At the last moment of the past year, Jaap Möllenkamp, former director of the social housing association Rochdale, was sentenced to two and a half years in prison. This is an unusually high punishment for Dutch standards, particularly for so-called white-collar crime. Möllenkamp could not keep business and personal separated. He enriched himself and drove a Maserati of funds that actually should have been spent on housing. This judgment is very interesting from a corporate governance perspective. For instance, it shows that the judiciary is becoming increasingly strict towards directors who do not act ethically. The judge considered that Möllenkamp as a director was a role model and that he damaged the trust of the community by not acting ethically: perjury, forgery, tax fraud. Boom, two and a half years in prison. If he had not been a director, he might not have been so seriously blamed for this conduct.

In – for him – better days, Möllenkamp was called the ’Sun King’ in Amsterdam. Now he has become the symbol of the no less than twenty tycoons gone adrift of housing associations and housing foundations that have gotten in trouble in the Netherlands in recent years due to poor supervision, fraud and corruption, and on account of bad investments. What are the lessons to be learned? Foundations and associations are not sweet, sympathetic organizations where sweet and idealistic people improve society with their good intentions and with their hard and unselfish work. Many foundations and associations are companies at the center of society. They are part of the normal social arena, with all its challenges and temptations. Professionality is one of them, as well as checks and balances, control and supervision, transparency and accountability. In short, good corporate governance. This applies just as much to the supervisors in the foundation. They are liable for the quality of their supervision of the directors of these organizations. If the management board gets derailed, it is guaranteed the supervision is derailed too.

Not so long ago, this standard was not yet applied so strictly in corporate law. In the seventies of the previous century, the father of our corporate law, prof. mr. Willem van der Grinten, still believed that internal liability of directors in the Netherlands was not an issue. “Gentlemen solve their internal problems like gentlemen.” Those days are gone. Both the days of the ’Gentlemen’ and the days of internal solutions. The standard is applied, often in public. The problem is that it is not always clear what this standard is: what is acceptable and what is not? Conduct that was still normal ten years ago (paying meals with the foundation’s credit card during a business trip) is not so normal anymore now. At the very least one has to account for what has been spent. Going abroad with the entire board is not so normal anymore either. What is appropriate conduct for ladies and gentlemen? It was clear in Möllenkamp’s case, but in a sense that case was extreme. Generally, the venom and uncertainty are located in the grey area. What is acceptable and what is not (anymore)? There is most certainly a solution or rather an approach for this issue. As a management board and supervisory board, you have to regularly pay attention internally to the integrity of the organization and your own integrity. In this respect openness and explanation are key terms. A ’dilemma training’ is very useful. Based on tangible dilemmas, directors and supervisors can together discuss and explore what the limits are in the organization. Taking action is easy. Taking action in the right direction requires understanding and insight. Collective insight is necessary in case of moral dilemmas. If there is none, the entire organization, also the respectable foundation, will irrevocably get derailed.

This column 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.

Related article