The management board and supervisory board meet in the Boardroom of a company. This is sometimes a confusing environment. It is a group of people with different roles, different positions, and sometimes different agendas. If that is the case, it quickly becomes difficult to focus on what binds you. In a marriage, ideally, that is easy. You are attracted to each other. You start loving each other. You start living together. You start a family and you live and work together for a safe future of that family. That is a focus on what binds you. Exactly that is the key to the similarity and the difference with relationships in a boardroom.
The similarity to a marriage is that you also work together for a safe future in the Boardroom. The difference is that you are not attracted to each other and have not started to love each other. You are not meant to either :-). There is only a functional connection. That connection is much weaker than the connection in the relationship between an employer and employee. After all, that relationship most certainly has been preceded by a form of mutual choice. Moreover, there is a clear allocation of roles. By law there is even a relationship of authority. This is different for supervisory directors and board members. They are appointed by the shareholder. The managing director has to accept them and vice versa. You have to take what you get. There is explicitly no relationship of authority.
There is another difference that causes confusion. In general, the management board has knowledge of the company, the operations and the environment. Most supervisory directors and other supervisors do not have that, or to a lesser extent. In our state-owned entities mostly not even at all. The selection takes place on other ground, often based on considerations of party politics. This quickly creates incongruity, confusion on the content, purpose, and direction of the meeting, the relationship, and sometimes also, the future of the company. This confusion becomes dangerous when the supervisory directors start giving the management board instructions. This authority does not exist, but is sometimes still wrongly assumed. This is also based on confusion. The fact that a supervisory board has to approve some resolutions of the management board does not mean, contrary to what some supervisory directors think, that the resolution is passed by the supervisory board. The resolution is passed by the management board and cannot be implemented by the management board until it has been approved. This is a subtle but important difference. Connected to this is that sometimes a difference in level of education and experience occurs between supervisory directors and board members. It can be frustrating to a managing director to be told something by a supervisor who actually does not really know what he or she is talking about.
It becomes even more difficult and confusing when there is a difference of opinion on the direction and future of the company. Who determines those? The standard allocation of roles is quite simple: the shareholder determines the outlines of the policy. He can be assisted in doing so by the management board. The latter can make suggestions for this purpose. The management board will subsequently translate the outlines of the policy into strategic and operational actions. Arrangements are made to this effect. The supervisory board monitors whether the actions agreed on are implemented properly. This does not seem very difficult. Then why the confusion? And how to prevent this confusion?
There are at least three remedies. Reticence, communication, and transparency. With regard to reticence: supervisory directors and other supervisors have to be reticent in the fulfillment of their duties. They have to give the management board the opportunity to set its own course and subsequently follow that course. They should not want to redirect. They can point out a possible different course. If a supervisory director is convinced that a different course is better in the interest of the company, he has to say so. This is different from enforcing it though.
In this respect communication is crucial. You can only act in the interest of the company if you say what you think and think what you say. Hidden agendas or withholding information affect the roots of trust. Hidden agendas always exist, particularly in a semi-political environment such as in our state-owned entities. This is the political reality in Curaçao and it is fatal for the company. Therefore: transparency. Easier said than done, particularly in an election year.
Do you have a question about corporate governance yourself? Please e-mail it to email@example.com and perhaps your question will be discussed in the next blogpost.