It is hard sometimes to give up a position of power. All kinds of proverbs and sayings mention it: “The velvet is so comfortable”, etc. This is no different for supervisory directors. I already wrote about the tendency of some supervisory directors to stretch their powers under the law and the articles of incorporation by taking the management board’s place. This is an aspect of undesired expansion of power. Another aspect of expansion of power is repeatedly postponing stepping down. Now there is an interesting dilemma.

If a supervisory director is forced too quickly to step down (as is often the case with our state-owned companies, unfortunately), he cannot do his work effectively anymore. For you need some time to get to know the company inside and out. If you do not know the company, you cannot be a good supervisory director. If a supervisory director stays on too long, on the other hand, he often becomes part of the furniture, so to speak. In that case, too few new ideas are introduced, and he does not provide sufficient, relevant opposition to the management board. The key question is consequently: what is the right middle road? How long should a supervisory director (be able to) stay on to be able to (continue to) work effectively? In general, this varies between at least 6 years and at most 12 years, in my opinion, apart from some exceptions.

Determining the term of office
There is only one way to provide for it properly and that is by determining it in advance, in the articles of incorporation or in the regulations for the Board of Supervisory Directors. For instance, the articles of incorporation can determine that supervisory directors can be appointed for a maximum period of four years and subsequently can be reappointed once or twice. This system not only has the advantage that the maximum term of office is limited, but also the advantage that after a period of four years the shareholder can always decide not to maintain the supervisory director in question, for instance on account of inadequate performance.

Regular reappointment
Sometimes, six years is too long and sometimes twelve years is too short. How should you determine that? There is only one way to keep supervisory directors sharp: there has to be a form of (self-) evaluation. This is a topic by itself, for that matter, which I will write about later. The (relative) effectiveness of the supervisory director is better made visible by means of regular reviews and self-evaluations. The results of such evaluations can then also determine whether a supervisory director is proposed to the shareholder for reappointment after his first or second four-year term has expired. Some companies in the private sector always only appoint their supervisory directors for a one-year period. That keeps you sharp. No chance of reclining in the velvet in that case!

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 column!

Related article