The role of the Chairman

Sustaining the company’s reputation

A Chairman, when asked by his wife to describe his job, replied ‘to stand above the parapet and take the flak when everybody else is down in the trench’. Chairmen accept that they are accountable for upholding the company’s reputation. This gives them a dilemma and they need to find answers to questions such as:

What issues might affect the company’s reputation?

How and when does he get involved in these issues without undermining the Chief Executive’s authority to run the business?

Are there circumstances in which the company’s reputation is so much at stake that the Chairman must effectively ‘take over the reins’?

Chairmen usually prefer to keep a low public profile and leave their Chief Executive in the spotlight. When things go wrong, or are at risk of going wrong, then the Chairman has to intervene. At all times he needs to be aware as to how the company is perceived by its stakeholders and he should keep in touch with the mood of investors and the press. He will also sense the mood of the employees since a loss of confidence inside the company can be as damaging as a weakening of external reputation. One Chairman put it to me that ‘Chairmen tell employees what they can’t do while Chief Executives tell them what they must do.’

In times of crisis the Chairman is likely to be a key player and his effective management of the board at this time is essential if the company is to handle the crisis successfully. At such times, when the eyes of the world are watching the company, attention is focused on the board and its responses (remember Marconi?). Increasingly, investors and the media are asking ‘Where is the Chairman?’ During the crisis at Northern Rock, this question was being asked by the press, taking advantage of the fact that its Chairman, Dr Ridley, was not well known in the City. The difficulty for the Chairman is to decide whether to focus on ensuring the board is supervising (in some cases controlling) crisis management while supporting the Chief Executive, or whether he himself needs to be the main company spokesperson. Where the crisis is on the board, the Chairman needs to lead the investigation and get to the truth quickly and resist any temptation to bury bad news. A confident, respected and well-briefed Chairman can calm the nerves of anxious stakeholders at times of crisis.

Similarly, there are times when a Chairman needs to be restrained from exercising his natural inclination to be seen publicly to be doing something. Think of the Chairman of Union Carbide’s ill-timed visit to India after Bhopal which led to his arrest. It was understandable that he should feel the need to go there but he should have been better advised.

On a smaller scale, I recall advising my own Chairman at ICI to delay making a visit to the scene of an explosion in Peterborough when one of the company’s vans carrying commercial detonators caught fire. Sadly, a fireman had died and there was much damage to property. Media attention was intense

35

Ken Rushton

for a brief period and a visit by the Chairman at that time was more likely to result in angry scenes and unsympathetic publicity as emotions were running high. When the Chairman visited a few days later, it received little publicity but was locally seen as being considerate and well timed.

In large international companies it is unrealistic to expect the board to be so close to all facets of the business that it should be held accountable for every incident or accident. It is fair to look to the board to supervise management’s handling of such an event, if its scale is so great that it puts corporate reputation at risk. Beyond this, it is also vital, as well as a requirement of corporate governance, that the effectiveness of internal controls are kept under review. In the UK, these requirements do not relate only to financial controls. Although the board usually delegates this review to its audit committee, I believe that the Chairman should take a particular interest. I would encourage him to attend the meeting of the audit committee when the internal control review is discussed each year. I also believe the review should embrace issues like crisis management; the defence plan in the event of a takeover threat; and external communications, particularly with financial markets. These reviews are an essential part of reputation risk management and the Chairman should participate as necessary to discharge his responsibility for sustaining the company’s reputation.

It is interesting that BP, after its run of bad news such as Texas City and Lord Browne’s resignation, decided that the board itself, rather than a board committee, should assume responsibility for keeping the company’s reputation under review. Similarly, in Shell, after the damage caused by the overstatement of oil reserves and the dismissal of the Chairman, the incoming Chairman saw his main task in restoring the company’s reputation as being to rebuild trust with employees, investors and the media. As Lord Oxburgh told me, his main concern was to get the day-to-day business back on track as quickly as possible. I give him the last words on this topic: ‘the Chairman’s personality and interaction with the outside world are immensely important for the value of the company . . . the Chairman must be approachable and trusted’.

Succession planning

The Higgs review emphasised the need ‘to ensure that the board as a whole has an appropriate mix of skills and experience . . . to be an effective decision-making body’. Although the Combined Code requires that a nomination committee of the board should lead the process for board appointments, and that this committee should be chaired by an independent non-executive director, I believe that in practice the Chairman will be very influential in its decisions. This is hardly surprising given his responsibility for running the board.

Chairmen agree that succession planning for board appointments is one of their main concerns. In particular, they think about succession to the Chief Executive and future non-executive directors. The Chairman will also consider potential executive directors with the Chief Executive and, privately, with the non-executive directors.

36