Ben Noteboom Talks About Board Effectiveness

‘It Should Be a Two-Way Process’

Ben Noteboom in conversation with Victor Prozesky

Ben Noteboom Talks About Board Effectiveness
Having gained extensive board-level experience as CEO of Randstad, as well as in the role of supervisory director, currently at Vopak and Aegon, Ben Noteboom shares his best practices for ensuring effective collaboration in the boardroom, both within the Supervisory Board itself and between supervisory board members and directors. ‘We don’t always have to agree with each other, but we do take each person’s viewpoint seriously.’

Even though interviews via Teams became commonplace during the coronavirus pandemic, it has started to feel a little bit strange again these days. But sometimes, due to people’s diaries it can be hard to get together at a specific location, so we have no other choice, especially in the summer period. So while online meetings can be very convenient, Ben Noteboom genuinely missed meeting in person, as that stimulates management development. ‘The other members of the Supervisory Board feel the same way. That is why at Vopak, we agreed during a board meeting to travel more often in order to meet high-potentials in person. We also intend to invite a number of people in key positions to come and give a presentation about their business unit.’

You are Chair of the Supervisory Board at Vopak. What do you believe is the task of an effective supervisory board and of the Chair of that board?
‘My background is in the service sector, where things only go well if you turn the organization chart on its head. The CEO cannot play boss and tell people what they should do. People must take their own, independent decisions and the role of the CEO is to facilitate what they are doing. That’s also how I see the role of Chair of the Supervisory Board. The directors of an organization make the decisions and put them into action. As Chair of the Supervisory Board, you must do what you can to enable them to be successful in that. On a practical level, that means regularly discussing the things the directors have done well, in addition to how they can improve.
As a Supervisory Board, providing strategic input is also important. If a Board of Directors is continually swayed by the issues of the day, it can become difficult to focus on long-term strategic issues. Since we are able to step back a little from the usual daily routines, it is easier for us to take a helicopter view. And last but not least, the Chair of the Supervisory Board is the one who spearheads the search for successors for the current directors of the company. Your greatest influence will be when appointing new members of the Board of Directors, because the directors you put in place will play a major part in determining the company’s future.’

How do you fulfill that role as facilitator on a practical level?
‘Following each meeting, we carry out an evaluation involving all members of the Supervisory Board and the CEO. Each person then gets to speak in turn so that everyone has a chance to comment. The things we discuss vary from comments about the preparation leading up to the meeting, about a presentation that was given, about how useful certain discussions had been or about whether the dialog was sufficiently two-way. The aim of this is to get a whole host of things out in the open that would otherwise have remained implicit or would have been discussed one-on-one outside the confines of the meeting. In my view, this is a very useful exercise. I’m not a fan of secret agendas and political alliances. What I want are open discussions, so that everyone at the table knows what others think about a given topic. We do not always have to agree with each other, but we do take each person’s viewpoint seriously and look to identify ways we can improve the effectiveness of the meetings. And that works well. In the same way, we evaluate our own effectiveness after every Supervisory Board meeting. We ask ourselves: how did it go and what could have been better? It should be a continuous learning process.’

In your view, how effective is the formal evaluation of CEOs of large companies? Financial targets are easily measured, but evaluating non-financial KPIs, such as environment, talent development or culture, is much more difficult. I get the impression that quite often, CEOs get away with ‘explaining’ the circumstances.
‘On the Supervisory Boards where I am or have been a member of, the financial performance is certainly not the most important KPI when evaluating how well the CEO is doing their job. After all, unforeseen circumstances in the market can have a positive or negative effect on your results. It would be ridiculous to evaluate people based on the fact that they did not see the COVID-19 pandemic or the war in Ukraine coming. The discussion is therefore a much broader one. The aim of an assessment is to ensure that a person will perform better from then on. There is no sense in simply discussing what went well or went badly, if you do not also discuss how the CEO can improve their performance.
It is also important to be consistent. What was said last year, what has happened since then and did things actually improve? Here too, it is important to ensure two-way discussions. It is equally important to me to know what things we, as a Supervisory Board, have done well, what things we failed to address, what we ought to do more often, and how we can support the CEO more effectively.

You have some fairly outspoken views regarding the importance of purpose within organizations. But what if the vision in the eyes of the Supervisory Directors and the vision of the Board of Directors tasked with implementing the outcomes of the purpose discussion do not align?
‘As a Supervisory Board, it is impossible to have a vision of the purpose and values of an organization that differs from the vision of the Board of Directors. This should not and cannot be something that is up for discussion. If it is, it means that as a supervisory director or director, you are in the wrong place. I once delivered a training course for people aspiring to become a supervisory director and the first thing I did was ask them why they wanted to do that. The types of answers I received mentioned things such as sharing knowledge, a desire to contribute and so on. My conclusion each time was: ‘That is great, so none of you are doing this because it is flattering to be asked and none of you are doing it just for the money. Let me be honest here – I do feel flattered and I am also not doing this job for free.’ In other words: when becoming a member of a Supervisory Board, you need to take a hard look in the mirror, ask yourself why you aspire to that position and especially ask yourself beforehand whether you subscribe to the purpose and values of the company itself. If that fit is not there, you will end up backing the wrong decisions, you will not have the right attitude and you will not be critical enough.
After all, a Supervisory Board has to make sure that the purpose is applied consistently in all parts of the company and that is not something you can achieve through catchy slogans alone. I once worked for a company where one of the core values was: “People are our most important asset”. After a restructuring was handled badly, the workforce was quick to change that statement to: “People are our most flexible asset”. The aim must always be to prevent situations like that, because restoring a negative image is a process that takes years. If the management’s actions don’t align with the company’s values, things are bound to go wrong at times of crisis.’

Nowadays, organizations are being faced with increasing requirements in connection with Environmental, Social and Governance (ESG) objectives. In my experience, Supervisory Boards often have a much more clearly defined view of the outside world’s expectations than the Board of Directors. The fact that there is no generally accepted framework when it comes to assessing the effect of the measures taken is also a complicating factor. The Supervisory Board may well provide input, but a Board of Directors can find it hard to go about implementing it. Can you see a difference in mentality between the Supervisory Board and the Board of Directors?
‘The honest truth is no. My view is that management is already very much aware of the need to actively work towards achieving the ESG objectives and is highly motivated to make improvements, at least in the companies where I am a member of the Supervisory Board. Sometimes, we are faced with some difficult choices. At Aegon, for example, we have a large amount of money to invest, but it is a fairly romantic notion to assume that you can acquire a thorough knowledge of all of the ins and outs of a business sector and know precisely how well or badly investments in that area will perform.
At Vopak, however, things are much clearer. The Greenhouse Gas Protocol actually provides us with an effective framework when calculating our CO2 footprint. We provide fairly detailed reports on scopes 1 and 2: CO2 emissions within our organization and the indirect emissions of third-party installations that we make use of. The Dutch branch of Friends of the Earth (Milieudefensie), also requires us to report on scope 3, in other words, about all of the products we keep in store. That’s actually quite difficult, as those products aren’t our own. Nevertheless, it’s great that organizations such as Milieudefensie are continuing to exert pressure, as that will ultimately help us achieve reasonable results by working together.

You said earlier in the interview that a Supervisory Board can have no greater influence than when appointing new members to the Board of Directors. What do you regard as best practice with regards to long-term succession planning in that context?
‘Companies that have been successful for a long time generate future managers from within by operating an effective management development system. As CEO of Randstad, I made a habit of comparing the success of individuals promoted internally and of those appointed to management positions from outside. The results were 90 percent versus 50 percent in favor of the internal candidates. Since then, I have not experienced anything that would contradict those figures. In an ideal world, you will therefore be able to draw from an internal pool of candidates, whenever the CEO or another director leaves the company.
But if no suitable internal candidate is available, my second choice would be to appoint someone who is almost ready for that position. Only if that is not possible, will you need to look outside. Unfortunately, very few organizations are able to draw upon a broad pool of internal candidates. That actually poses a major risk, because long-term planning then becomes almost impossible. You may have someone in mind or be keeping your eye on people with a certain profile, but you will never know whether they will be on the market when you need them.’

Many people take the view that directors’ salaries have risen through the roof. Examples illustrating this include the call to the shareholders of Shell to reject the company’s remuneration policy on climate grounds and the dissatisfaction amongst Philips’ shareholders at the fact that the salary of its CEO, Frans van Houten, has been halved, when a much larger reduction would have been justified, given the problems Philips has experienced with its devices to combat sleep apnea. At Aegon, you are chair of the remuneration committee. Do you predict that over time, directors’ salaries will go down as a result of these types of discussions?
‘I do not think so, no. A cow is an animal, but not all animals are cows. The examples you referred to are so specific that you can not apply them on a more general level. The reality is that in Europe, directors earning substantial amounts are coming under pressure, while on an international level, high salaries are barely under discussion. If you are on the look-out for directors, you are actually a player within a competitive, international market. Even in the case of internal appointments, paying a salary in line with the market rate is important, because failing to do so would be to punish loyalty. That would mean you would be paying a lower salary to a person who has developed along with the company and has become CEO, than to a person you found on the external market. That seems strange to me.
Of course, I do understand that the level of pay is something that requires acceptance and I acknowledge that there are situations where a person’s remuneration is genuinely out of line with their performance. Explaining this topic to a wider public is also a very difficult thing. It is quite acceptable for people to have salaries of EUR 40,000 or EUR 50,000 a year. But if a person sees that someone else is earning one million or three million a year, the difference in salary is certainly difficult to understand, as they do not look at things in terms of the value that a person actually creates. Fortunately, the majority of shareholders are professional investors.’

And yet the call for transparency is becoming louder. There is a need for greater transparency with regard to directors’ remuneration packages and their achievement of targets, both in the short and long term. Is that a good thing?
‘For me, transparency in itself is a positive thing, but I can also see negative aspects. The intention underlying transparency was to put a limit on salaries, but on a practical level, the opposite has actually happened. Everyone is comparing nowadays, but what happens when you do that?
Introducing a stronger link between remuneration and the achievement of targets also has its disadvantages. If you publicize your targets and share them with the market in advance, that market will be disappointed if you do not achieve them. This can result in companies setting less ambitious targets in order to prevent that disappointment, or in directors leaving sooner when they do not achieve the things they promised. Publicizing targets can also be problematic from a competition perspective. After all, your competitors are always watching. Overall, it is therefore a difficult balancing act, but that is the reality, and we need to adapt to what society is asking of us.’

This interview was published in Management Scope 07 2022.

This article was last changed on 31-08-2022