Supervisory Board – Home Alone

I. Not always trustworthy

A supervisory board member of a former DAX40 company reported that he had decided to resign from the board. Immediately, if possible. As it later transpired, the member had correctly sensed that good corporate governance was not being practised in the comp any. As a single member, there is little one can do. Even on the supervisory board, you need majorities. And if the majority does not want you, it is better to resign. However, the member in question was not familiar with the details of German law. Following standard practice, and in the absence of other alternative s, the member asked the company's legal department for advice. Apparently, the desire to resign came at an inopportune time for the company, which is why the supervisory board member was simply told that immediate resignation from the mandate was not possi ble. One is elected for x years. In fact, the member then remained on the supervisory board, with the result that the person was to be held responsible for something that they did not want to support by resigning.

Another supervisory board member found that, when in doubt, the communications department acted in the interests of the executive board rather than the company: statements made by the chair of the supervisory board that could have been interpreted as distancing himself from the executive board were regularly toned down. In background discussions, the corporate communicators deliberately used spin that had nothing to do with the true thinking of the supervisory board. In the end, when the supervisory board decided to draw a line under the matter, everyone was damaged: the supervisory board, the departing CEO and, above all, the company.

Years ago, even a supervisory board chairman found that he was standing in the way of his CEO. The only way to explain this was that the communications department had hired a consultant specifically to spread bad stories about the supervisory board chairman.

The correct statement is: "The management board and supervisory board should work together in a spirit of trust for the good of the company." However, practice shows that this is not always possible. Conflicts are inevitable due to the different roles, especially when there is disagreement about strategy or sustained economic success fails to materialise. Compliance violations are another particular issue. So it is not always egos that stand in the way of trusting cooperation.

II. Entitlement to professionally sound, loyal advice

It is important that the supervisory board, and especially its chairperson, is prepared for such situations both mentally and organisationally. The supervisory board must ensure that, in case of doubt, it always receives the necessary professional and loyal advice and is not given information such as that given to the supervisory board member who was told that it is not possible to simply resign from office in Germany. Of course, this is possible, and it would have been the right thing to do, because it would have led to questions that might have prevented worse things from happening. However, the Head of Legal may have been concerned precisely with preventing further unrest in the interests of the Executive Board.

Loyalty conflicts become particularly apparent when it comes to personnel decisions. For this reason, the supervisory board of a DAX - listed company outsourced communication regarding internal succession planning. Due to the preceding internal election camp aign, it was obvious that the head of communications was biased in favour of the candidate who was not supposed to win. Instead of putting the widely respected head of communications in an internal conflict, the chairman of the supervisory board hired a spokesperson specifically for this purpose. Ultimately, it would have been implausible for the head of communications to suddenly start promoting the candidate whom he had previously considered the second - best solution in background discussions. This approach would not have helped either the new CEO or the company.

However, it is not only in times of crisis that the supervisory board's own resources can be useful in terms of good corporate governance. Ultimately, despite the requirement for trust-based cooperation, the executive board and supervisory board have different roles to perform. If these roles are fulfilled correctly and positioned appropriately both internally and externally, they can contribute positively to the company's reputation among all stakeholders. Since the chair of the supervisory board is already the focus of greater internal and, above all, external attention, the role can also be used to enhance the company's image. Many of the topics on which he or she can communicate are derived from his or her area of responsibility, which is clearly described in the Code, among other places. In addition, the chair of the supervisory board is predestined to deal with the topic of corporate culture. He or she has a major influence on this through the supervisory board's personnel decisions.

III. Lack of resources as a challenge

The fact is, however, that very few supervisory board chairpersons have their own internal resources and budgets for external support. According to the latest supervisory board study by AdAR and Hengeler Mueller, only one third of the companies surveyed ha ve a supporting supervisory board office at their disposal. In 61% of the companies surveyed, the organisation of the supervisory board is linked to the management board. And only 24% of the companies surveyed provide the supervisory board with its own budget – this applies equally to listed and unlisted companies. For years, there has been a debate in the corporate governance scene about whether the supervisory board should have its own budget. Currently, this is not usually the case. Proponents of the status quo argue that budgets would tend to restrict supervisory boards. What if the need is greater than the budget in a given situation? For Swiss boards of directors, this question does not usually arise. They have their own staff and budgets that can be increased if necessary. Their advantage is that they can issue orders without having to involve the management beforehand, unlike in Germany.

IV. Be prepared

Regardless of the budget issue, the chair of the supervisory board should address the question of which external resources to draw on in case of doubt at an early stage. Time is of the essence, especially in crisis situations. Often, there is no opportunity to get to know candidates in depth. The selection process must be quick. It is not uncommon to fall back on well-known names, but these may not always be the best choice for the specific situation. It is advisable to take your time and review the pool of potential supporters during "normal" times. It can also be beneficial to keep this group informed about the company and its challenges so that a cold start can be avoided in an emergency and good advice is available from the outset.

V. Conclusion

Good risk management is characterised by assuming the worst case scenario rather than the best case scenario. Trusting cooperation between the supervisory board and the executive board is the best case scenario. In order to avoid suddenly finding itself alone in the company in the worst-case scenario, the supervisory board should prepare for emergencies with a team of supporters tailored to its can no longer necessarily count on the loyalty of internal resources.