K#290 Aufsichtsräte und Digitalisierung? Rainer Hillebrand & Nils Seebach

Now Rainer, welcome to the Kassen-Zone podcast, the first live podcast again, face-to-face in times of corona. We have 15 meters of distance here, even if the video makes it look different—that's due to perspective distortion. Anyway, today we're talking about supervisory boards, especially digital competencies in supervisory boards. I think both of you have exciting stories to tell, and we can clear up some myths. For those who don't follow Kassen-Zone daily and know who you are, please introduce yourselves briefly. We'll start with the last one: what do you do, Rainer Hillebrand?

Good, that brings me to something, but let's do the introduction round with Nils Handler, Alexander...

I've gathered my experience with tag and the greens from numerous companies, Faktor A, S-Biker, and I'm operational, running my own consulting firm where I focus on internal structures as well as sales and marketing aspects. That's what I think about daily, and in parallel I'm a supervisory board member of several companies and advisory boards, supporting them in their digital transformation. It's mainly about exciting questions around digital issues, less about traditional business models. That's a brief introduction from me.

How is the task of a supervisory board classically described?

I see it similarly. I have a particular mindset because I work a lot with family businesses. For me, the question always is: what would the family society expect from me as an external expert who brings know-how but must also support the management team in creating and expanding long-term value for the family? That aspect is crucial for me, which is why I enjoy working in family businesses—you have a certain long-term perspective, not that quarterly-report disease.

We came to this episode because in recent years there have been strong discussions about the digitalization of companies, and we've already sat together in various rounds. In the last two or three years, my observation is that it has intensified around the topic: of course there must be digital know-how in the executive floors, yes, that must be so. But it actually starts with the supervisory boards: is digital thinking present? And if they lack experience, digitalization won't work. And from my perspective, that has intensified. I can give two examples. And then there's always the cry: we need more digital competence in supervisory boards. One has to see who's crying out. Depending on which articles are online, you get the feeling that the people writing them are those who are currently jobless and would like to become supervisory board members themselves. But basically, I agree: is digital competence lacking in Germany even in the committees? In my opinion, yes, immensely.

So how does it look at a... or then when you are constantly 100 percent? I believe digital competence can never harm supervisory boards per se. And it also depends on what kind of company it is, in which industry it operates, and its stage of development. I don't want to say blanket that all companies need more digital competence. There are some that already have it, in my opinion. But you certainly need much more. And the decisive point why I believe this is: when I spoke earlier about the advisory function of a supervisory board, I mean that a supervisory board must be able to ask the right questions from their experience and, if possible, spar and coach management in the right direction. But on the question of digital competence, I would not focus exclusively on the supervisory board; I also believe that many companies lack digital competence in management itself. Unfortunately, I know many companies where you see that the management board has no digital competence. They have a CDO or someone who is perhaps the most technically engaged and fastest at using a smartphone, so they hang the CIO title on them, but that person is far below the board level. And I believe that the way digital competence is implemented in companies and committees is a very, very relevant question. There is certainly no one recipe, but there is definitely a necessity.

Suppose you're in a company where exactly that is lacking—where the CEO essentially reports to the IT manager, and success in subprojects is impossible. You lack digital competence; you either build up the department or you may need to make a change. A typical board member might say: if we operate the channel successfully in our branch, everything will be fine. So what leverage do you have to change that? Or perhaps there is none? The advisory function is also limited in that.

Before we go into exactly how to get digital competence into the board and how to build it up, can people tell how one actually becomes a supervisory board member? I think for many listeners who are currently in various functions and may never have had direct contact with a supervisory board, perhaps working in companies without a classic structure, this is interesting. You are active in several larger companies now. How did you become a supervisory board member?

And can the experience you gained in retail transformation at the Otto Group be transferred to another system, like a bank? The Commerzbank is a completely different thing, isn't it? Are these things generalizable?

Disrupted—maybe one thing: in my opinion, culture is an effect, not a cause. But that might be better placed at the end; it's a longer discussion.

You just mentioned the two examples of Florian Heinemann from Project A and Christian Leybold from Adventure? Those were also transformation projects, so to speak, which at the time they initiated are now very successful cases. And we have to do that to be as successful together as the Otto Group. But what did Project A do? It was built during the financial crisis of 2008, correct? Project A was one of the first real corporate venture capital funds, together with Springer who were also involved in 2012. Those were things that were very bold back then, blood wasn't flowing yet in Germany, partly not even in Europe from companies that had done that. Are you inclined to pass on that experience curve 1 to 1 and say okay, where is the company now compared to Otto? Do they now also need to build a venture arm or an incubator, or can that not be transferred one-to-one?

Yes, so I'd say the core question, the core topic is, I think, the same everywhere: how to implement it. We've digressed a bit. Now we get to the same questions again: how does one become a supervisory board member? Essentially there are two possibilities: either you have a relationship to the principal, the family that owns the company, built on trust combined with a track record together, or say if someone at an investor has seen how you built a company, they get to know you and understand how you see things, and then it's a natural progression that you are asked to support them in certain aspects that are right for their portfolio companies. And then there's also the classic way: a headhunter calls and says we have something, are you interested, and then you apply, have interviews, job talks, and are appointed. So headhunters have an important role. But I believe the sustainable role, because it is based on very high trust, is when you've followed someone for a long time — what VCs call a lookback — where you've seen that the person delivers what they promise, and that is incredibly important. But that also requires a certain operational approach in the supervisory board. For example, my success case is the Otto Group digitalization in a certain phase for which I was responsible. You come with operational know-how and impact. At About You, with Tribes, Polka, then you demonstrate how it's done. He says: tell us if we are doing it right. So that is actual advisory. I believe the discussions that you initiated with that curiosity must be there to engage with me. Because if someone says digital is great, what should I do as a supervisory board member? Then I am just a sandwich king there and don't need to sit around and help. So I think there must already be a willingness from the people involved that digital is important. And then I am relatively operational: I look at the company with a three-pillar model: First, digital core business — do you still take fax orders? If so, we have to stop that. Second, build business models that are close to the core of your existing activities but consistently digital. And third, look at what might break away in the next three to five years, so you need to invest in new business models, maybe even become an investor, away from the operational business. Those are my three pillars. And within those pillars, I am very willing to dive deep operationally with the management team and shed light on issues.

Maybe I'll address another point in the question: I would say it's not just trust and understanding. I think many headhunters have the problem: they find people who are quite good digitally, they come into the supervisory board meeting and bang on the table saying 'you are all crazy, you have to do digital completely differently.' That's someone who may be very good digitally, has good competence, but hasn't understood the supervisory board mandate because that's not the role. The role is to develop something through mutual discourse that results in the company being better positioned. And I believe headhunters are also a bit lost in identifying that person who is willing to take that intermediate role. You can look for a while and find builders who have built successful companies, but do you want them on your supervisory board? Questionable, because they will probably break too much and not enter into discourse to change things slowly. Because there are purely digital successful founders, but they have to learn that what the company has created and built was also really hard work. They need to understand how to take the traditional and digitalize it successfully.

That's exactly the dilemma you described. On one hand, you want someone you trust, but there aren't many, and it's always the same people. Some companies have formed digital councils or advisory boards where different people with different perspectives come together to specifically discuss digitalization. I think that's quite an elegant solution, as you can expand or reduce the digital council as needed.

What is your view on the observation that many companies are hesitant to appoint a digital board member and instead set up a digital department under an existing board area, which costs too much time?

But I agree 100% that it takes too long to change things and it sends the wrong signal. If a company really wants to pursue digitalization consistently from the top, it must be visible in the structures. At least one board member must have hardcore responsibility. The chairman of the supervisory board or CEO must be 100% behind it, or it will be difficult because there is enormous resistance.

If I may add: at the end of the day, it's about the budget. If you want to digitalize, you have to shift budgets. Budgets are not infinitely expandable; you have to take from somewhere else. That is where the real resistance comes from. Without deep anchoring and conviction, the topic is dead. A standalone e-commerce department cannot win the battle alone.

OK, so that describes that every board area is exposed to digitalization. In retail, it was sales-oriented, now a business center. What is your personal learning from the Otto transformation? And joking about SEO optimization in the board, I remember SEO workshops in 2008. With new platforms like TikTok, how many chances does an average CFO have to catch up on digitalization in his area? Has the train left?

So I hope that... but have you met cases where the learning curve is largely finished? Are there some where it's hopeless?

The ability and often a question of the CFO... in that sense, I would add what you just said: of course a CFO can do it if he has the will to learn and enables his organization to come up with the right ideas. Everything needed for digitalization is anchored somewhere in the organization.

Do you see enough patience in companies that are still facing digitalization? I recall a podcast where someone described that only two out of twenty venture investments work, but the eighteen that fail are seen first. Companies that are at the beginning of digitalization may need quick wins. Do you see enough patience in boards to provide guardrails and say we invested 25 million but we need to gas the other two topics?

I would also bring in the principle of why I believe family companies are incredibly well positioned for digitalization if they make the right decisions. You have to discuss whether a company is tasked with preserving assets or building assets. Digitalization requires building assets, leaving the old behind, and leading the company into the next generation. That mandate often exists in family companies with a close relationship to the founding history. In those companies, you can have a discussion about going back to the founding principles of risk-taking rather than risk avoidance. That mindset can make the digital transformation easier.

I would also pick up on Rainer's point about having no alternative. If you need to discuss whether digitalization is an alternative, I'd say let's see each other in five years. I don't even want to discuss that anymore because it's so tiring.

But would you today recommend companies you advise to go to the USA or directly to Asia to see what is important for digitalization tomorrow?

Last question in this podcast to both of you: in which companies would you like to be a supervisory board member, or where would you like to play the mouse? You can choose from international or local companies. We often read about the 71 big Dax boards, but what would be interesting for you?

I am a huge Jeff Bezos fan, so if I could choose, I would love to be part of all Amazon discussions. On the positive note, Amazon. If you asked for an anti-mandate where I would bang my fist on the table, it would be an automotive company. There I would be the screaming watchdog.

Thank you very much for your very open answers. At the beginning, we weren't quite clear how I would like it because we have two generations of digital board members... I think the learning curves we have are relatively parallel. I am happy to have had the opportunity to work on many topics at the right time. I would be happy to get an update in twelve years to see if this topic of digitalization in the supervisory board is hopefully a matter of course by then.