‘Crucial That Ethics Is on the Boardroom’s Agenda More Often’

These personal transitions allowed them to fully appreciate the crucial role that supervisory board members and executives can play in the shift towards a more sustainable and humane economy. It is no coincidence that Maria van der Heijden, along with MVO Nederland, initiated the 2023 project Discomfort in the Boardroom, to support executives in finding a better balance between their ideals and the business’s interests when faced with societal dilemmas. The follow-on project, Enhanced Governance, aims to introduce a governance practice that complements the practice as it exists now. A governance practice that goes beyond compliance- and principle-based governance, and beyond moral deliberation, to focus instead on the personal transition of supervisory board members and executives. This personal transition is the starting point for the new governance practice, which aims to accelerate necessary societal changes: an inside-out approach. How do you operate under current pressures? How do you find your ethical compass as an individual and as a company in a disruptive world? Van der Heijden, the initial driving force, discusses governance and supervision in the new economy with project participants Gerard van Olphen and Jenny Elissen.

If we need a new, humane governance practice to complement the existing regulations, the indication is that something is amiss in the boardroom. How would you describe this shortfall?
Van Olphen: ‘Traditionally, as executives, we've been accustomed to considering three stakeholders: employees, customers, and shareholders. In recent years, 'society' was added as a fourth stakeholder. This requires a completely different type of discussion where the question no longer is only 'is it correct,' but also 'is it right.’ Finding a new balance among these four stakeholders is like entering a PIN for an ATM. The wrong combination of digits will simply not work. Similarly, the value must align for each of the four stakeholders. You cannot optimize one at the expense of the others. The question of how to make this measurable, manageable, and open to discussion is a significant issue in many supervisory boards.’
Van der Heijden: The personality of the supervisory director and executive plays a role, among other things. You always bring yourself into a role, but in our professional capacity, we tend to expose little of it. If the people involved know each other better and understand each other's backgrounds, they can form a stronger team. We should invest in getting acquainted with each other. The older generation of board members specifically has not learned to allow different aspects of themselves to be seen and neither how to be vulnerable. Additionally, with busy schedules and a high turnover in supervisory boards, it is challenging to find the time for these in-depth introductions, but I am convinced it pays off in the end.’
Elissen: ‘We need to find the answer by having more profound conversations. In practice, in my experience, many supervisory directors genuinely want to accelerate progress, but at the same time, we are the guardians for stakeholders, which means we need to protect jobs and not take steps which are not logical and feasible for the organization. We need to learn to back-cast from a well-formulated vision of the future: if this is what we want to achieve together, what do we need to do today and tomorrow to get there? Supervisory directors can play a vital role in this. We must make room for the role of transition guide and inspirer to help the board bridge the gap from the old to the new reality.’
Van der Heijden: ‘Supervisory directors must indeed take the lead. Of course, executives have their own responsibilities, but as a supervisory board, you can be extremely supportive and encouraging because you, to a larger extent, function in the world outside that of the organization.’

Elissen: ‘At the same time, I expect that due to the necessary acceleration of decision-making and digitalization, we will increasingly debate the effectiveness of the two-tier board. We face moral dilemmas and wicked problems at an ever-increasing pace, with the result that we can no longer work in the way we used to; we, as boards and supervisory directors, would need to reinvent our thinking and decision-making processes in several sectors.’

What might a 'deepened' discussion in supervisory boards concretely look like?
Van Olphen: ‘You want companies to have a moral compass, apply it in the society they operate in, and make conscious decisions. Take the discussion about investing in the arms industry. The complex issue is that weapons can serve both very legitimate and very malicious purposes. I was a supervisory director at a company where the belief was that only governments, preferably democratically elected ones, should have the monopoly on violence on the world stage. So, if a government wanted money to buy weapons, they received it. A company that produced weapons destined for gangs in New York or a company that produced missiles to be used against civilians, received nothing. The belief there was that the profit margin should never determine where the investment goes; what matters is democratic legitimacy. I see that as a form of deepening: not a simple decision for or against weapons but decisions based on principles and criteria.’
Elissen: ‘That goes to the heart of the matter, in my opinion: do not simplify decisions to a choice between good or bad, but share insights with each other and preferably also with others in the same sector. This way, you can gradually create a new reality together. Moreover, this must be a dynamic reality because sometimes sentiments around an issue change, and you need to revisit the discussion.’
Van der Heijden: ‘That is why it is crucial to discuss ethics more often in the boardroom. It should be a fixed element in the agenda cycle, but whether that happens everywhere... MVO Nederland annually assigns a score to the sustainability of our economy: the New Economy Index (NEx), which includes non-financial components – as a counterbalance to the AEX. This year, it stands at 17.5 percent. So, less than 20 percent of the economy is engaged with societal themes such as energy transition, transparent supply chains, inclusion, and diversity. And what is even worse, this number is in a slight decline.’

That means there is still a lot of work to be done for most companies. How can they be encouraged to change course?
Van der Heijden: ‘To achieve a transition, you not only need inner motivation, but also a collective positive energy to really want to change the world. There are incredibly many best practices right now, but it is important to share these with each other and unlock our collective knowledge and experience. Currently, it is still a vanguard doing the groundbreaking work, but there will come a time when a larger group steps in. These frontrunners demonstrate the power of connecting with society and the energy it creates. Look at the job market. Nowadays, companies with a societal moral compass have little trouble finding people. On the contrary, they have a line of applicants. So, this connection with society also has commercial value.’
Van Olphen: ‘This also applies to recruiting supervisory directors. If you are asked for such a role today, you have a different kind of conversation with the board members or chairperson of the supervisory board than you had ten years ago. The questions asked now revolve around what themes they are working on and how they handle the transition and whether you feel aligned with these.’
Elissen: ‘Eventually, all companies will have to adapt due to legislation like ESG and CSRD (Environmental, Social, and Governance) and CSRD (Corporate Sustainability Reporting Directive). They need to start looking at their assets and the risks associated with them, differently. If diversity and inclusion does not form part of the business model, you are actively excluding people. This does not necessarily happen intentionally, but if you include diverse groups, they will be more comfortable doing business with your company. By identifying the new asset risks early, companies can develop to be more interesting, integrated, and stable.’
Van Olphen: ‘Even without legislation, society simply impacts your company. During the pandemic, we were confronted with the divide between vaccinated and unvaccinated colleagues. The same is now happening in large companies regarding the war in Gaza, where Jewish employees find themselves at odds with pro-Palestinian employees. Both groups are valuable employees. As a company, you cannot distance yourself from the issue. These people are still expected to work together.’
Van der Heijden: ‘This also touches on diversity and inclusion. Beyond visible differences, there are many invisible differences related to political, religious, and social backgrounds and preferences. If there is acceptance that there is room for differences, it says something about you as an employer and the moral compass of the company. This is certainly not always easy. From experience I know how much energy it takes to relate to someone who thinks very differently about significant issues. That is precisely why we, as executives and supervisory directors, need to discuss how we want to manage these situations.’

How can you create support among fellow supervisory directors and executives for accelerating the transition?
Van Olphen: ‘It depends in large measure on the maturity and quality of the company. Sometimes a supervisory board needs to explicitly put societal issues on the agenda, but there are companies where this is unnecessary as it is embedded and management even takes the lead. The question then becomes how to organize it properly. For instance, do you treat ESG as separate, making it one of the items on the agenda? Do you set up a separate committee for it, or do you combine it with, say, the audit committee? In the first case, the topic gets full attention, but the challenge is how to integrate it afterwards; in the second case, the issue might lose focus.’
Elissen: ‘I find the big problem to be that traditional KPI indicators are often dealt with in silos, leading to disconnected decisions. I try to work towards a form of integrated KPIs in my supervisory boards to facilitate better decisions for all stakeholders. This is a good starting point.’
Van der Heijden: ‘I am convinced that you create support through dialogue and optimistic questioning. Instead of holding executives accountable to their actions with a retrospective focus, we should engage more in conversations about where the company wants to go and how to facilitate this. Additionally, changing the environment can help alter the conversation, atmosphere, and emotions. For example, not sticking to the standard agenda. Perhaps taking an early morning walk instead of immediately sitting down, or even completely avoiding the meeting table. I think too that it is important to allow new supervisory directors the space to boldly take on their roles. A newcomer is a gift to any board because it is an opportunity to refresh and rethink how things are done.’
Van Olphen: ‘By asking optimistic questions, you can also conclude that something is unsustainable not just because it will be untenable in the long term, but because there is the possibility to eventually replace it with something better. It is about offering perspective and creating the conditions to embrace that perspective, even in a context where not all the competitors are doing so yet.’

This article was published in Management Scope 06 2024.