12.4 Conclusion

(Consideration 12.1) The views on the influence of social relationships on the quality of monitoring and independence differ. 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. In order to gain insight into the views of supervisory directors on this matter, a survey among 417 supervisory directors in different types of organisations in the Netherlands was conducted. A majority considered a social relationship to be a hindrance to independent supervision. Business and family relationships, which are already included in the corporate governance codes, are seen as a larger obstruction to independence. Therefore, social relationships are important to the respondents, but not as important as the other relationships.

The general opinion of supervisory directors in different types of organisations was that social relationships are a hindrance to independence. Supervisory directors in listed companies, who are of the greatest interest for this study, also responded in this way. But respondents from non-profit organisations attach a slightly higher value to the inclusion of social relationships in the list of independence criteria than respondents from profit organisations. In general, it can be concluded that supervisory directors in non-profit organisations are more concerned about threats to independence than supervisory directors in profit organisations. This confirms the belief that due to the absence of a residual claimholder independent supervision becomes more important, because the board is not disciplined by market pressure and the threat of a takeover. Within the group of profit organisations, supervisory directors in family-owned companies are less concerned about independence than respondents from listed and non-listed companies. The fact that family ties and altruism exist in these family-owned companies ensures that the interests of principals and agents are better aligned. Therefore, less monitoring is needed.

Another theme of this survey is the stakeholders to which a supervisory director aims to be loyal1 and whose interests he has to keep in mind while monitoring management. Supervisory directors in healthcare institutions and housing associations are more concerned about the interests of customers, the state and society at large. However, according to this survey the interests of employees are looked after significantly better by supervisory directors in profit organisations than in non-profit organisations. Non-profit organisations are more inclined to monitor for the state and society at large. This can be explained by the fact that they are more vulnerable to public opinion, because they rely on government support to a significant degree.

Furthermore, a cluster analysis shows that supervisory directors, who focus more on the interests of stakeholders other than shareholders, have more situations that they consider to be a threat to independence. They are younger, more of them are female and they are paid less. These supervisory directors serve on boards that are significantly more independent and have significantly more audit and remuneration committees. However, there is no difference in the size of the organisations and the occurrence of listed companies.

(Consideration 12.2) The survey shows that a majority of the supervisory directors consider social relationships to be a hindrance to independence, but the supervisory directors are not by any means unanimous. 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.

The results of this survey were collected among supervisory directors in the Netherlands, who serve in a dual board structure. This might decrease the applicability of these results in other countries. Furthermore, the characteristics of the members in the address database are unknown, as a result of which it cannot be tested whether the sample is representative for the total population. Self-selection bias is therefore not tested. However, the results give an interesting insight into the views of Dutch supervisory directors and can be used as a guide for the further exchange of ideas on this matter.

Appendix

Table 12-8: Results of a Pearson two-tailed correlation test. * Significant at a 90% confidence level, ** 95%, *** 99%.