Governance

Measuring effectiveness of SB still in infancy

May 21, 2014

Although a supervisory board's performance is determined by a number of factors, scientific research often fails to look at how these different aspects affect each other or how these aspects are related to the purpose of the SB, says Professor Mijntje Lückerath during her speech of May 23.

Image: © Nationale Beeldbank

There are several factors that can contribute to an effectively operating supervisory board. Lückerath defined nine building blocks: first the four duties of the director, which include acting as supervisor, counselor, employer and networker, and then the team roles, effective office term, past and future, composition, accountability, governance versus supervision (prevention of) bias and self-evaluation. The relationship between the building blocks varies according to the duties of a supervisory board and the directors. "There is no one standard for the right balance, composition or distribution of duties. Nor is there a standard for the relationship between governance and supervision.

Moreover, the building blocks change all the time," says Lückerath, adding
that it makes little sense to examine certain, isolated aspects. "The correlation between company performance and that one aspect can be very high, but can at the same time be counteracted by other characteristics." The structure may at times be pyramid-like, given that some of the nine building blocks could be more important than other aspects. Lückerath will study the building blocks further in the next few years and also examine the interaction and prioritization. She will publish the results of these studies on the website of the GovernanceLAB of TIAS School for Business and Society.

Added value of SB

To determine the value of an SB, much more than just financial measures such as shareholder return needs to be considered, which is currently the norm in scientific research. "I think that putting the focus on financial measures alone cannot clearly express what the SB stands for; the long-term continuity of the company where the interests of different stakeholders are considered, and where there is a good balance between the past and the future of the company's performance." There must be other options available to determine the added value in scientific research, such as the fact that the directors may no longer be held to account solely on the basis of shareholder return. That aspect will also require further study in the next few years.

To find the right balance in the four duties of an SB, Lückerath advocates incorporating these duties more explicitly in the Corporate Governance Code. Not the supervisory duty, which is currently the case. Directors have a number of duties to perform. That should be more explicitly recognized by scientists and policy makers. The explicit incorporation of these duties in the Code could help, says Lückerath.

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Bouwstenen van High Performing Boards, Mijntje Luckerath (2014) - in Dutch

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