About this series
NRC explores some of the major themes that are central now and in the coming period in the dynamics between code, legislation and society — and how they are experienced in the boardrooms.
The word “geopolitics” does not appear in the latest code for good corporate governance. When it comes to wars, sanctions and bad regimes, top executives must, and want, to find the way themselves.
The war in Ukraine will last ten months at the end of 2022. Oil and gas company Shell sold its petrol stations in Russia in response and is about to withdraw altogether. The hasty departure ultimately cost the company almost 4 billion euros.
Is that wisdom? Large companies that haven't left (yet) — Unilever and Heineken ahead — are increasingly coming under fire. They would sponsor the Russians' war by remaining active in Vladimir Putin's country, is the idea. Staying is then out of the question.
Pauline van der Meer Mohr presented, also in December last year, the latest version of the Dutch Corporate Governance Code, which a committee led by her leadership. This 54-page document provides behavioral guidelines for directors, supervisors and shareholders of listed Dutch companies.
That code, which is revised at intervals of a few years, is important. The text and the dynamics of revisions are the platform for top directors of listed multinationals to provide a place for current social discussions. What is the right thing to do in the current era, and what is not?
If top directors set and comply with sensible rules of conduct themselves, such is the idea behind the code, legislators and/or judiciary only have to intervene if something goes seriously wrong. Above all, however, the code text gives top directors and supervisors in their policy, the commissioners, guidance on which social themes to give priority — from climate to diversity, inclusion and top salaries. Topics mentioned in the code text, even with a single word, should be taken seriously by top executives. The other way around also applies: what has not been mentioned is not necessarily Chefsache — important for the final boss.
What is striking: the corporate governance code revised at the end of 2022 does not include the word “geopolitics”. However, the broader term “international business” is used twice. First, this is in relation to diversity and inclusion — for this, companies need to develop global policies. The second time, the term is mentioned in the context of corporate social responsibility. The same applies here: not only in the Netherlands.
But not a word about geopolitics — how world leaders interact with each other, and how worldviews clash — so not a word. Not even in case studies. The war in Ukraine, the escalating trade war and the divergence of worldviews between China and the West; the corporate governance code does not provide guidelines for directors or supervisory directors about doing business in an increasingly tumultuous world.
Isn't that strange? Shouldn't such guidelines have been around a long time ago? And if so, why aren't they there?
Based on annual reports and research by the Central Bureau of Statistics, Dutch stock exchange funds earn an average of more than three quarters of their turnover abroad. The big company has millions of employees in all corners of the world. If the world is splintering ideologically and seemingly de-globalizing economically, with rapidly changing supply chains and sanctions and export bans everywhere, the topic seems to be a must for a good governance code.
Specific niches
The fact that geopolitics is not in the corporate governance code does not mean that the theme remains undiscussed in the boardrooms, says Hélène Vletter-van Dort. She is a board advisor at de Bestuurskamer and a multi-commissioner, including the Swiss chip giant STMicroelectronics, based in the Netherlands. “Until about five years ago, geopolitics was hardly a topic in the boardrooms. It was something that administrators thought: that's something between countries. And: it doesn't affect us. It was something for companies in very specific niches, for example affected by sanctions in Iran. By now, I suspect, geopolitics are prominent in almost all the boardrooms of multinationals.”
Martin van Olffen, who assists directors at the highest level as a notary and corporate governance specialist at law firm De Brauw Blackstone Westbroek, paints the same picture. “Geopolitics has become a constant in the conversations of top executives.”
Both mention the war in Ukraine and the conflict between the West and China as key geopolitical themes in the boardroom. And what is it about specifically? Vletter-van Dort mentions “strategy” and “risks”, responsibilities of the highest board. “Strategy in the boardroom is: how are we going to create long-term value for our stakeholders? Then comes the question: how do we do that; in which countries; with which partners?
“That's also how you get to the risks. Are there trade sanctions? Can we earn money in a country that suits us?”
Van Olffen: “There have always been check lists for projects in countries that are considered riskier. Is this possible? Is that allowed? Due to the many sanctions, these kinds of considerations have become more complex. As a multinational, you have many collaborations. What if your partners do business with companies or governments that you're not allowed to do business with? That has become really complicated.”
Ultimately, top executives ask themselves two questions, according to Van Olffen: “One: what do I want my company to do, where can I gain commercial advantage? And two: can I get away with it and does our moral compass allow it? Plans are tested for feasibility and continuity.”
Not every current topic
The fact that the word geopolitics is not in the code is because directors themselves are not waiting for it. If there is no support among directors for adding a theme, it will not be included in the code.
The directors and specialists interviewed for this article are also not convinced that the word geopolitics belongs in the code. In addition to Vletter-van Dort, these include former Shell CEO Jeroen van der Veer, Pauline van der Meer Mohr and Jaap van Manen, her predecessor as chairman of the corporate governance committee.
Vletter-van Dort: “We shouldn't want to cram every current theme into the code.”
Van der Veer: “The code is an important text, but geopolitics don't really belong in it. This primarily concerns sanctions. And these are more a matter of often international laws and regulations and a strategy that you adapt accordingly, not so much of behavior.”
Van Manen: “The code must remain manageable and contain behavioral principles. I'm still thinking about geopolitics, but the code isn't for every current event. Perhaps a bit lame, but in my time, we had the rule that the code should not be longer. Something in meant something out.”
Van der Meer Mohr, also a multi-commissioner, including at Ahold Delhaize: “Geopolitics was a topic in the creation of the latest text. But what should have been in it? I'm not sure myself, and neither are other directors.”
Less urgency
Are administrators right if they reject the topic of geopolitics for the code text? It would not be the first time that directors have been too slow before deciding to change the text of the corporate governance code. The first version of the code, which came into force in 2004, was praised nationally and internationally for its forward-thinking. At subsequent editions, there was invariably criticism that the urgency was decreasing, sometimes louder than others.
Directors slow down when it comes to including topics for various reasons. One: the code is, in jargon, principle-based. The idea has always been that the code is, as far as possible, a framework of principles, not mandatory regulations. Two: directors must comply with the so-called comply or explain-basic principle. They commit to applying each directive or to explain why they do not do so in their annual report. The more principles in the code, the more there is to explain. And three: it is mainly the Enterprise Chamber that actively uses the code to explain good behavior. This means that there is not only more self-regulation, but also regulation. This makes directors wary.
The question remains: wary administrators or not, is geopolitics part of the code? At the very least, it touches on themes of their code of conduct. Explicitly or implicitly, they also say that themselves.
Vletter-van Dort: “The basic principle of the corporate governance code is that, as a director, you strive for sustainable long-term value creation. So, as far as I'm concerned, you also take geopolitics into account.”
And: “As an advisor, I sometimes get asked by commissioners how to deal with this theme. I then say: “Make sure you think about it and make decisions in a way that suits your business. Then it fits your profile and you can explain it to employees, customers, shareholders, the rest of the world. ' You know, as a commissioner, I also come among the people. I also need to be able to explain it.”
Van Olffen: “If you want to survive sustainably and in the long term, you will have to think about geopolitics. Geopolitics is a threat to the continuity of the company.”
Jeroen van der Veer is less explicit. Asked whether a director should make ethical considerations, he says: “It's often not said, but the boards of large companies have a lot of sympathy for the sanctions against Russia. Sanctions can even help you make difficult decisions. But of course, it remains primarily up to the government to make laws and regulations.”
Doing business in Russia
The actions of top executives, and especially what they say about them, support the thesis that geopolitics is a theme that has to do with good governance and perhaps deserves a place in the code.
Take Heineken. The brewer continued to do business in Russia successfully after the invasion of Ukraine — while also looking for a buyer for Russia's activities. On the whole, there was something to be said for that. Heineken is known for cherishing the values of a family business. Then it's understandable that you don't let your staff, including Russians, fall like a brick.
Or are you making other considerations? CEO Dolf van den Brink failed to explain his company's behavior properly. Instead, he talked to it NRC just do everything possible to minimize activities in Russia. He came under heavy criticism.
Other top executives also have difficulty with the subject — unlike top commissioners who have completed their active careers. No board chairman is willing to interview about the topic. The closest thing to a response is NN Group CEO David Knibbe. Thirty times the word geopolitical appears in the insurer's annual report. In an interview in the same annual report, Knibbe says, referring to, among other things, the war in Ukraine: “These events make us even more steadfast in our goal to help people care for what matters most to them, including the health and future of themselves and their families.”
However, when asked to explain in an interview what this means for his behavior as a director, the spokesperson replies: “Interesting topic, but it doesn't fit the schedule for a while.” After some insistence, the same spokesperson says that these are “difficult considerations”. And: “We're already being asked for an opinion about everything.”
On this topic, there is no need to be in the limelight.
