Internationalization of Supervision is a Challenge
The foreign supervisory director is on the rise. For example, 60 per cent of the supervisory directors of AEX-listed companies now come from America, England, neighbouring countries, the rest of Europe or (in a few cases) China, Singapore, India or Zimbabwe (see also 'Foreign supervisory directors' on page XX). Even 8 out of 25 chairpersons come from across the border, according to a survey by Management Scope. Conversely, Dutch supervisory directors regularly take the plane to supervise and advise foreign companies.
The Netherlands is frontrunner
The internationalization of supervision is a worldwide trend, we see at Deloitte, although there are clear differences with regard to the foreign 'conquest' of the board room. The Netherlands is a frontrunner when it comes to supervisors from across the border, as is Switzerland, followed by Luxembourg and Singapore. In the United States (US), Canada and France, the number of foreign supervisory directors/non-executive directors is slowly increasing. Japan still has almost exclusively all-Japanese boards.
The leaders have a number of common characteristics: they are small countries with a rich trade history, an open culture and world-class companies such as Shell, Heineken, Philips and Unilever in the Netherlands or Nestlé in Switzerland. These multinationals need executive directors and supervisors with international expertise and experience. On the other hand, Japan's traditionally closed economy and highly coded culture has kept out foreign influences for centuries.
Exact figures of the various nationalities in the global supervisory community are lacking. Many companies are still not transparent about the composition of their executive board or supervisory board, partly depending on local regulations. Even where there are reports on sex, age and background, data on nationalities in the board room are often lacking.
So, in terms of transparency, there is still a world to be gained: stakeholders have a right to know whether the company has a global perspective in a globalizing economy and has sufficient diversity at the top. Too often, boards are still composed homogeneously through co-option. The world does not stop at borders, however.
Advancing globalization and certainly the expansion into emerging economies such as China, Korea and India are confronting companies with new markets and differences in culture, governance and leadership. This requires people on the board who know the region, have built up a good network and who know and understand the culture, including local laws and regulations and governance mores. Scarce expertise too, in the field of cyber security, for example, often results in a worldwide search. In addition to this first trend, a second is manifesting itself: the introduction of quotas for women at the top of organizations is also leading to an increase in the number of foreign supervisory directors. This applies not only to the Netherlands, but also to countries such as Norway, France and Italy. So there seems to be a diversification lever: companies are looking for female candidates abroad, which also makes the board more diverse in terms of nationalities.
Why do multinationals not look for those women in their own country? Not only is the pool larger abroad, the perception of international careers is also different. Dutch women often suffer from the ‘unknown, unloved’ syndrome: they are not eligible for vacancies because they are not part of the male-dominated networks. For foreign women this is precisely an advantage: sitting supervisory directors cannot check candidates in their network, so female candidates are judged according to their abilities without any bias. Here, the opposite is true: unknown is loved.
Local expertise and independent judgement
Together, the two trends of globalization and gender quotas result in greater internationalization of supervision. Having various nationalities on the board reflects the multinational character of the organization. In addition, foreign supervisory directors know their way around strategically important regions in business, culture and politics and bring in their local networks. Also, they often understand better how CEOs act in other countries, because they know the domestic management mores. Conversely, these supervisory directors are parachuted to their foreign supervisory organisation in an unknown country and company and have to express themselves in a foreign language. Perhaps, this makes them feel freer to say what they think than supervisory directors from the country itself: the different language creates emotional distance and not being part of local networks contributes to independent judgement.
Dutch supervisory directors meet their fellow supervisory directors and perhaps the executive directors in other board rooms or the conference and drinks circuit, which can – subconsciously – affect mutual relationships. Because of their tighter meeting style, supervisory directors from abroad can also offer a welcome counterbalance to our ‘polder’ and consensus culture.
At the same time, however, not belonging to the local ecosystem of the supervisory organization also poses a challenge. How do supervisory directors from France, the US or Mexico, for example − who do not speak Dutch − know what the media and social media say about the company, what inside jokes are made at the coffee machine, or how to read Dutch directness? How can you assess sensitivities if you do not know the most important stakeholders and invisible networks around the company: the position of the works council in our Rhineland model, the influence of civil society, local and national politics and pressure from NGOs and action groups, for example in the field of sustainability? Or our egalitarian culture, reflected in society's indignation about ‘top salaries’?
From one-tier to two-tier
Supervisory directors who do not know how things work in the business and who do not know the unwritten rules of the country in which the head office is located do not bring any added value but, on the contrary, pose a risk to the company. Of course, the written rules must also be known: local laws and regulations, governance codes and the dominant supervisory model. Many foreign supervisory directors are familiar only with a one-tier board, and in the Netherlands they suddenly have to function in a two-tier structure and a stakeholder model, under which they have to put the interests of the company first, supervise from a greater distance and have less information at their disposal. This often takes some getting used to. However, the convergence between the Rhineland and the Anglo-Saxon model means that in practice there is increasingly a one-and-a-half tier model.
‘It's been truly gezellig’
Careful onboarding is crucial to optimize the added value of international supervisors. This is the responsibility of both the foreign supervisory directors and the supervisory organization. The supervisory directors in question must not only read up on the company and the business, but must also ask themselves in the due diligence phase whether they are prepared to immerse themselves in the local culture.
A good command of the working language (usually English) is essential, but some conversational phrases in the language of the country where the foreign supervisory director has settled works wonders to break the ice, pick up signals from internal chats and strengthen mutual involvement. Think of the goodwill after the words with which former US President Barack Obama concluded his visit to the Netherlands in 2014: ‘It’s been truly gezellig.’
Communicating through an interpreter
The supervisory organization must provide an introductory programme focusing on the governance model and stakeholder field, the national context, the country's culture and social sensitivities. In China, for example, it may happen that a representative of the Communist Party joins the meeting and that communication only takes place through interpreters. How do you deal with this as a foreign non-executive?
Organizations must provide proper support even after the appointment has been made. Think of English-language press packs, but also of more extensive information: foreign supervisory directors often ask for more and different information than their Dutch colleagues. Another practical challenge is the planning of supervisory board and committee meetings when supervisory board members fly in from all corners of the globe. The danger is − especially if the frequency of meetings increases in the event of a crisis − that videoconferencing replaces physical presence, given that team building is so important for two-tier boards, which on average meet only four to five times a year and the members need to get to know and trust each other
In the case of several nationalities in the supervisory board, team formation is even more important. Due to cultural differences, it takes more time to learn to ‘read’ each other. Moreover, foreign supervisory directors do not meet each other and their Dutch colleagues elsewhere between meetings. This calls for extra investment in building trust. By now, it is customary to have a dinner party on the evening before the meeting. A multi-day ‘away session’ − without executive directors − can also strengthen the team feeling, as can contact between meetings. The chair plays an important role in this. He or she must also guarantee an inclusive culture that embraces differences: foreign supervisory directors must feel welcome and heard. At the same time, it is important to guard against the ‘expert phenomenon’: that the entire board watches the supervisory directors from China or India with a wait-and-see attitude when investment decisions or difficult issues in those countries are being discussed. The chair must create a climate where the other supervisory directors can also express their views and not be afraid to contradict the local expert, if necessary.
In the internationalization of supervision, the differences in governance structure stand out most. However, these are easier to understand than the covert differences in board room mores, culture and behaviour. The ability to bridge these differences determines the added value of international boards. This requires thorough onboarding, a chairman who connects people and common willingness to build trust between them. Only then can the increasing internationalization of supervision actually lead to a worldwide enhancement and improvement of decision-making in the board room.
This essay was published in Management Scope 02 2020.