Arjen Dorland: ‘Chair Has to Make Extremely Difficult Decisions’

Since then, Dorland has seen major changes to the role of Supervisory Boards. ‘The obligations, rules and requirements keep increasing,’ he explains. ‘It never stops. Especially in the two-tier Dutch system, where you have more distance than in the Anglo-Saxon one-tier model, while the outside world often views your position as a full-time role. The number of non-financial risks and technological issues is increasing exponentially. This was already true before the financial crisis, but the climate crisis is accelerating this further. Your liability as a member of the Supervisory Board automatically grows with it.’
Dorland describes his positions as Chair or Vice Chair as ‘intense’. ‘You are often the last anchor in turbulent times. You are a kind of spider in the web – you are always switched on.’

What are the three character traits of a good Chair, compared with a Supervisory Board member?
‘Above all, they must be able to remain calm and objective in turbulent times. Secondly, you have to be able to make extremely difficult decisions. Nobody else will make them for you, especially if there is a problem with the CEO. The Chair also has an important role when it comes to the wellbeing of the entire Board. You really have to form a team and ensure that the team is successful. Again, nobody else is going to do that for you.’

Globally, we have noticed that the role of the Supervisory Board Chair is increasingly outward looking. Have you also noticed that, and is that a good thing?
‘There is a difference between two-tier and one-tier Boards. In the one-tier Boards, you have a much more active role in the foreground as a Supervisory Board member. In the two-tier Board, like at ABN AMRO, the CEO is the one who comes out first. The CEO is in charge of the day-to-day management. Investors and large shareholders want to talk to the Chair, of course, but you should never do that without the CEO. A certain degree of restraint is required.’

Your role as Supervisory Board member has become more intense and you have to be more outgoing than before. Are the roles blurred?
‘There is always a risk and it is a balancing act. There needs to be good communication and transparency between the Supervisory Board and the Board of Directors. Tensions between the two are not conducive to productivity.’

You are known for your outspoken views on diversity. What do you think are the key issues right now?
‘You cannot and should not want to do without diverse talent anymore, and talented individuals can be found everywhere. Clients come from all walks of life, and the organization wants to reflect that. Diversity in strategy formulation and execution makes companies stronger. It also avoids pigeonholing. The broader the vision, the better it is.
I worked in an international company with many different cultures. The input came from everywhere, which was great. The atmosphere is different when the Board only consists of men. Of course, the issue does not just concern gender – diversity in cultural backgrounds is equally important.’

How do you deal with that? The Board includes a group of people with broad experience, but they do not necessarily know the industry or the company.
‘When you form a Board, you create a collective profile. In consultation with shareholders and other stakeholders, you describe the needs of the organization. You need to find a mix of people with industry knowledge. You have to have bankers at a bank, but not everyone needs to be a former banker. You also need generalists, you need digital knowledge and someone with an understanding of accountancy and the legal side of things. Then you start looking for those people – and preferably keep it as diverse as possible.
In the past, headhunters often only came up with male candidates. My experience today is that a longlist is much more diverse without putting in any great effort on your own part. Certainly in the last five years that has changed very much for the better. The argument in the past was that there were not enough experienced women, but that really is not true. They are there and findable. There are many reasons for diversity, but I do not really think a quota should be required by law. The motivation should come from the organization itself. By way of example, we now have four women on ABN AMRO’s Supervisory Board. That was not necessarily a conscious decision – we just selected the best candidates. You consider who best fits the profile, and then you make a decision.’

Do you think the recruitment process for Supervisory Board members is professional enough? On some Boards, Supervisory Board members still just look within their own network.
‘That sometimes happens, but it should not. Draw up a good profile, get others involved within the company as well, and then start looking. You have to keep your distance and try to remain independent. Use a search agency for that reason – do not approach those you already know. That is unprofessional and the risk of failure is too high. On all the Boards I have served on, appointments have always been made objectively, using a longlist and a shortlist. There is also a Nomination Committee, and so a well-functioning Supervisory Board always provides the correct checks and balances.’

Technology has become an integral part of almost all companies. What is the Supervisory Board’s role in that?
‘On the Supervisory Boards of which I am a member, we have agreed that everyone has a specific portfolio. Sometimes in collaboration with a colleague, I do IT, technology and data. The Supervisory Board members talk to the relevant departments within the group and return to the full Supervisory Board with the full picture and feedback. You then update the other Board members.
The Council can also appoint a special Digital Committee, but that often results in topics and responsibilities getting mixed up with the scope of the Audit and Risk committee, for example. So we have not done that now, but that may change in the future. It also depends on your company's core business. If you are a digital-only player, you probably make decisions differently. If your company needs to make a huge digitalization transition, you also need to consider the optimum managerial and auditing strategy.’ 

Most technology experts know a lot about a few things, but a Chair or Vice Chair needs to know a bit about a lot of things. That is an area of tension.
‘Before, it was just about financial risk, whereas now you have to tackle so many different issues: Cyber security, data information, change risk, fraud risk, recruitment, talent, climate and sustainability, compliance, legal and tax. The list is huge. You have to make sure you maintain a clear overview and have enough information to arrive at balanced decisions. It generally concerns strategic opportunities, costs and risks, all in a complex field of stakeholders, such as shareholders, customers, staff, regulators and society at large.’

Do you think companies in developed markets are overregulated – particularly financial services providers?
‘Let me think carefully about what I am about to say. It is always a pendulum movement, but I think we are currently focusing a little too much on the negative side of that movement. Necessary regulation is very good, and there is now a level playing field in Europe. Globally, things are different: Europe is stricter in terms of laws and regulations. But if that limits entrepreneurship and clout in doing business too much, that is a challenge for a bank or insurance company, or really any organization.
You have to walk a fine line as a Director. Creating the right balance is crucial here. No matter how strict the laws and regulations are, they must always be complied with, but preferably while retaining commercial clout. When you have that in order, you are well prepared to withstand short-term and long-term financial and other shocks.’

For a Supervisory Board, how do you create the perfect balance between compliance and needing to move the company forward? How do you divide your time on the Board?
‘First of all, draw up a good agenda for the Board meeting in advance. Which crucial decisions need to be made in the meeting? Of course you do a lot of preliminary work in the Committees, especially concerning controversial topics. In the morning, execution and business updates form part of the agenda. This is when the results and all the other issues come up. This helps us maintain focus on the business. If necessary, we can schedule a separate session to take a deep dive into a particular issue.’

Sustainability and ESG have become key issues. How does this impact the Supervisory Board?
‘You always look at your company's strategy first of all and check whether it still matches. Not only in terms of regulation or legislation, but also when it comes to products, locations, stakeholders and customers. Then you focus on the execution. As a Supervisory Board member, you consider whether the group is complying with the changes and rules. You play a key role in making sure your company is future proof. The more and sooner you integrate all these issues into the daily operations, the better.
Unfortunately, in the absence of universal ESG regulations and reporting guidelines, there is still a lot of uncertainty around meeting all the requirements that ESG places on companies. That is not an excuse to just wait and see. Organizations will have to work through this and may sometimes struggle to transform over the coming years. Definitions and reports may have to be amended a few times along the way. But the important thing now is to establish a framework that you can work with.’

How do you deal with external pressure such as demands from activists or divestments by institutional shareholders?
‘The only way to deal with that is to continuously measure reputation and maintain a focus on the legal requirements, compliance agenda and more. There is no right answer or immediate solution, but of course I keep a watchful eye. Companies can suffer reputational damage very quickly.’

In recent decades, Directors’ salaries have risen more than average for large corporations. What is your view on this?
‘Personally, I do not know why someone should be worth so much more than other members of a Board of Directors and people in the tiers below. It is obviously very important to have a good CEO, but no one can be successful without the support of a good team. I am in favor of a correct, competitive remuneration package for the Board of Directors. If I started spotting certain narcissistic traits in Directors’ salary demands, I would be concerned.’

Has the requirement to disclose Directors’ salaries had the right effect? A potential unintentional consequence is that salary levels have increased because people know what the competitors are paying.
‘Exactly – that did not really help, but was inevitable given the social context, which values transparency. The remuneration system should always be explainable, even if people think a CEO earns too much. It should definitely be competitive and benchmarking is normal, but within certain limits. You have to be able to explain it clearly to all stakeholders – not just shareholders. When you talk to someone who wants unreasonably high pay, the question is whether this is the right person for the company. Personally, I am not a fan of excessive pay gaps. There has to be a certain logic, balance and reasonableness. That way, you can always explain it.’

Given current economic conditions and shareholder pressure, do you think Directors’ salaries will decrease in the near future?
‘I cannot say anything about the situation in the United States, but I can about Europe, within the Rhineland model. I do not think that remuneration here will necessarily fall spontaneously, but given the increased role of shareholders, I do not think there will be any more extreme increases. Furthermore, the trend I have spotted is that in the event of a CEO succession, the remuneration package is often moderated somewhat.
Each year, shareholders vote on the remuneration report. If they reject it, there are no immediate consequences, but it does not make the Board look great. Once every four years, we vote on the remuneration policy and that is a binding vote. So we certainly take all wishes and requirements into account when it comes to establishing a remuneration policy.’

What do you think is the best long-term strategic plan for CEO succession?
‘The most influential moment for Board members is when they elect a new Board of Directors or CEO. Those are crucial decisions, because should you choose the wrong candidate, you fail as Supervisory Board members. You also have to have an up-to-date plan in place for succession and talent development, so it is not necessarily essential to look outside of the company. It is also crucial for the Board to be aware of the company's human capital so that they know which talented individuals are there and can talk to them. After all, if you do not know the people in the second or third tiers of your company, how can you make good decisions concerning succession?’ 

Why is it still so difficult for many companies to find good successors?
‘It is difficult in lots of ways. If you look outside of your own organization, it still feels as though you have failed slightly in ensuring that you have good succession from within. It can be a conscious decision to look for a successor externally, for example when implementing a total strategy change. But the question is: How well do you actually know that person? You obviously conduct many interviews with the intended candidate, but may have missed some aspect in retrospect.
Again, if you choose a candidate from within your own organization, you run the risk that another candidate for the same position will leave the company out of disappointment. There may also be differing views within the Board concerning the succession, which might add tension. All good intentions, great talent programs and transparency notwithstanding: It remains both a challenging and delicate process.’

Evaluations of board effectiveness have become standard within most large companies. What is your advice on that?
‘It is not good if a Board is unable to reflect on its own behavior, execution and performance. Good feedback is valuable, even if it is not always pleasant. Also bear in mind that you are never bigger than the company. You are transient and replaceable. You may have to conclude that you have reached the end point and need to step down. Reflection is crucial, as are humility and willingness to learn.’

This interview was published in Management Scope 08 2022.