Christine Poon and Jeroen van der Veer (Philips) on the International Board

Christine Poon and Jeroen van der Veer (Philips) on the International Board
Eight supervisory directors, six nationalities and 14 time zones: how does the international Supervisory Board of the medical technology group Philips function? The three best practices of Jeroen van der Veer, Chairman of the Supervisory Board (the only Dutchman on the board), and Christine Poon, the American Vice-Chairwoman: using modern technology, being flexible and embracing diversity of thought on strategic agenda items.

It is 7:00 a.m. in the morning for Christine Poon, when she dials in from the United States for the interview. She has just had her first cup of coffee of the day; it is still dark outside. A few thousand kilometres away, Jeroen van der Veer has already had half a working day when he greets his colleague from the Supervisory Board in a good mood through the speaker: ‘Hello Chris, Jeroen here.’ The Chairman and Vice-Chairwoman of the Supervisory Board of Philips talked to each other at the Supervisory Board meeting held two days earlier. One day later, the group's annual figures for 2019 were presented. At the same time it was announced that, after having spun off the lighting division, Philips is now also saying goodbye to the domestic appliances division. The subject has been discussed at Supervisory Board meetings for several years, say Van der Veer and Poon. By now, the 'courageous' decision (in the words of Philips’ CEO Frans van Houten) has been taken and made public. The unbundling and later spinoff of the domestic appliances division form the final piece of the portfolio transformation that Philips has gone through in the past decade: from electronics group to medical technology company.

Soon there will be yet another nationality
The composition of the Supervisory Board reflects that transformation and includes both tech experience and expertise in the field of healthcare. Poon is an example of the latter discipline, as former Vice-Chair of the Board of Directors of the American healthcare group Johnson & Johnson, where she was responsible for the pharmaceutical business worldwide. But the Supervisory Board is not only diverse in the background of its supervisory directors, but also distinguishes itself in the field of gender (fifty-fifty male/female) and by its international character. The eight-member Supervisory Board includes no less than six nationalities: American, Belgian, British, Indian, Israeli and Dutch. Two supervisory directors even have dual nationality. Chairman Van der Veer is the only Dutchman, although this spring he will be joined by DSM's CEO, Feike Sijbesma, if the shareholders of Philips agree to his nomination. Sijbesma will be the second Vice-Chairman alongside Poon, whose third term expires in 2021. Another nominee is the Austrian Peter Löscher, whose appointment would add yet another nationality to the Supervisory Board.                                                                                                   


Intersection of cultures
How does this kind of international Supervisory Board function, given that Philips' eight supervisory directors operate at the intersection of different cultures, both nationally and in the board room? In addition, Philips’ foreign supervisory directors are facing a different governance system: at home they often have to deal with the one-tier board, which includes both executive and non-executive directors. Philips has the Dutch two-tier board, with separate management and supervision. The board’s orientation is also different from at home, especially for the supervisory directors from the US and the UK and their Indian counterparts. Anglo-Saxon thinking is more shareholder-focused, while the Rhineland model focuses on the interests of all stakeholders. And then there is the practical challenge of getting everyone in one meeting room at the same time, physically or by phone, Skype or videoconferencing: ‘To get together as a Supervisory Board, 14 time zones have to be crossed,' Poon has calculated.


Ms Poon, what differences do you experience between your supervisory role in Philips’ two-tier board and the American one-tier boards of which you are a non-executive member?
Poon: 'I actually see similarities rather than differences. I don't believe either that one-tier is better than two-tier, or vice versa. The system of governance and meeting procedures are fairly similar in practice. Of course, there are also differences. At Philips, for example, the CEO does not at the same time fulfil the role of chairman, as is the case in many American boards. Jeroen is independent as chairman. But in American boards we have the lead director, who is also independent and actually fulfils the same role as the Dutch chairman of the Supervisory Board. In the one-tier boards on which I sit, the joint CEO & chairman is accountable to the non-executives. So in practice, mutual interaction is similar to that in the two-tier board.’
Van der Veer: 'That's also my experience. If you go back to basics, supervisory directors or non-executives only have three roles: supervision, insight and selection. It's as simple as that. Those three roles remain the same, whether you're on a one-tier or two-tier board. The governance system in which you act determines exactly how you fulfil those roles, but the essence remains the same. Philips doesn't have a classic two-tier board either.’ Laughing: 'To my mind, it's a 1.3 board. For example, our Audit Committee has much heavier responsibilities and duties than many other two-tier boards, which sometimes only meet once a quarter. At Philips, members of the Audit Committee have their own board pack of 60 to 70 pages or more, and the chairman of the Audit Committee holds many preliminary discussions with all sorts of people in the organization. As Supervisory Board, we also often visit the operations and we do deep dives, for example in the research function. We also visit the US, an important country for Philips, with the entire board once a year. Then there's a tailor-made programme for one or two days. In addition to the meetings, the individual supervisor directors also have conversations with employees, depending on the committee they sit on and their area of interest. All this did not happen 20 years ago. We've copied all of that from the one-tier model. Why? Because it helps supervisory directors understand the business and the impact of technological change on it. Only then can supervisory directors properly assist the management. Certainly in a company like Philips, which has gone through an important transition in recent years.’


Philips' supervisory directors operate in the Rhineland governance tradition and the European stakeholder model. How sharply do you experience the boundary with Anglo-Saxon shareholder thinking?
Van der Veer: ‘There's a difference but in my view, it's mainly academic. In practice I've never experienced that difference very strongly. If you live in disharmony with your most important stakeholders, you can never survive as a company in the long term. That applies to any company, regardless of the type of board or governance model in which you find yourself. Implicitly, therefore, every company uses a stakeholder model in order to demonstrate good performance. So it's just a matter of common sense. In my experience, companies in the Anglo-Saxon model also agree with this.’
Poon: ‘I was on the board of Johnson & Johnson for a long time and our mission was fully stakeholder-driven. So large multinational companies are now more stakeholder-driven, not just shareholder-driven. Yet, I still perceive a big difference between Europe and America in that respect. In Europe the focus on stakeholder interests has developed much earlier, so companies here are much further ahead. I'm on four American boards and I see that there too, the emphasis is shifting to stakeholder interests. So the development will eventually also be picked up by the US, but it will be a long time before we are at the same level as here.'


What is the added value of a multinational and diverse board like that of Philips?         
Poon:
'Everyone contributes different perspectives and experience, both in terms of background and nationality. Also, we all have a clear opinion. That leads to an intense dialogue, which can be very useful for the Board'. Laughing: 'The discussion is often so lively that the 20 minutes the Chairman has set aside for it are not enough. We then continue this discussion during the informal moments, such as the communal dinner and lunch breaks.’
Van der Veer: ‘‘The Supervisory Board brings together a great deal of international knowledge and experience. That works very well. If a new problem arises in the external environment, the members can quickly bring it to the table, for example during dinner. Think, for example, of the issue surrounding the Chinese tech company Huawei and the political sensitivity surrounding it. Then you immediately know what people in the US, Asia and the rest of Europe think about it. In a ten-minute conversation you learn more than by reading the Financial Times or local newspapers.’


Why does only one Dutch person sit on an otherwise fully international supervisory board?
Van der Veer: ‘You don't have to look just at the Supervisory Board, you have to look at the whole top of Philips, including the Board of Management and the Executive Committee. This includes more Dutch people. Especially at the ExCo level, it is often quite a struggle to attract enough women and nationalities. On the other hand, we have brought as much international experience as possible to the Supervisory Board. In terms of diversity, we therefore look at all 20 people at the top, both executives and supervisory directors.’


How do you deal with cultural differences within the Supervisory Board?
Poon: 'Every supervisory director on this board has managed multinational organizations, done business and lived in other countries and travelled extensively. This international experience is an important criterion for new supervisory directors. So we are all used to working in and with different cultures and dealing with jet lags. In a company like that, cultural differences and sensitivities no longer play any role. You would think that joining an international supervisory board like that of Philips requires intensive onboarding and integration, but that's not an issue at all: it is a very smooth process.' 


Should such an international board be managed differently from a Dutch board?
Van der Veer: ‘I manage every supervisory board in the same way. I'm a one-trick pony. My philosophy is that as chairman, you should never start by giving your own opinion. I ask everyone what they think. To do that, I have a logical order in my head: first the people who haven't been on the Supervisory Board for a long time and then those who have been supervisory directors for a longer time. Only then do I give my own opinion and not the other way around.’
Poon: ‘Everybody gets a chance to speak. This is very effective, because it leads to fewer post-meeting conversations and lobbying behind the scenes of people who afterwards disagree with what has been decided. This style of meeting invites people to say what they think, with the directness that is so characteristic of Dutch culture. That makes the process nice and transparent.'


With all the different perspectives within such a diverse board, how do you arrive at resolutions that are widely supported and how important is the role of the chairman in this?
Van der Veer: ‘We're dealing with diversity of thought. We experience that as very valuable, but it also makes it more difficult. In large companies, opinions within the Supervisory Board are often all about the place. As chairman, you have to think deeply: what should I do? Are you going to overrule some of the supervisory directors? Or do you say: I want to sleep on it for one night. Sometimes you ask if you can sleep on it for a second night.’
Poon, laughing: 'Yes, sometimes Jeroen even asks if he can sleep on it for a year.’
Van der Veer: ‘‘Things can be very complex. Take the separation of the lighting division and now the domestic appliances division, we've been working on that for a very long time. We need to be cautious when making important decisions like that. As chairman, you shouldn't be afraid to overrule people, but each supervisory director brings in their best experience. So we really need to take the time to understand: why don't we come to a common view now? What underlies this? So then it's time to talk again, as supervisory directors and with the board... Diversity in thinking and the fact that not everyone is on the same wavelength are good things. The way in which a board then manages to resolve that determines whether it is a good board.’


How challenging is an international board in practical terms? How do you get everyone together for the meeting and what happens if a crisis breaks out?
Van der Veer: ‘During the meeting two days ago, four out of the eight supervisory directors called in. That's quite a lot, I notice. In itself, remote meetings are perfectly possible, for example if the quarterly figures are on the agenda, or if the financial statements have to be approved. But in the run-up to an important decision like the one about the domestic appliances division, for example, you have to be able to discuss it freely and look each other in the eye. By the way, tackling a crisis can often be done on the phone. Then there is no question of free discussion, no, no! It involves questions such as: have you already called the crisis team and informed the communications department?’
Poon: ‘In spite of all those different nationalities and time zones, it works. That's because of three things: first of all, technology allows us to have contact by phone or video. Second, as chairman, Jeroen is flexible when it comes to sometimes attending meetings remotely. Members have to follow the rules, such as not talking over one another and making sure they are in a safe environment, so the confidentiality of the information is guaranteed. Finally, it works because the discussion in this Supervisory Board is always conducted at a strategic level. Things are not suddenly thrown on the table, we work together towards a decision.’


A side step: chemical company DSM will soon switch to a dual CEO structure. How do you view co-CEOs?
Poon: ‘I'm not for it or against it. Only those who know the context can judge whether the organization needs a co-CEO. That's up to the board. I have seen that the duo CEO format is often a temporary solution to tide over a certain period of time'.
Van der Veer: ‘Horses for courses. Shell and Unilever used to have a complex dual structure, with CEOs on both sides of the company and a primus inter pares in between. Now they both have one CEO. I agree with Chris: it depends on the context. The personalities of both involved also play a role. It may work, but it may not.'


Could Philips have both a foreign CEO and a foreign Chairman of the Supervisory Board?
Van der Veer: ‘Anything is possible. Look at Shell. There the chairman is also American and previously, the CEO was Swiss. If both are foreign, you have to take care of people in the country where the head office is located who can act as intermediaries between the company and, for example, politicians. So you have to arrange that well. But the answer to this question is not a categorical “no”.’ 


Doesn’t the ‘orange sentiment’ play a role in such a decision?  
Van der Veer:
‘People can have feelings for that. But for me, the most important thing is that all relevant aspects play a role in the decision on a successor.  There should be a Dutchman here − we never say anything like that at Philips. We do sometimes say that a certain position should be filled closer to the head office. That is putting it in more neutral terms. But what we really want to be is a meritocracy in which everyone with abilities is given opportunities, regardless of their nationality.’

This interview was published in Management Scope 02 2020.

This article was last changed on 31-08-2021

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