Supervisory Board tightens the reins on the Board of Directors
In the context of attempts to raise levels of professionalism, the Supervisory Boards (SB) of Dutch companies and organisations are beginning to take an increasingly active role. In so doing, they are increasingly required to talk to people outside the Board of Directors (BD). The SB would also like to further substantiate its task via greater involvement with strategy design and by maintaining an overview on operational activities. In short, they would like to position themselves closer to the actual business. This is clear from recent research conducted with 115 supervisory directors into the current and future role and position of the Supervisory Board. On behalf of research partner Grant Thornton, Bart Jonker handed the first copy of the research report to Jos Streppel, whose roles include chair of the Monitoring Commission Corporate Governance, chair of the Duisenberg School of Finance Board of Directors and supervisory director of various listed companies.
Getting closer to the business
The Grant Thornton research, conducted by Aalt Klaassen and Prof. Herbert Rijken demonstrates that the delineation of administrative relationships keeps the SB busy. The SB seems to be opting for increased proactive involvement in the near future, whereby they will be shifting towards the position of the director. The individual roles of the BD and the SB could then become more diffused, according to the researchers. SB meetings without participation from the BD are becoming more common and the obligation to appear to show directorial unity has also become less evident among listed companies. Those in the SB are more aware of the dual role compared to the BD. The international capital market is also increasingly demanding that an SB provides clarity regarding its role within and the added value it provides for a company.
The ‘appropriate’ information
Other issues to which the SB attaches a great deal of value include: information provision to the SB and the more frequent and more structural (self) evaluation of the effectiveness of the BD and the SB. The researchers expect these evaluations to lead to greater in and outflow in relation to SBs. There is also a significant need for factual accuracy and reliable and ‘appropriate’ information which does not involve excessive figures. The researchers conclude that the Dutch Corporate Governance Code is evident among all organisations with supervisory directors: from listed and non-listed companies to family-owned businesses, cooperatives, associations and governmental bodies. The most significant attempts to raise levels of professionalism appear to be required among businesses whose turnover does not exceed 50 million euro. Jos Streppel: “The Code and supervision thereof has successfully spread out far and wide. Even non-listed and smaller companies apply the code and pronouncements from the Monitoring Commission. These are used as guidelines when setting up the supervisory board. SBs bear huge responsibility and must use their report to communicate with shareholders. It is thus vital that they are more transparent about their own roles.”
The Grant Thornton study also concluded:
• SB lacks grip on risk management
The researchers have found that the crisis has had a chastening effect on and opened the eyes of many supervisory directors. The importance of supervising internal risk management and control systems has increased but the quality thereof, in contrast, is estimated to be lower than it has been previously. The SB is more aware of issues that do not seem to be under control. The ‘in control’ statement in the annual report and increasing liability may have played a role in the changed view.
• Audit commission more influential in long term
The researchers expect the audit commission to become much more important when choosing an external accountant. The SB currently leads the process for choosing an accountant. The BD has the task of providing a selection profile, formulating the audit task and negotiating the price.
• Passive and reactive attitude
When it comes to financial criteria, the creation of value and the quest for efficiency have taken over from chasing profits. Among non-financial criteria, the emphasis lies on reputation but in the somewhat worrying sense of customer-satisfaction. The views of the supervisory directors in this regard seem to lag behind those of the directors, according to the researchers. The attitude of the supervisory directors is also too passive and reactive when it comes to the information process, in the view of Klaassen and Rijken. This could partially be due to concerns about impinging on the role of the director.
• Company values high on the agenda
Supervisory directors are also taking an increasingly critical look at their company’s performance within the sphere of integrity, reliability, customer-focus and concern for the environment. These subjects are also becoming increasingly evident on supervisory boards’ agendas. The improvement of company values is primarily an issue for SBs within listed companies and principally refers to issues of reliability, quality-focus, customer-focus, concern for the environment, innovation, leadership and entrepreneurship.
Demanding requirements for director and supervisor
Bart Jonker from Grant Thornton; “The research has made it clear that the Corporate Governance Code and the work of the Monitoring Commission are effective and broadly stimulate supervisory boards. Both listed and non-listed organisations have increased levels of professionalism as a result. Listed companies have taken the lead in this regard. We can regard this as a healthy development. CEOs and other directors are currently faced with extremely high requirements. This must therefore also apply to those who take a supervisory role, i.e. supervisory directors. It would be beneficial for supervisory directors to get to know their own companies, the products and the markets more thoroughly. They must also take a critical look at whether the board has the appropriate composition for the new phase towards which a company is moving. Of course, nobody should try to take over the role of the Executive Committee but a daring supervisory director is a useful tool in the presence of a dominant CEO. ”
Bart Jonker
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