230 Supervisors as executives, representatives or experts?

All perspectives in Dutch corporate legal theory seem to approach the capacity of the supervisory board as complementary to the executive board, with a potential to add candidates with a different profile to the internal governance of the corporation. While the partnership perspective seems to focus more on experienced executives, the institutional perspective suggests a wider view of including candidates with a societal background beyond and outside of the business environment. The ecosystem perspective focuses particularly on scientific methods in corporate governance, suggesting that experts with a more scientific background may be valuable for corporate governance as well.

By viewing the supervisory board in close alignment with the executive board, the partnership perspective suggests that the mandate and composition of the supervisory board should be generally based on executive experience. For the partnership perspective, the supervisory board should be mainly oriented towards safeguarding efficient long-term value creation for the partners of the corporation in a competitive global environment.1 Its main task is to help the board pursue a strategy which is capable of delivering value to all strategic stakeholders involved in the corporation. In order to fulfil this task, members of the supervisory board are required to have experience in leading a corporation in a competitive market environment, including experience in the financial aspects of corporate governance as well as strategic and operational aspects. This approach points towards the recruitment of former executives, accountants, consultants or other business experts as supervisory board members.

In turn, the powers allocated to the supervisory board equally reflect the need for close strategic cooperation with the executive board, through for example involvement in financial accounting, risk management, or vetoing power in relation to long-term strategic decisions such as the acquisition of other corporations. In relation to aligning the governance of the executive board with the interests of the partners of the corporation, the partnership perspective relies heavily on the renumeration of board members in accordance with agency theory.2 As a result, the responsibilities of the supervisory board in relation to the renumeration of executive board members reflect the proposed orientation of the supervisory board towards the partners of the corporation in accordance with the partnership perspective.3 All in all, the partnership perspective provides a strong basis for building capacity in the supervisory board to assist the board in achieving long-term value creation for all strategic stakeholders of the corporation. Such capacity-building is important for safeguarding the need for profitability as a key boundary condition for corporate success. I would argue that the approach of the partnership perspective to focus on executive experience within the supervisory board fits with the earlier suggested definition of durable success.4

In contrast, the institutional perspective orients the responsibility of the supervisory board towards the public constitution of the corporation as an institution authored by society and all stakeholders.5 Due to this focus on the public constitution of the corporation, the supervisory board acquires a dual responsibility for both assisting the executive board in serving the interest of the corporation itself while monitoring the larger public interests according to which the corporation is constituted.6 This dual responsibility impacts the necessary mandate and composition of the supervisory board, extending it beyond just assisting the executive board in achieving durable success. Instead, the institutional perspective implies a need for binding rules to build the capacity of the supervisory board to consider relevant public interests.7 Since the institutional perspective views the corporation as constituted by compliance with binding legal rules, such capacity-building is possible through legal intervention. Through this, the institutional perspective is able to accommodate suggestions for changing the composition and mandate of the supervisory board.

In my view, this approach opens the way for profiling members of the supervisory board beyond just business experience, for example by including members with experience in public government or with other experience in governing and representing public interests (such as lawyers). Additionally, the institutional perspective allows for a binding mandate for the supervisory board in relation to stakeholder engagement, for example by reviewing the stakeholder policy of the executive board or by inviting relevant stakeholders to participate in the monitoring of their sub-committees.8 All in all, I would argue that the institutional perspective suggests a mandate for and a composition of the supervisory board which resemble public government, with a capacity for the representation of public interests in corporate governance and for the prevention of governance in pursuit of partial or self-serving interests.9 The responsibility of the supervisory board for implementing a policy in relation to conflicts of interest among board members could be considered an example of this approach.10 Meanwhile, the institutional perspective is able to accommodate the requirements suggested by the other perspectives, both in relation to the need for corporations to pursue profitable value creation in a market environment and the need to align their operations with the needs and limits of their social and ecological environment.

The ecosystem builds on this dual responsibility introduced by the institutional perspective, suggesting that the supervisory board should particularly be tasked with conscientiously evaluating the normative values implied in the factual circumstances of its operating enterprise.11 In order for the supervisory board to conduct such conscientious reflection, the supervisory board should be endowed with the capacity to gain a science-based understanding of the social and ecological ecosystems in which the corporate enterprise operates and to interpret whether board decisions contribute to the resilience and flourishing of these ecosystems.12 Such a capacity requires the introduction of scientific methods into corporate governance, such as systemic risk management and supply chain due diligence as well as agent-based modelling, scenario planning, and ecosystem mapping.13 In my view, the increased involvement of the supervisory board in internal auditing through an audit sub-committee reflects this need for science-based and data-driven corporate governance.14 These scientific methods enable the supervisory board (as well as the executive board) to gain a systemic understanding of the operational reality of its enterprise in relation to the ecosystems in which it is embedded. This systemic understanding in turn functions as the basis for a further reflection on the interventions needed to improve the resilience and flourishing of these ecosystems.

Such a normative reflection requires a broad representation of relevant viewpoints and expertise, reflecting the values and interests involved in the circumstances in which a specific corporate enterprise operates. Allocating responsibility to the supervisory board for a conscientious reflection of board decisions therefore has an impact on its composition.15 For example, a corporation dedicated to improving the lives of underserved communities in Africa might be expected to include someone who is able to represent the values and expectations of these communities.16 Meanwhile, a corporation which extracts natural resources from vulnerable ecosystems in the Amazon rainforest might be expected to include a natural scientist who is able to represent the values at stake in preserving these tropical ecosystems or perhaps a representative of local indigenous communities who can represent their ancestral relationship with the rainforest.17 I do not suggest that a supervisory board should necessarily include all of these representatives. Rather, I would suggest that the supervisory board should consist of a varied team of individual members across various relevant characteristics. All in all, the composition of the supervisory board should be capable of representing the values at stake in the operation of the corporate enterprise.18 Such an inclusion of multiple and relevant moral viewpoints on the supervisory board would serve a double aim. The supervisory board would be able to identify the relevant normative issues at stake in the factual circumstances of its operating enterprise, while also being able to draw upon a wide variety of experiences to find the best solution in moving forward.19

This inclusion of multiple moral viewpoints might also be achieved by including representatives of social and ecological interests in sub-committees of the supervisory board. Such a more localized inclusion would enable the supervisory board to engage with relevant representatives in relation to specific issues or specific parts of the corporate ecosystem. This approach would reflect the localized and decentralized nature of corporate organization proposed by the ecosystem perspective.20 Instead of requiring representatives of local ecosystems to be included on the central supervisory board, their expertise might be leveraged through inclusion in polycentric centres of governance similar to the governance of common-resource pools as suggested by Ostrom.21 The inclusion of local experts in relevant sub-committees or localized stakeholder councils would also enable the collaborative learning that is central to the approach of the ecosystem perspective towards board accountability.22 All in all, the ecosystem perspective suggests a more expert-based composition of the supervisory board capable of representing all values and interests of the complex reality in which its enterprise operates. Additionally, the ecosystem perspectives proposes a science-based mandate including several scientific methods to gain a systemic understanding of this complex embeddedness of the corporation in its environment.