In a foundation, new board members are generally chosen by the board members themselves. This is known as co-optation. It has its pros and cons. The advantage is that it emphasizes the autonomy of the foundation. Moreover, it provides unity in the board. It consists of like-minded people. At the same time, this is the disadvantage. Co-optation can cause inbreeding: board members are chosen, only because other board members like them. A solution could be to use predetermined profiles and an external recruitment agency. This ensures a more unbiased process of selection of board members.
What also happens regularly, is that board members or supervisory directors are appointed or recommended by a person or entity outside the foundation. That could be a minister, but also a contributor or a labor union. Such an external appointment is only possible when the articles of incorporation provide permission to do so. This has pros and cons as well. An advantage is young blood and diversity in the board. A disadvantage is that board members with an external appointment often struggle with their loyalty. Frequently asked questions include: if you are nominated by the minister, are you then supposed to do what the minister expects? If you are nominated by the labor union, do you then have the right or even the obligation to pass on information you receive via the board? Are you supposed to represent the interests of the labor union in the board? Or the interests of the minister? Or the interests of the political party of the minister? The answer to these questions is simple: no. Board members and supervisory directors should put the interests of the organization first. That is the guideline. Nothing and nobody else. The interests of the minister, contributor or labor union should therefore never be prioritized in the decision-making, if these interests are in conflict with the interests of the entity.
Aren’t you risking dismissal by the minister or labor union, if you don’t do exactly as they say? Yes, you are. But if you act in conflict with the interests of the foundation, you risk liability. After all, the law states that your loyalty should be with the foundation. This is a difficult situation, that gets even more difficult because those involved often do not know how it works and how to act. The minister thinks that he is allowed to give instructions to and get information from ’his’ board member. The board member thinks that he is supposed to follow these instructions or pass on information. If everybody thinks the red light is green, is it then green or red?
Do you have a question about corporate governance yourself? Please e-mail it to email@example.com and perhaps your question will be discussed in the next blogpost.