A supervisory board is the body that supervises the management board’s policy and the general course of affairs within the company, and advises the board. Supervisory directors must be guided by the interests of the company and its business.
Legal basis
Article 2:250 of the Dutch Civil Code governs the supervisory board of a private limited company, Article 2:140 that of a public company. For an ordinary BV the board is not compulsory; it exists only if the articles of association create it. Paragraph 2 requires supervisory directors to be guided by the interests of the company. Article 2:9 on proper performance of duties and Article 2:248(6) on liability in insolvency apply by analogy. Structure companies are subject to the mandatory regime of Article 2:262 and following, with separate nomination rights for the works council.
How it works in practice
The articles determine the scope of supervision. Almost invariably they list management decisions requiring the board’s approval: investments above a threshold, entering into financing, appointing or dismissing key staff. That list is the principal steering instrument. Information flow is equally decisive: a board that receives figures only after the event cannot perform its task. In many family businesses and private equity structures the supervisory board is also where shareholders and management meet without burdening the general meeting.
Where it goes wrong
Supervisory directors underestimate their personal exposure. Ignoring signs of payment difficulties, or approving decisions without substantiation, creates risk. A second problem is role confusion: a supervisory director who in effect co-manages loses the distance the office requires and may be held liable as a de facto policymaker. Third, there is often no conflict of interest procedure, even though supervisory directors are frequently also shareholders or advisers.
Related terms
The board connects to directors’ liability, to the articles of association that define its powers, and to conflict of interest.
Would you like to structure supervision properly, or know what you are answerable for? Our corporate lawyers will advise you.
