13.2.1.2 Social relations

Within the discussion about the definition of independence, the views on the influence of social relationships differ. The economic theory – dominated by the agency theory – regards relationships, which include social relationships, as an impediment to independence. Corporate governance codes do not include social relationships in their independence criteria, but this has received criticism. And behavioural research hypothesises that social ties between supervisors and managers may increase the quality of information and consequently the quality of monitoring. Due to the existence of a certain kind of relationship, supervisors are able to gain better information about the company, which is needed for their monitoring task. This information is acquired during advisory sessions or informal meetings with executive directors. Executive directors are prepared to share this possibly sensitive information with their supervisors only if there is mutual respect which gives the supervisor credibility within the company. However, the supervisor must remain independent, but independence must not be interpreted as distant from executive directors, but as a state of mind that enables him to see things differently and to be independent in fact. Therefore, supervisors should pursue board effectiveness with a balance between task effectiveness – the ability to execute their monitoring and advisory tasks – and cohesiveness – the ability to cooperate together – to let a board function well. This means that they must be engaged but non-executive, challenging but supportive, and independent but involved.

A survey among 417 Dutch supervisory directors shows that a majority of the supervisory directors consider social relationships to be a hindrance to independence, but they regard business and family relations as a larger obstacle to independence. Since other disciplines in this study have stressed that social relationships might have benefits, social relationships should not be included in lists of independence criteria. Social relationships come in different forms with different risks for independent supervision. Therefore, the (supervisory) board or nomination committee must assess the risk for independent supervision of social relationships between supervisors and executive directors or members of the management (board). They must be entitled to label a supervisor independent or non-independent if they consider such a measure appropriate.