GovernanceLAB

The supervisory board member is pushed too much into a monitoring role

December 11, 2013

As a result of debacles with stock listed companies, educational institutions and housing corporations, supervisory board members are increasingly called upon solely in their monitoring role. Mijntje Lückerath-Rovers, professor of Corporate Governance at TIAS School for Business and Society, believes that this is a misunderstanding of the value of the other three roles that supervisory board members must fulfill. Besides acting as a monitor a supervisory board member is also an advisor, employer and networker, and these three roles are also important for the company's continuity.

Image: © Nationale Beeldbank

The role of a supervisory board member

Incidents at stock listed companies, educational institutions and housing corporations unfortunately lead to an inordinate focus on a supervisory board member's monitoring role. Increasing laws and regulations also force supervisory board members to spend an increasing amount of time on controlling activities. This creates the idea that safeguarding the company's continuity, a supervisory board member's main task, is best served by intensive monitoring that minimizes any risks.

Diverse roles

The supervisory board member's roles of advisor, employer and networker are at least as important for the company's continuity. Supervisory board members themselves, as well as the media and external monitors, can help place these roles once more at the forefront.

Even though both the law and governance codes dictate that 'the supervisory board member monitors and assists the management to the best of his/her ability' the law, regulators and external monitors increasingly view the supervisory board member as a controller. As a result there is a tendency to move towards ticking off checklists: supervisory board members are forced to demonstrate that they have discussed everything that is formally part of the role.

Advisor

In his/her role as advisor the supervisory board member acts as a sparring partner for the director. Experience, expertise and skills acquired in other sectors can help to challenge the director to think about the company's future. What are the company's objectives? Where do we want to be in five or ten years? How is the world around us changing? Which people do we therefore need? These questions are not found on checklists and the discussions are more informal. For the outside world it is therefore also more difficult to examine whether this role is adequately fulfilled by supervisory board members. Let alone whether they have provided added value.

Employer

The role of employer is perhaps the supervisory board's most important role. It is ultimately the job of the directors, appointed by the supervisory board members, to run the company. The choice of the best directors, compensating them in the right way, but also intervening if the person in the position is no longer the right choice, is essential for the company's success.

Networker

Unfortunately the supervisory board member's more informal role of networker is now rarely cited as being important to the company. Indeed, the atmosphere of mutual agreements, a possible 'old boy network' and supervisory board members that are too involved in the company, make supervisory board members cautious in this role. Nevertheless supervisory board members are an important link between the company and the society in which it operates. The timely anticipation of relevant information from other sectors and from different groups is essential for a company that wants to adapt to a changing environment. Supervisory board members can contribute to this, also without the shadowy atmosphere of cronyism.

Recommendations

In order to place the monitoring role in the right perspective and also expressly afford the other three aforementioned roles more attention, I therefore propose the following actions:

* In the annual report, supervisory board members can more emphatically devote attention to the so-called strategy session - in which the company's long-term objectives are more explicitly the focal point - and make it more obvious that they invest enough time in doing so. When describing the supervisory board members' competencies explicit attention should be devoted to the diverse composition of the supervisory board as a whole so that an outsider can see that directors can obtain adequate value from this knowledge and that the relationship with various stakeholders is safeguarded.
* Media must not focus solely on inadequate monitoring but also on success stories: possible situations in which the supervisory board has provided added value to strategic discussions.
* External monitors must not only value supervisory board members for preventing incidents but also in terms of value creation in strategy discussions.

* This article appeared in the Financieele Dagblad on 23 November 2013.

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