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Boards and Recession – Europe

Following our Boards and Recession issue of Observe in August 2022, our global experts provide their perspectives on how Boards are reacting to the current economy in Europe.

To read the rest of the series covering the UK, Americas and APAC, click below:

The Netherlands

The war in Ukraine has dramatically increased energy prices. Average inflation in The Netherlands in 2022 was 11,6%, expanding from energy to other products and services resulting in a significant decrease in purchasing power. At the same time, labor markets are still highly competitive. These developments are driving up wages and creating the risk of an upward wage-price spiral. Companies are preparing for a recession and the first interventions such as mass redundancies are being reported.

These developments are also putting new pressure on Boards. Non-executives must navigate uncertain and rapidly changing economic, environmental, and political landscapes and ensure effectiveness in their leadership challenges – from an outside regulatory and societal perspective, and from various internal perspectives, such as accountability, strategic direction, guidance towards the executive team, cultural and organizational development, etc.

Boards exert their influence by asking the right questions. In doing so, they must consider more dimensions and perspectives than they were used to, which in turn leads to a need for diversity in thinking.

Boards need to manage ongoing crises, while simultaneously creating a framework for validating the effectiveness of their own leadership, decision making, value creation and ESG footprint.

Read more: What a boost in leadership confidence means for global leadership acquisition– download our Leadership Confidence Index 2022 here.

Increasingly, boards need to reflect on their own composition, governance and decision-making dynamics. They should be continuously challenging if their structure is fit for purpose, or whether they need to refresh. Other questions they should ask themselves include:

  • Do they have the right framework for their duties and are they still all in agreement with values and mission statement? Are they delivering on their purpose?
  • How do they oversee the perspectives of the various stakeholders; such as the long-term societal impact of the organization’s strategy, ESG considerations and new regulatory expectations? 
  • Which hard (technology, innovation, ESG) and soft skills are needed to create the necessary (and cognitive) diversity in the c-suite team? 
  • Do they challenge themselves sufficiently to optimize their performance? Is there sufficient trust to speak up? Do they allocate sufficient time to their duties? 
  • Is their governance system good enough in facilitating their executive’s leadership effectiveness? 

These questions are gaining importance and urgency in light of this uncertain environment. Next to gravitas, experience and insight, a different breed of potential board members are asked to step up and bring in a new and fresh perspective. We think many boards should ask themselves if they embrace this development enough by analyzing what they have and what they need – and embrace a new reality.  


As in the Netherlands, the war in Ukraine has dramatically increased energy prices across the country. Inflation is impacting everything from energy, food, and consumer goods. Meanwhile, following the recent election, the new prime minister and government are promising salary increases in the public sector. The interest rate increase is starting to impact the start up community; the cost of capital is increasing, impacting some companies. Denmark is still pushing for the green transition and new ESG requirements are driving companies towards new green investments. The country is still at 2.6% unemployment rate which is very low however, there are small signs of hesitation in the larger companies; who are starting to implement proactive hiring freezes due to the uncertain year ahead. Some sectors are already showing signs of this e.g., construction, architecture, and some suppliers for public hospitals due to a lack of staff and reduced activity. Though there is still a large demand for digital skills across all industries, and most candidates have two jobs to choose between, which is driving salaries up. 

We are seeing an increased workload on boards due to the current macro-economic environment, the need for climate change knowledge, legal skills requirements in the EU, changes in the global supply chain, emerging challenges around Taiwan (with chip production issues hovering in the background), and the ongoing war for talent.

Boards have been in training mode throughout the Covid-19 crisis. This enhanced the abilities of most boards; increasing collaboration, their ability to work together with executive teams to handle challenges (financing and supply chain related), and adapt to new technologies and working methods such as Teams and Zoom. Some also adjusted by hiring for new competencies in e-commerce and digital services. For the most part, the pandemic ensured boards can operate in the current environment.

To succeed, we believe boards and executive teams need to reflect on a joint operating model, in particular, the following:

  • Boards need to provide greater support on the long-term implications of risk and strategy, while the executive team focuses on the 12-month view.
  • With a more uncertain world, risk in supply chains and increasing digitalization in all sectors, there are implications for board composition. They may need to build greater adaptability into the company’s operating model and ways of working.
  • Many companies will need to invest and transition to new energy sources, impacting short-term profitability. Boards and executive teams need to align on these priorities.
  • Climate change and a greater focus on ESG will require more attention from boards.
  • It is increasingly important that boards and executive teams enhance the trust and openness in their relationship. This will ensure the right topics are discussed for both teams to deliver effectively on the company strategy.
It’s time for boards to challenge core assumptions within the business to achieve greater value creation.

Will the business be sustainable in future markets? Does the business plan require any adjustment? Where should the business invest to secure long-term sustainability?

Our data from many board evaluations shows that boards are in a proactive work mode. It’s important for boards to be self-reflective and continuously evaluate their own performance. This can be done by using ongoing meeting evaluations, annual board evaluations, creating a trusting environment and hiring the right competencies.


The macroeconomic environment is largely identical to the ones described both by the Netherlands and Denmark. In addition, the Luxembourg government has put in place an energy price cap for both gas and electricity. The main purpose of these measures is linked to the automatic indexation of salaries in the country in line with inflation. This system prevented dramatic salary increases, which would have hurt SMEs in particular, who represent the backbone of the local economy.

Two events are affecting boards in Luxembourg:

On 22 July 2022, the Luxembourg insurance regulator Commissariat aux Assurances (CAA) published a new report (circular 22/15) setting out regulatory requirements on the function and structure of the Board of directors of insurance and reinsurance undertakings operating in Luxembourg. Among the numerous points elaborated, the report states that boards should be composed of a minimum of three members, providing that executive directors represent a minority in the board and that the chairperson be appointed among the non-executive directors.

These binding rules will apply to the 80 insurance and some 195 reinsurance companies operating in or out of Luxembourg. There will be some expected frustration in the non-executive directors (NED) population locally, while we believe we will also be faced with a skills gap in the insurance business.

The second development touches upon the need for boards to broaden their base of non-executive directors (NED) generally, to focus on diversity, and add more specific competencies.

The number of NEDs on boards related to regulatory and fiscal areas is linked to the BEPS initiative of G20 countries (domestic tax base erosion and profit shifting). BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity or to erode tax bases through deductible payments such as interest or royalties. All of this applies to all OECD and G20 countries, as well as some developing countries participating in the implementation of the BEPS package.

In this context, it is important to understand the EU initiative to update the Anti-Tax Avoidance Directive (ATAD 2) and to propose a new draft in the months to come (the ATAD 3 directive), which aims for the establishment of rules to circumvent the misuse of so-called shell entities. The proposal introduces new reporting obligations that may result in the denial of tax advantages to EU entities that are deemed to have no or minimal substance. Luxembourg is an international financial center with a substantial domiciliation activity for numerous international companies of diverse geographic origins. These various regulations and directives require a thorough review of the corporate setup in order to avoid being exposed to unpleasant (tax) surprises. It entails, above all, that boards need to build sufficient capabilities in relevant countries in order to avoid penalties under the BEPS directive or see most of their income declared less favorably locally.

One of the required measures for numerous Luxembourg resident companies with foreign roots, and exploiting substantial activity out of Luxembourg in other countries, is to review their corporate governance and board composition. Appointing resident NEDs with a specific understanding of the relevant business or presenting specific sectorial skills will be part of the solution and we expect some movement in this field.

All in all, we believe there will be ongoing movement in board members throughout this year.

To discuss how the recession may impact your business, and how your board can prepare, please contact the authors, get in touch with us here, or your local Odgers Berndtson contact.

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