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Financial Times: Dutch boards stand up to activist investors

EXTRACT: …Royal Dutch Shell, the Anglo-Dutch energy group, acknowledged that investor unrest was key to its decision to unwind its cumbersome century-old dual-headed governance structure.


By Ian Bickerton in Amsterdam: Published: November 30 2006 02:00 | Last updated: November 30 2006 02:00

Activist investors have chalked up more than their share of triumphs in forcing change at Dutch companies in recent times. But now there are clues that the clog may be on the other foot.

The defeat this week of a shareholder motion to break up ASM International, a semiconductor group, came as management at both Stork, the industrial conglomerate, and Ahold, the food retailer, continued to dig their heels in to resist similar investor demands.

The mood in Dutch boardrooms has toughened, said a senior adviser to several supervisory and management boards. “It is a question of mindset,” he said. “What you hear time and again from chief executives is that they will stand up and fight, and be very aggressive.”

Last year VNU shareholders forced the abandonment of a $7bn acquisition, the resignation of the Dutch business information group’s chief executive and managed to increase the value of a private equity takeover bid.

Earlier Royal Dutch Shell, the Anglo-Dutch energy group, acknowledged that investor unrest was key to its decision to unwind its cumbersome century-old dual-headed governance structure.

Behind the scenes at Philips, the technology company, and TNT, the mail group, shareholder anxiety over problem operations was instrumental in asset sales, people familiar with the companies said.

But while the battles at ASMI, Stork and Ahold are far from over – with investors continuing to insist that they would be worth more broken up – management is standing its ground. “Investors have underestimated the power that is clearly evident in boardrooms,” said the adviser.

The turning point was VNU, he said. “That was a wake-up call. Every time I am in a board meeting and investor activism or M&A issues are being discussed, the VNU case is referred to.”

The 2004 Tabaksblat Code addressed failings in Dutch corporate governance and gave shareholders a voice. While it did not tamper with the authority of management to determine strategy, some believe the pendulum swung too far towards investors. “Boards are determined to show that they run companies,” the adviser said.

The rejection by Stork management of a “non-binding” shareholder vote last month to break up the company – in spite of approval by 86.5 per cent of shareholders – underlined that point, as did Ahold’s initial refusal to meet activist shareholders calling for a possible break- up.

While Centaurus Capital of the UK and Paulson & Co of the US, which own more than 32 per cent of Stork, have called for another meeting to dismiss the company’s supervisory board, the company may refuse to recognise any vote there too, potentially forcing legal action.

The investors argue that without further agitation, many companies will continue to suffer from a “Dutch discount” of typically 10 per cent compared with peers abroad due to governance structures.

Yet Stork management cites a 950 per cent improvement in shareholder value in four years. And Ahold and ASMI have also claimed a strong grasp of strategy to improve profitability.

There are signs that such performance is persuading shareholders to start lining up behind management. At a recent Stork meeting, Peter Paul de Vries, director of VEB, the Dutch shareholders’ Association that has traditionally been a thorn in the side of management, grilled Centaurus and Paulson about their intentions for the company.

At that same meeting Henry Blackie, managing director of Arlington Capital Investors, a self-proclaimed activist, warned that agitation threatened only “chaos and disorder”. And that is only counter-productive, said one adviser. “The truth is that no one wants a fight.”

Copyright The Financial Times Limited 2006 and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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