A German government commission has just published an updated code on corporate governance. Its proposals are surprisingly blunt.
Lazy supervisory (non-executive) boards should be shamed while the concept of perennial board membership is eliminated, with companies now having to introduce maximum terms. And above all, those who are regularly absent from meetings should be reported.
But these proposals probably won’t be much help in the most notable case of poor corporate governance: Berlin's new airport was supposed to open in 2011 but, having doubled in cost to €5.4 billion ($6.1 billion), it is now not expected to open until 2017.
The board of Flughafen Berlin Brandenburg GmbH, known as BER, changes supervisors as often as security guards at the site change shifts.
People can be forgiven if they sometimes wish one or another of the members hadn’t attended the meetings. This would have spared the board many embarrassments, such as the voting in of Karsten Mühlenfeld as head of the airport. His win was by no means unanimous.
A good board chairman doesn’t need the guidance of a code to understand that truency is unacceptable behavior.
It is simply incomprehensible how the board can allow its top executive to begin work under such a large shadow of mistrust.
Yet in terms of personal commitment to their task, it often doesn’t matter how frequently members attend meetings, since gaps in expertise and knowledge have been hallmarks of many BER supervisors.
A scandal-ridden, state-owned airport is no measure for the rules of corporate conduct. Or is it?
The chairman of the code commission, Manfred Gentz, a former Daimler executive, tends to be defensive in his leadership. On his watch, minimally invasive intervention has been the norm, but now, it a full-blown surgical procedure might be necessary.
The goal of regulatory initiatives is to bring fresh perspectives to company supervision and underscore the jobs of board members for what they are – hard work. It sounds self-evident considering the handsome pay they receive.
A member of a supervisory board listed on Germany's DAX index easily rakes in several hundreds of thousands of euros a year. Yet it must not be self-evident or the commission would not have targeted the attendance of board members. Its call for transparency may sound like mistrust, but then it’s apparent that such mistrust is not misplaced.
Actually, the matter of who attends the usual four to six board meetings per year as well as some additional board-related events is rather secondary. When the supervisory boards were just rubber stamps for management they played no role, but today, supervisory boards are assembled with an eye toward what they will bring to the table, whether it’s technical expertise or marketing knowledge.
Boards are now assembled like a management team, though they aren’t actively involved in operations, but function in an advisory role. That is precisely how the professional work of the supervisory board should be seen.
Conversely, however, this means a commitment by members to devote the required time, work and presence at meetings. Generally, 16 to 20 workdays per year are considered average commitments, including meeting time and preparation. Additionally, there is the time and effort spent on other jobs in supervisory board committees.
According to corporate law, a board member may accept ten board appointments, but as the new rules underscore, that is now outdated. Even the recommendation by the corporate governance code allowing active executive board members to accept a maximum of three supervisory seats seems foolhardy.
Being overburdened certainly is one reason for the absence rates of many board members, though the extent of their truancy has been hard to calculate because of secrecy. A good board chairman doesn’t need the guidance of a code to understand that truancy is unacceptable behavior.
Yet the current state of board attendance is so bad that the watchdogs of good governance feel compelled to intervene. And that is the right thing to do. Building public pressure through transparency won’t force all the shirkers to keep their appointments, but it will help some supervisors realize that they are overtaxed and that fewer commitments would be an improvement.
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