In summary

• The role of the supervisory board remains to protect the company in the long term interest of the shareholders

• An ever-increasing pile of compliance tasks fall upon the personal board members in terms of both time and interest – and upon the company in the form of lack of development, ie risking the future

• The two most cited BUTs for not rebalancing the focus back to development

To serve and protect – sounds like a police job

I have only met a few non-executive board members with a police background. I wonder why, when the supervisory board’s objective is to protect the company past, present and future in the interest of the owners? After all, it sounds quite similar to the “Serve and Protect” slogan of the police…

A closer look reveals that the police serve as law enforcement, i.e. enforcing the laws provided. Sometimes the role is exercised in a preventive manner, but mostly occurs in a retrospective manner – never inventive as the laws are provided.

As the highest governing body of the company, the supervisory board is to balance the protection of the company – past, present (compliance) and future (development), with a preferred weight towards the future element where the greatest value generation should be expected.

Accepting this, the board is expected to master the skill of strategic innovation.

This might be one of the reasons why a police background is not a common among board members.

The pile of compliance work is growing…

The growing pile of compliance topics landing on the board is a much discussed topic these days. What are the drivers, and what are the consequences ?

A quick look at the drivers behind the increased compliance burden reveals that three factors stick out:

Transparency - Increased regulation - Globalisation

Transparency:

Introduction of Sarbanes-Oxley act in 2002 was a response to missing and/or neglected compliance routines, and a call for transparency - especially in respect to placement of responsibility.

Despite being a US act, the act has introduced new standards around the globe. It has underlined the responsibility of the board and for the first time enforced hard short-term penalties. No wonder that the new standards call for the board to attend to compliance.

Increased regulation:

Despite thriving on the term “liberal world” an ever-increasing regulation is taking place. The drivers behind it all seem to be a call for standardisation, which in-turn should allow for more competition – and a call for customer protection in the form of more information. It is also a last a call for a certain governing of the free liberal market to protect it for itself.

Globalisation:

It has become more norm than exception to operate internationally which means that all above factor are multiplied – resulting in an immense load of work.

Whatever the driver, the trend does not seem to stop – quite the opposite.

Surveys and personal feedback indicate a stirring trend.

1. As a first response board members put in more hours.

2. The second step is prioritisation among tasks, where compliance often comes in first due to urgency and the risk of hard-measure penalties.

3. The third step is giving up. Either by slipping on the diligence (taking responsibility without insight), or quitting.

Each step is at great personal cost – and might hurt the company if it leads to neglect.

However, the greatest threat to the company is the lack of focus on the future/development – it will put the company at immediate risk to be disrupted without response.

The BUTs for not rebalancing

It’s in all’s interest to bring back the balance between compliance and development – ensuring that effort is prioritised to the “important / not urgent” quadrant. Officially the responsibility might lie with the board collectively – but in practice I call on the chair to take the lead.

In discussions no-one seems to argue against the importance of a rebalancing.

The BUTs that follows, most often link to the argument that “hours are already consumed in urgent compliance tasks” - whilst an another often quoted argument is a more-or-less disguised “but how”.

Reading from the facial expressions, there often appears a bit of hopelessness when bringing up the challenge of facing the future. Some moves their eyes to the upper left corner in search of an answer, whilst some look as if they are facing the deep abyss -only a few react with a smile and a spark in their eye.

In the following blogs, I will address above two BUTs from different angles and different measures to get there. The next blog is about increasing the agility of the board – including methods to achieve the above mentioned rebalancing.

So Mrs. / Mr. Chairman…

My call to you is to re-examine your balance between compliance and development. Does your board hold the optimal balance to protect the company past, present and future - and will I find that smile and spark in your eyes when talking about the future ?

So Mrs./Mr. Chairman please stand up, show your leadership by taking action and responsibility to prioritise the focus on the future by adopting – and bring the paradigm shift to the supervisory board.

Hence, make time within the coming two weeks to re-examine your board’s compliance/development balance and your own view on the future. I believe it will:

• Help you to prioritise to your personal- and the company’s benefit

• Inspire you when taking initiative to deal with the uncertain

• Increase the value of your company significantly