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What Supervisory Board Members Should Know

July 29, 2019

5 tips to help make their work even more effective

Qualified supervisory board members are nowadays considered a key factor when it comes to preventing corporate bankruptcies and even economic crises caused by negligence from happening. The supervisory job is a demanding one that requires not only foresight and technical expertise but in particular also good social skills.

In the following, Prof. Werner Hoffmann, Academic Director of the WU Executive Academy's Governance Excellence program and Head of WU Vienna's Institute for Strategic Management, analyzes the biggest challenges that supervisory-board members need to respond to today, and shares his very personal tips on how to successfully accomplish this demanding task.

What supervisory-board members should know

The Biggest Challenges Facing Supervisory Board Members:

Ensuring that there is a business model with a promising future that takes into account the far-reaching opportunities and risks associated with digitization.
Technological change is throwing into question many established business models (disruption). Some companies even have to redefine their raison d'être (purpose, mission, vision). In this context, digitization should much more be seen and used as an opportunity to solve problems experienced by customers in better and cheaper ways than has hitherto been the case.

Putting together the right team of top-level executives and incentivizing them in an appropriate manner.
“Strategy follows people” - no other task for which the supervisory board holds direct operational responsibility has a greater impact on the future and the future success of a company than that of selecting and incentivizing management. What matters in this regard is not only to fill vacant management positions with the right people but in particular also to keep an eye on the right mix of qualifications, experience and personal qualities on the board as a whole. At the end of the day, the crucial thing is not the individual board member but how well top management functions as a team. Incentivizing people in the right manner, i.e. in a way that is in line with the corporate strategy and rewards sustainable success, is also becoming increasingly important in this context.

Making sure that there is a systematic approach to corporate risk management that reflects business opportunities and risks in a well-balanced manner.
Preventing corporate crises and bankruptcies from happening is often regarded as one of the key tasks of supervisory boards. In order to be able to meet this challenge, supervisory-board members need to ensure that companies establish a corporate risk management system that identifies, evaluates and links business risks and opportunities (!) and initiates and follows up adequate management activities. What is important in this context is to avoid a one-sided focus on risks and to define an appropriate level of “risk appetite”, always keeping in mind that taking calculated risks is part and parcel of doing business.

Organizing the work on the supervisory board effectively - turning a group of individuals into a team characterized by mutual trust and close cooperation.
Not only management but also the supervisory board should increasingly be regarded as a team. Supervisory boards will be particularly effective and efficient when their members trust one another and the work on the board is organized (distributed and coordinated) in an efficient manner. Making this happen is certainly one of the most important tasks of the supervisory-board chair.

Systematically increasing the effectiveness of the supervisory board's work through regular internal and external evaluations as well as education and training designed around the specific needs of board members.
The process of evaluating the supervisory board should not be perceived as a bureaucratic nuisance; rather, it should be seen and used as an opportunity to systematically reflect on the efficiency and effectiveness of the board's work. Bringing in external experts who act as moderators and providers of know-how on an equal footing (“peers”) can significantly increase the quality and usefulness of evaluations. Moreover, the members of the supervisory board should be provided with targeted education and training on a regular basis so as to ensure that they are abreast of regulatory requirements and the latest developments in all areas relevant to corporate supervision.

Werner Hoffmann's 5 Personal Success Tips for Supervisory Board Members:

  • Instruct management to thoroughly address, as part of the next strategic review, the impact of digitization on the company’s business model(s) and to make suggestions for business-model innovation.
  • Do strategic succession planning for top-level executive positions so that in addition to the individual qualifications and requirements the right mix on the management board (its complementary make-up) is also taken into account.
  • Ensure that the company has a systematic, institutionalized corporate risk management system that considers not only risks but also business opportunities. (It is important to keep in mind that risk management, understood properly, goes far beyond internal control.)
  • The chairperson needs to pay special attention to the make-up of and the teambuilding on the supervisory board.
  • At least every three years, a professional evaluation of the supervisory board's work should be carried out by external experts or peers in order to obtain important input for the further development of supervisory activities.

For more information about the Governance Excellence program, please click here.

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