Dutch Corporate Governance Code, “Comply or Explain”
As a Dutch company, we are subject to the DCGC. A copy of the DCGC can be found on www.mccg.nl. The DCGC is based on the notion that a company is a long-term alliance between the various stakeholders of the company. Stakeholders are groups and individuals who, directly or indirectly, influence – or are influenced by – the attainment of our objectives: employees, shareholders and other lenders, suppliers, customers and other stakeholders. Our Board of Directors has responsibility for weighing these interests, generally with a view to ensuring our and our subsidiaries’ continuity, as we seek to create long-term value. If stakeholders are to cooperate within and with the company, they need to be confident that their interests are duly taken into consideration. Good entrepreneurship and effective supervision are essential conditions for stakeholder confidence in management and supervision. This includes integrity and transparency of the actions of, and accountability for the supervision by, the Board of Directors.
The DCGC is based on a “comply or explain” principle. Accordingly, companies are required to state the extent to which they comply with the principles and best practice provisions of the DCGC in their annual report and, where they do not comply with them, why and to what extent they deviate from them.
We acknowledge the importance of good corporate governance and we fully endorse the underlying principles of the DCGC, which is reflected in a policy that complies with the best practice provisions as stated in the DCGC (the Board By-Laws). The Board By-Laws are available on our website (www.argenx.com/investors). However, we deviate from the best practice provisions in the areas set out below, for the reasons explained in this section. These deviations all relate to our remuneration practices, which are in line with our remuneration policy as approved by our annual general meeting of shareholders held in 2021 (2021 General Meeting).
- Pursuant to best practice provisions 3.1.2 under vi of the DCGC, shares should be held for at least five years after they are awarded. In accordance with our remuneration policy, pursuant to our equity incentive plan (Equity Incentive Plan), restricted stock units (RSUs) vest in four equal tranches, which means that one fourth of the RSUs granted are settled at each anniversary of the date of grant, and no lock-up period applies to any shares acquired at such settlement, except as may be applicable pursuant to our minimum equity holding guidelines for directors and senior management personnel further specified in section “Reference Group and Setting Reward Levels”. Our Equity Incentive Plan was crafted recognizing that equity incentives are an important factor in the key jurisdictions in which we operate for attracting and retaining qualified personnel. The Equity Incentive Plan is regularly reviewed by our Board of Directors and our remuneration and nomination committee in particular, based on external benchmarking done by an independent third party. The main purpose of such review and benchmark is to test whether the Equity Incentive Plan, including the type, size and conditions of grants and their vesting and exercisability thereunder, is fair and competitive in the key markets where we compete for talent and as such can support our ability to attract and retain talent in such markets. Hence, we deviate from best practice provision 3.1.2 under vi to allow for a competitive equity incentive plan. At the same time, we believe our current Equity Incentive Plan promotes long-term value creation. For instance, the four-year vesting period of the RSUs ensures that a RSU package granted cannot be fully settled within four years after the grant date. In 2021, our Board of Directors amended our Equity Incentive Plan in line with our updated remuneration policy, adding specifically the granting of RSUs to the equity incentive scheme and including the aforementioned vesting schemes. In 2023, our Board of Directors adopted equity holding guidelines for our Board of Directors and senior management team. Considering the importance of competitive remuneration for our ability to attract and retain highly qualified persons, alignment with the reference group is prioritized over compliance with this best practice provision 3.1.2. We will continue to review our Equity Incentive Plan conditions against our reference group, and if our benchmark exercise shows that a five-year lockup period as prescribed by the DCGC becomes competitive practice in our key talent markets, we will consider adhering in full to this best practice principle.
- Pursuant to best practice provision 3.2.3. of the DCGC, the severance payment in the event of dismissal should not exceed one year’s base compensation. Our remuneration policy provides that a severance payment equal to 18 months base compensation to our chief executive officer (CEO). The severance component of the remuneration package is, like all other components, benchmarked against and aligned with the severance components as identified within the reference group. On this topic, considering the importance of competitive remuneration for our ability to attract and retain highly qualified persons, alignment with the reference group is prioritized over compliance with this best practice provision 3.2.3. We currently do not envision to change our practice in this respect.
- Pursuant to best practice provision 3.3.2. of the DCGC, non-executive directors should not be granted any shares or rights to shares as remuneration. We note that the ‘best practices’ and usages regarding granting equity incentives to non-executive directors vary significantly between the key jurisdictions in which we operate. For example, we conduct a significant part of our operations in Belgium and the Belgian Corporate Governance Code requires that non-executive directors receive part of their remuneration in the form of shares, but not stock options. Our benchmarking confirms that offering equity incentives to non-executive directors in the form of options and/or shares is on the other hand widely accepted market practice in the U.S., with over 90% of our U.S. reference group companies granting stock options to directors (benchmark of September 2022). We believe it is in the interest of our stakeholders that we are equipped to recruit the talent on our Board of Directors proportionate to our international ambitions. For this reason, we aligned our remuneration practices with those prevalent in the key markets in which we need to compete for talent. Considering specifically our significant activities in the U.S. and the specialized knowledge and experience needed on our Board of Directors to maximize our chances of success in this region, we need to align our remuneration practices for non-executive directors with the U.S. companies in our reference group, meaning we offer share options and/or restricted share units to our non-executive directors. We believe this is a conscious and well-considered deviation from the DCGC that is required to serve our long-term global goals and ambitions. On this topic, considering the importance of competitive remuneration for our ability to attract and retain highly qualified persons, alignment with the reference group is prioritized over compliance with this best practice provision 3.3.2. We currently do not envision to change our practice in this respect, unless the practice in our reference group changes. If our benchmark exercise shows that offering only cash (no equity incentives) or equity excluding stock options becomes competitive practice in our key markets, we will consider adhering in full to this best practice principle.