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of Chairman has changed during my time in industry. One Chairman summed it up like this:

If you look back to the 1960’s and 1970’s and you think how boards were run then, we are in a different world. The Chairman’s position has been professionalised and it has become not just possible, but in many cases obligatory, to talk about things that boards never talked about before. The interaction of directors, the judgement of boards collectively and individually, conflicts of interest . . . all these things make it necessary to redesign the board . . . the next decade should be the decade of the Chairman when they actually assert themselves and show how boards can be run well.

These remarks highlight two points made by most of the Chairmen with whom I spoke: the role has become more professional; and the principal task is to build an effective board.

Due diligence

Before considering these points in more detail, I suggest that ‘professionalism’ starts with the due diligence process when a Chairman is first approached to see if he is interested in the job. As one Chairman remarked, ‘If you are not comfortable with the Company, don’t take the job.’ Putative Chairmen will enquire about the company’s values and ethics. After all, one of their concerns, if they become Chairman, will be to protect the company’s reputation and preserve its integrity. The putative Chairman will also seek to discover how much trust there is between the directors and how effective are the relationships between executive and non-executive directors. He will want to talk to every director and to the company’s professional advisers including the auditor. He is likely to spend most of his due diligence time with the Chief Executive for, as we shall see, that relationship between Chairman and Chief Executive is critical for an effective board and, arguably, for a successful company.

It is common for a Chairman to be appointed from among the board’s nonexecutive directors, in which case due diligence becomes more straightforward. A number of those I spoke to thought their previous experience as a Chief Executive (though in a company in another sector) had helped them to run the board and to manage their relationships with their own Chief Executive.

Professionalism

The responsibilities of Chairman most frequently mentioned to me, apart from building an effective board, were:

setting the agenda and running the board meeting

promoting good governance in the company

creating an effective relationship with the Chief Executive

sustaining the company’s reputation

succession planning.

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The role of the Chairman

Setting the agenda and running the board meeting

Chairmen rightly consider that it is their job to ensure the board spends its time considering issues that really matter. It is too easy to overload the agenda with routine, administrative matters and regular reports from committees. It is particularly important that sufficient board time is given to developing and reviewing the business strategy. Although the Chief Executive and his executive team are primarily responsible for preparing the strategy, the Chairman must see to it that contributions and challenges are sought from the non-executive directors. These more independently minded board members are more likely to test the assumptions, coherence and affordability of the proposed strategy.

One Chairman told me he had to bring in a new Chief Executive to convince the management that a comprehensive business strategy was needed. That company had previously been used to fighting for survival and coping with shortterm problems. In that case, despite the Chairman’s dislike of committees, the board created one comprising the Chairman and two non-executive directors in order to support the executive team develop a strategy over a period of one year. The strategy was finally presented to the board over dinner the evening before a board meeting. Interestingly, in this case, the strategy identified that among the key weaknesses in the company were the absence of any succession planning and skill gaps in management as well as on the board itself.

Another Chairman told me that his board spent two days considering strategy at the beginning of each planning cycle so, later in the cycle, they were able to take a more informed view on the individual business strategies. The board was better able to determine how the company, as ‘owner’, would add value to each of its constituent businesses.

Chairmen of highly regulated and high-technology companies are especially sensitive to the need to allow sufficient board time for non-executive directors to understand the complex environment in which the company operates. Some of this education should be done outside board meetings, but Chairmen are aware of the lack of knowledge and involvement that most of their non-executive directors will have.

Getting the agenda to be relevant and appropriate, and ensuring the board minutes are reliable, are essential to create a climate of transparency in the board and also for laying effective audit trails should something go wrong and the question is asked ‘what was the board doing at the time?’ This has become even more important with the broader definition of directors’ duties contained in the Companies Act 2006 discussed by Charles Mayo in chapter 7. Every director needs to take care that his Chairman is using the board’s time in a way that is consistent with his duty ‘to promote the success of the company’. All directors, not just the Chairman, could be exposed if agendas and board papers fail to include those matters that are material to the company’s success.

In setting the agenda, the Chairman will also take care to see that board time is not wasted considering proposals or other items that can properly be

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decided by management. The Company Secretary should be able to advise the Chairman by referring to the company’s schedule of reserved powers that lays down those matters that only the board can decide.

So far as running the meeting is concerned, the effective Chairman will allow the Chief Executive and his executive colleagues to present proposals or reports that will usually have been pre-agreed by management. The Chairman will see to it that presentations are not so long as to leave inadequate time for discussion. It is up to the Chairman to set a tone at the board meeting that encourages non-executive directors to contribute. The quality of debate is often dependent on the quality of the board papers and the presentations. A number of companies have introduced rules or guidelines for papers and visual aids. One Chairman limits presentations to a maximum of four slides (I recall when he was an executive director, his presentations were notorious for the excessive number of slides). A number of Chairmen consider it is helpful to invite professional advisers to attend board meetings when complex proposals are being decided or when there are serious legal or financial issues to be considered. This is viewed not as undermining management but as a necessary safeguard for the board and helpful in reaching the right conclusions. As one Chairman put it, ‘external advisers provide a reality check to make sure we are not kidding ourselves’. On the other hand, a Chairman with direct experience of crisis management told me he was grateful not to have been surrounded by an army of advisers. In that case he was happy with the internal support made available to him and for the space he was given to work through the crisis.

Another Chairman said he is never rigid about sticking to agendas so long as the weighty issues such as strategy and budget are taken first. He is content if information items or even governance matters are squeezed out. He argues that the Chairman’s priority is to ensure that all views from around the board table are heard without the agenda or the timetable limiting free discussion.

Promoting good governance

I am encouraged by the number of Chairmen who confirmed it is their job to ensure high standards of corporate governance are followed by the company, the board and its committees. They take this responsibility on their shoulders rather than burdening the Chief Executive. Some may see it as a compliance task but most appear to accept that governance is a feature of good management and will both help performance and enhance the company’s reputation with investors and the media. Of course, some complain about various provisions in the Combined Code, particularly the limit on the number of FTSE 100 chairs (which is now likely to be changed), but I found most of those I talked to believe the Code is operating ‘surprisingly well’.

A common complaint from Chairmen used to be that compliance issues, including corporate governance matters, took up too much board time. I would

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The role of the Chairman

make no apology for boards of regulated firms being required to spend a fair amount of board time on internal control and risk management issues. However, it seems to me that the case against governance dominating board agendas was always overstated. I recall Sir Digby Jones (as he then was), when Director General of the CBI, suggesting such matters typically took up 60 per cent of board time.

One Chairman, whose company is also listed in New York, told me that the first item on his board agenda is a report from the Company Secretary that includes recent developments in corporate governance and company law in the UK and the US. He considers it essential to keep his directors up to date and he does not see corporate governance as a necessary evil. He fully supports the need for clear accountabilities and greater transparency. He is convinced that his own accountability for promoting governance is not just about compliance, but also requires him to ensure the board is functioning effectively in support of the management and that the relationships between executive and non-executive directors is constructively tensioned.

Another Chairman sees his priorities for promoting governance as including the need to ‘systematise’ board processes such as agendas, papers and minutes so that directors are fully aware of all relevant issues. His concern for transparency is evidenced by the four questions he asks each year of his senior independent director:

How do you regard the quality of the relationship between the Chairman and the Chief Executive?

How open has the Chief Executive been with the board?

How visible are the checks and balances on the executive directors?

Have all the questions asked by the non-executive directors been appropriately addressed?

Chairmen usually look to their Company Secretaries for support in fulfilling their responsibility for promoting governance. This has increased the visibility of the Company Secretary dramatically, as David Jackson describes in chapter 4. One Chairman said he regards his relationship with his Company Secretary as extremely important and that he allows the Company Secretary to challenge him on governance issues. Sir Geoffrey Owen, in his research for the Chairmen’s Forum, suggested that Company Secretaries might be attacked by directors for being too pedantic. One Chairman told Sir Geoffrey, ‘It is always good to have one pedant around the board table.’

Creating an effective relationship with the Chief Executive

When the Chairman was also the Chief Executive there was no issue about relationships, but now management of their relationship is a top priority for both. None of the Chairmen I spoke to would admit to having any difficulty in this regard, but a number had witnessed the catastrophic results when such

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a relationship breaks down. As one Chairman said, where communications or trust breaks down, one of them has to leave and sometimes the solution is for both to leave. Another Chairman I spoke to is a ‘part-time executive Chairman’ but he still has to manage his relationships with three managing directors.

Since few Chairmen seem to have job descriptions (why is that?), Chief Executives may have their hands full should their Chairmen try to be too interventionist. This seems to be more of a risk in smaller companies or where the Chairman was formerly the Chief Executive. Most Chairmen do work at good communications with their Chief Executives and avoid excessive interference. Many have weekly private meetings which may last two hours or more and are designed to build trust between the two colleagues. Sometimes the senior independent director may attend these meetings keeping a watchful eye on the relationship. Where there is a risk of a breakdown, the senior independent director may intervene. In other cases, he may have to be the bearer of the message from the board that either the Chairman or the Chief Executive has to leave.

Although the Chairman may see himself as the mentor or coach to the Chief Executive, one told me that when he was first appointed he looked to his experienced Chief Executive for guidance. After a while he asked the Chief Executive for feedback as to how he was doing and was surprised to hear ‘I wish you were a little more paternal and a lot less fraternal.’ There are times when a Chairman needs to direct his Chief Executive, but normally the Chief Executive will decide when he needs his Chairman’s advice and whether to take that advice. The Chief Executive is responsible for running the business and cannot abdicate that responsibility by saying ‘I followed my Chairman’s direction.’ He must not be made to feel he is obliged to act on the Chairman’s advice or he will quickly stop raising issues with the Chairman. When there is a significant policy disagreement between them, that issue needs to be raised with the board. One Chairman told me that if he did not support his Chief Executive’s proposal, he would not allow it to be considered by the board. If he was merely doubtful, he would always let it go to the board.

All Chairmen stress the need for their relationships with Chief Executives to be totally open. A number had had difficulties over the issue of remuneration and these had been best handled when the Chairman had been frank and direct.

Although ‘non-executive’ or part-time Chairmen are not expected to attend executive team meetings, many cannot resist the occasional visit. This is often justified as helping with succession planning. While the Chairman might hope he is a fly on the wall at such meetings, he is more likely to be seen as a piranha in the pond unless he clarifies why he is there.

As Sir Geoffrey Owen’s research concludes, ‘the goal is a partnership in which the Chairman and Chief Executive have complementary, clearly defined roles, as well as complementary skills, qualities and experience’. The Chairman and the senior independent director need to be aware of the risk of that partnership breaking down and act accordingly.

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