Supervisory Boards — Values in the Economy Beginning to Stabilize

Think that supervisory boards just run on the spot? Or that regulations are paralyzing inspectors? Quite the opposite in fact. The role of the supervisory board is in a state of flux, with new challenges and regulatory changes both expanding and limiting the breadth of responsibilities for top decision makers across the Austrian economy. These are the findings of the study “Corporate Governance im Fokus – Aufsichtsratsarbeit zwischen Steuerung, Gesetzgebung, Digitalisierung und Vergütung” (Corporate Governance in Focus – the Work of Supervisory Boards between Controlling, Legislation, Digitalization, and Compensation) conducted by Kienbaum Vienna, which surveyed more than 60 Austrian executive boards and supervisory boards. As in previous years, the topic of digitalization remains important for supervisory boards, whose function is more in demand than ever before.. A particular focus this year lays in the change in values. Over the past five years, supervisory boards have noted a clear change—while in 2013, 77% of supervisory boards noted a certain loss of values in the Austrian economy, at the end of 2017, three quarters of those surveyed indicated that the loss of values had been halted.

Values remain stable, while qualifications are in a state of flux

Not only do supervisory boards feel that there has been considerable improvement with respect to loss of values, but the quality of the values sought has changed too. Leading values in supervisory boards and executive boards are currently sustainability, followed by responsibility, and innovative capability, so that the approaches of top decision makers are shaped by long-term thinking and renewal. In 2013, integrity, respect, responsibility and courage were on a par. “In today’s changed world of values, one sees a new, more proactive approach and a change in the understanding of function: away from control and towards the design of the functions as a supervisory board.. If we look at the opinion of supervisory boards in their own right, integrity was the absolute number one, while for executive boards it was sustainability. This is also reflected in the understanding of roles, characterized by the various different responsibilities,” reports Alfred Berger, Head of Compensation and Performance Management at Kienbaum. The key personal qualifications needed to properly exercise the function of chairman of the supervisory board were also examined and came out as integrity and an ability to cooperate.

Board compensation remains a central task

For goal definition between the supervisory board and executive board, dialogue is considered the key criterion. When it comes to compensation arrangements, the first question comes down to what level of payment is considered appropriate, followed by how compensation can offer motivating incentives or signals. “Participants surveyed considered a ratio of 4:1 to 1.5:1 between the board chairperson’s remuneration and the directly reporting management level, appropriate. In family-run corporations, a ratio of 3:1 to 2:1 was considered appropriate,” explains Alfred Berger. The size of the company and the corporate strategy in particular need to be taken into account—the individual compensation elements are also of great importance. Multi-year variable pay in particular will see an increase in the market and in participating companies, thereby gaining in importance. Linear development can be assumed for both basic pay and annual variable pay.

Regulatory system: the response of supervisory boards was neutral to positive

Quotas for women, diversity or fighting corruption: supervisory boards constantly expect a range of regulatory innovations. The Austrian law on Gender Equality Law in Supervisory Boards or GFMA-G, which came into force in 2018, was considered to be unhelpful by the majority of those surveyed. The majority saw no influence on HR policy and no difficulties in satisfying the requirements. The new provisions on sustainability and diversity improvement (NaDiVeG) are also viewed neutrally by the participants. The supervisory boards gave positive approval to the topic of increasing diversity and efforts to protect the environment in companies.. Fighting corruption was also seen as positive. “It would appear that the topics of governance and regulation are so familiar now that new or planned changes are accepted and seen as neutral. Adjustments are, however, often seen as a motivation of liability rather than as a motivation of plausibility,” suggests Alfred Berger.

Digitization remains hot topic, supervisory boards keen on fixed terms of reference

According to those surveyed and continuing from the previous year’s themes, the greatest future challenges facing supervisory boards are digitalization and transformation; members of both supervisory boards and executive boards were in agreement on this point. These challenges were followed by the aforementioned legal and regulatory framework. Product developments and political influences are also likely to preoccupy supervisory boards. Terms of reference differ slightly: “Supervisory boards were of the opinion that they will be more concerned with changes in political conditions, risk management, and business acquisition, and less with topics of an antitrust nature. Compensation and a new corporate strategy were areas which executive boards said they would like supervisory boards to take more action to address. The advice of supervisory boards on the filling of strategic roles and compliance was also mentioned as desirable,” as Alfred Berger found from the study. “For supervisory boards, legally-driven task packages such as compliance and auditing remain unchanged, while business-driven developments such as digitalization and product development are likely to grow.”