Three Non-Execs on How to Supervise Fast-Growers
Before you realize it, a start-up or scale-up is a fast-growing company for which a supervisory board is appointed, either because it is considered useful or because it is required as a result of size, an IPO, or a sector regulation. A supervisory director does not want to stand in the way of the entrepreneurship of the fast-growing company but is the right person to confront the management with critical questions about governance, structure and stakeholders. How do supervisory directors deal with this? And how does the supervision of high-growth differ from that of an established player?
Maurits Duynstee will discuss this with three professional supervisory directors: Miriam van Dongen (Achmea and Achmea Bank, Optiver, Kadaster and high-growth company Mollie), Gisella van Vollenhoven (a.s.r., a.s.r. Zorg, MUFG Bank, Waarborgfonds Sociale Woningbouw, Pensioenfonds Vervoer and high-growth company Bunq) and Martin van Pernis (Aalberts, ASMI and high-growth company CM.com). All three of them also hold (vice-)chairpersonship roles within supervisory boards and/or committees.
Your portfolio as a supervisory director consists of a mix of established companies on the one hand and young, fast-growing companies such as Mollie, CM.com and Bunq on the other hand. To what extent does that make a difference in the way you fulfil your role as a supervisor?
Van Pernis: ‘When both founders of CM.com asked me to join their supervisory board, my first question was who the other supervisory directors were. Are they your friends, your neighbor? It turned out that they had already found four young but very capable supervisors. Because CM.com was going public, this raised new questions – more is needed than just the articles of association at the Chamber of Commerce. How are we going to do that? At ASMI and Aalberts, these kinds of issues were settled a long time ago and all the specialisms are on board.’
Van Dongen: ‘Initially, a founder often gathers a number of people around him; this group is also known as the ‘four f's’: Founder, family, friends and fools. This may be for capital or as sparring partners, for example in an advisory board. By the time venture capital or angel investors step in because the company is successful and wants to raise fresh capital, the need for a clearer governance framework arises. And when private equity or strategic investors enter in a third stage, governance really needs to be in order. As a company grows, risks often become bigger and checks and balances more important. All three roles of the supervisory director – employer, supervisor and advisor - come into play, but the advisory role is relatively strong compared to established companies. Personally, I find this role one of the most enjoyable ones.’
Van Vollenhoven: 'In my case, too, the advisory role is stressed within the fast-growing company. Of course, it must be in balance with your supervisory role, which is quite a challenge. In an organisation such as a.s.r., the advisory role is less prominent.’
How do you approach the transition in which supervisory roles are becoming dominant over advisory roles?
Van Dongen: 'The governance model must grow along with the development of the company. In the first stage, it may not be too restrictive – but when investors join, they expect it to be well organized. As soon as they know they are on the verge of strong growth or disruption, entrepreneurs must anticipate this. Governance is a license to operate for the company to grow and can help attract investors who are more risk averse. This is part of the discussion between the supervisory board and the founders.’
Van Pernis: ‘It is important, however, in the case of a fast-growing company, to give space to entrepreneurs who are suddenly confronted with supervisors. The way in which you relate to each other has to develop, and the requisite knowledge has to be built up.’
Van Vollenhoven: 'From that perspective, you can ask yourself whether it is appropriate for supervisory directors to stay at a fast-growing company for the maximum of two four-year terms, precisely because the various development stages of a fast-growing organisation require different competencies in terms of the membership of both the executive board and the supervisory board. Bunq has been undergoing major changes recently: New products, an investor on board, a more complex balance sheet. That places different demands on risk management. I am able to make a positive contribution to this now, but the question is whether that will still be the case in a few years’ time. At Bunq, we have stated that we should not assume that prolongation after the first term is a foregone conclusion.’
Van Dongen: 'Indeed, as a board you must be able to add value at every stage. That also means something for the composition of the supervisory board. It is natural that the investors themselves are represented in the first stage. They are committed and make use of their network. But as the company evolves, it is a good thing if independent supervisory directors join and there is more distance. Particularly for a fast-growing company, the membership of the supervisory board has to be in line with the priorities of the company, such as tech, risk and compliance, relationship with the regulator, data security and privacy.’
How can supervisors ensure that they can perform their role according to their own standards and values, without compliance and governance getting in the way of entrepreneurship too much?
Van Pernis: ‘As far as I am concerned, governance does not put the brakes on entrepreneurship. Business development can simply continue. It is important to understand the situation and context of the high-growth, but governance should be made in order as soon as possible.’
Van Dongen: 'Especially in highly regulated sectors. Regulators make no distinction between ING, ABN AMRO and a fintech company in terms of requirements, for example in the field of anti-money laundering (AML). You can help a fast-growing company enormously by ensuring that there is someone on the supervisory board who has experience in this area.
Van Vollenhoven: 'In the financial sector, the supervisor is one of the crucial stakeholders that you have to learn to deal with. You simply have to manage relations with De Nederlandsche Bank (DNB). Of course, as supervisory directors, we have to understand the entrepreneur who wants space, but we also have to make sure that the entrepreneur is familiar with the stakeholders and the governance associated with it. I often explain to the CEO that I do things to protect the company, just as he does things to move the company forward – think of innovations or product launches, whereas my role is to determine the risks. Sometimes the risk awareness of employees or management needs to be raised before a new service is rolled out. The CEO may not always be happy with this kind of message, but if you ignore it, it can cost you a lot of money. It is a different way of looking at the profitability of your business. You need to enter into a constructive dialogue about this.’
Van Dongen: ‘Good compliance and governance can give the company a competitive advantage. For example in the onboarding of new clients, which is at the top of DNB's lists and which is something that you, as a financial, should have in order. Investors also take a critical look at whether the house is in order. At Mollie, the investment rounds – series A, series B, series C – involved increasingly larger investors. Governance can also help the entrepreneur in his contacts with these investors. Instead of the management having to call all the individual investors, we set up a monthly call in which we, together with the executive directors, provide the investors with updates.’
Van Pernis: 'CM.com has less to do with regulation, but a fast-grower is deeply engaged in attracting financiers. Good governance, also toward shareholders, is useful. Not only investors look at who your customers are, but parties such as regional development agencies also wish to know the current state of affairs. They may not demand a seat on the supervisory board, but they do want to observe the company and convey ideas through a so-called observer.’
What are the critical stages of a fast-growing company where a supervisory director needs to be extra vigilant? And is a founder considerate in allowing interference at such a time?
Van Pernis: ‘Rapid growth is often accompanied by M&A activities. But what is at least as important is that fast-growing companies have relatively little structure in the beginning. When executives start talking about the company culture being under pressure, that is an important signal – it often has to do with an increase in staffing. Then it is time to strengthen HR or finance.’
Van Dongen: ‘Other critical stages are the entry of external investors, an exit or IPO, the search for talent and the professionalization of the management when the company is growing. There are various models for this: The founder does not always have to be the CEO. At Mollie, we recruited a CEO from the sector and the CFRO is from ING. This reflects our focus on diversity, which is about more than just age, gender and cultural background.’
Van Vollenhoven: ‘Occasionally it is more complex when the CEO and the founder are the same person. At Bunq, the founder is also the largest shareholder and the one who appoints the supervisory directors, after a nomination by the existing supervisory board. In discussions, the roles are sometimes mixed up. Then openness in that area is of great value.’
Van Pernis: ‘It can also happen that founders want to leave the company after an IPO or investment round against the wishes of the supervisory directors. This is not the case with CM.com, on the contrary. The outcome of investor relations meetings can also be that a good CFO is appointed or that a new CEO can ensure internal professionalization. A supervisory board may also consider that the incumbent CEO is no longer the right person to lead a company. Sometimes a founder does want to step aside but then wants to become a supervisory director – something that is not favourable.’
What should a supervisory director do when a founder or CEO has to work with supervisory directors for the first time?
Van Vollenhoven: ‘The CEO or founder will have to get used to the fact that he or she is no longer the boss on all points. I am hired to give my opinion in an effective way that adds value – I can, for instance, advise an executive director not to do something.’
Van Pernis: ‘The questions I ask at CM.com are mainly different from those at ASMI. That has to do with the development stage. You are also asked different questions by a fast-grower than by an established player.’
Van Dongen: ‘As a supervisory director, you have to establish your position within the balance of what governance is about: Sometimes you have to explain why certain decisions have to go through the supervisory board, for example, or draw attention to the social sentiment surrounding important decisions in the financial sector. In addition to knowledge, we also bring a network. Conversely, through the fast-growers, I also bring experience to the established players. For instance, the founder of Mollie was talking to me about a ‘head of remote’, a position a number of successful international scale-ups already have, which is something that many established players could also think about.’
Do you also see differences in workload for the supervisory directors?
Van Pernis: ‘In 2019 we started preparing for the IPO of CM.com. A significant amount of documentation has to produced or be adapted. There are also more and more topics that supervisory directors have to work on, think of ESG targets. It is a question of reading a lot and making sure you keep up. That is why meetings between supervisory directors are so important. I notice that, compared to 10 years ago, much more is asked of supervisory directors, regardless of the type of company.’
Van Vollenhoven: ‘I do not see many differences in terms of the time spent but rather in the type of activities. In established companies, a good company secretary makes sure that there is a thorough preparation. You are well taken care of, but at the same time 1,000 pages of documents for a meeting is no exception. At a young, fast-growing company, this is considerably less, but with these companies I am more concerned with the information that is not provided to me, as well as asking questions.’
Van Dongen: ‘Certainly in the financial sector a supervisory directorship takes up a lot of time. A fast-growing company has its own dynamics. Depending on the stage, you have to be highly available.’
How do you evaluate the role of the supervisory board?
Van Pernis: ‘I am not a great advocate of the use of an external party, but I do think you should evaluate annually. At the same time, it is not good if you feel you have to save things until the annual evaluation; that usually means there’s something wrong with the atmosphere. That is why I always have a meeting with supervisory directors before my meeting with the executive and supervisory boards. I also regularly have dinner with just the supervisory directors, which ensures that even difficult subjects are put on the table. If I think there is something going on, I immediately make a phone call.’
Van Vollenhoven: ‘These are not mutually exclusive. I am a great advocate of evaluation. If you can use a good external party for this – the governance code prescribes once every three years – it can certainly add value. After all, it is someone who looks at the interaction between the executive board and the supervisory board from the outside. With a fast-growing company, it is even more important than with an established party to check whether each supervisory director still adds value. Openness is essential; you want to prevent someone from holding on to his or her seat.’
Van Dongen: ‘I consider regular evaluations to be important, both with established players and with companies that are developing rapidly. Can everyone fill their role well and continue to add value?’
This article was published in Management Scope 08 2021.
This article was last changed on 29-09-2021