In the wake of the Wirecard and Commerzbank scandals, supervisory boards need courage in governance
Since the failures earlier this year on the part of the supervisory boards of Wirecard and Commerzbank in their governance function, there has been much talk about professional aptitude while not enough about courage and backbone.
As the Commerzbank case continues to keep the topic of governance and governance bodies in the news, the focus of the analysis and appraisal lies – rightly so – on the failure of governance bodies. The criticism is directed both at state governance institutions and the (in)activity of their supervisory boards. The qualifications and professional experience of the board members – and thus also their suitability and aptitude for the role – are all being placed under the microscope. And the fact that not a single member of Commerzbank’s supervisory board had banking experience leads to the conclusion that a lack of professional expertise is the sole reason for its failure as a governance body.
However, in so many financial scandals – even those actively aided and abetted by a failure on the part of the supervisory board – a lack of professional expertise is not the sole reason for irresponsible action (or indeed, “non-action”). Character plays at least an equally important role in determining whether a member of a supervisory board is suitable for and up to the job.
A person who takes a seat on a supervisory board must have courage, backbone, curiosity, and a passion for the company. They must have the courage to stand up in front of their fellow board members and high-ranking executives and question what is being presented and, if necessary, exercise a veto – even if they are the only one to do so. So it is not without good reason that Susanne Kalss and Peter Kunz issue a stern warning in their “Handbook for the Supervisory Board” with regard to group psychology: Anyone who accepts a seat on a supervisory board must also be aware that they might one day face the difficult situation of having to formulate and defend their opinion against the majority. While this is easier if the person has an appropriate professional background, even that is ultimately no use without the ability to think and act critically.
Another character-related element that sadly plays a big role is vanity. In many instances, people accept a seat on a supervisory board without giving the matter enough thought: They feel honored, see it as something that makes them look good, enjoy the bragging rights, welcome the opportunity to expand their network, etc. Remuneration, which in Austria tends to be negligible, is rarely a major motivating factor. If a person accepts such a demanding, time-consuming, and interesting mandate, they must also examine their conscience and ask themselves if they are not perhaps being motivated by vanity and, in doing so, exposing themselves to high risk. After all, there is much that can go wrong, with potential consequences for their own career or even their integrity.
While the discussion surrounding the expertise of supervisory board members that has been triggered by the Wirecard and Commerzbank scandals is clearly important, it also ultimately diverts from the question of why so many supervisory boards fail in their task despite the professional aptitude of their members. I would like to see the calls for highly qualified supervisory board members extended to include their personal suitability. After all, while courageous, disruptive members might perhaps prolong board meetings, they are also an immeasurable gain for any company.
About the Author:
Michael Schaumann is a Managing Partner at the Vienna office of Stanton Chase.