HEADSAHEAD is sending out invitations for the first time on 5th July to a practical forum for heads of supervisory boards. In an interview, two of the initiators explain why they think the exchange is necessary. Stefan Eltgen is a Partner at HEADSAHEAD, he has nearly 20 years of experience with mandates and now holds seats in two supervisory boards. Klaus Möllerfriedrich is the Chairman of the Board of Gesco AG, and member in three additional supervisory boards. Based on their experiences, they know: work in the supervisory board has changed massively over the last few years, requirements have become sharper.
Klaus Möllerfriedrich (le.) and Stefan Eltgen
Düsseldorf, 7th June 2018
Mr. Eltgen, one of your core areas of focus in executive search consulting is the staffing of supervisory and advisory boards. Do you see a trend? Has the focus of companies during the search for the right candidates changed?
Stefan Eltgen: Ever more importance is being placed on work in boards, we’re experiencing this very clearly in actual practice. Even non-listed companies are finding out that they need professional competencies in supervisory and advisory boards.
Some companies are painfully experiencing this because they’re having difficulties in correctly estimating the dynamic market and competitive trends in the boards, too. Others because they want to successfully secure the specific tasks like succession regulations or change of generations. The result of this is the trend towards professionalization of supervisory and advisory board work as a whole, and therefore the implementation of staffing in a professional way, too.
When did this trend of professionalizing supervisory boards begin?
Klaus Möllerfriedrich: The composition and qualification of supervisory and advisory boards has changed tremendously over the last ten years. This trend has gained even more momentum in the area of companies that are listed on the stock exchange due to regulations of the Corporate Governance Code. Women’s quota, diversity, internationalization. Pressure of financial experts has also professionalized the selection procedure.
The trend can also be seen with advisory boards of family-run companies, but not yet consistently. Here, you still find the in-house lawyer, tax adviser or entrepreneur colleagues who are friends in the supervisory or advisory board.
What is the biggest challenge when searching for supervisory boards?
Eltgen: Two levels are important. Firstly: correctly understanding the company’s situation and determining the necessary requirements placed on candidates on this basis. Secondly: finding candidates with the necessary professional competence combined with the right personal qualities.
Möllerfriedrich: Precisely this human factor has been more vigorously implemented again over the last two years during the selection. Professional competence can be covered more easily, but two or three alpha animals in one board – that could become a problem. When it comes to staffing, the trust-based cooperation is paramount.
The time factor is playing an ever more important role, especially for supervisory boards and advisory boards in charge of making decisions. The time required is particularly substantial for companies listed on the stock exchange, and it leads to time collisions with other professional activities.
Your consulting work includes a meticulous analysis of the company. If you had to break this down to one core question, what would it be?
Eltgen: Which objective, which job should the supervisory board and especially the advisory board fulfil that extends beyond the merely stipulated monitoring obligation of the top management?
For example, when things are escalating in the advisory board only to secure the "sole reign/autocracy" of the owner or shareholder, professionally critical board work is not wanted in this case and the shareholder will definitely find someone from his network, we will then snap the books shut.
But if the supervisory or advisory board should pursue its core obligation, monitoring the top management, with the objective of ensuring sustainable value creation and securing the company’s continuity, then the follow-up question is: what is the company’s current situation and what should it develop into?
Why do you think this question is key?
Eltgen: Depending on whether a growth, consolidation, change or even also a restructuring scenario exists, completely different competencies and experiences are in demand. Only when you are able to concretely specify these professional and personal requirements will you find the right candidate.
Möllerfriedrich: Furthermore, requirements on corporate leaders and supervisory boards are significantly higher and especially more complex today than was the case a few years or even decades ago. Today, successful corporate management/governance needs to have competence both inside as well as from the outside.
The best example is digitalization. The requirements which are placed on the company and its management because of this can no longer be met without the support of competent consultants. These competencies must then also be in place with the management itself and in the supervisory and advisory boards in order to ensure qualified advisory or supervisory board work.
When searching for candidates, what holds true for companies is to then examine the own situation very closely and determine the requirements on this basis. So does this also happen in actual practice?
Möllerfriedrich: To an increased extent, yes. Particularly with regard to family-run companies, an advisory board was formed and staffed in the past through pressure from the outside or according to the "face factor principle": Who is devoted to me and who lets me manage the company without any interference? Today, the competencies which the company can promote play the pivotal role. Thanks to a professional selection procedure, the management is also prevented from determining the composition of the supervisory board and from only picking out members who are sympathetic to them.
Mr. Eltgen, You have had mandate experience for 20 years now and are currently holding seats in two supervisory boards: since 2015, in the supervisory board of MPREIS Warenvertriebs GmbH, one of Austria’s supermarket chains, since 2016, as Chairman of the Board of J. Bünting Beteiligungs AG. How does that influence your consulting work when looking for supervisory board members?
Eltgen: The own hands-on experiences make it much easier to understand the concrete situation in the company and in boards and enables a valuable exchange thanks to the view from outside with owners and chairpersons of supervisory boards in order to define the right requirements. This is a very integral component of our consulting service.
What is paramount for you when you present a company with a list of potential candidates?
Eltgen: We try to present somewhat different personalities in each case because we have seen time and time again that in comparison, companies gain even more clarity over the requirements by specifically getting to know the candidates. The decisive point besides the – it goes without saying – fulfilment of professional requirements is then the candidate’s personal ″fit.″
Is demand growing for female candidates?
Eltgen: In principle, yes. The adequate consideration of diversity in this respect is often one part of the requirements.
On 5th July, your consulting organisation, HEADSAHEAD in Düsseldorf, is inviting chairpersons of supervisory boards from smaller and medium-sized stock corporations to a practical forum under the title "Making Supervisory Board Work More Professional." How did this idea come to life?
Eltgen: The mentioned professionalization in supervisory and advisory board work logically calls for professionalization of the staffing of mandates, especially the chairpersons. That’s why we chose this as a focal point of the work, and we aim to systematically start talking to heads of supervisory boards about the issue of professionalization. For this reason, we selected this format of the practical exchange.
What service does the event offer the participants?
Möllerfriedrich: Today, numerous training and professional events are offered for supervisory and advisory boards, which are then, however, aligned in a very theoretical way. As a rule, there are not any instructions on hands-on implementation. It is then frequently up to the responsible head of the supervisory board himself.
We’ve often found ourselves in this situation and would have really liked to have shared experiences with colleagues. We want to close this gap with the round-table - especially with a view to the ever-expanding jobs of a supervisory board chairperson.
So what are the greatest difficulties that supervisory boards must face today?
Möllerfriedrich: Quite clearly: the liability risks. Nowadays, supervisory board work is subject to continuous control by investors or other stakeholders. There is a permanent risk of a liability case.
Corporate governance, compliance, business judgement rules are all issues that you did not focus on at all 20 years ago in supervisory boards. Today, they are present at every meeting and in each decision taken.
Mr. Eltgen, Do you have to use powers of persuasion for the candidates? Why should highly successful managers have to even saddle themselves with a supervisory board mandate?
Eltgen: No, anyone who must first let himself be convinced is wrong. Quite the contrary, you should have fun and be really excited about being able to contribute towards the success of a company when you hold an influential position.
What do you enjoy most about your supervisory board work?
Möllerfriedrich: As a general rule, it is not the remuneration. Especially with small companies, it is usually very low and does not correspond to the time you must spend today. That’s why a great deal of idealism is a must for this job, too. But it is fun to support companies and play a role in making them successful.
Eltgen: I experience that in a similar way. I have a special passion for owner-managed and family-run enterprises. I simply have a whole lot of fun helping out so that especially medium-sized companies are also managed properly and retain their competitive capability.
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