13.2.1.1 Building blocks of independence

In order to guarantee the independence of supervisors in a country, all three building blocks of independence – person, composition/structure and preconditions – are important. These building blocks are shown in the right panel of Figure 13-2. The chain of independence is only as strong as its weakest link, which means that all three building blocks need to be well constructed in order to guarantee independence in a company.

Independence requires a strong person building block, which is characterised by an assessment of all the relationships or circumstances that impair independence in order to determine the supervisor’s independence. These independent supervisors must operate in a strong composition/structure building block of independence, which is characterised by a healthy balance between people with executive tasks and monitoring tasks. Furthermore, the independent supervisors must constitute a majority of the (supervisory) board and board committees. Diversity must be considered in the composition of the (supervisory) board. By requiring diversity targets, the current status quo is broken through and companies are forced to focus on this element of board composition.

Additionally, the preconditions building block must be well developed. This entails: no CEO duality, an appointment and removal procedure without one dominant stakeholder, a regular thorough evaluation process, provisions for conflict of interest situations and strong enforcement of independence requirements. If a certain person, group of persons or corporate body is responsible for the appointment or removal of the supervisor, this certain person, group of persons or corporate body has a certain power over the supervisor and this might have a negative influence on the supervisor’s independence. A transparent annual evaluation process of the total (supervisory) board, board committees and members is important for a robust preconditions building block of independence. Disclosure of the methodology and a periodical review by an external evaluator contribute to the strength of the evaluation. Conflicts of interest may have a negative effect on the independence of a supervisor. Therefore, a provision prohibiting the supervisor from taking part in transactions in which he has a conflict of interest is important. Although regulations regarding independence may be in place, the enforcement is an essential part of the preconditions building block of independence.