You have two types of supervisory directors. On the one hand, you have the supervisory director who has no eye for anything but the organization’s bottom line. Every percentage point of difference is discussed for hours. The figures are the only and by far the most important discussion point in the board of supervisory directors. On the other hand, you have the supervisory director who nods vaguely intelligently when the figures are discussed but is actually unable or unwilling to understand any of them. Both approaches fall short.
The ‘financial illiterates’ are often already happy when they see that the balance sheet of the organization is in balance while they do not fully realize that this is by definition the case because it is inherent to its name. So it is all about the story behind the figures. As a supervisory director, how do you listen to that story?
It is very safe for this category of supervisory directors to rely on the auditor. What else should they do, anyway? Yet that is where the problem lies. It is not that the auditor cannot be trusted (they usually can), but the auditor is responsible for the truthfulness of the figures in the manner and according to the protocols that apply to their profession.
Meanwhile, there may be all kinds of choices in it and behind it on the part of the board of directors. Recent court cases in Curacao have clearly demonstrated this. These choices and assumptions are incomprehensible to the average supervisory director without a thorough explanation. Usually they do not even realize it and are already happy if they can give their approval ‘because the auditor says it is in order’.
In most cases, a ‘financial literate’ sits on the board of supervisory directors. This poor man or woman then has the responsibility to indicate whether it is in order or not. The rest of the board of supervisory directors then relies on that. That too is not good. All members of the board of supervisory directors should have minimum knowledge of how to read a balance sheet. That enables them to ask the questions they need to ask to listen to and understand the story behind the figures. Not only does this greatly enhance the quality of the discussion, it also does more justice to the collective responsibility of the board of supervisory directors for its resolutions.
If a board of supervisory directors is made up of number-crunchers, it is no good either. A well-run organization is considerably more than a financially well-run organization. In other words, healthy finances are conditional but pertinently insufficient. Examples of other areas of focus for the board of supervisory directors are risk management by the board of directors, strategy, integrity in the organization, Environmental and Social Governance (‘ESG’), succession (including diversity). These types of topics should have as regular and prominent a place on the agenda as finance.
Four tips:
- Look behind the figures and get advice on them, including external advice if necessary; engage with the auditor, even without the board of directors; understand and discuss in advance what questions to ask to get a reasonable degree of insight and reassurance regarding the figures presented.
- Discuss the finances not in isolation but in conjunction with the strategy and the policy plan.
- Do not let the bonus and valuation depend exclusively or primarily on the financial result, because the result in itself does not say much: within the limits of permissible modes of presentation it can be manipulated so that it looks positive or less positive, depending on how well it suits the board of directors. Moreover, the responsibility of a director is much broader than merely financial.
- Divide the time available for meetings of the board of supervisory directors into a (limited) period of time for the meeting to discuss the figures and an (equally long or longer) period of time that risk management, strategy, integrity, ESG and succession are discussed.
