Trust

Blog

30 April 2018

The last person with whom a director will discuss his real dilemmas is his supervisory board member. This is the remarkable outcome of a recent study (March 2018) by Nyenrode University. Twenty management board members of medium-sized and large companies in the Netherlands were interviewed about their most important dilemmas and questions. The study made one thing clear: the management generally doesn’t see the supervisory board member as the confidant and adviser that he is supposed to be according to the law.

“The study made one thing clear: the management generally doesn’t see the supervisory board member as the confidant and adviser that he is supposed to be according to the law.”

A supervisory board member supervises and at the same time acts as a consultant. The supervisory board member is expected to put his insight, wisdom and experience at the service of the company by supporting the management with solid advice. Apparently it doesn’t always work that way. What could be the reason for that?

First of all, there’s a fundamental contradiction between the monitoring function of the supervisory board member and his advisory function. “The police are your best friend” is something that we didn’t believe as kids either. Second, many supervisory board members fall short in performing their monitoring function. They try to do the director’s job or mix their personal interests too much with those of the company. They play power games or are insufficiently informed. If you’re not performing your monitoring function properly, the management obviously won’t take you seriously as an adviser either. Third, advice from a regulator is dangerous by definition. “As a supervisory board member, I advise you to tackle this issue in such and such a way.” Yeah, sure. And what if the management doesn’t follow the advice? What does the “well-intentioned” adviser think of that in his role as a supervisor? It will often mean that a piece of advice is nothing more than a nicely packaged instruction. Fourth, we rarely see that there’s a great feeling of community between the management and the supervisory board, a feeling that together you must safeguard the company’s continuity and prosperity. Not seldom, and certainly when it concerns government-related entities, all kinds of political games are being played or there are even different “camps” and movements within the board. Not really a trust inspiring environment.

What does that mean? Is it better to get rid of that double role and simply acknowledge that the supervisory board member is not an adviser but only (exclusively) a supervisor? I don’t think so. In my opinion it’s mainly a matter of mutual awareness. As part of its internal assessment function, a supervisory board must consider to what extent it is actually living up to performing its advisory role. In other words, the board must consciously and actively fulfill its advisory role and explain its actions in this regard. The management should also be questioned about this matter. At least once a year, the effectiveness of the advisory role must be a prominent item on the agenda. In my opinion, the advisory role must also be mentioned in the supervisory board’s report and account must be given in the annual report. The supervisory board should look in a structural manner at how this role can be better fulfilled. A possible solution could be to appoint one or two supervisory board members (not including the Chairman of the supervisory board) as a special adviser and trusted person within the board. These supervisory board members will then serve as the go-between for the fiduciary and advisory role. In that way trust is turned from a word into an action.

This blogpost is also available in Papiamentu. Click here to download a pdf version.

Do you have a question about corporate governance yourself? Please e-mail it to governance@ekvandoorne.com and perhaps your question will be discussed in the next blogpost.