Carin Gorter: ‘Look at Opportunities as Well as Risks in Companies’
Look both ways. Carin Gorter uses the term regularly during the interview to emphasize how important it is as a Supervisory Board member to have an eye not only for the risks but also for the opportunities in the companies you supervise. After a career in management and supervision at various financials, Gorter built up a diverse portfolio of Supervisory Board memberships. She is a Supervisory Board member at TKH Group, the former Twentsche Kabel, the international fitness chain Basic-Fit, Ebusco (a Dutch company that focuses on the development and production of electric buses) and insurers DAS and TVM Insurance. At all these organizations, she also Chairs the Audit Committee. At the Ministry of Justice and Security, she is the ‘technical’ Chair of the Audit Committee; formally, the Secretary General, the ministry’s highest official, is the Chair. Gorter is also a member of the Supervisory Board at the Dutch Transplant Foundation.
The Audit Committee has a special position as a preparatory committee for the Supervisory Board. As Chairman, Gorter monitors the opportunities and risks facing companies and institutions. She reviews, among other things, the financial reporting process and the reporting on it, and the effectiveness of the internal risk management - and control systems. For Gorter, this means the opportunity to combine her interests and expertise in finance, audit, risk management and corporate social responsibility. She discusses this with Joyce Leemrijse, partner at Allen & Overy.
You have a very diverse portfolio of supervisory positions. Do you purposely choose supervisory roles in diverse organizations?
‘It looks intended, but I choose the companies I find inspiring and where I can add something. These are companies with a clear mission, vision, and business model. I like innovative companies with focus. At all the companies, I also Chair the Audit Committee.’ Laughs: ‘That sounds like punishment to some, but it is precisely the complexity that makes the work very fascinating. It is hugely important to recognize where in the chain the risks are and what effect it has on the company. The focus on business strategy within the Audit Committee is sometimes overlooked. You consult with the CFO and the risk manager and sit at the table with the directors of operations, IT, and finance. For example, to think about (re)financing and investments at an early stage.’
Developments in society and business are moving fast. What issues should Supervisory Board members consider in the coming period?
‘With the impact of increased volatility on companies. The corona period and the invasion of Ukraine showed once again how interconnected global trade and corporate supply chains are. The complexity is enormous, and changes are rapid. This is compounded by the scarcity we face. Businesses must already consider shortages of skilled workers and raw materials. We have lost sight of the importance of the availability of financing in recent years due to low interest rates, whereas businesses now find it less easy to obtain credit or then at higher cost.
Changes take place in all areas and affect a company’s operations. You cannot always prepare for that. An example? Take the divergence in thinking about sustainability between the shareholder based in Europe and those in the United States. For a while in Europe, we thought the Americans were going along with our approach to sustainability. But the American attitude towards sustainability turned out to be subject to change and that makes it complicated if you have European and American shareholders. Moreover, as a director you look with added interest at the upcoming American elections.’
Where does the Audit Committee’s role in alerting the Supervisory Board to the risks of scarcity lie?
‘Here too, look both ways apply because scarcity creates both risks and opportunities. I look at it with fascination: a combination of deep interest but also concern. As mentioned earlier, companies are already facing scarcity in terms of personnel, raw materials, and semi-finished products. There is already an issue of a power grid at capacity - companies sometimes cannot be connected to the power grid or cannot be connected directly, and in the next few years we will also face a water problem. The risks are underestimated, just read the General Audit Chamber’s report Focus on Strategic Stocks. As a Board member, you must take that knowledge into account when supervising the company. If you do not have an adequate view of the risks, it can have a major impact both financially and in terms of sustainability.
In talks with directors, the Audit Committee discusses the strategic risks. That should be an open conversation, I want to know how they view them. These are not issues that must or can be solved immediately. But you do need to know how various aspects such as supply chain, sustainability, and labor and capital play a role in the business models and future strategy of the company.’
How can Executives properly prepare for these risks?
‘The question is whether the strategy is sufficiently agile. Examine where the risks in the chains may be and what effect on the company they may have. Prepare for a period of transition. This applies not only to shortages like those I just mentioned, but also to a topic like data management. The management of data in the enterprise has a lot of potential value on the one hand but can also have major legal implications, for example around privacy. The question is whether the organization is sufficiently aware of the organizational implications. Especially now that artificial intelligence, or AI, is increasingly being used. Because who actually owns the data in the organization? And who ensures it is handled with integrity?
Every Board member should watch The A.I. Dilemma on YouTube. The message of the documentary: through AI, all knowledge is instantly democratized, but not enough attention is paid to what you can do with that knowledge. As a company, should you make information instantly available to more than 100 million Internet users? Or is a different, more considered approach needed, as is common when introducing a new physical product? In the development of AI, we still have a chance to make choices.’
This requires reflection. Is there enough room for this within companies?
‘Directors will have to consider ethical issues more often. These issues are not about the technology itself, but mostly about what you are going to do with it. Which data do you want to make freely available, and which not? Artificial intelligence can at great speed within seconds use a voice to read text aloud. That can be helpful, but it can also be misused in verification. These are issues which more and more companies come across and therefore their Board members too.’
Sustainability is another pressing topic that brings opportunities and risks. What is your view as a supervisor on this?
‘Sustainability in business has gained momentum, partly due to legislation and regulations. The companies where I am on the Board have been consciously working on ESG for a considerable period. Yet legislation - such as the EU taxonomy and the sustainable finance disclosure regulation (SFDR) - is hitting them like a tidal wave. This applies not only to listed companies, but now also to the larger SMEs in the chain. These listed companies also test the sustainability of, for example, suppliers and transporters. I hope that real social impact can be achieved in this way.’
You hope that real impact will be achieved with new regulations: that is very carefully phrased. Is your experience that companies really want to make an impact? Or is it in practice about ticking boxes?
‘My experience is that companies really want to make an impact. But the large number of obligations certainly present a risk of box ticking. Perhaps it would have been better if the government had asked companies to first start working on their ten biggest KPIs in sustainability, changes with which the greatest impact can be achieved. Then it would be more about the essentials and less about compliance. But that does not support comparability between companies. And there is also something to be said for that.’
Do you address directors on the pace of sustainability in the organization?
‘I am not a climate hawk, but I do give the subject a regular place on the Audit Committee’s agenda. For two years now, ESG has been a standard item on the agenda of Audit Committees on which I serve. Everyone is used to that and that makes it discussable. It helps to put important subjects on the agenda in a structured way. For example, at one of the companies we also made safety an agenda item. The Audit Committee periodically discusses personnel safety, product safety and IT system safety. Sometimes a topic becomes so important that it outgrows the Audit Committee and ends up on the Supervisory Board agenda.’
We see increasing attention in the Audit Committee for soft controls. Increasingly, the accountant is expected to report on the culture in the company, for example. Are you in favor of that?
‘Diversity and a safe corporate culture are important themes. The importance of soft controls is clear. However, they must be findings about culture and behavior in the organization that can be substantiated. Information from an accountant’s soft controls audit is of a different caliber than several casual observations about corporate culture. In the past a soft control audit was conducted at two companies where I am on the Board. That provided valuable information for management and the Supervisory Board. Whether to share the soft control audit outside the organization? That is a complex issue that needs careful consideration from the perspective of all stakeholders.’
Diversity in the Boardroom is a much discussed topic. What are your experiences in practice?
‘It adds value when you put people together who do not all think the same way. Fortunately, I have long since ceased to be the only woman on the Supervisory Boards I serve on. In addition to gender diversity, it is also about broader diversity: including younger people alongside the experienced members of the Supervisory Board, for example. I also see benefits in adding Board members who are more focused on innovation alongside people who are a little less risk averse. That provides a counterbalance; the tendency sometimes arises to over-prescribe .’
What can directors who are somewhat less risk-averse add?
‘When it comes to risk management, I like to cite the origins of the North Holland region of the Beemster. Around 1600, Amsterdam was growing out of control due to immigration, and administrators and merchants were looking for new land to graze cattle and land to stay on in the summer when the city was hot and dirty. The Beemster area caught their eyes and investments were raised for reclamation by means of a ring dike. In the first big autumn storm in 1610, when the reclamation was almost complete, the dikes broke, and it became clear that the reclamation had failed. The investments were lost, yet another attempt was made with a different reclamation technique. Money was invested again and this time it worked. The reclamation was completed in 1612. To me, that is an example of how you can achieve extraordinary things with courage and risk-taking. My point: we need to be more accepting to the reality that innovation always involves a certain amount of uncertainty and risk.’
How can supervisors and directors use that insight to prepare for the rapidly changing world?
‘Do a pre-mortem before major decisions, (Pre-mortem is a method where you analyze potential failure before it happens, ed.) for example prior to an acquisition or an investment. In an acquisition, the organization is always in danger of being a bit infatuated with the other organization. A pre-mortem puts things in perspective. Such a process with people with different views yields valuable conversations. It also makes you realize that you can never anticipate everything.
Perhaps the most useful advice I can give is to simplify. Let us cease piling on more laws, regulations, and codes, all with good intentions, but due to the scope and volume not always conducive to practicability and transparency. Let us as Supervisory Boards prepare organizations and their strategies to be ready and agile for the future from the perspective of opportunities as well as risks. Look both ways.’
This interview was published in Management Scope 06 2023.
This article was last changed on 27-06-2023