Ken Rushton

open dialogue among board colleagues, perhaps in those meetings between the Chairman and Chief Executive or between the Chairman and the non-executive directors. Where they cannot be resolved, they must not be allowed to fester and the Chairman needs to recognise that board changes must be made.

Finally, my Chairman in his speech proposes measures for creating a climate of trust on the board:

neutralise political cliques

insist on proper, timely reports to the board

ensure bad news travels quickly up to the board

fully brief new non-executive directors – ‘warts and all’

encourage non-executive directors to listen more

ensure board members understand the difference between dissent and disloyalty – beware ‘group-think’.

He could have added measures such as articulating the values of the company and living up to those values by your behaviour and your actions; having a code of ethics and embedding it in the culture of the company; treating employees with respect and dealing with them fairly. However, his focus on maintaining trusting relationships at board level is entirely appropriate as that is where the Chairman can have the most influence. Furthermore the integrity of the company starts with the board, which needs to set the correct tone from the top.

Making good use of external advisers

The Combined Code provides that board committees should be able to call in advisers at the company’s expense. Remuneration consultants have made a good living advising remuneration committees and, some would argue, helping Chief Executives and their executive colleagues grow rich by getting them paid ‘above median’ salaries plus generous incentives for average performance.

Nomination committees call in search firms to find candidates for board vacancies, while audit committees increasingly find themselves looking to lawyers and accountancy firms to help carry out investigations. One recalls Davis Polk and Wardwell, US attorneys, assisting the Shell audit committee with its reserves scandal or Lord Woolf investigating British Aerospace’s business practices in the light of the alleged bribes for contracts in Saudi Arabia.

One Chairman I spoke to believes boards and their committees should make greater use of advisers. His company is highly regulated, with substantial interests in the US market. As previously mentioned, another Chairman was grateful that his company did not surround him with advisers when his board was in the midst of an enormous crisis.

One risk of engaging advisers is that it increases the chances of a leak to the press. This is particularly true in the case of corporate actions such as takeover bids, where a company cannot help using advisers though the number can be controlled. Leaks of commercially sensitive information that can create

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The role of the Chairman

a disorderly market in the company’s share price are far too common in these situations. The finger is often pointed at the advisers though far from easy to prove. It is up to the Chairman to make it clear to advisers that the chances of getting future business from the company are nil if such a leak can be shown to come from them. Also, if there should be a leak, the Chairman must make sure it is thoroughly investigated. While I was Company Secretary at ICI during a period of hyperactivity on the mergers and acquisitions front, I can only recall one possible leak. I am sure it helped that our advisers knew precisely what would happen in the event of a leak being traced to their firm.

In my final years at ICI it sometimes felt that the company had been overrun by advisers. Management consultants and investment banks would be invited to many of the board meetings. This did not go unnoticed by management, who asked the question ‘Who is running the company?’

As a former regulator (after leaving ICI), I am pleased, of course, that boards do take professional advice on issues relating to their listing obligations or other technical issues where the consequences of wrong decisions could seriously damage the interests of shareholders or other stakeholders. There are many other board decisions where directors are being rewarded for using their judgement and experience. Chairmen should not easily concede the collective wisdom around the board table to the advice of a consultant, who has little to lose, unless the issue is beyond the competence of the board.

Promoting the use of board evaluation and director appraisal

The Higgs review of the Combined Code advocated more rigorous board evaluation procedures and offered guidance as to how this might be done. At the time, many Chairmen considered that such a requirement was, at best, a waste of time and, in any event, demeaning to the intelligence and experience of those who serve on boards of quoted companies. Where Chairmen supported the proposal, they were frequently met with resistance from their board colleagues.

Now, board evaluation is seen as one of the best things to come out of the Higgs review. There are many ways of carrying out an evaluation, but what is more important is that the process will not be effective unless it is fully supported by the Chairman. Indeed, in many companies, it is the Chairman who leads the process supported either by an external facilitator or by the Company Secretary. Evaluation not only is designed to review board effectiveness but also may look at the performance of individual directors, including the Chairman. One Chairman considers the idea of a peer review of individual directors’ performance as ‘cobblers’. Companies differ as to how they appraise their directors, but the Chairman’s performance will usually be reviewed by the non-executive directors led by the senior independent director.

In some board evaluations, when the performance of individual directors is being scored by their peers, these scores will be disclosed to the Chairman and

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