227 Supervision in service of public interests?

Each perspective in Dutch corporate legal theory provides a different approach to the position and responsibility of the supervisory board. While the partnership perspective orients the supervisory board towards the partners of the corporation, the institutional perspective aligns the responsibility of the supervisory board with the durable success expected from the executive board. The ecosystem perspective in turn proposes a specific role for the supervisory board as part of a corporate conscience capable of assessing the normative implications of corporate decisions. By adding this third approach of the ecosystem perspective, I will argue that the unique position of the supervisory board can be specifically utilized for the inclusion of social and ecological interests in corporate governance.

The partnership perspective views both the management and supervisory board as agents in the service of all partners of the corporation.1 By constituting the legal corporation in a partnership between the partners of the corporation, the partnership perspective views the partners as the highest authority in corporate governance who are considered to have delegated their authority to the board for the executive management of the corporation.2 In accordance with this hierarchical approach to corporate governance, the supervisory board has the specific responsibility to supervise and assist the executive board in the service of the partners of the corporation. The role of the supervisory board becomes integrated with the executive board leading to a one-tier governance model.

Although the contemporary notion of the partnership perspective has narrowed the range of partners to the investors of financial capital, I have argued above that other strategic stakeholders may equally be included in the notion of partnership.3 Consequently, the supervisory board would be responsible for supervising the executive board in the interest of all strategic stakeholders involved in the corporation. Furthermore, the contemporary partnership perspective has narrowed the terms of negotiation between the partners of the corporation to the single-dimensional metric of value creation in a competitive market environment.4 I have argued above that the partnership perspective does not necessitate such a limitation of the terms of negotiation but may equally involve other metrics.5 For example, partners of the corporation may expect the long-term continued performance of the corporation and increasingly also non-financial impacts such as contributions to ESG-criteria or the SDGs.6 Profitability remains an important boundary condition within the premises of the partnership perspective. Nevertheless, the partnership perspective allows for the definition of success to be extended to the continued ability of the corporation to deliver broad and long-term value to all partners by being competitive in a global market environment.7 The partnership perspective therefore suggests a responsibility for the supervisory board to monitor the long-term capacity of the corporation to deliver value for all its strategic stakeholders.

Instead of concentrating on the partners of the corporation, the institutional perspective views the corporation as an independent institution constituted both by binding legal rules and by its own internal jurisdiction (deelrechtsorde).8 The supervisory board acquires a responsibility for supervising the executive board in relation to the interest of the corporation itself in its own continued existence. Since the executive board becomes the central authority in corporate governance instead of the partners of the corporation, the supervisory board gains the important function of providing independent checks and balances to the autonomy of the executive board.9 In order for the supervisory board to fulfil this central role in the internal system of checks and balances, the supervisory board needs to ensure that it maintains a sufficient distance from the executive board in order to provide critical and independent advice and supervision. As such, the institutional perspective is oriented more towards a two-tier model of governance, with a clear separation between the daily management of the executive board and the critical supervision of the supervisory board.

As a result of this two-tier approach, the institutional perspective can allocate specific legal responsibilities to the supervisory board that are different from the responsibilities of the executive board. In particular, I would argue that the institutional perspective implies a responsibility for the supervisory board to monitor the public interests according to which the corporation is constituted.10 Building on the earlier discussed definition of durable success in relation to the public purpose of the corporation, I would suggest that the supervisory board is particularly able to review whether the decisions of the executive board serve the public purpose for which the corporation has been licensed to operate.11 In some ways, the supervisory board could be viewed as a general representative of the government which authored the corporation. This view resembles the visitational rights historically held by the monarch which chartered the corporation or the state supervisors appointed by the Dutch government in specific financial institutions after their bail-out in 2008.12

The supervisory board then acquires a dual responsibility for serving the interest of the corporation itself while explicitly monitoring the larger public interests according to which the corporation was constituted.13 Such a dual responsibility would enable the supervisory board to hold the executive board accountable for its interference with social and ecological interests. Meanwhile, this approach would accommodate a further allocation of specific responsibilities in relation to social and ecological interests, such as the auditing of systemic risk management or the engagement of societal stakeholders. A distinctive responsibility of the supervisory board in relation to public interests would also justify binding rules for its composition, for example by including members that are able to represent relevant social and ecological interests in corporate governance. Below I will return to such implications for the capacity of the supervisory board.14

In my interpretation, the ecosystem perspective implies a shift of normativity from compliance with external rules to an internal assessment of the values intrinsic in the factual circumstances in which the corporate enterprise operates.15 By focusing on the systemic embeddedness of corporations in their environment, the ecosystem perspective constitutes the legal corporation in the factual operation of its enterprise. In my understanding of the ecosystem perspective, the factual circumstances in which the enterprise operates are considered to have intrinsic normative values which can be interpreted through practical reflection.16 Through this, the ecosystem perspective introduces normative values and objectives deduced from practice into corporate governance. Instead of requiring such values to be imposed on corporations through binding rules, corporate boards are expected to interpret the normative values implied in the specific circumstances in which their enterprise operates and to self-assess whether their decisions to interfere in these circumstances correspond to these values.

In my view, such self-assessment requires the introduction of a corporate conscience into corporate governance.17 The supervisory board seems to be particularly well-positioned to conduct such conscientious reflection in relation to the decisions of the executive board. Resembling the reflective nature of a human conscience, the supervisory board would then be tasked with asking conscientious questions about corporate activities such as: is this strategy the right thing to do?18 Does it serve the purpose around which the corporate enterprise is organized? Does its execution reflect the moral values and commitments implicit in the operation and historic evolution of the corporate enterprise? Is this the best way for the corporation to contribute to the social and ecological objectives established by scientists and civil society?

Such a critical evaluation by the supervisory board requires a sufficient distance to be kept from the day-to-day decision-making of the executive board. Introducing a corporate conscience into corporate governance therefore fits well with the two-tier board structure proposed by the institutional perspective.19 All in all, the ecosystem perspective suggests that the supervisory board should be allocated with a specific responsibility to assess the implications of board decisions for its environment. Such self-assessment should be aligned with the general duty of the board to serve the resilience of its corporate ecosystem and the larger ecosystems in which it is embedded. The function of the supervisory board then fits within the overall responsibility of centralized corporate governance to be the steward of its corporate ecosystem.20