Supervisory boards should beef up their engagement capabilities
August 29, 2010
Recently I had a conversation with an investor relations and communications expert. She said that it is inevitable that supervisory boards have to change their stance on engagement. So far it is common for them not to engage with shareholders and they get away with it. However, she said these boards are fighting a lost case. Institutional investors will demand engagement. Not so much to discuss the company’s strategy and operations, but to assess the quality of oversight. I am convinced that this is correct. However, supervisory boards will not only engage with shareholders, but with a broader group of stakeholders.
Recent research of Proviti shows that top management is pretty unaware of the inclusion of corporate responsibility / sustainability in the Dutch Corporate Governance Code. This unawareness may result in falling short on the Code’s requirements and (thus) facing reputation risk. Internal audit departments lack the knowledge to assess sustainability risks; management systems are subpar.
This situation is of course not the primary responsibility of supervisory board members.. In fact managing boards are responsible for policy on corporate responsibility / sustainability. However, the supervisory board shall have due regard for corporate social responsibility issues that are relevant to the enterprise. More explicit: The supervision of the management board by the supervisory board shall include corporate social responsibility issues that are relevant to the enterprise.
In September 2009 I already wrote (together with Rogier Havelaar) about the role supervisory members could play in assuring that corporate responsibility / sustainability would be addressed adequately. Not only should they supervise management, they should also initiate the dialogue on sustainability when appropriate. Instead of being reactive, they should be pro-active.
When companies are expected to fall short on dealing with corporate responsibility not only shareholders, but also other stakeholders have good reason for seeking dialogue. It is just a matter of time before engagement with supervisory boards will be common practice. And it is unlikely that their responsibility with respect to the sustainability agenda will not be part of that engagement. Not least because the way they take this responsibility is a reflection of the oversight’s quality.
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