On the functions of supervisory boards in the Netherlands

In corporate governance systems boards perform three functions: the interlocking function
(from a resource-dependency and network perspective), a monitoring function (from an
agency perspective), and a strategic function (from a strategic choice perspective).
In a one-tier board the board of directors incorporates non-executive directors (outsiders, they sometimes represent the interests of key-stakeholders) and executive directors (top
management) of the firm. In a two-tier board there is a clear distinction between the directors as members of a supervisory board and the top management team. The board serves in this respect as a supervisory board vis à vis the management board. In the Netherlands a two-tier board is prevalent. Firms who act under the structural regime have boards that are
characterized by the co-option principle. This means that board members have to act in the
best interest of the firm and ultimately choose each other (and are not chosen by the
shareholders or other stakeholders). Co-option has some advantages, but also some clear
drawbacks, such as the potentiality of groupthink. The structural regime and other governance regimes, in which the relationship between supervisory board and management board is established, have moderating effects on the hypothesized relationships between the three
functions and performance of firms.

	00E50.pdf

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