The supervisory board member after the crisis: young, female and non-smoking?

Supervisory authorities in our economic system have failed in their core duty of monitoring and controlling risks. The unbridled selling of financial products, bundling them into complex financial instruments and selling them over and over again has gone unnoticed – until now. The risks are proving to be destructive to the fundaments of, not only our financial, but also our social system. What has been the role of supervisory board members and non-executive directors? What should be their profile after the crisis?

Flattery will get you everywhere, as a white male
The crisis has raised questions about the quality and independence of non-executives/supervisory board members: were they up to the job? Recent research in the US shows that our current system of identifying and appointing non-executives does not ensure the highest quality of corporate governance, to put it mildly. The survey analysed which directors did well on the director’s labour market and why; it measured which behaviour led to being invited more often to non-executive director’s positions than others. While using the very appropriate title “Flattery will get you everywhere (especially if you are a male Caucasian)” , the authors concluded that the director labour market is falling short of the meritocratic ideal in two ways:

• Monitoring and control behaviour (as opposed to social influence behaviour), which contributes to effective corporate governance, is actually punished;

• Demographic minorities (women and ethnic minorities) are less rewarded for social influence behaviour and punished even harder for monitoring and controlling behaviour.

Indeed, flattery will get you a non-executive director’s position faster than your competency to exercise the monitoring and controlling tasks which are fundamental to your role. And what’s more: those women, who exercise monitoring and controlling tasks very well, are punished for it more than men. So the conclusion is that our current system rewards flattery and punishes effective board behaviour. Of course the US is not Europe, and there are fundamental differences in corporate governance structures, but somehow I cannot help wondering if similar research in European companies would not result in the same conclusions.

Independent and qualified
Supervisory board members have two main roles: supervision and advice. They need to be independent and qualified for the task to ensure the highest quality of decision-making. Being independent is not only ‘a state of mind’ but preferably also needs to be reflected by the absence of financial interests or representing specific interests or lobby groups. Our corporate governance system of checks and balances is built on three elements:

1. Trust. Supervisory board members need to be experts in building and maintaining trust with executives while asking the questions that need to be asked. It’s a balancing act between ‘blind trust and distrust‘. Trust provides the bridge between the monitoring and controlling tasks and the role of advisor to the executive board.

2. Structure. A system needs to be in place to ensure the highest quality of decision-making, laid down in the ‘Internal regulations‘. The rules of engagement need to be clear, consistent and transparent; some companies even publish them on the website.

3. Alignment of interests. All board members need to jointly work in the sole interest of the company as a whole. Especially supervisory board members are called upon to take into account the interests of all stakeholders in the company, and not let shareholders’ interests prevail all the time above the interests of employees, clients, suppliers, the environment, society and others.

The board member after the crisis: young, female and non-smoking?
So far, few supervisory board members are speaking up in public about their role in the crisis. Here is my shortlist of which qualities we should add to the list of criteria for the effective board members of the future:

1. Ability to communicate and connect. CEO’s of financial institutions are failing miserably in explaining to the public why they failed. Apologies at press conferences are practically non-existent and shareholders meetings are characterised by board members who communicate embarrassingly poorly with pensioners who have lost their entire pension. As emotions are running high, the lack of empathy and communication skills at top level is leading to a full-blown leadership crisis and crisis of moral. Supervisory board members of the future will have to lead by example, and demand high levels of empathy and communication skills of the CEO and his/her executive team and themselves in order to restore the public’s confidence in the system and leadership in the long run.

2. The must of diversity. “When all think alike, no one is thinking very much” characterises the potential danger of boards consisting of people that look alike. If anything, this crisis has proven that the persistent lack of gender diversity on boards has not led to high performance boards—so it’s time to change and embrace the business benefits of diversity. Well-known studies are linking diversity to corporations’ bottom-line performance . A recent French study into the fall of share prices of the CAC40 also showed a positive effect of women on boards . While the average share price of the CAC40 companies dropped 43% in 2008, companies with a high number of women in top management recorded better numbers. One of these best practices is Sodexo, with 43% female managers; it recorded a fall in its share price of only 8%. If the crisis did anything, it shows that the call for diversity in the board room has become a Must now.

3. Return of the ‘challenging’ board member. Board members who are asking the right questions should be rewarded and not punished. Independence takes on a new dimension as board member’s capacity and courage to challenge the executive team will become one of the most important requirements for the board member of the future.

4. Self-reflection leading to self-correction. Too often self-evaluation processes are informal and unstructured. Supervisory boards will benefit from professionalising this process and taking responsibility for the results. Self-correction starts with self-reflection – we need both qualities in the supervisory board members of the future.

The crisis offers many chances. One is that board-ready women step forward to take up those positions that will be abandoned by non-performing board members who are dismissed or resign. EuropeanPWN provides a pool of talent and programmes to develop this leadership potential of the future.

1/ J.Westphal and I.Stern: “Flattery will get you everywhere (especially if you are a male Caucasian): How ingratiation, board room behavior and demographic minority status affect traditional board appointments at US companies”, in Academy of Management Journal April 2007, vol. 50, no.2, p. 267-288.

2/ See our webpage

3/ M. Ferrary (Ceram Business School) in the Financial Times March 2 2009

Mirella Visser
President EuropeanPWN
April 2009