An international comparison of the efficiency audit: benefits a question of mindset?
The tasks and requirements of supervisory boards have changed considerably in recent years. In an increasingly complex economic and regulatory environment, supervisory boards must not only fulfil their traditional monitoring function, but also act as strategic advisors and innovators. This expanded role was also emphasised in the last practical impulse of the German Corporate Governance Code (GCGC).
A decisive instrument for successfully fulfilling these tasks is the right composition of the board. Here it is important that the competences of the Supervisory Board members are heterogeneous and aligned with the entrepreneurial challenges. The efficiency review, as an instrument of regular self-evaluation, was introduced in order to scrutinise and continuously optimise these issues.
Principle of the efficiency review
The overarching aim of the efficiency review in the Supervisory Board is to improve the quality of the work of the committees. A well-founded efficiency review is intended to help promote the strengths of the Board and identify potential for improvement that will contribute to increasing the effectiveness and efficiency of corporate governance.
So much for the theory. In practice, however, there are considerable differences in both the implementation and acceptance of the efficiency audit tool, particularly in an international comparison.
International comparison of the efficiency audit in the supervisory board
Depending on the country and legal culture, there are significant differences in the design and objectives of the efficiency review. Some internationally established approaches are presented below in order to find out which methods are particularly successful.
1 Germany: Efficiency audit as a mandatory exercise
In Germany, efficiency audits of supervisory boards are an established practice that is carried out in accordance with the German Corporate Governance Code (GCGC).
Nevertheless, the acceptance of this instrument must be critically scrutinised. Efficiency audits are often seen as a compulsory exercise that merely serves to fulfil regulatory requirements.
In practice, the spectrum ranges from standardised questionnaires to moderated interview processes. The benefits of the audit for the continuous development of the board and its members often fall short of the actual potential. In Germany, the efficiency audit is primarily perceived as the fulfilment of a formal requirement and not as a strategic instrument for improving the work of the board.
2 Great Britain: Efficiency audit as personal empowerment
The UK Corporate Governance Code requires an annual self-evaluation and an external review every three years in order to identify potential blind spots.
In the UK, the focus is on the personal responsibility of board members, which is also reflected in the way the principle of the efficiency review is handled. The efficiency review tool is not seen as a pure obligation, but as an opportunity for personal development and empowerment. The focus is on providing each Board member with a tool to critically scrutinise their own performance and continuously optimise their own role on the Board.
Box-ticking exercises that merely serve to fulfil formal requirements are increasingly being rejected. Open-minded chairs are therefore consciously looking for providers and tools that help them gain a deeper understanding of how they can further develop their board. They see the effectiveness review not as a mere formality, but as an integral part of the continuous development process that enables members to reflect on their performance and position themselves as valuable players on the board.
In this way, the efficiency review is perceived not just as an obligation, but as an ongoing, self-determined process of self-optimisation that strengthens the entire board and promotes a sustainable improvement in governance structures.
3. USA: Efficiency audit to validate competences
In the USA, the annual evaluation of board work is mandatory for listed companies, based on the Sarbanes-Oxley Act (SOX). As in the UK, the monistic management principle also applies in the USA, in which the continuous development of board members plays a central role.
However, the efficiency review in the USA focuses more on the core tasks of the non-executive members, in particular their ability to recognise entrepreneurial risks and provide strategic advice.
Compared to the UK and Germany, the process is more closely aligned with the specific tasks of the supervisory board members, which enables a deeper and more targeted assessment of their competences.
Conclusion
The international comparison of the use of the efficiency review tool shows that Germany still lags behind the potential of this methodology in its strongly regulatory approach.
Carrying out the efficiency audit as a compulsory exercise is not enough to create added value for the board and the company.
It is therefore time to take inspiration from successful international processes. In particular, the opportunities offered by digitalisation, such as the possibilities of external benchmarking and data-based analysis, offer great potential to raise the efficiency audit to a new level and thus contribute to the continuous further development of supervisory boards.
