in both the one- and two-tier boards that are responsible for the monitoring and so the appointment of executives. The description of the roles also revealed that differences exist in the information gathering process in one- and two-tier corporate boards. Whereas non-executives in UK companies have to care for their own information gathering, non-executives (so the Executive board) in two-tier boards are responsible for the information-gathering for the Supervisory board. The fact that the executives and non-executives in UK boards sit on one board and the fact that the roles are not so strictly separated, could provide non-executives with an ease of information gathering, which can be helpful to form a detailed picture of the functioning and qualities of the executive members. This can, on its turn, contribute to the decision to appoint or remove an executive. This ease of information gathering is absent in Dutch and German Supervisory boards. They more or less have to rely on information provided by the executives themselves. The picture that the Supervisory board members obtain about the functioning and qualities of executives can be restricted, heavily influenced, or even set to the hands of the executives themselves, and so not reflect the true current situation. Further, from the previous chapter, it became clear that one-tier boards do not heavily rely on the concept”, whereas this is the case in two-tier boards. This “team-concept” might leads to the presence of an “old-boys network” in Dutch and German boards. This network could lead to the assumption that Dutch and German boards are more or less prepared to opt for managers they already know, or which have been recommended by other managers, without making a profound analysis of the qualities of the specific manager. This type of network is absent in the UK. This might suggest that non-executives in UK companies, compared to non-executives in Dutch and German companies have a more transparent picture of the ins and out of the company’s executives. Further, UK executives might have less “friendship ties”, than Dutch and German board members, and so are less willing to opt for a manager without a profound analysis of the manager’s capabilities.

the nationality mix presence among the executives. Finally, while comparing the two-tier boards in the Netherlands and Germany, no remarkable differences in roles, which could lead to different interpretations concerning the presence of foreigners, and the nationality mix among executives in these countries, can be found.

From the above reasoning the following hypotheses can be derived:

H1(a): The mean ratio of foreign executives in one-tier boards in the UK will be significantly higher than the mean ratio of foreign executives in two-tier boards in the Netherlands and Germany.

H1(b): The mean nationality mix among executives in one-tier boards in the UK will be significantly higher than the mean nationality mix among executives in two-tier boards in the Netherlands and Germany.

H2(a): There does not exist a significant difference in the mean ratio of foreign executives between the Netherlands and Germany.

H2(b): There does not exist a significant difference in the mean nationality mix among executives between the Netherlands and Germany.

3.5.The Selection Procedure and Accessibility of One- and Two- tier Corporate Boards Central to this thesis about the nationality mix of one-and two-tier boards, is the way in which top managers are selected to their corporate boards. By knowing who appoints whom, and by discovering variations in the selection procedure applied by one-tier corporate boards in the UK, and by two-tier corporate boards in the Netherlands12 and Germany, or even between two-tier boards in the Netherlands and in Germany, the accessibility of the corporate boards in one-and two-tier board companies can be determined. Subsequently, these differences in selection procedure can be used for explaining the chance of having foreigners, and so more nationalities, represented among corporate boards.

To be able to discover the pattern of nationality mix existing in one-and two-tier boards in these three countries, this section tries to reveal the selection procedure and the

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accessibility of boards. However, it should be noted that there does not yet exist literature relating one- or two-tier corporate boards to aspects like the ratio of foreigners and nationality mix. This sometimes makes it difficult to back-up the argumentation with existing literature in this field. However, this research might be seen as a first effort into this area of research.

3.5.1. The selection procedure of UK one-tier boards. From the UK Code (Combined Code, 2003) it becomes clear that members of the one-tier UK boards are selected by the shareholders, who are the owners of the company. These appointments take place at the annual general meeting. Although it is the nomination committee that should recommend on new appointments of managers (so executives as well as non-executives), the non-executives have an important role in appointing and removing the executives. Further, the selection of the CEO in the UK one-tier board is performed by both the executives and the non-executives (Maassen & Van den Bosch, 1997). It can be stated that this selection procedure resembles a democracy. The CEO also has substantial power to appoint managers (Glunk et al. 2001). Concerning the appointment of board members, the code recommends that the board should take care of having an innovative board (Combined Code, 2003).

3.5.2. The selection procedure of Dutch two-tier boards. Although no clear indications concerning the selection procedure of corporate board members were made in the Dutch code, the selection procedure was explained in detail in the 40 recommendations by the Peters Committee (Peters, 1997). Executive board members, belonging to companies falling under the structural regime, will be selected by Supervisory board members (Peters, 1997)13. Further, re-elections are done in the absence of the Executive board member and are also executed by the Supervisory board (Peters, 1997). Besides, a nomination committee should make recommendations concerning the appointments and re-appointments of Executive board members, as well as Supervisory board members (Tabaksblat, 2003). Finally, the CEO will be appointed by the Supervisory board (Maassen & Van den Bosch, 1997).

About the selection of the Supervisory board members, the Dutch code (Tabaksblat, 2003) only states that the Supervisory board should revise the functioning of the members of its own board, as well as the functioning of the members of the Executive board (Tabaksblat, 2003). In fact, it can be concluded that the Dutch Supervisory board members select each other (Peters, 1997). Further, from the 40 recommendations of the Peters Committee (Peters,

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In Dutch companies not subjected to the structural regime, the Supervisory board is occupied with the