HEADSAHEAD invites to a practical forum for supervisory board chairmen for the first time on July 5. In an interview, two of the initiators explain why they think the exchange is necessary. Stefan Eltgen is a partner at HEADSAHEAD, has almost 20 years of mandate experience and currently sits on two supervisory boards. Klaus Möllerfriedrich is Chairman of the Supervisory Board of Gesco AG and a member of three other supervisory boards. They know from their experience: Supervisory board activities have changed dramatically in recent years, and the requirements have become more stringent.

Mr. Eltgen, one of your focal points in executive search consulting is the staffing of supervisory and advisory boards. Can you identify a trend, has there been a change in the focus of companies in their search for suitable candidates?

Stefan Eltgen: More and more importance is being attached to the work in the committees, and we are experiencing this quite clearly in practice. Non-listed companies are also finding that they need professional skills on supervisory and advisory boards. Some companies experience this sorely, because they have difficulty in correctly assessing the dynamic market and competitive developments, even in the committees. Others, because they want to successfully secure specific tasks such as succession planning or generational change. This has resulted in a trend toward professionalizing supervisory and advisory board work as a whole, and thus also in professional staffing.

When did this trend of professionalization in supervisory boards begin?

Klaus Möllerfriedrich: The composition and qualifications of supervisory and advisory boards have changed significantly over the past ten years. In the area of listed companies, this trend has been accelerated by the regulations of the Corporate Governance Code. Women’s participation, diversity, internationalization. Financial expert constraints have also professionalized the selection process. The trend can also be seen in advisory boards of family businesses, but not yet universally. Here you can still find your own lawyer, tax advisor or fellow entrepreneur on the supervisory or advisory board.

What is the major challenge in the search for supervisory board members?

Eltgen: Two levels are important. Firstly, to properly understand the situation of the company and from this to derive the necessary requirements for the candidate. Secondly, to find candidates with the necessary professional competence in combination with the appropriate personal qualities.

Möllerfriedrich: It is precisely this human factor that has become more prevalent again in the selection process over the past two years. Technical competencies can be covered rather easily, but two or three alpha leaders in a committee – that can become a problem. The focus of the staffing process is on cooperation based on trust.

The time factor is also playing an increasingly important role, especially for supervisory boards and advisory boards with decision-making responsibility. Particularly in the case of listed companies, the time required is considerable and leads to time clashes with other professional activities.

Your consulting activities include a meticulous analysis of the company. If you had to break it down to one key question, what would it be?

Eltgen: Which goal, which task should the supervisory board and in particular the advisory board fulfill beyond the purely prescribed duty of control of the management?

If, for example, the advisory board is only concerned with ensuring the “sole control” of the owner or shareholder, then no professional-critical committee work is desired and the shareholder is sure to find someone from his network, we then close the books.

But if the supervisory or advisory board is to pursue its core duty of monitoring the management with the aim of ensuring sustainable value creation and safeguarding the company’s continued existence, then the follow-up question is: What is the company’s situation and where should it be developing?

Why do you think this question is crucial?

Eltgen: Depending on whether the scenario is one of growth, consolidation, change or restructuring, very different skills and experience are required. Only if you are able to specify these professional and personal requirements you will find the right candidate.

Möllerfriedrich: In addition, the demands placed on company managers and supervisory boards today are significantly higher and, above all, more complex than they were a few years or decades ago. Today, successful corporate management requires competence both internally and externally.

The best example is digitization. The demands this creates on the company and its management can no longer be met without the help of competent consultants. These competencies must then also be present in the management itself and in the supervisory and advisory boards in order to ensure qualified advisory or supervisory board work.

When looking for candidates, companies should therefore take a close look at their own situation and derive the requirements from this. Does this happen in reality?

Möllerfriedrich: To a greater extent, yes. In the past, especially in family businesses, the formation and appointment of an advisory board was based on pressure from outside or on the face factor principle: Who is sympathetic to me and who will let me manage the company without interference? Today, the competencies that can promote the company play the essential role. Professional selection procedures also prevent management from determining the composition of the Supervisory Board and selecting only members who are well disposed toward it.

Mr. Eltgen, you have 20 years of mandate experience and currently sit on two supervisory boards: since 2015 on the supervisory board of MPREIS Warenvertriebs GmbH, an Austrian supermarket chain, and since 2016 as chairman of the supervisory board of J. Bünting Beteiligungs AG. How does this influence your consulting work in supervisory board searches?

Eltgen: Our own practical experience makes it much easier to understand the specific situation in the company, on the board and, with a view from the outside, enables us to engage in a valuable exchange with the owners and supervisory board chairmen in order to define the right requirements. This is a very crucial part of our consulting services.

What do you focus on when presenting a list of potential candidates to a company?

Eltgen: We try to present slightly different personalities in each case, because we always find that companies gain even more clarity about the requirements by actually getting to know the candidates in comparison. The decisive point, in addition to the – self-evident – fulfillment of the professional requirements, is then the personal “fit” of the candidates.

Is the demand for female candidates increasing?

Eltgen: In principle, yes. Appropriate consideration of diversity in this regard is often part of the requirements.

On July 5, your consulting organization HEADSAHEAD invites chairpersons of supervisory boards of small and medium-sized stock corporations to a practical forum in Düsseldorf entitled “Professionalization of Supervisory Board Work”. How did the idea arise?

Eltgen: The aforementioned professionalization in supervisory and advisory board work logically requires a professionalization in the filling of mandates, especially of chairpersons. We have therefore chosen this as a focus of our work and want to talk specifically to supervisory board chairmen on the subject of professionalization. Therefore, we have chosen this format of practice exchange.

What service does the event offer participants?

Möllerfriedrich: There are now many training and technical events for supervisory and advisory boards, but they are very theoretically oriented. Instructions for practical implementation are usually not available. The responsible chairman of the supervisory board is then often left to his own resources.

We ourselves have often found oneself in this situation and would have liked to have had an opportunity to exchange ideas with colleagues. With the round table, we want to close this gap – especially in view of the ever-expanding tasks of a supervisory board chairman.

What are the biggest difficulties facing supervisory boards today?

Möllerfriedrich: Clearly: the liability risks. Nowadays, supervisory board work is subject to constant monitoring by the investor side or other stakeholders. The risk of a liability case is permanently present. Corporate governance, compliance, business judgment rule are topics that 20 years ago were not dealt with at all in supervisory boards. Today, they are present at every meeting and every decision.

Mr. Eltgen, do you have to convince the candidates? Why should a highly successful manager saddle himself with a supervisory board mandate?

Eltgen: No, those who need to be convinced first are wrong. On the contrary, you should enjoy and be enthusiastic about being able to play a key role in the success of a company.

What do you enjoy about being a member of the Supervisory Board?

Möllerfriedrich: Compensation usually isn’t. Especially for small companies, it is usually extremely small and does not correspond to the amount of time that needs to be spent today. It therefore takes great idealism. But it’s fun to accompany companies and contribute to their success.

Eltgen: I experience this similarly. I have a soft spot for owner-managed and family businesses. I simply enjoy helping to ensure that medium-sized companies in particular are well managed and maintain their competitive edge.

Klaus Möllerfriedrich (li.) and Stefan Eltgen

Information on the Practical Forum on July 5 in Düsseldorf can be found here.