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Lessons From The Wirecard Scandal

December 2020
Michael Schaumann
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The supervisory board needs to remember its crucial role as governance body

The far-reaching accounting fraud at Wirecard is one of the biggest economic scandals in recent decades. All governance mechanisms failed. While the role of auditors has been discussed at length in the media, less has been said about that of the supervisory board.

I have been searching for and placing supervisory board members for many years. My extensive experience and the insights I have drawn from the Wirecard case lead me to six points that are necessary to strengthen the supervisory board (SB) as an institution and make it into what it actually is, namely a governance body and not a regular get-together of friends and acquaintances.

The supervisory board must be independent.

This might sound obvious, but company owners sadly often pick members of the supervisory board themselves using personal relationships as the main criterion. The majority of a firm’s shareholder representatives should definitely be independent and critical. Crucially, the audit committee should be headed by an independent chairperson.

Supervisory and management boards don’t sit in the same boat – they just row in the same waters.

The SB should not simply sign off on decisions made by the management board; it should scrutinize them. This requires a willingness on both parts to engage in critical dialogue. And this dialogue should not be restricted to supervisory board meetings; it should be an ongoing and continuous process. Ideally, the SB should be sparring partners for the management board, enjoy this role, and have enough time to devote to it.

Governance is more than just troubleshooting.

After all, when mistakes have occurred, it is usually already too late. The SB must constantly assure itself that the processes that are in place in the company to prevent fraud and errors are effective and functioning properly. In addition to maintaining checks and balances on past activities like revenue development or invoicing, keeping an eye on the future is at least equally as important.

The jobs of the chairperson and deputy chair of the supervisory board of a stock-listed company take up two to three working days a week.

To avoid SBs being solely the domain of retirees, the remuneration must be higher than it is. Five SB mandates should bring in as much as an executive management position. This would encourage top managers in the 50+ age group to consider a career as full-time SB members. And their expertise is precisely what is so crucial in this job.

Being a member of a supervisory board is not a job that can be “learned by doing”.

Expertise and experience are absolutely indispensable for this role – especially in the case of young companies. Nonetheless, I would still argue in favor of a diverse SB, particularly with regard to the age of its members.

Politicians and regulators have a stronger role to play.

Not only must the governors themselves be governed, they also need the legislative and social backing of state governance institutions in order to be able to exercise their mandate in an independent and critical manner.

About the Author:

Michael Schaumann is a Managing Partner at the Vienna office of Stanton Chase.

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