“Balance is not something you find, it’s something you create.”
… Wirecard Scandal Puts German Boards on the Spot – For most of its existence, the company’s supervisory board didn’t have an audit or risk committee. Bloomberg.
… Volkswagen’s Supervisory Board asserts claims for damages against Prof. Martin Winterkorn and Rupert Stadler. VW press release.
…The Board of Directors of UBS Group AG (UBS) announces today that it has named Sergio P. Ermotti as its new Group Chief Executive Officer, effective 5 April 2023 – The Board made the decision to appoint Sergio P. Ermotti as Chief Executive Officer in light of UBS’s new priorities following its planned acquisition of Credit Suisse. UBS press release.
These news headlines indicate that the above mentioned companies were not quite balanced from a systemic point of view (e.g. order, spot, reciprocity) and are an example of i) a supervisory board encouraging imbalance by not exercising control (Wirecard), or ii) where they were redressing an imbalance due to mismanagement (VW) or iii) where they needed to create a new balance for another chapter in the company’s existence (UBS). These examples express the necessity of the role of a supervisory board as it is an essential tool to maintain, create or restore a new healthy balance for the future of the company. While these are examples of imbalances of mature and relatively stable companies, the need for balance in a start-up/scale-up is even greater as they move from a disordered state to an ordered state through a strong passionate force by its founders. During this intense process, it is possible that some important elements could become unbalanced due to the different priorities/views of these founders regarding their stakeholders.
In the past there have been several trends regarding founder friendliness by investors/supervisory boards (HBR 2017). From 1970 to ~2000, the trend was that founders were likely removed with C-level executives of large corporates to successfully take the company public via an IPO. This trend was also dominated by the limited availability of risk capital (supply) compared to founders seeking this capital (demand). In the early 2000s, the dominance of VCs declined due to increased competition and a more founder-friendly culture emerged where the founder was viewed as a valuable asset to be preserved. This founder-friendly culture also influenced the controlling role of the company, with founders gaining more control over the company over time compared to VCs. In the past VCs tended to be in control of the company and the independent supervisory board members tended to vote with them, nowadays – in the unicorn age – special powers go to founders rather than investors, and lack them to have control in case a scandal with one of the founders occurs (e.g., Elizabeth Holmes – Theranos, Travis Kalanick – Uber).
Therefore, the role of independent supervisory board members is becoming more prominent to solve these power shifts and the general lack of stability of start-up/scale-up to balance the interests of all stakeholders in order to create sustainable growth for the company. Their tasks in the areas of i) employer, ii) governance & legal, iii) content (strategy/coaching), and iii,v) stakeholder management should therefore be different from those of mature companies. Below are some of the actions, behavior, tips, and tricks which were highlighted during the program in order to create, restore or stimulate the right balance for sustainable growth:
- Be in the same boat heading in the right direction: Focus on a strong cohesion and values between management and the supervisory board with regard to the vision of the company by focusing on horizon 1 (core business – short term) and horizon 3 (creation of new capabilities/business – long term) and by derisking on horizon 2 (growth to new customers/markets – midterm).
- Don’t be an overly attached parent, but don’t neglect your responsibilities: Start/scale-ups need space to find the right way to grow. The Supervisory Board should therefore not focus too much on checks and balances (exploit/fixed mindset), but encourage it by being a mentor/coach in the field of strategy and leadership (explore/growth mindset). However, do not neglect your legal/administrative responsibilities and if necessary replace the MT if it is not coachable to master the right capabilities.
- At the top of the mountain you do not perceive everything, be aware of “WYSIATI”—What You See Is All There Is: The invisible soft controls (culture, behavior and reputation) are equally important as the visible hard controls (governance, board composition and risk management).
- Choose firefighters who can help you with your most important fires: Install board members who can contribute directly to the most important issues of the company when you build your Supervisory board.
Harold is a Class 14 ScaleUpBoard alumni. He has extensive experience in innovative start/scale-ups as an investor but also as a team member at growing companies such as Invest-NL and Manus. Harold holds a MSc degree in Accounting & Finance from Tilburg University.
- How Company Founders Become Tyrants (hbr.org)
- Daniel Kahneman – Thinking, fast and slow
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