Gisella van Vollenhoven: 'Still Much Progress to be Made in Assessing Executives'
Gisella van Vollenhoven is a relative newcomer to the Supervisory Board community. She worked for ING Group and Nederlandsche Bank for many years, retiring from her position as Divisional Director of Pension Supervision in 2019. Since then, she has held a handful of supervisory roles. “I now better understand why you’re allowed to hold only a certain number of supervisory directorships. If you want to do more than simply prepare for those six meetings a year, it can be very intense. When ASR asks me to attend a framework meeting, I am happy to make time for it. Every February, I spend a week in Tokyo for the Japanese MUFG Bank. It is both time-consuming and really exciting at the same time. Since I am on ASR’s Nomination Committee, I want to be involved in the general review process and become familiar with the pipeline. You can do that by attending meetings but also by quite simply attending parties and celebrations. It is all part of how I want to fulfill my role as Supervisory Board member. It also makes the position more enjoyable.”
The interview takes place at the Reward Value Foundation office in a former tin factory in Naarden: Industrial heritage which has been repurposed as a sustainable multi-tenant business building. Non-profit organization Reward Value focuses on the question of how executive pay can contribute to sustainable long-term value creation. That is the topic of the conversation between founder Frederic Barge and multi-Supervisory Board member Gisella van Vollenhoven.
What is your take on the Dutch business world’s sustainability agenda? Has it progressed far enough?
“I almost see two parallel worlds. There is a group of companies – and that is mainly where I am active – where people are working extremely hard on this issue. The process within those companies still needs to be accelerated, but the discussion there is mainly about what more can be done and the dilemmas we encounter. For example, what do you do if you want to install solar panels on the roof, but they have to be imported from a part of China with a poor human rights record?
Unfortunately, I also see a group of companies not doing much at all. In any case, what emerges is still extremely financially motivated. Organizations may well be talking about sustainability within the company, but this is not always perceptible to the outside world. That is partly understandable – as soon as an organization is transparent about the steps being taken, you will have people saying that it is not enough. You are doing what you have always been doing, but you are suddenly being called to account because you are open about it. That is not always fair and makes companies apprehensive about being transparent. Is their letter threatening legal action in the mail?
I am not convinced that social pressure from activist organizations and the political sphere is always very helpful. We need to move away from that atmosphere. As citizens, we all know how difficult it is to make the right decisions when it comes to the climate. I would love to drive an electric vehicle, but the charging station infrastructure in Amsterdam leaves much to be desired and so I drive a hybrid vehicle instead. I also fly quite often. Some people have so many problems on their plate that sustainability is pretty much the last thing on their mind. I suspect that companies face a similar situation. They need more time and also have other concerns besides sustainability. There needs to be a little more understanding for that.”
In that sense, perhaps the term ESG is sometimes interpreted too strictly. After all, as well as the environment, society and governance, the financial-economic side also needs to be in order to guarantee long-term success. Have we lost sight of that within the discussion?
“Change often happens in leaps and bounds. For many companies and entrepreneurs the focus was too one-sided on the financial results. If you want to see change, it is only logical to focus very closely on sustainability aspects for a while. Meanwhile, it would be healthy to regain some balance. If a company cannot survive economically, all the other goals become redundant. And vice versa: If we do not take care of the environment as an organization, we will end up paying the price.”
Did companies and stakeholders perhaps feel that everything has to be perfect? Would it help if companies did not only clearly communicate what they stand for but also made clear that there are some things that they cannot do?
“Definitely. Companies will have to make certain decisions and they will have to be able to explain those decisions to the various stakeholder groups. You cannot please everyone. A very basic example is the ongoing discussion about salary increases to offset for inflation. Salary increases for your employees will – by definition – affect your customers and investors. All of those interests need to be weighed up, and sustainability requires a similar balancing act.
The tricky thing is that there are so many other issues at play. Over the past decade, the requirements imposed on large companies have become increasingly stringent. It is great that we are obliged to report on climate risks, but nothing gets removed from the list on which organizations need to report. Companies need to do more and more in a world with a demanding job market where it is terribly difficult to find the right people for the work that needs to be done. It is an enormous challenge.”
How can Supervisory Board members help accelerate the sustainability agenda and focus more on long-term value creation?
“That is quite tricky. Most of the organizations where I serve as a Supervisory Board member rarely discuss ESG goals as an issue in itself. The issue arises in many aspects of our work, such as the remuneration policy, but does not stand as a separate agenda item. Ideally every step you take, from expanding your product range to expanding your organization as a whole, should align with your purpose: Who do you want to be? In doing so, you avoid a certain amount of opportunism in the things you do. Opportunism is not per se unhealthy, but you want to avoid short-term and one-sided, financially motivated decisions. This requires an organization to engage in the broad discussion continuously.
Good Supervisory Board Chairs play a vital role in creating space for an effective dialogue on issues such as sustainability. This requires courage. When I ask Supervisory Board members how important they consider sustainability to be, I regularly receive a very modest response. They do not want to take a stand on ESG because it is seen as a sensitive issue. I find that odd, because Supervisory Board members have to be independent. I do not necessarily reflect the views of the companies I supervise or vice versa. The fact that I consider sustainability to be important does not mean that all organizations I work for should have the same opinions as me on the issue. In fact, maybe it is better that they do not, as it means you can add more value to each other.”
Are ESG Committees a good way to remain focused on the long-term strategy?
“ASR, one of the companies where I serve as a Supervisory Board member, has had this kind of committee for roughly a year now. It certainly helps when it comes to raising the issue on a regular basis. But to be honest, we are still figuring out how we can add value with this committee, because ultimately that is what you want to achieve as a Supervisory Board. Not only do you want to monitor the Board – you also want to challenge and assist with all the associated challenges. In the beginning, the ESG Committee mainly reported on everything that was already happening within the company, but that turned out not to be enough. We have since come to the conclusion that the most important thing that Supervisory Board members can do is identify and discuss the dilemmas. What policy decisions has the Board of Directors made? What challenges did they face in the process? What was the feedback from employees, customers, investors, competitors and civil society organizations? And how do we want to act on that feedback? We are currently working on implementing this approach, although it is still under development.”
The current remuneration system mostly follows financial standards – which can, of course, be measured. When it comes to assessing and paying executives, are measurement tools for human, environmental and social results being used enough?
“There is still much progress to be made. Nowadays, you need to be creative and incorporate non-financial criteria in the assessment. Firstly, Remuneration Committees need to be aware of current events in the outside world and know how to include that in the remuneration policy. Using good measurement tools, you can assign KPI’s to ESG targets. That could help Supervisory Board members tremendously in structuring the dialogue about their performance with the Board of Directors. Moreover, the more specific these measurements are, the easier it is to explain to the outside world why a particular remuneration is fair and appropriate to the results achieved. You also need to carefully consider appropriate measurement tools for different companies and industries. After all, not everything you measure can be equally influenced. Assigning a KPI has to make sense.”
Rewards can be used as a tool to accelerate the sustainability transition. Are you missing opportunities to acknowledge and show appreciation for efforts in this area through rewards?
“I am particularly focused on the financial sector, which has strict rules and hardly ever permits the use of variable salary components for high incomes. Even within semi-public organizations such as the Social Housing Guarantee Fund, where we are bound by the Senior Executives in the Public and Semi-Public Sector Act, there is very little wiggle room when it comes to remuneration. At a fintech company such as Bunq – which is still not profitable – the regulator does not really like to see all sorts of stock options and packages. That is quite understandable from their point of view, but it does make it difficult to do something different in terms of remuneration.
Of course, we hold progress and assessment interviews about achieving financial and non-financial targets, but the outcomes have no impact on salary, while you actually have very few alternative control tools. That can be a missed opportunity, but that is just how the legal framework is. You can also comment on amendments to the rules. If you do not want to introduce financial incentives for financial objectives, why would you want to introduce them for sustainability objectives? At the same time, you sometimes have to do something out of the box in order to accelerate developments. You could introduce a special sustainability bonus, for example, temporary or permanent, that falls outside of the variable pay rules.”
At the start of this conversation, I asked whether Dutch companies’ sustainability agendas have progressed far enough. To what extent is sustainability a factor in your decision on whether or not to accept a supervisory board membership? Are you more likely to opt for a company with a ‘brown’ rating – where there is still much progress to be made – or a green frontrunner?
“I do not really have a preference on that one. The most important thing is that I can trust that a Board and fellow Supervisory Board members will not dismiss the issues that I consider to be important – and that extends beyond sustainability. I am happy to enter a situation where people are prepared to admit that they are struggling and have not made much progress. Where Management and the Supervisory Board agree on the importance of this issue, you can work together. In my opinion, it is fine for Supervisory Board members not to have the same vision. Those who attach less importance to this particular issue may instead focus their concerns on another important issue that I may not have been aware of.
There are limits, though. I honestly do not know if I could or would ever work for the tobacco industry. On occasion, I have also said ‘no’ to financial institutions as I did not feel that they valued good governance as much as I do. I have no place in that kind of organization. So, I am critical, but the key is not how sustainably a company operates – it is whether I feel that we as a team are able to tackle, discuss and respond to the issue at hand.”
This interview was published in Management Scope 10 2022.
This article was last changed on 23-11-2022