The evolution of the annual evaluation
The evaluation of the performance of supervisory boards has developed significantly in recent decades and is now a standard part of the annual cycle. Most large and listed companies carry out annual self-evaluations, often with external support in a two to three years cycle. A good evaluation should be more than an audit aimed at assessing the effectiveness of the supervisory board in monitoring and ensuring compliance with laws and regulations, internal policies, and ethical standards. Fulfilling these compliance-related standards can be compared to owning a roadworthy car. It meets all technical requirements and has passed its roadworthiness test. Yet, this is of little use if you do not know which direction you want to go and how to get there. Similarly, an evaluation only adds substantial value if it considers whether the supervisory board allows sufficient time and attention for meaningful discussions about future strategic challenges and opportunities. This requires in-depth questions that go beyond ‘does the strategy meet the requirements?’ Questions should be more focused on ‘how effectively does the board steer the strategic direction of the company and anticipate important changes in the market and the world?’ Questions in an evaluation should be rich in context and elicit opinions and reflections, such as ‘What should the chair do more often?’ This leads to valuable, actionable insights.
Research by Booz & Company (now Strategy&) shows that most business failures (84 percent) are the result of strategic missteps. Fraud and compliance issues (eight percent) and operational problems (seven percent) play a much smaller role. This also suggests that the supervisory board should focus primarily on strategic issues, integrating risk awareness into strategic decisions, and promoting strategic resilience. In short, compliance is essential for the license to operate, but it is no guarantee of success.
Keeping a finger on the pulse
Two developments in particular make the shift in focus of the supervisory board to greater emphasis on its advisory role, inevitable.
Firstly, the rapidly changing world and uncertain times, with political turbulence, new technologies such as AI, disruption in the supply chain due to (trade) wars, emerging or shrinking sectors such as defense or the fossil fuel industry, and changing societal developments. Traditionally, supervisory boards strived for stable companies which could resist any storm looming on the horizon. Given all the uncertainties in the world, it now has become highly likely that an organization, at some point, will be capsized by stormy waters. Resilience has therefore become more important than stability. For example, are there alternatives for continuing business if the organization falls victim to a cyberattack? Or, given the geopolitical threats, do we have sufficient diversification in our supply chain or sales markets?
Even though the board ultimately makes the strategic choices, the supervisory board can and must ensure that potential future developments, uncertainties, opportunities, and risks are sufficiently considered when developing that strategy. This also implies that supervisory boards themselves must continuously keep their finger on the pulse. No company can, for example, afford to wait and see which direction AI will take, so the supervisory board must constantly keep an eye on it and ensure that the topic is on the agenda at every meeting. The unique value of having external supervisory board members is that they provide an outside perspective. Only then can their presence be optimally utilized.
Focus on people
A second development that makes it necessary for supervisory boards to shift their focus has to do with the ‘people side’ of organizations: culture, remuneration, talent development, motivation, and monitoring the mental health of employees. Almost all board members say that people are their most important asset, but few supervisory boards talk about their people more often than about the finances. If people really are the most important asset, far more attention will have to be paid to the human side for a company to be successful. The war for talent is over, and talent has won. Consider, for example, the shift in loyalty among the younger generation, who, as employees and customers, are looking for organizations and products that align with their personal values, such as sustainability, diversity, equality, and inclusion. Whereas companies used to strive to be the best in their market or industry, that is no longer always enough, partly because of this human side. If a product or service no longer meets the needs of your employees or customers, you need to be able to switch to something else at speed. In this sense, there is a shift from excellence to agility.
CEO succession
The rapidly changing world and the need to pay more attention to the human side of the business come together in one of the most important tasks of the supervisory board: CEO succession. The traditional approach was often based on personal networks and industry knowledge. A supervisory board relied on its own connections and industry insight to find a suitable candidate, often with input from the incumbent CEO about internal talent. In today's rapidly changing and globalizing world, where diversity and inclusion are becoming increasingly crucial, this approach is no longer sufficient. The ‘ideal’ next CEO may come from an unexpected place: a different country, a different culture, or even from outside the traditional social or professional circles of the supervisory board members. This requires a much more structured and forward-looking succession planning process. Supervisory board members must be aware of this shift and proactively identify and evaluate a broader pool of potential candidates.
Evaluate and reflect
In order to keep its finger on the pulse in the current climate, a supervisory board must also actively monitor its own performance and improve where necessary, with a view to ultimately increasing the success of the organization. While internal evaluations are valuable, periodic external evaluations involving in-depth interviews, observation of meetings, and benchmarking can hold a mirror to supervisory boards, provide an objective view of processes and results, and introduce trends and best practices from outside the organization. In addition, it is important that supervisory boards regularly reflect on their own performance. After each meeting, discuss whether the agenda was adequate, whether sufficient attention was paid to strategy and people, whether crucial responsibilities were given sufficient priority, whether the discussion had sufficient depth and context, and whether the right critical questions were asked of the board.
Numerous digital/AI tools are now available to support supervisory boards in assessing their performance and identifying areas for improvement, both in terms of general governance and specifically around digitization. Furthermore, a culture must be created in which open and honest (self-)evaluation is possible, even if this leads to criticism or the need for change. Avoiding in-depth feedback for fear of conflict undermines the entire process.
Actively investing time
The role of supervisors has evolved considerably. Where in the past it may have been sufficient to simply attend meetings, read files thoroughly, and monitor that the board was performing adequately, much more is now expected. Supervisory board members must actively invest time in the organization, not only in supervisory board and committee meetings, but also, for example, by visiting ‘the shopfloor,’ such as stores and factories, attending important events and ceremonies, and participating in relevant conferences to stay informed about new developments in the sector and beyond. In our view, the time this takes should be an integral part of the remuneration.
At the same time, supervisory board members must have a good understanding of the shifts in society and the potential impact of these developments on the organization. All of this reflects the shift in the role of supervisory board members toward becoming proactive, engaged partners, of course in consultation with the CEO. The question is therefore no longer just whether the supervisory board is satisfied with the management, but also whether it is itself alert to what is happening in the world. The external evaluation provides the supervisory board with a structure to monitor whether they are seeing these changes and how they are dealing with them. Digital developments, particularly AI-supported tools, currently offer numerous opportunities for supervisory board members to continuously check whether they are alert and informed.
This essay was published in Management Scope 07 2025.