The paper discusses the significance of management board culture as a driver of sustainable performance. It defines good management board culture and examines its characteristics, emphasizing that culture impacts decision-making and corporate governance. Case studies illustrate how shortcomings in management board culture can lead to corporate failures and highlight the challenge of effectively evaluating and improving this aspect of governance.

1. Supervising management board culture.
C u ltu re is th e d r ive r of s u sta in ab l e p er f o rma nce , no t th e ot he r wa y r oun d.
Drs. Th.J.M. Kroese
Paper for the NCD-Nyenrode Commissarissencyclus 17 2008-2009
Heemstede, February 11, 2009
1

2. Inhoud
1 In tr od uction ................................................................................ 3
1.1 Pur pose o f th is p ape r ............................................................ 3
1.2 T he cu lture p ara do x .............................................................. 3
1.3 Man age men t boa rd cultur e – a de fin i tion ................................. 4
1.4 W h y man ag em en t b oa r d c u l tur e i s a h ar d p r ob le m .................... 5
2 Wh a t cons titu tes a goo d mana gemen t b oar d cu ltu re? ...................... 6
3 E v a lu a ti on o f man ag em en t b oar d c u l tu r e – a nd ac t in g u pon i t . ......... 8
4 Co nclusions : mana gemen t b oar d cu ltu re is n o t e lus ive .................. 11
4.1 G ene ra l .............................................................................. 11
4.2 Su per vision o f ma na ge me n t bo ard c ulture in pr ac tice .............. 12
Ap pen dix Cas e an alyses .................................................................. 14
F oo t no tes ....................................................................................... 19
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3. 1 Introduction
1 .1 Pu rp ose of t h is pap er
T h is pa per e xamin es wh e the r ma nag emen t b oar d cu ltu re ca n be r egar ded
as a conc re te sub jec t, b ased upo n wh ich a su per visory b oar d can per form
its sup er viso r y tasks a nd fo und th e dec is ions it tak es . T her e for e, th e
fo llow ing qu es tions ha ve be en tak en as s ub jec t o f rese arch for th is p ape r :
1 . Wh a t are th e key ch ar acter is tics o f a go od ma n age men t boa rd cultur e?
C h ap te r two w i ll pro v id e a d e fi ni ti on o f a g oo d m ana gem en t b oar d c u l tu r e
a nd e la bora t e s i x k e y c u l tu r a l c ha r ac ter is t ics , w h ich c an be us ed b y a
s u per v is or y b oar d t o m on i tor and e va lua t e t h e qu al i t y o f a ma na ge me n t
b oar d .
2 Ca n a mana ge men t bo ard c ulture be ev alua ted a nd mo nitore d base d
o n key cu ltu ra l char acter is tics – a nd ca n a su perv isory boar d
co nseq uently ac t u pon those c ha rac ter is tics?
T o in ves tiga te th is ques tio n , thre e pu blic ly kn own cases ha ve bee n
a na l ysed f r o m a man ag em en t b oa r d c u l tur e p er s p ec ti ve : For t is , Ah ol d an d
A B N A MR O. T he y a r e d es c r ibe d in A ppe nd ix I to this paper. In each c ase a
s i tua t io n is d es c r ibe d w h ich c onst i t u te d a d i le mm a for th ei r s up er vi s or y
b oar ds a t s o me po in t in t im e . T he d ec is io n th e s up er v iso r y bo ard t o ok a t
that ti me is also described. Each cas e is then disc ussed as fo llows : wh a t if
t h e s up er v iso r y bo ard e x pl ic i tl y ha d use d the s i x k e y c h arac t er is t ics o f
g ood ma nag emen t b oa rd cu ltur e a nd us ed th em as dec ision cr iter ia for the
s i tua t io n a t h and ? T o w h ich k e y c h arac t er is t i c d id th e c as e ap pl y t h en?
A n d w ha t w o ul d the ‘cu l tu r a l i n fo r ma t io n’ ha v e be en to t he s u perv i s or y
b oar d – h ow c o ul d i t h a ve b een i n te r pr e t ed? I f be ing m ad e e xp l ic i t an d
us ed as c riter ia , how co uld the y h a ve ac ted u pon the in forma tion
a l te r na t i ve ly ?
1.2 T he cu lt ure pa rad ox
Rec en t s tud ies s ugg es t th a t cu ltu re is the d ecis i ve driver for the
s us t ai nab i li t y an d d i f fe r en t ia t io n o f an y e n te r pr ise . T he ma in f in di ngs o f
i
J im C ollins’ ‘Goo d to Gr ea t’ s tudy a r e t ha t s us t ai nab le c or p ora te s uc c es s
i s no t abo ut t h e qu al i ty o f a s tr a te g y bu t has a l l to d o w i th th e c ul t ur e o f
lea ders hip a nd th e qua lity o f th e p eop le in th e mana gemen t te ams . A s tud y
o f Gen er a l E l ec tr ic , has s hown th a t a lar ge p ar t o f i ts s uc c ess c an be
a t tr i bu te d to a ma na ge me n t c u l tu r e w h ich foc us es o n t h e qu al i t y o f
e mp lo y ees , n o t on l y in t er ms o f ab i li t y , bu t al s o in te r ms o f beh a vio ur ii .
T he cu lture o f a ma nag emen t b oa rd is no t o nly linke d to high p er fo rmance .
I t o f t en s ur f ac es w he ne v er th ere i s c or pora te f ai lu r e . In r ec e n t c or pora t e
s c a nda ls i t h as bec om e c lear t ha t , s omew he r e in th e c o urs e o f eve n ts tha t
d e ter mined th e fa te o f th e compan ies in ques tion , s ome thing h ad g one
wr ong w i th cor por a te g o ver nance and this was s tr on gly link ed to a “ po or”
m an age men t boa r d c ul t ur e . Tak e a lo ok a t th e h id ing of c o m for t le t t er s b y
th e CEO an d CFO o f Ah old fro m th eir s up er visor y boar d an d e xter na l
acc oun tan ts . T he ir cons id era tio n was tha t th is was le gitima te an d in th e
iii
i n te r es t o f t h e c om pan y . Or c o ns ide r the int r o duc t io n o f a ‘ di v id e a nd r ul e’
p ol ic y b y th e C EO i n t h e ma na ge me n t bo ard o f A BN AM R O iv , w hich c ause d
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4. t h e ma na ge me n t bo ard t o bec ome di v id ed , in dec isi v e an d i ne f fec t ive . I n
t h ese c as es i t w as p eo pl e , the ir c o n vic t io ns , t h eir be ha v io ur a nd t h ei r
( in)c om pe te nc e to ac t, e i th er c o l lec t i ve l y o r i nd i v idu a ll y, t h a t c ause d the
r espec tive co mp an ies to en ter into turmoil an d (n ear ly) co llaps e . In these
c as es the r e w as a ls o a s upe r viso r y bo ard , o r ‘R aad va n C o mm is s a r is s en ’ ,
th a t somehow faile d to diagn ose th e iss ues a nd ac t e ffec tive l y.
S o one c oul d a r gu e fro m the ab ove t ha t c or p ora t e go ve r na nc e c ou ld
b eco me ine ffec tua l if th e cu ltur e is no t s upp or tive . If cu ltu re is suc h an
impor ta n t fac tor for the lo ng- term s uccess o f a compan y, how come tha t
r el a ti v el y l it t l e a t t en t io n is be ing p ai d to i t in c or p ora te go ve r na nc e ? Th e
v
a me nde d Du tc h Cor por ate Go vern ance C ode do es pu t more emph asis on
( prop er) b eh a viour o f b oar ds an d sh are ho lde rs, bu t it s tipu la tes p rinciples
a nd b es t prac tices in a r a th er s truc tura l a nd for ma l way. It d oes no t
p r o v ide ins i gh t in t o the pr inc ip les o f a “ pr op er ” b oar d c u l tu r e , n or d oes i t
s t ipu la t e how s uc h a c u l tu r e c a n b e s ti mu late d b y e i the r bo ard vi .
F or m er A BN AMR O bo ard me mbe r D o l f v an d en Br ink s h ed s o me l i gh t o n
th is p ara dox in h is inau gur al lec tu re as Pr ofess or o f Fin anc ia l Institu tions
a t t he U n i ve r s i t y o f Ams t erd am vii , w h i le s p eak ing abo u t c o r por a te c u l tu r e in
b anks : ‘T he s ub jec t (o f c orp ora te c ulture - T K) is g ene ra lly no t place d h igh
o n the agen da o f top man age men t. O ften , it is reg arde d as a ‘soft ’
p r ob le m. . . ’ ( page 19) . O n p a g e 2 0 V a n d e n Brink explains that the deeper
c a use o f t hi s m ig h t be t h e fac t tha t c ul t ure is a muc h m or e el usive and
co mp le x s ub jec t than figu res viii .
1.3 M an age m en t b oar d cu l t u re – a d ef in i t ion
T her e ar e n umerous d e finitio ns o f w ork cu ltur e a nd co un tless bo oks ha ve
b een w ritten to bo th de fin e an d ch ang e it. Fo ns Tr ompe naa rs an d Ch ar les
Ha mp den Tu rner s ta te, d er i ved fro m E. Sc he in ix , tha t ‘it is no t unusu al to
r egar d cu ltu re as th e wa y a gr oup o f pe op le so lves prob le ms ’ x . T h is w il l b e
us ed as a b as is f or the de f in i ti on o f man ag em en t b oar d c u l tu r e for t h is
p ape r . F ir s t o f al l b ec a use i t is th e c or e t as k o f a ma na ge men t bo ard t o
d ea l with pr ob lems the c ompan y fac es . Th ey ma y be eithe r stra teg ic o r
o per a ti ona l – i t is the r es po ns i bi li t y o f th e ma nag em en t b oar d t o s o l ve
t h em in s uc h a w a y th a t the in te r es t o f c om pa n y is s e r ved . Sec o nd l y , ‘ t he
wa y a gr oup o f pe op le so lves prob le ms ’ sa ys so me th ing abo u t the
b eha vio ur o f tha t gr ou p . O th er de fin i tions of cu ltur e ma y per tain to values ,
c o n vic t io ns o f peo pl e o r gro ups , b u t thos e va lu es an d c o n vic t io ns b ec o me
m an i fes t in t h e w a y the y beh a ve . T he th ir d r e ason f or us ing t he
T rompe naars-H ampden Tur ner de fin i tion , is th a t it is pr actic al for a
s u per v is or y b oar d : t he y c ann o t g o ar oun d a l l the t i me w o nde r i ng w h a t
( c omp le x ) v a lu e s ys tems are inc o r por a ted in t o the e xecu t i ves ’ min ds . Th e y
h a ve to base the ir sup er vision on w ha t ac tu ally h appe ns . Th erefor e , for
t h e pu r pose o f th is pap er a man ag em en t b oa r d c u l tur e i s de f in ed as t he
wa y a mana ge men t bo ard s olves cor por a te pr ob le ms a nd d i le mmas .
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5. 1.4 W h y m a n ag e men t b oa rd cu lt ure i s a h ar d p ro b le m
Wh a t mos t man agers migh t ca ll a ‘so ft’ pr ob le m is the dr iver o f ‘h ard ’ lon g-
ter m res u lts : co mpa n ies gen era l ly d on ’ t fa il b ecaus e o f in fe rior pro duc ts .
T he y mos tly fa il bec aus e o f th e wa y the ir man age men t boa rds be ha ve in
c o mp e ti t ion : t he c h oic es t he y mak e , the w a y t he y s o lve pro bl ems a nd
i ne v i ta bl y th e w a y in w h ich t he y d o or do no t c oop era te . I n s hor t :
m an age men t boa r d c ul t ur e . Th e w a y t he y ar e j udg ed an d r e mun er a t ed a ls o
p la ys a pa r t i n th e man age me n t b oar d c u l tur e t ha t c om es in to exi s tenc e .
U n f or tu na te l y , th e pro bl em w i th a w r on g bo ard c ul t ure is th a t i ts e f f ec ts are
n e ver imme dia te , es pec ia lly if the ma nag emen t b oar d or c er ta in o f its
members co ver u p their b eha vio ur . O r dur ing pro lo nged per io ds of succ ess .
W h e r e a s p r o f i ts , tu r n o v e r a n d ma r k e t s h a r e m a y s ti l l b e r is in g , u n d e r n e a th
th ese ‘ha rd’ s ymptoms, sce nar ios ma y un fo ld s low ly – fo llow ing fro m suc h
p hen omeno ns as comp lace nc y, man age me n t bo ards fre e r id ing o ff the
succ ess of prior managers , disagr eement on s trategy or prior i ti es , inability
t o c oop era te e tc e ter a - th a t a t s om e p oi n t i n t i me r es u l t i n s u dde n d ec l in e :
xi
‘ E v en t he m os t dr ama t ic [ fa i lur es ] te nd to b e yea r s i n t h e mak i ng ’ .
So c ulture sh ou ld , in fac t, be trea ted as a ‘h ard ’ issue o n the agen das o f
su per visory b oar ds if o ne is ser io us ab ou t sus tainab le per formanc e o f th e
co mp an y. Va n de n Brink makes a c oncr e te su gges tio n for banks to this
r egar d xii : th e re mu ner a tion and app oin tmen t co mmitte e o f the su per visor y
b oar d s ho ul d b e e x te nd ed to a ‘ pe op le a nd c u l tu r e ’ c om m i t tee , w i t h a
b roa der r esp ons ib ility as to in vo lve the su pe r vis ors o f th e ba nk in th e iss ue
o f c or p ora te c ul t ure .
W h e the r or n o t s up er vi s i on o n c or pora t e c u ltur e s h ou ld b e i ns ti t u tio na liz ed
i n a s epa r at e c om mi t te e is t he ‘how ’ a nd s om e th in g s ep ar a t e t o th e c or e
i s s ue o f th is p ape r . Th e no t io n he r e is t ha t c o r por a te c u l tu r e is par t o f t he
r es po ns i bi li t y o f th e s u per v is or y b oar d an d n o t s om e thi ng t ha t jus t c o mes
b und le d w ith the a ppoin tmen t of th e ma na ge me n t bo ard . A co rpora te
c u l tu r e is de f in ed b y th e ‘ t one a t t h e top ’ : th e c u l tur e t h a t is prop aga t ed b y
t h e ma na ge me n t bo ard . I n c on tr as t t o the w a y ma n y s u per v is or y b oar ds
m i gh t th ink , m ana ge me n t bo ard c u l tu r e m us t h a ve th e s t r o ng at t enti on o f
th e sup er viso r y bo ard . T he y mus t ind epe nden tly ask : how does the
m an age men t boa r d be ha ve ? Are t h e y an e ff ec t i ve t eam ? D o th e y ac t in t he
i n te r es t o f t h e c om pan y ? D o th ey i ns p ir e the o the r man age me n t la y er s . Or
d o the s upe r vis ors notice th a t the e xecu tives are jus t b us y manag in g the ir
d is c o r d a nd pers ona l i n te r es ts ? V er y o f ten t h ese a r e jus t a few qu es ti ons
t h e s up er v iso r y bo ard c a n ask in o r der t o as s es s w he the r t he mana ge men t
b oar d c u l tur e is fo r the bes t o f th e c o mpa ny t h e y are r es po ns i ble f or .
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6. 2 What constitutes a good management board
culture?
A g ood man age me n t b oar d cu ltur e is de fined as the wa y the mana ge men t
b oar d s o l ves pro bl ems a nd d i lem mas in t he in t er es t o f t he c o mp an y xiii .
Nu mer ous b ooks , a rtic les a nd s tu dies ab out lea ders hip and ma na ge men t
h a ve a t t emp t ed to de fi ne t he c h ar act er is tic s o f goo d l ea ders hi p an d
man age men t. For the p urp ose o f th is p ape r , ins igh ts w ill be us ed fr om
s e v er a l ac k n owl edg ed s c ie n tis ts a nd a u tho r s xiv xv xvi xvii
as we ll as my own
e xper ie nce as a ma nag emen t cons ultan t. Six cha rac ter is tics are b eing us ed
wh ich , toge ther , co nstitu te a goo d mana gemen t b oar d cu ltu re :
1 . M od est l ea de rs , s ubs er vie n t t o t he co mp an y i n t ere st .
A s J i m C o l li n s p u ts i t in ‘G o o d t o G r e a t ’ , e xce llen t le ade rs xviii ‘cha nne l th eir
e go n eeds aw a y fro m th ems elves a nd in to th e larg er go als o f bu ild in g a
g r ea t c ompa n y’ …… . ’ th ei r am bi t io n is f ir s t an d for emos t f or t he ins t i tu t ion ,
n o t the mselves .’ (p age 21) . Ke y ch arac teristics o f e xce llen t le ade rs are
h umility and mo des ty.
2 . F oc us on t h e r i ght pe op l e o n t h e t e a m.
‘F irs t ‘who ’, th en ‘what’ accor d ing to Jim Co llins . ‘Ge t th e righ t pe op le o n
t h e bus , t he w r on g peo pl e o f f the bus a nd th en d ec i de w h ere t o dr i ve . ’
G o o d b o a r d s h a ve a g e n u in e i n te r e s t in ‘th e r i g h t ’ p e o p l e a n d w i l l d r a w u p
e xplic it pr ofiles o f e ach boa rd member .
3 . A c ce pta nce of r ea l ity a n d act in g u po n it.
T her e’s no ‘be a ting a ro und the bus h’ in c ase o f go od fu nc tion ing
man age men t teams . No w in dow dr ess ing . F ac ts an d s i tua tio ns a re
acc ep te d jus t as the y ar e , the y a r e th e s t ar t in g po in t f or r es o l ve a nd
ac t io n .
4 . S o un d man ag em ent b oa rd d ia lo gu e , d omin at e d b y a sea rc h f o r
c on sen su s.
In peo ple foc used boa rd cu ltur e, d ir ectors w ill g enu ine l y tr y to un ders tand
e ac h o t her ’s p oi n ts o f v i ew . T he y w il l s e arc h f or the o th er p er s ons ’
p ersp ec tives in the tea m a nd re ga rd d i ffer en t po in ts o f view as an
e n r ic h m e n t, f r o m w h ich t h e b e s t s o lu t io n s w i l l b e d e r i ve d . S o u n d
man age men t boa rd d ia lo gue also me ans tha t the mana ge men t bo ard w i ll,
d elib era tely, e nga ge in c ons tr uctive d ia lo gue w i th its su per visor y b oar d ,
j u s t a s i t w i l l d o w i t h th e i r s u b o r d i nates. Th ey view th e l a ye r s a b o v e a n d
b elow the m as s upp or tive to the ir fu nc tion ing .
5 . B a l an ce of ( i nfo r ma l) p ow er, n o r oo m f or d o m in ant e go s .
Wh en th ere is so und man age men t boa rd d ia lo gue , ther e is little o r no r oo m
for do minan t egos . The focus is o n the in ter est o f the co mp an y as a w ho le .
T o tha t rega rd , e ach member o f th e ma na ge me n t bo ard w i ll be su bser vie n t
t o t he b oard as a w h ol e a nd p u t h is /h er e go or pers ona l in te r es ts as id e .
6. R e m un era t i o n a nd ( re ) ap po i nt m e nt
T he su per visor y boar d n eeds to ens ure tha t g ene ra ting th e r igh t cu ltu re is
6

7. p u t on an eq ua l foo t ing t o ge nera t in g the r e qu ire d s ho r t t er m f ina nci al
r es u l ts . A l th oug h r e mu ner a ti on is n o t a b eha v io ur a l c r iter i a , i t is
ack now ledg ed th a t the w a y a m an age me n t b oar d is r em un er a te d a nd
(r e)a ppo in tmen ts a re b eing d one w il re flec t o n the ac tua l man agemen t
b oar d cu ltur e.
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8. 3 Evaluation of management board culture – and
acting upon it.
Ca n a su per visor y boar d use th e ke y c ultural cha rac ter is tics , as de fin ed in
t h e pr e vi ous c h ap te r , as a be nchm ark for e va lu a ti ng a nd mo ni t or i ng t he
man age men t boa rd it su per vises? And ca n a s upe r viso r y bo ard ,
su bseq uently, ac t u pon the cu ltur al in formation it g e ts fro m its man age me n t
b oar d? In o rder to answe r th is qu es tion , thr ee cas es h a ve b een s tu died fo r
th is p ape r .
G i ve n the s u bj ec t o f a na l ysis in t h is p ape r , p ub lic c om pa ni es ha v e be en
ch osen as su bjec ts for th e case s tu dies , beca use th e cas e materia l with
r egar d to co rpor a te go vern ance is pu blic ly a vaila ble . In this c ase it
co ncer ns two D u tch co mp an ies , ABN AMRO a nd Ah old, w i th s ta tutor y tw o-
tier boar ds ( th e so-c alled : Struc tu ur ve nno o tsch app en) a nd o ne Belg ian
xix
co mp an y, w i th a s ta tu tor y o ne- tier boar d , Fortis .
T hes e c ase s tud ies ha ve be en se t up as follows :
E ac h c as e d ea ls w i t h a n i mp or tan t , i f n o t dec is i ve , d i ffi c u l t pe r i od f or the
r espec tive co mp an y an d answ ers thr ee ke y q ues tions :
• h ow d id the ma nag emen t b oar d p er for m, wh en meas ur ed a ga ins t th e
ke y c har acter is tics o f a goo d man age me n t b oar d cu ltur e: to wh ich
k e y c ul t ural c ha r ac ter is t ic d id th e m an age me n t bo ard c u l tu r e fa i l to
xx
a pp l y with r egar d to th e situa tion descr ib ed ?
• w h ich beh avi ou r a l aspec ts o f the m an age men t boa r d , or c e r ta in o f
i t s me mb ers , c a n be vi ewe d as r e le v an t ‘cul t ur al ’ in for m a t ion or
s ign al t o the s upe r viso r y bo ard o n the bas is o f w hic h t h e y c ou ld
h a ve jud ged t ha t th e m an age men t boa r d d id no t c o mpl y t o th ese k e y
cultural charac ter is tics?
• co uld the su per visor y b oar ds in th ese cas es h a ve ac ted or d ecided
d i ffe ren tly th an th e y ac tu ally h ad d one , base d on the cu ltu ra l
in fo rma tio n, th e be ha viou ra l signa ls th e y had go tte n fro m the ir
man age men t boa rds xxi ? Wh a t cou ld the su pervisor y boards ha ve
d one al t er na t i ve l y , o nc e t he y h ad in t er pr e te d the in f or ma t ion
a v ai la bl e to t hem as a s ig na l tha t s ome t h in g w as w r on g w i t h r e ga r d
t o man ag em en t b oar d c u l tu r e?
T ab le 1 pres en ts a s u mm ar y o f t h e c as e s tu di es , w h ich are prese n ted
co mp le tely in th e Appe nd ix to th is p ape r ( following p age ):
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9. T ab le 1 : c as e s u mmar i es
Company K e y c u l t u ra l Cu ltu ra l or be ha vio ur a l H ow cou ld t he s up ervi s o r y
c ha rac t er is t i c informat ion to t he b oa rd ha ve act ed
t he b oa rd s up er vi s o ry b o a r d a lt e r n a t i ve l y, i f b a s e d o n
f ai l ed t o t he b eh a vio ur a l
a pp l y t o information?
F or t is L ac k o f I n a per i od i n w h ich i t h ad In the cas e of Fortis , having
modest b ec o me c lea r t ha t For ti s a s t a tu tor y o ne- t ier s ta t us ,
leadership h ad e n ter ed in t o tur mo i l , t h e w ho le b oar d ne ede d to
(cr i teria 1) C EO Vo tr on had d ec i de o n th e ag r ee me n t
d emand ed a n e xtr a bon us b e twee n L ip pens and
xxiii
o v er 2 007 , a nd c h ai r ma n Votr on . S o t h e y c ou ld
Maur ice Lip pens had e i th er d ec id e i n fa vo ur o f
agreed to it, agains t this agreement or vo te it
xxii
co mp an y pr oced ures d ow n . I f the boa r d h ad
a nd w i tho ut c o nsu l ta t io n r ec og niz ed t h e c u l tura l
o f t he r e mu ner a ti on an d s ign al from Vo tr on a nd
a ppo in tmen t c ommitte e in L ip pens , the y c ou ld ha ve
t h e bo ard . B y d oi ng s o , v o t ed th e ag r ee men t dow n .
C EO Vo tr on had pu t his B y d oi ng s o , t he y w ou ld
p er s o na l i nt er es t ab o ve h a ve r ec ogn ize d the
the company interes t. c o mp an y ’s i n te r es t a t t h a t
T h is de ed la ter tur ns o u t m om en t : g iv e n the amo un t o f
to be a break in g po in t for p r ob le ms fac in g F or tis i t w as
s h are ho lder a nd n o t i n the in t er es t o f F or t is
e mp lo y ee tr ust . t o f oc us o n r a is in g a C EO ’s
b onus .
A h o ld De nial o f In 199 9 the man age me n t Un der D u tch law in a
r ea li t y and n o t b oar d ignor ed s tro ng c o mp an y w i t h a s t a tu to r y
ac tin g on it w a r n ings fro m b ot h the two -tier s tatus
(cr i teria 2) Internal Audit Departm ent ( ‘s truc tuurve nno o tscha p’) ,
a nd th e e x te r na l a ud i to r th e sup er viso r y bo ard n eeds
co ncer ning th e compan y’s to app ro ve o f impor tant
i n te r na l c on tr o ls an d d ec is io ns of t h e
c o n ti nue d A h ol ds man age men t boa rd . In c ase
a ggr essive ac qu isition o f acqu is itio ns or
s trategy. On top of that, it i n ves t me n ts : th e y ne ed
ign ore d the su per visory a ppr o va l i f t h e va lue of
b oar d’s dir ec t i ve t ha t n o t h ese in ves tm en ts e xc e eds
m or e t ak eove r s c ou ld b e 25% of th e company’s
d one un t il th e i n ter na l equity. This was the cas e
c o n tr o ls h ad bee n pu t i n w i th b o th in v es tm en ts i n IC A
xxiv
o rder s u ffic ien tl y . ( value : € 1.8 billion) an d U S
F oo ds er v ice ( € 3 .6 b ill i on) ,
as the gr oup equ ity o f Ah old
a t t he e nd o f 199 8 w as € 1 .8
b i llon ( 1999 : 2 .4 b i llion ). So
i n th e A ho ld c as e d is c us s ed
in th is paper, the
super visory boar d could
s im pl y ha ve s t ic k e d to t he ir
s ta t eme n t in 199 9 tha t n o
m or e t ak eove r s c ou ld t ak e
p lac e an d d is a ppr o ve o f t he
p rop osed acq uis itions.
F o ll owi ng th e d is ap pr o v al
f i r ing Va n d er H o e ven w ou ld
h a ve b een a s er ious op t io n :
after all this CEO had
ign ore d the su per visory
b oar ds ins tr uction . It is
9

10. u nde r s too d t h a t th is w o ul d
h a ve b een d i f f ic u l t , beca us e
o f t he s h owe r pra is es o f
p r ess a nd p ub lic on Va n de r
H o e ven . Bu t a s up er vi s or y
b oar d mus t, o n a ll ac c o un ts ,
p er for m its d u ti es ‘w i th ou t
o rders and co nsu l ta tio n’
( ‘zo nder las t o f
r ugg espra ak ’) , mean ing :
co mp le tely ind epe nden t and
i n th e i n ter es t o f the
company.
ABN Bad I n 200 4 , Gro en ink mad e i t At the time CEO Groenink
A MRO b oar droo m c lea r to the c ha ir m an o f m ad e i t c lea r t o Lo udo n tha t
d y na mic s t h e s up er v iso r y bo ard , h e w an t ed t o f ir e his b oar d
(cr i teria 4) Aar nou t Lou don , tha t it is co llea gu e J iskoo t, Lou don
h is in te n ti on t o fir e W il c o co uld ha ve s ign aled th a t the
J iskoot. This is a fi nal p er s o na l i nc o mp a ti bi l it y o f
s ign al in a r ang e o f J is k oo t and Groe n ink h ad
s ign als and occurr ences g one t oo far a nd had le d to
t h a t ha v e s h own th e a c r i pp led m an age men t
s u per v is or y b oar d , o ve r b oar d , no t ca pab le o f jo in tly
th e five pre vio us years , ac t in g i n the c om pan y ’s
t h a t the man age me n t in te res t. Onc e Lo udon had
b oar d do es n o t ge t alo ng ack now ledg ed th a t, th is
we l l , is in dec is i ve a nd wo uld ha ve b een the
i ne f f ec ti v e as a tea m . m om en t to i n te r ven e an d
Aar nou t Lou don forb ids make perso na l cha nges in
Gr oe nink to follow up o n th e bo ard . L oud on , for th is
h is in te n ti on and le a ves i t p ur p ose , c o ul d ha v e tak en
a t t ha t . t h e fo ll owin g s teps :
• call for a super visor y
b oar d me e ti ng t o d is c us s
th e iss ue at h and and
co nclude th a t the
s i tua t io n i n t h e
man age men t boa rd was
u n ten ab le ;
• d ecide u pon a pe op le
c h ang e i n th e
man age men t boa rd . Th is
c h ang e w ou ld a t l eas t
h a ve mea nt t h a t e i ther
Gr oe nink or J isko ot
wo uld ha ve to r esign .
By ac tin g as suc h , the
s u per v is or y b oar d w ou ld
h a ve se ized the o ppor tu n i ty
a nd w o ul d h a ve g i ve n a lo ud
& clear message that a
d i vide d , und ecis ive , bo ard is
u nacce p tab le for th e
super visors and
c o un te r pr od uc ti v e to th e
i n te res t o f ABN AMRO.
10

11. 4 Conclusions: management board culture is not
elusive
4.1 General
M an age men t boa r d c ul t ur e is a k e y f ac tor , b o th in ac hi e v ing s us ta in ab l y
h ig h pe r form anc e r e lat i v e to c omp e ti t io n , and in t he a vo id ance o f c o r por a te
g o ver nance failu res . Cu ltu re b elo ngs to the in ta ng ib le ass e ts o f a
co mp an y. Un like th e o ther in tang ib le asse ts , cu ltur e star ts a t the to p an d is
e mb edd ed i n th e c ha r ac t er is t ics o f t he e x ecu t i ves t he s u per v is or s a ppo in t.
T her e for e , th e sup er viso r y bo ard is whe re this pr ocess s tar ts . Supe r vis or y
b oar ds shou ld be aw ar e o f a p oss ib le o ver-r elia nce in th e nu mb ers a nd
co mmun ications , and th e r isk o f fa iling to reco ncile the b eha vio ur o f the
e x ecu t i ves a nd mes s ag es the ir be ha v iou r c o n ta ins .
Cu ltu re can no t b e le ft to c hanc e. Nor c an it b e le ft to th e mana gemen t
b oar d to nu rture , c han ge o r des tr o y c u lture as the y p le ase . It is a lo ng-
ter m dr iver o f, o ften sh or t ter m , res ults . Ther efore , it is th e resp ons ib ility
o f a sup er visor y boar d to r ecog n ise the impo rtanc e o f a s oun d ma nag emen t
b oar d cu ltur e an d dec id e inde pend en tly what th e ke y cu ltu ra l
c h arac t er is t i c s o f th e m an age men t boa r d s ho ul d be and how th e c u l tu r e o f
th e fir m sho uld be meas ure d an d re viewed . F ur th ermore , it h as to d ecide
h ow s uc h m eas ure me n ts s ho uld f ea tur e in t he e mp lo y me n t and
r emu ner a tio n pack ages o f the ma nag emen t b oar d .
A mana gemen t b oar d cu ltu re man i fes ts its el f t hr o ug h th e be ha v iou r o f the
i nd i v idu a l b oar d me mb ers a nd the ir c ol lec t iv e beh a vi ou r . S o the
ch arac teristics o f a n y man age men t boa rd cultur e bec ome a ppar en t throu gh
‘ be ha v io ura l in fo r ma t io n’ t ha t s up er v isors ge t in t he c ou r s e o f ac t io n :
t hr ou gh o bs e r va t ion , a s oun d boa r d d ia lo gue , as k i ng qu es ti ons an d
c h ec k i ng inf or ma t io n th r ou gh o bs e r va t ions pi c k ed up fro m c o ntac t w i th
o ther peo ple than the man age men t boa rd . Th is in fo rmation c an b e
e valua te d a ga ins t key cu ltur a l ch arac teris tics , co ncre te cr iteria fo r go od
man age men t boa rd cultur e , w h ich s hou ld be formula ted b y the s up er visor y
b oar d . Once in terpr e te d , the s upe r vis or y boa rd ca n ac t u pon the
i n fo r ma t io n, w i th in th e b oun dar ies o f t he ir c o n tr o l , d e fin ed b y t he ir
s ta t u tor y ma nda t e an d t h e ar t ic l es o f as s oc ia t io n o f the c om pan y i t
super vises.
In a s ta tu to r y tw o- tier b oar d , a Du tc h ‘Str uc tu ur ve nnoo tsc hap ’, th e
s u per v is or y b oar d c an per f or m its tas k t hr ou gh a ppr o va l o r d is app r o va l o f
man age men t boa rd dec is ions . It ca n fir e ma nag emen t b oar d members or
xxv
sus pen d the m (u nless it conc erns a ‘mod era te’ s ta tu tor y two - tier b oar d) .
I n a s ta tu to r y on e- ti er b oar d , the s upe r viso r s are part o f t he d ec is i on
mak ing process . Th is makes th e ir in volveme n t in dec is ion mak ing s tr on ger
a nd a ppe als s tro ng er to the ir resp ons ib ility, mak ing it impor tan t to take a
‘ d is tan t lo ok ’ a t w h a t h app ens in t h e bo ard . H ow e ver , t h e pr inc ip les o f a
g ood ma nag emen t b oa rd cu ltur e a pp l y re gar dless o f the s ta tu tor y s truc ture
o f a sup er visor y boar d. Wh e ther two - tier supe r vis ors or o ne- tier no n-
e x ecu t i ves : p er for m ing a s up er v iso r y t as k bas ed , a mon gs t o th er s , o n an
e valua tion o f peo ple an d the ir beh a viour s erves the long -ter m inter est o f a
c o mp an y an d pr o vi des for s us ta in ability in shor t- ter m r esults.
A n d t her e fo r e , the c ul t ur e o f the m an age me n t bo ard s h ou ld b e s u bj ec t o f
co ns tan t a tte n tion a nd e valua tion b y the su pe r vis or y boa rd . It is the
r espo nsibility o f th e su per visor y b oar d to de lve dee ply in to the
ch arac teristics o f cu ltu re a nd make a true effor t to un de rstan d them an d
ac t upo n the m .
Ca n a su per visor y boar d in fluence the man ag emen t b oa rd cu ltur e a nd ,
co nseq uently, the c orp ora te cu ltu re? It ca n b e p lea ded tha t th e cas es
11

12. d iscuss ed in this pap er su pp or t a p ositive answ er to this qu es tion: if a
su per visory b oar d cons is te n tly ac ts upo n a ‘cu l tu re po lic y’ it h as a dop ted it
ca n in fluence the mana ge men t bo ard c ulture thro ugh its ow n supe r vis or y
b oar d be haviou r - its d ecis io ns , a ppo in tmen ts and dismiss als o f
man age men t boa rd me mb ers and in terac tions w i th the man age me n t bo ard .
4.2 S u pe r vi s i on of ma nag e men t b oa rd cu lt ure i n p rac t ic e
How c an a su per visory b oar d then pu t su pervision o f ma nag emen t b oar d
c u l tu r e in to pr ac t ic e? F or th is p ur pose , th e f o l low ing s t e ps c an be t ak en b y
a s upe r viso r y bo ard :
1 . Cr ea te awar eness and co mmo n un ders tand in g
It sh ou ld be the res pons ib ility o f th e sup er viso r y bo ard , or the n on-
e xecu tives in a one - tie r bo ard , to c ommon ly ack now led ge th e long -ter m
r ele vanc e o f app ropr ia te ma na ge me n t bo ard c ulture fo r the in teres t o f
th e compan y. Th is awa ren ess sh ou ld lea d to goa l se tting and follow -up ,
as de fine d in th e fo llow ing s teps .
Man age men t boa rd cultur e cou ld b e p lace d u nde r the res pons ib ility o f a
s e par a te c o mm i t te e , e . g . the App oi n tm en t a nd R e mu ne r a t ion
Co mmitte e , wh ich then w i ll ha ve a bro ader r espo nsibility. Wha teve r the
s tr uc t ura l s o lu t io n , i t is p le ade d th a t the C ha ir man o f th e Boar d s h ou ld
ass ume man age me n t b oar d cu ltur e as o ne of h is main a reas o f
r es po ns i bi li t y , g i ven th e i mp or tanc e o f c u l tu r e for t he l on g- ter m
c o n ti nu i t y o f t he c o mp an y .
2 . D e f in e k ey c u l tu r a l c ha r ac ter is t ics .
T h is is n o t a task to be taken ligh tly. F irs t it means reco gn izing wh a t
ke y c ultural cha rac ter is tics me an. O n wha t va lu es ar e th e y bas ed? And ,
m os t i mp or t a n t : how do t he y tra ns la te in t o be ha v iou r ? S ec ond l y th e
su per visory b oar d sho uld ask : wh a t kind o f b eha vio ur d oes su ppo rt the
in te res t o f th is co mp an y? Wha t sp ecific cu ltu ra l a ttr ibutes are r equ ir ed
xxvi
o f a ma na ge me n t bo ard t o gu id e t h e or gan iza t io n .
A tho rou gh d iscuss io n a mo ng th e members o f a sup er visor y boar d w ill
h a ve th e ad v an ta ge th a t the s upe r vis ors w il l s har e a de epe r
u nde r s tan di ng o f those c ul t ura l c h arac t er is t ics w h ich ‘m ake th e c l ock
tick’, i.e . ar e dec is ive in th e long- te rm success o f the co mp an y.
K e y c u l t ural c ha r ac ter is t ics are c o n ti nge n t up on e ac h c o mp an y a nd t he
m ar k e t s i tua t io n i t f in ds i ts e l f i n . H ow e ver , as b us i ness d y na mic s
ch ang e and c ompe titive pla ying fie lds ch ang e , it s hou ld be r ecogn ize d
b y s upe r viso r s t ha t k e y c ul t ura l c h arac teristics ma y be s uscep tib le to
c h ang e o ve r t i me .
3 . Sh are ch arac ter istics w i th th e ma nag e men t b oar d
O nc e d e fi ne d , the k e y c u l tu r a l c ha r ac ter is t ics s h ou ld be s har ed w i t h th e
m an age men t boa r d : it s h ou ld b e c lea r to the la t t er w ha t is e x pect e d
fro m th em a nd th eir be ha viou r , bo th as a tea m a nd individua l b oar d
members . Ne xt to the ‘ha rd ’ resu lts th e man age me n t b oar d pro duc es
th e y ar e entitled to k now w ha t b eh a viour al pe rfor manc e ind ica tors h a ve
been assessed by th eir super visors .
It is ad vised tha t th e su per visory b oar d and ma nag emen t b oar d d iscuss
th e cha rac te ris tics th or oug hly eno ugh as to make s ure th a t the
xxvii
man age men t boa rd has und ers to od th e sup er visor y bo ard w ell .
P r e f era bl y , t h e k e y c ul t ur al c harac t er is t ics a r e c o nsis te n t w i t h the
c o r por a te va lu es s e t by m an age me n t . In fac t, t h e y are a w a y to mak e
th ese va lues c oncr e te in the d aily mana gemen t p rac tice .
12

13. H e r e , a ga in , a thor oug h d is c us s io n an d c om mo n un de r s t an di ng w il l n o t
o nl y r ea l ise a k i nd o f c u l tu r a l e va lu a ti on s ys te m . I t w i ll , mo r e
impor ta n tly, co n tribu te to a s tron g cu ltur e as a de eper u nd ers tan ding o f
t h e c or e v al ues o f the c o mp an y , o f w hic h key cultur al charac teris tics
a nd b eha v io ur a l p er for manc e i ndi c a to r s are d er i ved , is e nc ou r ag ed .
4 . Mon i tor and eva lua te ma n age men t boa rd be hav iou r
It will tak e time for supervisors to ge t in to th e ha bit o f e valua ting a nd
mon i tor in g ac tua l be ha vio ur o f ma nag emen t b oar ds . It mea ns tha t, fro m
time to ti me , supervisors will hav e t o l o o k b a c k o n i mp o r ta n t
occ ur r e nces a nd e v ents - b e i t press c o ver ag e , c us to me r c om pl ain ts ,
sh are ho lder ac tivism - a nd ass ess wh a t ac tu ally th e be ha viou r was o f
th e ma na ge me n t bo ard or its boa rd members in th e spec ific situation .
T he n the y sh ou ld we ig h the beha vio ura l s ig na ls ag ains t the ke y cu ltu ra l
ch arac teristics the y ha ve de fin ed .
It is the duty o f a supe r vis or y boa rd n o t on ly to s uper vise , b u t a lso
c h eck the e x ecu t ion o f a c om pan y ’s s tr a t eg y and po lic y . In do ing s o ,
th e sup er viso r y bo ard h as the r i gh t, e ven the du ty, to b e pr oper ly
i n fo r me d an d , i f dee me d nec es s ar y , s e ek the ad v ic e fro m e x per ts.
W i th in th is c o n te x t s up er v isor y bo ards c an b e he lp ed b y beh a vi ou r a l
e xper ts , such as ma na ge men t co nsu l tan ts a nd ps yc holog is ts , to h elp
th em ac qu ir e e xp er tise and ‘a hab it’ in an alys ing and in terpr e ting ac tua l
man age men t boa rd be ha viou r .
5 . Ac t up on th e find ings a nd ins ights : b oard roo m d ia lo gue firs t!
O nce (ce r ta in ) ma nage me n t bo ard beh a viour h as b een e valua te d , th e
su per visory b oar d can ac t up on th eir conc lus io ns . As s ta ted in the
p re vious pa ragr aph , th e for ma l su per visor y b oar d ins tru me n ts have
b een de f ine d b y th ei r s ta t u tor y m an da te an d the ar t ic les o f as s oc ia t io n
of the company supervised. H owever , thes e f or ma l ins tr ume n ts - suc h
as ( d is)ap pr o ving o f ma nag emen t b oar d prop osa ls , h ir in g an d fi r in g
man agers o r res ign ing – sho uld n o t be r ega rde d as the firs t
‘mana gemen t too ls’ for su per visor y b oar ds w i th r egar d to c ulture : wh en
i t c om es to m an age me n t bo ard c u l tu r e th e fi r s t a nd m os t imp or ta nt
ins tr ume n t o f a sup er visor y boar d is the boar droo m d ia lo gue . Th is is the
pr i mar y ins t r ument for s t i mu l a t i o n o f the r igh t beh a vi ou r an d correc tion
o f c oun terpr oduc tive be ha viou r : th e in ter ac tio n be tw een the su pervisor y
b oar d an d th e ma na ge me n t bo ard s hou ld be used to ‘g e t an d s tay o n
th e same so ngsh ee t’ w i th r egar d to beh a viou r tha t su its th e long -ter m
i n te r es t o f t h e c om pan y .
Su per vising ma nag emen t b oar d cu ltu re in p rac tice w ill req uir e qu ite an
e f f or t fro m a l l thos e s u per v is or s w h o , for lon g , ha v e c o nsi der ed c u l tu r e to
b e an el usive s ub jec t . H ow e ver , t h e r e tu r ns o f t his in ves t me nt w i ll be
su bs tan tia lly pos itive in te rms o f co n tinu i ty a nd r obus tn ess o f th e
c o mp an ies t h e y s up er v i s e . An d s u per v is or s w il l f ind out t h a t the ir e f f or ts
w ill lea d to sus tainab le r esu lts , as succ ess fu l cu ltu res h a ve a habit in
ma in ta in ing and e ven re in forc ing thems e lves .
13

14.
Appendix Case analyses
14

15. Company Fortis
Situation/case For the year 2007, CEO Jean-Paul Votron and chairman of the board Maurice Lippens have agreed that Votron,
b a s e d o n V o t r o n s o wn d e m a n d , wi l l g e t a b o n u s o f € 2 . 5 mi l l i o n , d o u b l e t h e a m o u n t t o wh i c h V o t r o n i s e n t i t l e d ,
a c c o r d i n g t o F o r t i s ’ o wn g u i d e l i n e s . V o t r o n h i m s e l f h a d d e m a n d e d t h e b o n u s , a g a i n s t c o m p a n y p r o c e d u r e s xxviii . T h e
a g r e e m e n t b e t we e n h i m a n d L i p p e n s h a d b e e n r e a c h e d wi t h o u t c o n s u l t a t i o n o f t h e r e m u n e r a t i o n a n d a p p o i n t m e n t
c o m m i t t e e i n t h e b o a r d . T h e e x t r a b o n u s wa s p u b l i c i z e d xxix o n m a r c h 3 1 s t , 2 0 0 8 , a t a t i m e wh e n i t h a d b e c o m e c l e a r
t h a t t h e t a k e o v e r o f A B N A M R O b y F o r t i s wa s n o t a s e a s y t o d i g e s t a s s u s p e c t e d xxx :
• Due to its exposure to subprime‐mortgages, Fortis is forced to amortize € 1.5 billion, causing the its profit to be € 1.3 billion lower than expected.
• At that time, there is uncertainty whether Fortis will be able to finance the acquisition of ABN AMRO
• At the same time, Fortis needs to acquire additional capital in order to satisfy the solvability requirements
• In order to realize synergies and increase efficiency, a comprehensive savings program has been introduced
• Fortis’ share price at that time had decreased with more than one third in 2007.
As later turns out, Votrons bonus is a breaking point: as this is regarded as Votron putting his self-interest above the
company interest, shareholders lose their trust as do employees. On July 11, 2008, Jean-Paul Votron resigns as CEO
of Fortis.
S u p e r vi s o r y O n wh a t g r o u n d s t o a g r e e o n t h e e x t r a b o n u s , d e m a n d e d b y t h e C E O ? W h i c h d e c i s i o n i s r e s p o n s i b l e a n d i n t h e b e s t
board interest of the company?
dilemma
What has The board of directors, although divided, approves of the extra bonus. Even the chairman of the board is granted a
been done or v a r i a b l e b o n u s , q u i t e u n c o m m o n f o r n o n - e x e c u t i v e s . B e c a u s e o f t h e m o r a l p r e s s u r e wi t h i n t h e b o a r d , L i p p e n s
decided decides to forgo the bonus, in exchange of 75% increase in his remuneration and extension of his term as chairman.
Board culture Modest leadership, subservient to the company interest
characteristic
the case
applies to
Information or ‘Personal interest befo re c o mp an y in t ere st ’
signal to O n e c a n i m a g i n e a C E O o r m a n a g e m e n t b o a r d wh o wa n t t o r e n e g o t i a t e t h e t e r m s o f t h e i r r e m u n e r a t i o n . I n t h i s c a s e
s u p e r vi s o r y t h e d i s c u s s i o n h a d b e e n s t a r t e d b y t h e C E O h i m s e l f a t a t i m e wh e n t h e r e we r e c l e a r s i g n a l s t o t h e s u p e r v i s o r y b o a r d
board t h a t t h e c o m p a n y i t s e l f wa s a t r i s k .
What could The board of directors could have recognized that:
h a ve b e e n 1. by reaching an agreement without consulting the remuneration and appointment committee, Lippens and Votron placed themselves apart from this
done committee. It should be labeled as bad boardroom dynamics;
2. this was an act of mere self‐interest. At that particular time, it should be regarded as an act which was not in the interest of the company and its
stakeholders;
3. the bonus would have a bad impact on the trust in the board and the company. Especially among those who were suffering the most from the acquisition
and credit crisis: shareholders and employees of Fortis.
B a s e d o n t h e s e a r g u m e n t s t h e ( o n e t i e r ) b o a r d o f d i r e c t o r s c o u l d h a v e v o t e d d o wn t h e i n c r e a s e i n V o t r o n s b o n u s .
T h e b o a r d c o u l d a l s o h a v e v o t e d d o wn t h e v a r i a b l e b o n u s o f t h e c h a i r m a n ( wh i c h t h e y d i d n o t , a l t h o u g h L i p p e n s
himself decided to change his terms of remuneration).
15

16. Company Ah o l d
S i t u a t i o n / c a s e xxxi Since the appointment of Cees van der Hoeven as CEO in 1993, Aholds main strategic activity had been (aggressive)
n o n - o r g a n i c g r o wt h t h r o u g h a c q u i s i t i o n s a n d j o i n t v e n t u r e s . M e a n wh i l e , t h e f o c u s o n i n t e r n a l c o n t r o l s a n d r i s k
m a n a g e m e n t h a d b e e n l o o s e n e d a n d c o n s e q u e n t l y t h e s e c o n t r o l s h a d d e t e r i o r a t e d , u p t o t h e p o i n t i n 1 9 9 9 we r e 3 0 -
4 0 % o f t h e A h o l d e n t e r p r i s e d i d n o t h a v e a d e q u a t e c o n t r o l s . T h i s wa s r e p o r t e d b y t h e I n t e r n a l A u d i t D e p a r t m e n t a n d
confirmed by the external accountant Deloitte & Touche to Aholds Audit-Committee. The supervisory board then has
its chairman, Henny de Ruiter, threat the management board that ‘if the financial control does not improve, no new
takeovers may be done, until further notice’. The management board disregarded the supervisory board decision and
c o n t i n u e d i t s a c q u i s i t i o n a c t i v i t i e s . I n t h e s a m e y e a r , A h o l d e n t e r s i n t o j o i n t v e n t u r e s wi t h S c a n d i n a v i a n I C A a n d
G u a t e m a l a n r e t a i l c h a i n L a F r a g a a n d t a k e s o v e r U S F o o d s e r v i c e i n t h e U n i t e d S t a t e s . T h e d e a l s wi t h I C A a n d U S
Foodservice are amongst Aholds largest. As appears later, they are also the riskiest.
T h e o r d e r / t h r e a t b y t h e S u p e r v i s o r y B o a r d wa s n e v e r f o l l o we d u p . N o t o n l y d i d t h e M a n a g e m e n t B o a r d c o n t i n u e g o i n g
f u l l s p e e d a h e a d o n i t s a g g r e s s i v e a n d e x p e n s i v e g r o wt h p a t h , i t k e p t c o m m u n i c a t i n g t o t h e o u t s i d e wo r l d i t wa s
doing so. E.g. on the ‘Dag van het Aandeel’ (‘The Day of Stock’) Van der Hoeven tells his audience to be speaking
wi t h a p p r o x i m a t e l y 1 0 t a k e o v e r c a n d i d a t e s .
So not only did the management board ignore the decision of the supervisory board. It ignored the (brutal) fact that
t h e c o m p a n y wa s s l i d i n g o u t o f c o n t r o l a n d , c o n s e q u e n t l y, d i d n o t a c t u p o n t h a t . N e i t h e r b y ( t e m p o r a r i l y) s t o p p i n g
their acquisition strategy nor by tightening internal controls
S u p e r vi s o r y T h e d i l e m m a f o r t h e s u p e r v i s o r y b o a r d wa s wh e t h e r o r n o t t o f o l l o w u p o n i t s o wn d e c i s i o n t o t h e m a n a g e m e n t b o a r d .
board dilemma
What has been T h e s u p e r v i s o r y b o a r d c h o s e n o t t o f o l l o w u p o n i t s t h r e a t . T h i s d i d n o t c o m e a s a s u r pr i s e t o t h e m a n a g e m e n t b o a r d ,
done or decided a s J e r o e n S m i t d e s c r i b e s i n H e t D r a m a A h o l d ( pa g e 2 2 0 - 2 2 1 ) : ‘ T h e y ( t h e m a n a g e m e n t b o a r d – T K ) r e g a r d t h e
m e e t i n g s wi t h t h e s u p e r v i s o r y b o a r d a s a r i t u a l d a n c e . T h e a t m o s p h e r e i s a l wa ys g o o d … … . . T h e m e e t i n g s a r e
characterized by a lot of jokes and little concrete discussions. The chairman of the board of Royal Ahold seems to
have accepted that Van der Hoeven is elusive’.
Board culture Acceptance of reality and acting on it.
characteristic
the case applies
to
Information or I g no ra nce o f re a l it y.
signal to T h e s u p e r v i s o r y b o a r d k n e w t h a t A h o l d s a g g r e s s i v e g r o wt h s t r a t e g y w a s n o t s u s t a i n a b l e . H o we v e r , V a n d e r H o e v e n
s u p e r vi s o r y seemed untouchable and the Dutch (shareholding) public and press seemed to love this man, his vision and his
board d e e d s . H e e v e n s e e m e d t o f o l l o w t h e p u b l i c s e n t i m e n t m o r e a n d b e l i e v e d i n h i s o wn g r o wt h - p r o p h e s y, o f wh i c h t h e
s u p e r v i s o r y b o a r d h a d e x p r e s s e d e a r l i e r i t wo u l d n o t b e s u s t a i n a b l e . B y c h o o s i n g t o i g n o r e t h e d i r e c t i v e s o f t h e
s u p e r v i s o r y b o a r d , a s we l l a s t h e c l e a r c o n c e r n s f r o m t h e I n t e r n a l A u d i t D e p a r t m e n t , t h e m a n a g e m e n t b o a r d d i d
f o r g o h a r d s i g n a l s a b o u t t h e s t a t e o f c o n t r o l t h e c o m p a n y wa s i n a t t h a t t i m e .
N o f o l l ow u p o n s upe r vi s o r y b o ar d d i rect i ve s .
T h e r e c a n b e t wo r e a s o n s f o r a m a n a g e m e n t b o a r d n o t t o f o l l o w u p o n s u p e r v i s o r y b o a r d d i r e c t i v e s : o n e m a y b e
i n c o m p e t e n c e , wh i c h i s n o t a c u l t u r a l s i g n a l a s s u c h , a l t h o u g h i t s h o u l d h a v e a l a r m b e l l s r i n g i n g i n t h e s u p e r v i s o r y
b o a r d . T h e o t h e r m a y d i s o b e d i e n c e o r a d e l i b e r a t e c h o i c e t o i g n o r e t h e d i r e c t i v e . A n y t wo r e a s o n s a r e s u f f i c i e n t
s i g n a l s f o r t h e s u p e r v i s o r y b o a r d t o a c t s wi f t l y a n d s t r o n g l y , s e n d i n g a s i g n a l t h a t t h e r e i s n o t o l e r a n c e f o r s u c h
counterproductive behaviour.
16

17. W h a t c o u l d h a ve T h e f a c t t h a t t h e s u p e r v i s o r y b o a r d k n e w o f t h e r i s k s t h e m a n a g e m e n t b o a r d t o o k a n d d i s a p p r o v e d o f t h e m ( !) c o u l d
been done h a v e u r g e d t h e m f o r a c t i o n . T h e y c o u l d h a v e r e c o g n i z e d t h a t t h e m a n a g e m e n t b o a r d wa s b l i n d t o b r u t a l f a c t s t h a t
we r e s e v e r e e n o u g h t o a l a r m A h o l d s I n t e r n a l A u d i t D e p a r t m e n t , t h e e x t e r n a l a u d i t o r D e l o i t t e & T o u c h e a n d t h e a u d i t
c o m m i t t e e . F u r t h e r m o r e , t h e y c o u l d h a v e r e c o g n i z e d a n o t h e r b r u t a l f a c t , wh i c h a t t h a t t i m e h a d b e c o m e a p p a r e n t :
t h e s u p e r v i s o r y b o a r d , b e i n g r e s p o n s i b l e f o r a d e q u a t e s u p e r v i s i o n , wa s n o t b e i n g t a k e n s e r i o u s l y b y t h e b o a r d t h e y
we r e s u p p o s e d t o s u p e r v i s e . I t h i n k t h e r e we r e 2 o p t i o n s f o r t h e s u p e r v i s o r y b o a r d :
Option I: act upon the facts.
I n s p i t e o f t h e g r o wt h f i g u r e s a n d wh a t t h e g e n e r a l p u b l i c o r t h e p r e s s t h o u g h t o f V a n d e r H o e v e n , t h e s u p e r v i s o r y
b o a r d c o u l d h a v e d i s a p p r o v e d o f t h e j o i n t v e n t u r e s a n d t a k e o v e r s t h a t we r e a n n o u n c e d a f t e r t h e i r d e c i s i o n . T h e y
c o u l d h a v e g o n e o n e s t e p f u r t h e r a n d f i r e V a n d e r H o e v e n f o r n o t f o l l o wi n g u p a s u p e r v i s o r y b o a r d i n s t r u c t i o n . T h i s
d e c i s i o n wo u l d c o m e a s a b i g s u r p r i s e b u t i t wo u l d h a v e g iv e n t h e s u p e r v i s o r y b o a r d o p p o r t u n i t y t o i n s t a l l a C E O , o r
e v e n a n e w b o a r d , wh i c h c o u l d wo r k o n t h e i s s u e wi t h t h e h i g h e s t p r i o r i t y: ( 1 ) i n s t a l l i n g a n d / o r t i g h t e n i n g i n t e r n a l
c o n t r o l s , ( 2 ) p r o p e r i n t e g r a t i o n o f a c q u i s i t i o n s a n d j o i n t v e n t u r e s , 3 ) r e a l i s a t i o n o f s yn e r g i e s o f s c a l e a n d o p e r a t i o n a l
s yn e r g i e s .
Option II: resign
Given the formal responsibility and liability a supervisory board has it should be completely unacceptable for them to
be ignored by the management board. Therefore, if the supervisory board of Ahold in 1999 did decide not to act upon
t h e f a c t t h a t t h e i r i n s t r u c t i o n s we r e i g n o r e d b y t h e m a n a g e m e n t b o a r d t h e y s h o u l d h a v e r e s i g n e d , a s t h e b o a r d
continued a path they had explicitly disapproved of.
Company AB N AM R O
S i t u a t i o n / c a s e xxxii I n 1 9 9 9 t h e s u p e r v i s o r y b o a r d c o n s i d e r e d t h e s u c c e s s i o n o f C E O J a n K a l f f . R i j k m a n G r o e n i n k wa s o n e o f t h e
c a n d i d a t e s . I t wa s r e c o g n i z e d b y s e v e r a l s u p e r v i s o r s t h a t a n e w C E O s h o u l d , a m o n g s t o t h e r s , b e a b l e t o u n i t e t h e
m a n a g e m e n t b o a r d a n d b u i l d a t e a m . T h e r e we r e d o u b t s a b o u t G r o e n i n k s a b i l i t y t o a c h i e v e t h i s , a s h e wa s n e i t h e r
r e c o g n i z e d a s a t e a m p l a ye r , n o r a s a t e a m b u i l d e r . T h e c h a i r m a n o f t h e b o a r d , A a r n o u t L o u d o n , h a d b e e n wa r n e d
a b o u t t h i s e x p l i c i t l y. B a s e d o n o t h e r p e r s o n a l q u a l i t i e s a n d – s i t u a t i o n a l – c o n s i d e r a t i o n s , G r o e n i n k wa s a p p o i n t e d b y
t h e s u p e r v i s o r y b o a r d . A f t e r G r o e n i n k s a p p o i n t m e n t , t h e A B N A M R O m a n a g e m e n t b o a r d wa s c h a r a c t e r i z e d b y
e v e r yt h i n g b u t u n i t y. G r o e n i n k s p o l i c y wa s ‘ d i v i d e & r u l e ’ , h e d i d n o t c o n s u l t h i s f e l l o w b o a r d m e m b e r s o n a l l
d e c i s i o n s . H e b u i l t a s t r o n g o n e - o n - o n e r e l a t i o n s h i p wi t h h i s c h a i r m a n A a r n o u t L o u d o n , c a u s i n g t h a t a l l i m p o r t a n t
i s s u e s a n d d e c i s i o n s t o b e d i s c u s s e d a n d d e c i d e d u p o n b e t we e n t h e t wo m e n b e f o r e b o a r d m e e t i n g s . T h i s c a u s e d
t h e i n f o r m a l p o we r wi t h i n t h e m a n a g e m e n t b o a r d t o b e s h i f t e d t o R i j k m a n G r o e n i n k m a i n l y. F u r t h e r m o r e , i t h a m p e r e d
a s o u n d m a n a g e m e n t b o a r d d i a l o g u e , b o t h wi t h i n t h e m a n a g e m e n t b o a r d a s b e t we e n t h e m a n a g e m e n t b o a r d a n d t h e
supervisory board.
I n t h e c o u r s e o f t h e ye a r s a f t e r 1 9 9 9 , A B N A M R O d i d n o t s u c c e e d i n f o r m u l a t i n g , l e t a l o n e e x e c u t e , a c l e a r s t r a t e g y.
ABN AMRO is not able to deliver upon its promises to shareholders. This can for a large part be attributed to the
m a n a g e m e n t b o a r d wh i c h i s d i v i d e d c o n s t a n t l y a n d a c t i n g o n t h e b a s i s o f p e r s o n a l i n t e r e s t s a n d d i s c o r d , i n s t e a d o f
wo r k i n g a s a t e a m , f o c u s e d o n t h e i n t e r e s t o f A B N A M R O . T h e s u p e r v i s o r y b o a r d wi t n e s s e s t h e s e d e v e l o p m e n t s a n d ,
f o r s e v e r a l r e a s o n s , d o e s n o t i n t e r v e n e , a l t h o u g h t i m e a n d a g a i n i t i s c l e a r t h a t G r o e n i n k d o e s n o t c o m p l y wi t h t h e
a g r e e m e n t t h e s u p e r v i s o r s m a d e wi t h h i m i n 1 9 9 9 : t h a t h e wo u l d b u i l d a t e a m o f t h e m a n a g e m e n t b o a r d . I n s t e a d ,
17

18. G r o e n i n k a p p l i e d ‘ d i v i d e & r u l e ’ t a c t i c s , wh i c h h e l p e d h i m s h i f t t h e b a l a n c e o f p o we r t o wa r d s h i m s e l f .
I n t h e s u m m e r o f 2 0 0 4 i t h a s b e c o m e c l e a r t o t h e ma n a g e m e n t b o a r d t h a t a c h o i c e h a s t o b e m a d e r e g a r d i n g t h e
wh o l e s a l e d i v i s i o n o f t h e b a n k , a s t h e i n v e s t m e n t s i n t h i s d i v i s i o n s o f a r h a v e n o t y i e l d e d t h e e x p e c t e d r e t u r n s .
J e r o e n D r o s t , D i r e c t o r C o r p o r a t e D e v e l o p m e n t wr i t e s a m e m o i n wh i c h t wo f u n d a m e n t a l a l t e r n a t i v e c h o i c e s a r e
elaborated upon. Wilco Jiskoot, responsible for this division chooses not to attend the crucial meeting in autumn
2 0 0 4 , a s h e g i v e s p r i o r i t y t o a t t e n d i n g t h e O l ym p i c G a m e s a t t h a t t i m e . H o we v e r , h e h a d m a d e i t c l e a r t o G r o e n i n k
t h a t t h e e m p l o y e e s o f t h e wh o l e s a l e d i v i s i o n wo u l d n o t c o o p e r a t e t o t h e a l t e r n a t i v e wh i c h wo u l d m e a n t h e e n d o f t h e
wh o l e s a l e d i v i s i o n i n i t s c u r r e n t f o r m . I n f a c t h e h a d m a d e i t c l e a r t h a t t h e e m p l o y e e s wo u l d s o m e h o w o b s t r u c t a n y
such decision.
Separate from this meeting, Groenink makes it clear to Aarnout Loudon that, in case Jiskoot does not cooperate to a
g o o d s o l u t i o n , h e wi l l h a v e t o f i r e h i m . I n r e s p o n s e , L o u d o n f o r b i d s G r o e n i n k t o d o s o , a s J i s k o o t e a r n s s u f f i c i e n t
amounts of money for ABN AMRO.
F i n a l l y, t h e m a n a g e m e n t b o a r d d o e s n o t d e c i d e u p o n t h e wh o l e s a l e d i v i s i o n , i n f a c t l e a v i n g i t a s i t wa s . A n d l e a v i n g
the management board discord as it is.
S u p e r vi s o r y Discord in the management board leads to indecisiveness on crucial strategic issues. How to act upon this fact?
board dilemma
What has been Aarnout Loudon makes it clear to Groenink that firing Jiskoot is unacceptable, and leaves it at that.
done or decided
Board culture Sound management board dialogue
characteristic B a l a n c e o f p o we r
the case applies
to
Information or N o s o u n d m a n a g e m e n t b o a r d d i a l o g u e , i n e f f e c t i ve m a n a g e m e n t t e a m . R e s u l t i n g i n i n d e c i s i ve n e s s o n c r u c i a l
signal to strategic issues.
s u p e r vi s o r y This dilemma played an important role since Groeninks appointment in 1999: the supervisory board, through
board numerous signals, knew that the management board did not function as a team and that the bank had not lived up to
its promises made at the time Groenink took over as CEO. It can be argued that over the years 1999 – 2004 there
we r e r e a s o n s t o c o n t i n u e t h e s t a t u s q u o a s f a r a s t h e c o n s t i t u t i o n o f t h e m a n a g e m e n t b o a r d i s c o n c e r n e d . H o we v e r ,
in the autumn of 2004 Groeninks gives a loud & clear signal to his chairman. There can be no misinterpretation to the
f a c t t h a t a t l e a s t t wo – i m p o r t a n t – m e n i n t h e b o a r d d o n o t g e t a l o n g we l l . T h i s t i m e , t h e s i t u a t i o n h a s e s c a l a t e d t o
t h e p o i n t wh e r e t h e i r i n c o m p a t i b i l i t y i s , b e yo n d d o u b t , c o u n t e r p r o d u c t i v e t o t h e i n t e r e s t o f A B N A M R O .
W h a t c o u l d h a ve Loudon could have signaled that the personal incompatibility of Jiskoot and Groenink has gone too far and that this
been done wa s t h e m o m e n t t o i n t e r v e n e a n d m a k e p e r s o n a l c h a n g e s i n t h e b o a r d . L o u d o n , f o r t h i s p u r p o s e , c o u l d h a v e t a k e n
t h e f o l l o wi n g s t e p s :
• call for a supervisory board meeting to discuss the issue at hand and conclude that the situation in the management board is untenable;
• decide upon a people change in the management board. This change would at least mean that either Groenink or Jiskoot would have to resign.
By acting as such, the supervisory board would have seized the opportunity and give a loud & clear message that a divided, undecisive, board is unacceptable
for the supervisors and counterproductive to the interest of ABN AMRO.
18

19. Footnotes
Chapter 1
i
Jim Collins, ‘Good to Great, Why some companies make the leap, and others don’t’, 2001
ii
Fred van Eenennaam, Strategies of Successful Companies.
iii
Jeroen Smit, ‘Het drama Ahold’, 2004
iv
Jeroen Smit, ‘De Prooi’, 2008, page 223
v
The (amended) Dutch corporate governance code.
vi
In the preamble of the amended Dutch corporate governance code it is stated that ‘The principles (of this
code – TK) may be regarded as reflecting the general views on good corporate governance, which enjoy wide
support. They have been elaborated in the form of specific best practice provisions. These provisions create a
set of standards governing the conduct of management board members, supervisory board members and
shareholders.’ The Dutch corporate governance code does not provide concrete principles of culture, or
behaviour , that boards should comply to. It deals with the matter in a structural and procedural way, like
the maximum period for which a director can be appointed, or the way boards should deal with (potential)
conflicts of interests et cetera. Although the amended code, as presented by the Frijns‐committee on
December 10, 2008, does put more emphasis on proper behaviour of directors and shareholders, instead of
the way in which they account for their activities, it still deals with behaviour in a formal way. Examples can
be found in the articles II.1.10 and II.1.11, which stipulate the role of the supervisory board in case of a
takeover bid. Or in article IV.4.4. which stipulates shareholder behaviour while exercising the right to put an
item on the agenda of the General Meeting of Shareholders.
vii
Bankstrategie en bankcultuur, Rede uitgesproken bij de aanvaarding van het ambt van Bijzonder hoogleraar
Financiële Instellingen aan de Universiteit van Amsterdam op dinsdag 20 mei 2003 door R.G.C. van den Brink.
viii
According to Van den Brink, it also requires a certain susceptibility to spirituality ‘ in order to oversee and
understand certain elements (of culture)’. Based on the findings in this paper, I do not agree with that notion,
as far as management board culture is concerned.
ix
E. Schein, Organisation culture and Leadership, 1985
x
Fons Trompenaars and Charles Hampden‐Turner, Over de grenzen van cultuur en management.
xi
Fortune Magazine, Why Companies Fail, CEOs offer every excuse but the right one: their own errors. Ram
Charan and Jerry Useem, May 27, 2002
xii
Bankstrategie en bankcultuur, Rede uitgesproken bij de aanvaarding van het ambt van Bijzonder hoogleraar
Financiële Instellingen aan de Universiteit van Amsterdam op dinsdag 20 mei 2003 door R.G.C. van den Brink,
page 22.
Chapter 2
xiii
It is not the intention of this paper to present these characteristics as final or ‘definite’, valid on all accounts.
One can imagine that key cultural characteristics may differ among industries, countries or continents.
xiv
Jim Collins, Good to Great, 2001
xv
Paul Fentener van Vlissingen, Ondernemers zijn Ezels
xvi
Fons Trompenaars en Charles Hampden Turner, Over de Grenzen van Cultuur en Management
xvii
Manfred F.R. Kets de Vries
xviii
‘Level 5 Leaders’ according to the definition of ‘Good to Great’
xix
Moreover, for private companies and limited liability companies a supervisory board is not compulsory by
(Dutch) law and therefore it is suspected that whenever such companies have a supervisory board, rights and
obligations may differ, depending on the articles of association, which makes the discussion on options to act
more difficult.
19

20. Chapter 3
xx
A comprehensive analysis of all cultural characteristics in all of these cases is out of the scope of this paper.
xxi
Please note that it is not the intention of this paper to assess all that was culturally right or wrong with the
management boards in question, nor to provide a comprehensive set of conclusions as to what the supervisory
board should have done.
xxii
NRC Handelsblad, 20 en 21 december 2008, ‘Topman Fortis vroeg en kreeg dubbele bonus van 2,5 miljoen’
xxiii
It can be argued that the unilateral agreement between chairman Lippens and Votron can also be seen as a
cultural signal that the power within the board of Fortis was out of balance.
xxiv
Not following up a supervisory board directive is in itself a sign that there something severely wrong in the
dialogue/dynamics between a supervisory board and a management board. In such a case, in my opinion, the
supervisory board should always act with a clear signal, which should be (1) correcting the management board,
(2) firing the management board or the ones responsible for the disobedience or (3) resign as a supervisory
board.
Chapter 4
xxv
In case of a regular company under Dutch law, either a private company (bv) or a limited liability company
(nv), these controls are basically the power of the shareholders but can be delegated, in the articles of
association, to a supervisory board.
xxvi
Here the link with the Appointment and Remuneration Committee becomes apparent, as they can translate
the cultural characteristics into requirements for individual board members. However, culture is not to be
regarded as a sum of different characters: it translates into a set of unwritten rules that define the behaviour
of the team, as well as the individuals within.
xxvii
Preferably, the management board and supervisory board agree on the key cultural characteristics and their
meaning, as strong corporate cultures are often characterized by a genuine search for consensus among its
leaders.
Appendix
xxviii
NRC Handelsblad, 20 en 21 december 2008, ‘Topman Fortis vroeg en kreeg dubbele bonus van 2,5 miljoen’
xxix
Jaarverslag 2007 Fortis, pagina 132
xxx
NRC Handelsblad, 20 en 21 december 2008, ‘Het feestje dat geen feestje mocht worden’.
xxxi
Jeroen Smit, Het Drama Ahold, 2004
xxxii
Jeroen Smit, De Prooi, 2008
20