Marc van Voorst tot Voorst (NVP): Works Councils and Private Equity

August 29, 2023

^{This column was originally written in Dutch. This is an English translation.}

By Marc van Voorst tot Voorst, Deputy Director of the Dutch Association of Private Equity Companies (NVP)

On July 23, the editorial of Het Financieele Dagblad headlined: 'Private equity has an expensive duty'[1]. The FD stated that the influence and reach of private equity in the Netherlands has grown in recent years and that on balance the Netherlands is better off with this capital, which finances job growth and rescues ailing companies.

The same article emphasized that this growth also comes with responsibilities towards employees. Namely, that the private equity sector should respect the Rhineland polder and consultation model, and thus Dutch labor relations. The Dutch Association of Participation Companies endorses this vision and has for many years been a strong advocate of a good relationship with employees and works councils.

The polder model

The Netherlands is known for its polder culture, in which various stakeholders are heard and actively involved in the decision-making processes. For employees, this is institutionalized in the business community and organized in works councils (OR), which defend the interests of the employees within the company. Companies with more than 50 employees are required to have a works council.

The legal basis for every works council is the Works Councils Act, the WOR. This contains all rights and obligations. Thanks to the WOR, works councils have a solid and legally anchored position and an arsenal of powers. However, the WOR does not contain any guidelines on how to deal with a takeover, while for many works councils a takeover by a venture capital company is new and therefore unknown territory.

Practical advice

In 2017 (second edition in 2020), the Dutch Association of Participation Companies (NVP) wrote the document 'Works councils and private equity companies: advice from practice' in order to help works councils that are dealing with a venture capital company for the first time as a shareholder[2]. This document maps out the three phases of a takeover and makes suggestions for what the works council can do at what time. The recommendations are also linked to relevant WOR articles.

Phase 1 is the run-up to a sale or acquisition. The sale of a company does not come out of the blue. The works council can ask management to stay informed about the strategic options. The works council can also proactively share its strategic vision for the future with the management.

Phase 2 is the negotiation with the buyer. Once the exclusive negotiations with one buyer have started, the time for the statutory request for advice on the accession of the new shareholder and possibly the acquisition of new credit will come close. It is important that the entire works council is now involved. The process can gain momentum at this stage.

Phase 3 concerns the cooperation with the new shareholder. In this phase, plans can be implemented and efforts can be made to realize growth ambitions. It is important in this phase to maintain good contacts with the new shareholder. Private equity firms benefit from good and constructive cooperation and will only support this initiative.

Exchange of knowledge

The document 'Works councils and venture capital companies: advice from practice' provides a series of advice for each of the three phases mentioned above. By following these, works councils are better prepared for takeovers. Advice is also given to private equity firms. Make the works council part of the plans and invest in facilities for employee participation, for example through training and knowledge exchange.

This document is widely shared within the private equity and venture capital sector in the Netherlands. An English version has also been prepared for our Anglo-Saxon members. This enables them to further immerse themselves in the Dutch way of doing business. Both the Dutch and English versions can be downloaded from our website. In short, the Rhineland model is also of paramount importance to us.

This article contains a personal opinion of Marc van Voorst tot Voorst

[2] https://nvp.nl/verantwoordinvesteren/professionele-standaarden/or-document/