Partner & Managing Director, Munich
Munich (July 15, 2021) - The COVID-19 pandemic has clearly shown the extent to which disruption is shaping reality today and will continue to do so in the future - in economic, technical and social terms. According to the AlixPartners Disruption Index 2021, the vast majority (85%) of supervisory board members, surveyed for the Index, view disruption in its various forms as a significant long-term challenge for their companies. As a feature of the "new normal", businesses’ ability to adapt to ongoing disruption will be vital to their success and will impact the shape and agendas of supervisory boards across Germany.
The latest AlixPartners Supervisory Board Study, "Aufsichtsrats-Radar 2021”, indicates that necessary change at the supervisory board-level is often not occurring fast enough, despite the strategic challenges that lie ahead. Many boards, in their current form, are unable to fully cope with this new permanently disrupted environment. The AlixPartners Disruption Index indicates that the majority of supervisory board members surveyed (95%) believe that diversity across supervisory board members is a key prerequisite for its future success. Many of those surveyed, however, do not feel that they are currently achieving their diversity goals and see a need for further progress. Their ability to drive progress and the speed at which it is achieved will be factors that determine how successfully companies master future challenges. "Supervisory board members are often too busy looking back, analysing their company’s achievements, compliance with regulations, and risk management," says Andreas Rüter, co-author of the Supervisory Board Study and German Lead at AlixPartners. "In the face of rapid change, however, it’s vital to look forward if you want to ensure success. It allows you to react quickly and efficiently to disruption, to identify opportunities as well as risks, and to ask the right questions and proactively drive developments, while acting as a strategic sparring partner for the management board. To ensure success, supervisory boards need to work closely with the executive board while maintaining independence and an eye on the road ahead."
THE OUTPERFORMERS OF THE SUPERVISORY BOARD STUDY 2021: DISRUPTIVE LEADERS AND PRIVATE EQUITY BACKED COMPANIES
In the quantitative and qualitative data, two types of company stood out in particular. The members of their supervisory boards were all above the average age threshold. The first group of companies consisted of so-called "disruptive leaders", primarily made up of younger technology companies. According to the AlixPartners Index, the members of these companies’ supervisory boards typically have significant management experience and are well versed in navigating technological, political, and regulatory disruptions. Signalling the fact that disruptive companies often benefit from upheavals, the Index also showed that these “disruptive leaders” have seen significant revenue growth in the past three years and have had to cope with fewer losses over the course of 2020. The second group of companies consists of those with private equity investors that are heavily involved in the activities of their supervisory boards. These companies also did particularly well.
"The supervisory boards of these two types of companies are particularly well aligned to major technological and societal disruptions such as digitization, decarbonization and demographic change. They can provide the executive board with significant support in harnessing the economic opportunities associated with disruption," says Dr. Jan Kantowsky, co-author of the Supervisory Board Study and a Managing Director at AlixPartners. "The higher level of maturity of supervisory boards with private equity influence is not surprising as professional investors recognise supervisory board work as an important lever for the value enhancement they are seeking. This contributes to the high level of professionalization of supervisory board work."
DIVERSITY AS A SUCCESS FACTOR FOR SUPERVISORY BOARDS
The strength of those supervisory boards aligned with “disruptive leaders” and private equity-backed companies is evident throughout the AlixPartners supervisory board study.
The study revealed that the supervisory boards of both companies have a maturity level of 80% compared to the 71% maturity level of the comparison group, and that they track higher maturity levels in their selection processes too: 77% and 69% respectively compared with 59% for the other companies. Both groups of companies scored 86% and 83% respectively for "communication & cooperation" compared with 72% scored by other companies, while they scored 68% for “risk management” instead of 56%. In terms of supervisory board compensation, private equity backed companies have the edge over “Disruptive Leaders” with a score of 58%, compared to all other companies with an average of 54%. In many of the interviews, it was clear that boards have benefited from female supervisors and that the quota has served a positive purpose.
"The common pattern we see in our evaluations of “disruptive leaders” and private equity-backed companies is that their supervisory board members are far more diverse - not only in terms of gender, but also in terms of nationality, expertise and professional experience. The selection process is also more professional and extends beyond the company's own network," concludes Kantowsky.
FROM REACTIVE CONTROL BODY TO SOUNDING BOARD
The two-tier management model prevalent in Germany and Austria, where the supervisory board is independent of the management board, has been the subject of controversial discussion in previous studies and has been frequently criticized for its perceived complexity. This year, however, the advantages that experienced supervisory board members bring in terms of their diverse views and the extent to which they are able to positively challenge a company outweigh the disadvantages. Many of the supervisory board members surveyed as part of this study emphasize the value of the supervisory board as a body that operates independently. In this context, the role of the supervisory board is changing from that of a reactive monitoring body made up of retired business leaders to that of a team which operates as a "sounding board" and consists of actively working representatives from a company’s own industry or from related industries. Only with the right mix of people can a supervisory board help a company to master the challenges that lie ahead. According to 47% of the study’s respondents, too many supervisory board members are still sourced from existing personal networks. Auditors and lawyers also still dominate - in line with a pronounced focus on compliance.
"This approach leaves companies vulnerable in the face of ongoing disruption. Boards formed in this way lack the breadth of skills, industry knowledge, and sector expertise, along with an understanding of the latest technological developments, financial market competence, experience of crisis management, and good communication, leadership and problem-solving skills," says Rüter. "They are also less likely to be focused on the long-term sustainability of a company. Supervisory board members need to hold a longer-term view of the risks as well as opportunities facing a company and should champion sustainable corporate success in a changing world, while critically and constructively discussing their views on theperspectives of their company’s diverse range of stakeholders with management."
PROFESSIONALIZATION AND ACTIVE COLLABORATION IN NEW FORMS
The supervisory board chair must moderate strategic discussions on longer-term challenges, such as the opportunities and risks of digitization or sustainability, both within the supervisory board and with the executive board. For example, the inevitable familiarization with video calls and other new forms of collaboration in the pandemic has led to a significant increase in the number of informal conversations held between executive and supervisory boards. 74% of the supervisory board members surveyed highlighted this development as being vital to a company’s success. It gives both sides a better understanding of the company’s position and of any difficulties facing the company. The communication skills possessed by the chair of the supervisory board are particularly important in times where a company faces a greater workload due to disruption. These skills better enable the effective integration of a diverse board and its members’ skills for the benefit of the company. One important aspect, however, has been lost in the pandemic as the world has moved increasingly online: The opportunity for informal conversations and the nuances that can exist within conversations are often lost via the medium of scheduled video calls and can impact the way in which a board interacts.
New challenges and opportunities for cooperation demand greater proactivity and flexibility from a board’s members. It is consequently becoming more difficult to strike a balance between a board’s time expenditure, liability risks and remuneration. There are also inevitably signs the role of a supervisory board member, which in the past was often seen more as a manageable sideline, could be professionalized. Against this background, Andreas Rüter sees the work of supervisory boards facing drastic change in the future: "Permanent disruption and a high degree of uncertainty are having a fundamental impact on the work of supervisory boards. That is why it will be all the more important in the future to establish different perspectives and experiences across a board and for supervisory boards to prove that they add value to supervised companies."
ABOUT THE ALIXPARTNERS SUPERVISORY BOARD STUDY 2021:
Between November 2020 and April 2021, AlixPartners interviewed a total of 38 current supervisory board members from DAX, MDAX and ATX companies along a structured interview guide. The fundamental question of the interviews was how a supervisory board must be positioned against the backdrop of permanent technological, societal or geopolitical disruptions in order to best deal with the resulting entrepreneurial challenges. The substantive focus on how to deal with the faster pace of change in supervisory board work was then assessed along the five dimensions of the AlixPartners Supervisory Board Radar:
The interviews were evaluated using the AlixPartners Quickcheck tool and presented accordingly in the AlixPartners Supervisory Board Radar. This measures the weighting and maturity of the factors important for the further professionalization of the supervisory board and enables the prioritization of recommendations for action. Quantitative analyses on various aspects of supervisory board work complemented the interviews. For example, the composition of supervisory boards in companies or the number of supervisory board meetings were analysed.
AlixPartners is a results-driven global consulting firm that specializes in helping businesses successfully address their most complex and critical challenges. Our clients include companies, corporate boards, law firms, investment banks, private equity firms, and others. Founded in 1981, AlixPartners is headquartered in New York, and has offices in more than 20 cities around the world. For more information, visit www.alixpartners.com.
In 2021, "manager magazin" and the Wissenschaftliche Gesellschaft für Management & Beratung (WGMB) repeatedly named AlixPartners as one of the best consulting firms in the field of restructuring in Germany.
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