For years, the composition and professionalisation of supervisory boards have been central topics in the debate on good corporate governance. The German Corporate Governance Code has introduced numerous new requirements concerning the independence of board members, competency profiles, as well as staggered and limited terms. Following the Wirecard accounting scandal, lawmakers have also taken action to ensure financial expertise within supervisory boards.

A recent study conducted by the European Center for Board Effectiveness (part of the Mercer consultancy group) examined the work and self-perception of supervisory boards within the Dax family. ECBE reviewed publicly available data for its study. The composition and structure of the boards, the supervisory board report, and the corporate governance statement were examined to capture the key supervisory board topics in 2023. Through discussions with selected supervisory board and committee chairs, the researchers reflected on and discussed the results.

The findings highlight a significant transformation in the role of supervisory boards in recent years, with responsibilities becoming much more complex. This shift is driven by disruptive business models, geopolitical risks, climate change, and digitalization. According to the report, supervisory board chairs now face the challenge of balancing oversight with strategic collaboration to drive innovation, manage transformation, and identify risks.

Leadership within the board is crucial in this evolving scenario. „A supervisory board chair needs integrative skills, fostering trust and relationships not only between the board and executive management but also among board members and investors“, says Regine Siepmann, Partner and Head of Corporate Governance Advisory at Mercer HKP Group.

Supervisory boards must clarify their primary focus – whether they are mainly an oversight body or a strategic advisory partner. „We have traditionally placed a strong emphasis on oversight. Recently, however, this has shifted, with many additional responsibilities coming into play“, explains Siepmann.

Supervisory boards are increasingly expected to contribute to a company’s strategic development. „The board is also a sparring partner and challenger to the executive team. Our discussions with board chairs, and our study analysis, both indicate that supervisory boards must engage more deeply in strategic matters“, emphasises Lukas Berger, Board Advisor and Director at ECBE.

This changing role has also influenced executive boards. „Previously, executives viewed supervisory boards mainly as oversight bodies. Today, they actively seek engagement, particularly with the board chair, to discuss strategy,“ Siepmann explains.

The evolving role of supervisory boards is closely linked to the expertise of their chairs. „If a technocrat is at the helm, focused solely on oversight and lacking experience as a CEO or senior executive, strategic discussions are likely to be less effective compared to those led by a recently retired CEO. Industry knowledge and management experience enable more balanced, high-level discussions“, notes Siepmann.

To stay informed on strategic matters, holding multiple board mandates across industries can be beneficial – despite investor concerns about so called overboarding. „For those no longer in operational roles, multiple board positions in different sectors help expand expertise“, adds Siepmann.

Supervisory boards are accountable to external stakeholders and must disclose the expertise available within the board. But this representation – typically a self-assessment – is often unclear. „It is striking that supervisory board members frequently attribute a wide range of competencies to themselves in qualification matrices. In my view, this does not contribute to the necessary transparency“, says Berger. Not every member of the supervisory board needs to possess all competencies. Rather, the key is ensuring that the board is optimally composed for the company's specific situation.

Siepmann sees the „competition among board members“ as a critical factor in realistic self-assessment. „No one wants to appear as having too few competency checkmarks. There is still the mistaken belief that one must be proficient in everything. Instead, it would be better to highlight each member’s top three competencies. This would enhance credibility and transparency for investors, as it clearly indicates where specific expertise lies“, she suggests. In the US, the approach to competency designation is quite different, „as it carries liability risks.“

Advisors have observed that supervisory board evaluations increasingly involve external experts to support workshops or strategy retreats. „This is a development we strongly encourage. It is crucial to incorporate an outside-in perspective on certain topics“, advises Berger.

According to him, it is the nomination committee’s central responsibility to „regularly assess the competencies needed within the supervisory board and reflect on those currently present. Supervisory boards must be open and honest about the expertise they have." However, Siepmann adds that this expectation is not yet being professionally implemented in all nomination committees.

The topic of artificial intelligence (AI) is still being neglected. „Supervisory boards should consider what AI means for their own work and how they can leverage AI – think protocol automation or simultaneous translation“, states Berger. Additionally, the members must understand how AI is applied within the company and how it influences decision-making. „Not every supervisory board member needs to be an AI expert, but they must understand AI applications and incorporate them into their decision-making process. Closely related to this is cybersecurity, one of the biggest future risks.“

The issue of diversity has not yet been adequately addressed. While female participation has reached its highest level since records began – partly due to legal requirements – international diversity remains stagnant. „Unfortunately, boards are not progressing when it comes to including individuals from non-German-speaking backgrounds. Valuable insights from other governance systems should not be overlooked“, notes Siepmann.

Many international professionals are hesitant to join German supervisory boards due to significant cultural differences. „They come from a one-tier system, where discussions follow a different dynamic and members are more operationally involved. Compensation is also a key factor“, explains Berger. „Specifically, the remuneration for non-executive directors in the US is on a completely different level compared to German supervisory board salaries", emphasizes Siepmann.