The importance of trust in the boardroom

Trust is an essential component of corporate governance, but it should not become a barrier preventing the supervisory board from asking questions, Mijntje Lückerath writes in this column.

Image: © Nationale Beeldbank

In 2012, Gerdi Verbeet, former chairwoman of the Dutch Parliament, published a book entitled "Trust is a good thing, but understanding is better." The first time I read this title, I was thrown off balance for a moment. We have grown accustomed in corporate governance to the title of the book by Kees Cools from 2005: "Control is good, trust is even better." But on reflection I see the added value of the title of the Mrs. Verbeet’s book, also in corporate governance. Trust should not become a barrier preventing the supervisory board from asking questions.

Trust is an essential component of corporate governance. First, the governance codes were originally drafted with the aim to restore society’s confidence in corporate governance. In the notes to the Dutch Corporate Governance Code (Tabaksblat Code) from 2003, the committee stated that "the code is a step on the way to restoring the confidence of the public in fair, honorable, and transparent business conduct within listed Dutch companies.” To restore this trust, and to avoid too great a concentration of power in the management board, the code also sought to strengthen the position of the supervisory board and the general meeting of the shareholders, according to the Tabaksblat Committee. In other words: more control.

Second, trust in the boardroom between the directors and the supervisory board promotes an open and constructive way of management and supervision. The director must be willing to share his dilemmas in strategy formation and decision making too. The supervisory board must also be brave enough to give the director ample room for maneuver and not try to do his/her job. This requires trust before control. 

But this is also where the problem lies. A critical attitude of the supervisory board and asking more questions to test the dilemmas, to challenge the management board and to understand where the red flags are are sometimes interpreted as lack of trust. Asking tough questions gives an uncomfortable feeling in the relationship of trust between the management and the board of supervisors. In recent conflicts between the management and the supervisors, there was an apparent absence of a culture of asking questions or there was, for example, a blind faith in a one-man management team. In a situation where questions are not asked for fear of damaging a relationship of trust, a high degree of confidence is detrimental to supervision. Mrs. Verbeet is right.  Control is good, trust is good, but ultimately understanding is the most important thing. 

During an inspirational lecture on September 1, Prof. Dr. Mijntje Lückerath will discuss the importance of trust between directors and supervisors in the boardroom. 

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This text was first published as a column in the magazine Management Scope.