Supervisory board agendas vary depending on each company's unique situation and current challenges. However, certain topics consistently feature, covering core supervisory board responsibilities such as oversight and monitoring, advisory and strategic support, and human resources functions. To gain more insights into these matters, hkp.com interviewed corporate governance advisors from hkp/// group, namely Nina Grochowitzki, Dr. Pia Lünstroth, and Regine Siepmann, about current trends and topics in supervisory board activities.
Ms. Grochowitzki, Dr. Lünstroth, Ms. Siepmann, there is a noticeable trend among supervisory boards to deeply engage with sustainability, aiming to ensure responsible corporate actions and long-term success. Could you elaborate on this development?
Regine Siepmann: Sustainability has become an issue of great concern for society as a whole, and consequently, companies and their supervisory boards must also address it. In their distinct roles, they must ensure that the needs of the present generation are met without compromising opportunities for future generations. Sustainability encompasses various dimensions, including climate change mitigation, resource conservation, social responsibility, meeting consumer demands, and compliance with legislation. Companies can and must make significant contributions in these areas.
Dr. Pia Lünstroth: This trend is also driven by investor expectations and the increasing number of regulatory and legal requirements. Investors now consider sustainability from an economic perspective. For example, non-discriminatory business practices and proper human capital management not only mitigate risks but also drive returns.
You're suggesting that companies with diverse teams are more successful...
Dr. Pia Lünstroth: Indeed, there is scientific evidence showing that diversity enhances a company's success and resilience in every aspect. Moreover, companies with high occupational health and safety standards tend to have lower accident and absenteeism rates.
Nina Grochowitzki: Additionally, with sustainability gaining significant public attention, fair and sustainable business practices, both internally and externally, play a crucial role in attracting and retaining employees even during uncertain times, while also boosting motivation.
How do supervisory boards engage with sustainability?
Nina Grochowitzki: Various models are being discussed, including the establishment of a special sustainability committee within the supervisory board or integrating sustainability as a cross-cutting issue. Currently, companies seem to lean towards the sustainability committee concept.
Which approach do you favor?
Regine Siepmann: From our perspective, it makes more sense for all committees and the entire supervisory board to consider sustainability aspects in the long run. Sustainability should not be treated as an isolated issue but rather be integrated into all business areas and processes. While having a dedicated committee has its advantages, particularly in maintaining a sharp focus on sustainability, we believe that the responsibility should be shared across the entire board.
Dr. Pia Lünstroth: I agree, especially considering that the supervisory board members must possess expertise in sustainability matters. Relying on just one specialist may not be sufficient, given the multifaceted and sector/company-specific nature of sustainability. All board members should be well-versed in the subject matter.
You mentioned the expertise of supervisory board members; how much new content is there in terms of sustainability expectations?
Nina Grochowitzki: The world is constantly changing, and this includes new expectations from investors and evolving regulatory and legal requirements. As a result, supervisory boards need ongoing training and development. Furthermore, it is crucial that members are well-informed about current and emerging topics, particularly those with a strong social component, such as environmental, social, and governance (ESG) matters, which also fall under the supervisory board's purview regarding human resources.
What overlapping areas are you thinking of here?
Nina Grochowitzki: For instance, knowledge and experience in human capital management are integral aspects of sustainability expertise. This becomes particularly evident in the context of succession planning, not only for the executive board but also for the supervisory board itself. Sustainable succession planning is essential for long-term success.
Regine Siepmann: Another example is executive board compensation. While not a new topic, it remains highly significant in terms of sustainability.
Because incentives encourage responsible management behavior?
Regine Siepmann: Exactly. A well-structured executive compensation plan, aligned with sustainability goals, ensures that the interests of shareholders, employees, customers, and suppliers are considered alongside environmental aspects. It should provide incentives that promote long-term success, risk management, and sustainability.
How can a supervisory board chair ensure that sustainability is adequately embedded within the board and that the right competencies are in place?
Dr. Pia Lünstroth: One option is to evaluate the effectiveness of the supervisory board's activities, as recommended by the German Corporate Governance Code (DCGK). This evaluation should be seen as an opportunity to review and optimize activities, rather than a burdensome task. The quality and scope of sustainability competencies, as well as the relevant board activities in this area, can and should be addressed in this context.
Regine Siepmann: Regular evaluation is vital for a professional approach to supervisory board activities, especially in today's perspective.
Thank you for sharing your insights with us!
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