Joint interview with Michèle Sioen and Herman Daems: 'The CEO must be able to fully trust the board members'

This interview with Michèle Sioen and Herman Daems was originally published in Dutch on 26/11/2024 in De Bestuurder, authored by Philip Verhaeghe, with photography by Robert Smits.

 

External Directors

Q: It is now widely accepted that external directors bring significant added value. Being able to ask the question that no one else dares to ask or hasn’t thought of yet… That probably gives any non-executive director a thrill?

Michèle Sioen: "Probably. But in a well-composed and well-functioning Board of Directors, every external director is always a valuable sounding board for any important decision that you, as an owner and CEO, would otherwise have to make alone. In these turbulent times, it’s good to be able to rely on a few directors who, with openness and trust, are always willing to give their honest opinion."

Herman Daems: "As a director in social-profit organizations, I always mainly looked at the financial aspects, the accounting, and the cost and revenue evolution. Often, I could point out something that they hadn't noticed themselves. In the profit sector, external directors are often of crucial value in mergers and acquisitions or in the decision of whether or not to dismiss the CEO. But let’s not forget that directors can only truly add value when the 'right points' are on the table: This is an important responsibility for the CEO and the chairman. They should set the agenda together and determine what information, in what quantity and form, is shared with the directors."

(Ex-)Listed Company

Michèle Sioen has had 25 years of 'stock listing' experience, and together with her sisters, she took the family business off the stock exchange three years ago.

Q: What did the delisting mean for the composition, functioning, and role of Sioen's Board of Directors?

Michèle Sioen: "In terms of governance, we really did not change anything at that time. All committees still exist, and we continue to work with independent directors. We still publish an annual report, although now with less detailed figures.

In 1996, we were part of a large wave of new IPOs. At that time, it was a great means to grow quickly, professionalize, and gain maturity. But today there are many other ways to attract capital: through banks, family offices, private equity, and so on. With a stock listing, you must not forget the administrative hassle, the transparency obligations with those roadshows, and the extensive reporting. That constitutes a costly additional burden, and moreover, our competitors were all too eager to learn about our plans and results."

Herman Daems adds: "When a company is taken off the stock exchange after an acquisition, you immediately have to question the role of the independent directors. To what extent are they still credible and autonomous when you know that the controlling shareholder at the group level can easily overrule their advice or decisions?"

"The chair must create the right conditions in any case."

~ Herman Daems

"Much also depends on the characters and personalities of your directors."

~ Michèle Sioen

For Herman Daems, this topic also serves as a reason for another reflection. He believes that the importance of the individual investor is diminishing in favor of many funds and computer-driven portfolios. He openly questions several aspects: "What kind of shareholding are we talking about here? How do those funds determine their voting behavior? Can and should they speak with one voice?" This type of shareholding indeed starkly contrasts with the controlling and risk-bearing reference shareholding of family businesses. "At some point, there must be a public debate about this," he suggests.

Governance Code

Q: How do you both view the usefulness and impact of Corporate Governance Codes in general? How do you see the future of these codes now that there is increasingly more mandatory legislation?

Herman Daems first explains how he unexpectedly became the chairman of the Belgian Governance Commission in 2008 at the explicit request of then VBO president Thomas Leysen. "The great merit of these and other Belgian codes is that they have gradually created a certain structure and a comprehensible framework for good governance. Previously, there was virtually nothing available. These codes are now largely accepted in terms of concept." Michèle Sioen wholeheartedly agrees and believes that these codes, regarding general principles, should not change much more.

Daems expresses strong support for the 'comply or explain' principle. "Because there is such a great diversity among listed companies—ranging from an international giant like AB Inbev to a family business like Sioen—you cannot apply governance rules uniformly to everyone. However, this flexible concept is not accepted by everyone. There is indeed significant pressure to 'comply.' Back then, in the lead-up to the 2009 Code, Herman Daems had many contacts with ministries and social partners. He now admits that many struggled with the principle of self-regulation. 'They were more in favor of clear and binding regulations and control rather than responsible 'comply or explain' principles.'"

The VBO Non-Profit Organization

Michèle Sioen was Chair of Fedustria from 2007 to 2010 and from 2014 to 2017, the first and, to date, only female chair of the VBO (Federation of Belgian Enterprises). In both cases, the organization is a non-profit (vzw) with a very large board. It is important to note that such a board mandate should not be treated the same as that in a company or a regular non-profit.

"At the VBO, there is an unusually large board of directors with representatives from all affiliated federations, and also a strategic committee with more than sixty business leaders. These bodies serve as antennas to the business world. All stakeholders from various sectors sit at the table, often with conflicting interests. The groups must be large because all members together determine the positions and action plans. This must be widely supported," she explains. For classic board decisions such as finance and HR, separate and smaller bodies exist. "For management compensation, there is a committee of the chairman with the past chairpersons, which meets once a year. This structure ensures significant continuity."

Directors' Compensation

Although there is little public data available for non-listed companies, both agree that Belgian directors are not excessively compensated, and perhaps that is not necessary. They believe, however, that a director should not be financially dependent on just one (well-paid) board mandate. Herman Daems: "Professional directors are better off with a diverse portfolio of mandates."

Michèle Sioen explains that governance surrounding directors' compensation is an important topic that they approach with care: "Here too, nothing fundamental has changed in our methods and procedures since our delisting. At Sioen, we continue to adhere to the highest corporate governance standards because we believe these contribute to professional business operations. Through external benchmarks, we ensure that we remain in line with the market. And a structured approval process ensures objectivity and transparency, which benefits the trust of all stakeholders."

The Relationship Between CEO and Chairman

Herman Daems: "Every chairman and CEO should make clear agreements on how they will build their collaboration because their mutual understanding plays a crucial role in the good functioning of the company."

Michèle Sioen: "The chair should regularly challenge me as CEO. At the same time, they must ensure that I am very transparent with the directors. It’s all about trust."

Q: What do you think of a CEO who steps down and immediately becomes chairman of the board?

Michèle Sioen believes that this may work for a while in certain exceptional cases: "But it must be framed properly and regularly evaluated."

To illustrate, Herman Daems refers to someone who became chair after years as CEO. This allowed him, as chair, to ask the CEO questions that other directors could never have thought of. That CEO experience clearly added value to the board.

"It’s enough for a director to pull you out of your tunnel vision just once or to signal caution by asking 'Have you thought about this?'"

~ Michèle Sioen

But you really must look at it on a case-by-case basis. Herman Daems believes that, in principle, it is not advisable to immediately appoint a retiring CEO as chair. He argues this with the pertinent statement: "As a former CEO in the chair position, you have a personal or moral interest in ensuring that the previously agreed strategy is not questioned or changed. Because that would mean a loss of face. But this also implies that the other directors may feel a certain reluctance to thoroughly question the strategy that the chair initiated, even against their better judgment."

Q: What do you think about an "executive chairman"?

Herman Daems states: "For me, that is a contradiction in terms. I would also advise against creating a specific division of roles between the chair and the CEO because that is all artificial. The CEO is in charge of everything, and the chair interacts with the CEO from the board."

In the same vein, we inquire about their views on the "fashionable co-CEO model" that is emerging in some places. Michèle Sioen shares a similar sentiment: "That's not ideal. But perhaps it can again be a good temporary solution. Herman Daems warns: "If at some point a discussion arises about who does what or what each is allowed to do and decide, then you really have an unnecessary discussion. If there is no mutual harmony at that level, you quickly end up in suboptimal working arrangements."

Women at the Top

Q: We cannot help but ask about their views on diversity and female directors.

Michèle Sioen is very open about this: "Women who want to combine a family with a career must go through a tough period. If they want to grow personally and seize professional opportunities, they need to be able to 'persevere.' They should also hopefully feel good about it." On the other hand, she understands the personal choice of many to fully focus on their children and temporarily set their careers aside. She does note, however, that the general mentality is fortunately changing, even among men, and that the barriers and glass ceiling have largely been shattered. "By the way, many more women are graduating from university now than men!"

Like Herman Daems, she was not in favor of gender quotas on boards at that time. In hindsight, he puts it this way: "That obligation has forced people to look 'further' than they otherwise would have. The quota system has thus enlarged the pool, and that was a good thing." Michèle Sioen concludes: "A purely male board of directors is really no longer socially acceptable today."

Q: And the Industry?

"The added value of directors? Opinions certainly differ on that. Some CEOs might think to themselves: 'I have a board of directors here, but the less they know, the better. They're just onlookers.'" 

~ Herman Daems

"Today, various new topics and themes are being assigned to directors, but we really must not forget that it's currently 'all hands on deck' in our industrial companies. People are not fully aware that for many industrial companies, the water is rising up to their lips. Traditionally, our industrial production creates a lot of added value, especially through exports. But due to geopolitical tensions, increasing regulations, and the looming talent shortage, we are seeing some storm clouds gathering. People don't realize that the destabilization of the European automotive industry is also causing significant damage to many suppliers."

Their directors must now focus on "back to basics" as a priority. We are in a real storm, and they need to steer the ship to safer waters as competent captains."

He watches with concern as European unity around an industrial policy is still far off; each country is implementing its own measures: "Just look at how they're luring companies from West Flanders to Dunkirk. The European dream seems distant. We also must not get fixated on the successes or breakthroughs of various service providers and IT companies. For them, industrial applications are the foundation of their success."

During the election period, everyone was talking about "less regulation," but the harsh reality is different: new rules will continue to emerge. Both are deeply concerned about the impact of mandatory sustainability reporting for industrial companies that are not yet prepared. For example, how will they calculate the CO2 emissions in their supply chain?

Herman Daems concludes: "The engine that creates our added value must not stall. That should be the main priority in political and administrative circles today."

Michèle Sioen strengthens this message with a strong plea for economic growth. And this for several reasons: "Costs keep rising, you need to give your people a perspective, you need to be able to compensate your capital providers, you must keep innovating and thinking ahead."

-------------------------------------------

The joint interview with Michèle Sioen (CEO of Sioen Industries) and Herman Daems (Chairman of the Board, ECGI) was conducted by the interim editorial team of De Bestuurder. Author: Philip Verhaeghe, Photographer: Robert Smits. (The original interview is published in Dutch; the English translation is non-official).

The ECGI does not, consistent with its constitutional purpose, have a view or opinion. If you wish to respond to this article, you can submit a blog article or 'letter to the editor' by clicking here.