The super election year
Germany’s supervisory boards in transition: More new supervisory board members are being sought in 2018 than ever before. However, people with the right skills are not so easy to find.
The Handelsblatt article, “The super election year," quoted Russell Reynolds Associates Consultant Thomas Tomkos discussing the importance of international perspective and digital expertise in supervisory board roles. The article also quoted findings from a study by the firm. A translated excerpt of the article below.
A generational change on a scale never seen before is pending in the supervisory boards of Germany corporations: At the 30 DAX and 50 MDAX companies alone, 190 seats must be filled – nearly one-third of the total shareholder representatives. The great transition continues next year at high levels with 156 seats to be filled. The business world can use this super election year to acquire long-overdue expertise.
The first corporate groups are already moving forward: At the Daimler automotive group, IBM manager and blockchain expert Marie Wieck is expected to move into the top supervisory body. Software developer SAP in turn has acquired the know-how of Google manager and cloud specialist Diane Greene. Digital pioneer Alex Karp, founder of the not entirely uncontroversial big data analyst Palantir Technologies, is intended to supervise and advise publishing house Axel Springer in the future. Many new faces that are relatively unknown in Germany are throwing their hats into the ring at the upcoming shareholders’ meetings.
International perspective and digital expertise are in demand according to personnel consultant Thomas Tomkos from Russell Reynolds. The circumstance that companies based here have historically had difficulty in attracting enough experts abroad could also be a function of compensation, suspects consultant Tomkos. True, compensation for supervisory board members in Germany has indeed risen over the past ten years from an average of €270,000 to €412,000 for supervisory board members at a Dax-listed corporate group. However, this still lags behind international levels. Nevertheless, Germany did see top earners such as Gerhard Cromme (Siemens) or Norbert Reithofer (BMW). The highest-paid supervisory board chair also likely has the most controversial job: Deutsche Bank supervisory board chair Paul Achleitner earns €800,000.
The great transition
Deutsche Bank, Lufthansa, Siemens: Many supervisory boards at German companies are going to be filled with new members. But, not all of them are taking the opportunity for renewal.
Daimler has landed a coup with Marie Wieck. The manager who is unknown here is expected to be elected to the automotive group’s supervisory board at the shareholders meeting on April 5. The 57-year-old embodies everything that’s in demand now: She is a woman with years of management experience and, even better, in the IT industry. And Marie Wieck is American. Within this move, supervisory board chairman Manfred Bischoff is adding a new member to the supervisory body who has both digital expertise and international experience and, at the same time, counts toward the statutory women’s quota of 30%. A better pick is hardly imaginable.
Not all corporations will enjoy the same level of success as Daimler when looking for candidates this year. This is because they are all jockeying to find the same people. However, that's especially difficult this year. 2018 is going to be a super election year for supervisory boards. In the leading stock index, the DAX, 73 seats are open. That figure is even 117 for the somewhat smaller MDAX companies.
The giants of the German economy are facing giant changes. This year alone, this is the case for Deutsche Bank, Commerzbank, Deutsche Börse, Lufthansa, Eon, Linde, Siemens and Vonovia. The upheaval is huge. Twenty-eight percent of DAX seats and 33 percent of MDAX seats expire during this round of shareholders meetings and need to be re-filled. These figures are based on a study by personnel consultant Russell Reynolds, which has been exclusively provided to the Handelsblatt.
And this change will continue into the coming year. This is the result of far-reaching changes in supervisory boards at BASF, Continental, Pro Sieben Sat 1 or SAP. Another 150 seats will need to be filled at DAX and MDAX companies. This represents both risk and opportunity, given that good people are not easy to find. "This will cause far-sighted supervisory boards to adopt a reservation strategy." For this reason, the study likewise contains a warning to all supervisory board chairs to get an early start on the search for suitable candidates.
However, low turnover is not a problem by itself. The real issue facing supervisory boards is how to add expertise to their bodies. Then, ultimately, the role of the supervisory board is to monitor the board of directors. Supervisory board members thus need to understand something about business to perform that role. For Thomas Tomkos, partner at Russell Reynolds, depth is currently lacking in the areas of digitization and international perspective in particular.
According to Tomkos, it’s “surprising for an export country such as Germany that the share of foreign experts on supervisory boards is so low.” The share of supervisory board members who hold foreign passports is below 30% – and that has been the case for years. If one removes board members from other European countries from consideration, this share falls to below ten percent. By contrast, DAX 30 companies are now majority-owned by foreign shareholders. Not to mention the share of business abroad. This is up to 90%, for example at Adidas.
Consultant Tomkos doesn’t believe that this is due to a lack of candidates from Asia or America. “Swiss companies show that these candidates do exist.” For example, according to the study, Swiss companies ABB, Nestlé and Novartis have nearly twice as many members on their board of directors from non-European countries as all 30 DAX companies combined. However, Swiss boards of directors have different management responsibilities – and they are generally paid much more as well. According to Tomkos, in Germany supervisory boards by contrast, foreigners need to allow for “a lot of time for a little money.”
To read the full article in its original German, click here.