Learning Mores and Board Evaluations – Soft Controls in Corporate Governance (Inaugural Address)

Inaugural address by Mijntje Lückerath-Rovers of Nyenrode Business University.Abstract:How, without switching to increasing degrees of legislation with hard controls, do we nevertheless provide direction to desirable conduct in the boardroom and thus to more effective corporate governance?

In this inaugural address it is discussed that boardroom culture and conduct is also determined by the prevailing mores. These unwritten rules have applied for a considerable time and although conduct codes, governance codes and legislation and regulations attempt to provide direction to boardroom conduct, it is ultimately the group members (executive directors and non-executive directors) who will need to adapt the specific customs, the mores. These changes are not occurring quickly enough for politicians, and in the Netherlands new legislation and regulations are on the horizon, for example maximum number of supervisory positions and a quota for women directors. These new rules are intended to enforce desirable conduct, or put another way, should prevent undesirable conduct. But genuine mores do not allow themselves to be compelled.

Desirable conduct cannot be laid down in hard, measurable criteria. But using soft controls, the non-measurable but certainly visible control measures, conduct can certainly be reasonably guided.

In this inaugural address it is argued that the core of the answer lies in board evaluations. A formal and rigorous evaluation will bring to light whether the highly desired open culture is present, or whether the individual non-executive directors are sufficiently dedicated, or whether the supervisory board and its members do indeed operate sufficiently independently and have a critical attitude towards each other and the board or executive directors, and whether the board is sufficiently diverse to prevent group thinking and tunnel vision. The evaluation needs to discuss these themes seriously and formally. An internal evaluation is too sensitive for the actual culture of the board to be evaluated. On the other hand an external evaluation every year is too much. Because of the effort it requires, it could undermine the importance of the formal and rigorous evaluation. Additionally, the required effort for an annual external evaluation is also not suitable for the board’s meeting frequency.

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