Jurgen Stegmann: 'Non-Executives Hardly Ever Realize Just How Influential They Are'

Jurgen Stegmann: 'Non-Executives Hardly Ever Realize Just How Influential They Are'
A Supervisory Board is especially effective when its advisory role is performed well, believes experienced Supervisory Board member Jurgen Stegmann. ‘You should be in constant dialogue with the board and both sides should invest in this. Many Supervisory Board members hardly ever realize just how influential they are. Simply putting issues on the agenda and discussing them can affect the direction in which a company develops.’

Jurgen Stegmann has over 20 years’ experience in supervisory positions, but until 2016 also sat on the other side of the table as Executive at Fortis Bank, NIBC and Robeco, respectively. Looking back, he refers to the interaction between the Board of Directors and the Supervisory Board back then as “occasionally old-fashioned”. ‘There were of course also discussions about strategy even back then, but compliance and conformance were most important in the collaboration. Since then, those dynamics have changed dramatically. As member of a Supervisory Board, you experience much more than 10 or 20 years ago that the role comes with obligations. You are more strongly involved in a company and you are especially aware that society has begun to view the Supervisory role very differently. Of course, management is at the helm of a company, but when things go wrong, the focus is on the whole top structure and the Supervisory Board members personally, too, to a certain extent. You are expected to be able to explain what was done or not done, and why. It makes the position more interesting, but at the same time much more challenging. I experience this responsibility towards the company, management and society every single day.’

More and more work is falling to Supervisory Boards, in part due to the increased focus on stakeholder governance. How can Supervisory Boards be effective despite information overkill?
‘By focusing on the issues that are important to that particular company, such as director succession and the impact of new laws and regulations, innovation, the energy transition and social activism. These issues should be at the top of the agenda. The roles of employer and supervisor are of course important and mandatory and should be handled well, but in my view the advisory role is the most important role of an effective Board. You have to be in constant dialogue with the management board and invest in this from both sides. Especially in times of crisis, this enables you to help the Board handle  the situation, search for solutions and find a way forward. I find it very satisfying to have that level of influence, but many Supervisory Board members hardly ever realize just how influential they are. Simply putting issues on the agenda and discussing them can affect the direction in which a company develops.’

Companies are constantly facing new issues such as the increasing importance of data, cybersecurity, labor shortages and stakeholder activism. This requires people with the right knowledge and background on Supervisory Boards. Is this modernization happening to a sufficient extent?
‘Given everything that is happening in society and the speed of change, it is important that the Board remains up to date. This requires a clear vision of the issues that a company is going to face over the next five years and the profiles needed on the Board in order to address the issues properly. When a company needs new qualities, they sometimes require a change in Board composition.
Unfortunately, in the Netherlands, we tend to adhere to the four-year term of office specified in the Code, which in addition is mostly extended for another four years. That should not happen automatically. In France, the term of office is three years. In Germany, the term of office may last only one year. We need more flexibility . A term of office should be subordinate to the needs of the company. Eight years is far too long, partly because it hinders the realization of a younger, more diverse composition of Supervisory Boards. This is happening extremely slowly.’

Self-evaluation is a key tool for analyzing a Supervisory Board’s effectiveness. What are the best practices in this area, in your opinion?
‘I always advocate engaging an external professional. In my experience, this makes the discussion much more effective and objective and less of a box-ticking exercise. To my mind the focus should not be on each individual’s contribution – because that can vary considerably depending on the issues at hand – but on how we performed as a team. How can we improve? Which issues could we have accelerated? Did we really engage in advisory capacity or were we too caught up in compliance? You can be quite self-satisfied, but ultimately it is for others to judge. That is why I have no problem with management participating in those evaluations. I in fact encourage it because that is the only way they can tell us whether we really supported and helped them.
The way in which you involve the external expert, however, can vary. We recently discussed the self-evaluation during a Board meeting and an external expert then compiled the issues that emerged into a presentation. He advised us on the things we were doing well given the problems within the company in question, which aspects could be improved and how other companies tackled those things. I found that very productive and I came away with a great deal of fresh ideas.’

Let us discuss the ESG explosion. How can Supervisory Boards ensure that sustainability targets receive enough attention?
‘In my experience, many companies are still struggling to determine the concrete impact all this has for them. They are only now realizing that as far as greenhouse emissions are concerned, they will have to report even on scope 3. The same goes for non-ESG related matters. The European GDPR regulation on how companies and governments process personal data is one of the strictest privacy laws in the world. The same applies to the planned European regulation on artificial intelligence, which among other things introduces ethical standards to data usage. Many companies are only now beginning to realize the impact of requiring permission to use or possess data belonging to the owners of the data in question (the individual), that algorithmsneed to be predictable and that speech and facial recognition must meet all aspects of ethical standards. It really is a revolution. As Supervisory Board, we need to ensure – for example, through continuing education – that we know what is happening and then take boards with us on that journey.’

Do you notice a difference in ambition and mindset between Executive Directors and Non-Executive Directors on these issues? As a Supervisory Board, you can continue highlighting what is necessary, but management has to implement it in addition to its already busy day-to-day activities.
‘It is a lot, but that is how life is. Situations change and we have to learn to handle the issues as they arise. Ten years ago, privacy protection did not seem as relevant, but now, through the influence of Facebook and Twitter and similar social media platforms, we all know why it is necessary and we all find it to be important. As Supervisory Board it is your role to support management in dealing with these new issues. We must ensure it is on the agenda,  that we understand the impact for us and the actions we need to take. The sooner, the better, as it also takes time to find the right people who can do it and to allocate the necessary budgets. We cannot wait until the rules become binding because by that time, the whole world will be watching, and you will be in a vulnerable position if you do not have a solid story. That is the message our Board needs to convey through our advisory role.’

What does this require of the leadership teams within organizations?
‘CEOs should be much more aware that they are corporate citizens compared to 10 or 15 years ago. Every CEO should realize that values, profit and growth are important – but so are many other issues. It is simply not right to dismiss ESG targets as a fad and shrug them off with a thin report containing a limited amount of data and predictable language. In evaluations, it is also important to reflect on the interaction between all Board members. They are in it together. How do they work together? Are they a good team? They really need to know, feel, and convey that their roles are about more than just finance, and act accordingly. If that is the tone at the top, it radiates throughout the entire company. That is real leadership. My message is always : Do not hesitate. This is important, inevitable and it is happening right now. If you do not move with the times, you will price yourself out of business. Laws and regulations are occasionally necessary to ensure that everyone – including your competitor – meets certain standards. But it needs to be in your personality and company culture already, anyway. You also need to read the “spirit of the times.”’

Assessing non-financial targets and long-term value creation can be tricky because they often cannot be translated into numbers. What do you see as best practice?
‘The 2030 climate targets are clear and measurable, and you can attach value to other non-financial targets – even if they are not quantifiable and you sometimes have to be a bit more creative. I think it is especially important to properly identify the intermediate steps towards the final target and continuously monitor progress. The lawsuit against Shell was partly prompted by the fact that no interim steps had been formulated in reducing CO2 emissions and people questioned why things were not moving faster. The challenge for Supervisory Boards is to initiate the discussion on how to assess every few years whether you are still on the right track towards achieving the end goal.’

In my experience, CEO succession within organizations is often difficult. As an employer, what role do you envisage for the Supervisory Board in that respect?
‘Succession of the CEO and CFO is one of the most significant decisions that a Supervisory Board needs to make. It is always difficult, and I think many Supervisory Boards underestimate how big a challenge it is to appoint the right person – especially because you are required to choose someone who aligns with the company's future direction. Before you decide, you need to discuss where you want to be in five years’ time and who within the organization can help the company achieve that. Furthermore, while the Supervisory Board has a duty to search for an internal candidate, you should not neglect external possibilities in the process. You should be in a position to compare internal and external candidates. In an ideal situation, there will be several good internal candidates, but that rarely happens in practice.
Repeatedly, I have been disappointed by the shortcomings when it comes to succession planning. It means you have failed as a company. The fact that key persons leave each year should not be an excuse. HR needs to work with the board to ensure that multiple successors are ready to take on key positions. This is more important than ever, as it is also proving increasingly difficult to find external candidates – even though the call for diversity has brought a broader group into focus. Many companies really do underestimate this. If you have no internal successors and you are told by the search agency that it is going to be a difficult process, that is a double fail.’

Would higher salaries help? We are trying to attract candidates from a competitive international market.
‘We should not be too out of step with the rest of the world, but I also understand the social discomfort on this issue. That is why you have to be able to explain how the remuneration is calculated, and why. I advocate higher remuneration for Non-Executive Directors in sectors such as the cultural world, healthcare, education and housing corporations. Especially in non-profit organizations, they often receive little to no compensation, while the amount of work and responsibility has increased considerably.
To some extent, you need to be able to afford to become a Non-Executive Director today, for example by working as an Executive Director as well or after earning enough in your previous career. That is mostly reserved for the ‘seven check marks’. Partly because of this, the pool that these organizations can draw on is not very large. Considering the social value that large institutions such as hospitals and housing corporations represent and the huge budgets involved, we need to rethink the existing remuneration model. Moreover, if you increase salaries, you can also set higher expectations in terms of the Non-Executives’ qualities and characteristics.’

We began this conversation by discussing the difference between management structures past and present. Looking to the future, what else will have changed in 20 years’ time?
‘20 years is a long time. In any case, I am sure that when we look back in 20 years’ time, we will have a totally different perspective on many of the current problems and dilemmas. Will we experience the great economic reset that some people believe in? When I observe what matters to young people, I think we will have made much more progress on issues such as sustainability, ESG targets and the energy transition than what seems possible now. In my opinion, that is the real lesson for us: Listen carefully to how your children view all these different issues and act accordingly.’

This interview was published in Management Scope 01 2023.

This article was last changed on 14-12-2022