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The role of the Chairman

K E N R U S H T O N

Introduction

In the UK over 90 per cent of listed companies split the roles of Chairman and Chief Executive, whereas in the US the reverse is true. It is said that in the US a Chief Executive’s vanity is hurt if he or she is not also the Chairman. A number of Chief Executives in the UK might feel this way, and arguably, for successful companies that can avoid rough water, it might be feasible for a gifted person to combine the two roles effectively. More than one Chairman told me that if the company’s strategy and management are good, the job is easy. However, I firmly believe that the conventional wisdom that there are two distinct roles – running the board and managing the business – is sound.

The Chairman is properly seen as one of the checks and balances on the authority of the Chief Executive. This does not always work in practice. For example, Enron (although a US company) had separate Chairman and Chief Executive. Astonishingly, Hewlett Packard reacted to its boardroom debacle by appointing its Chief Executive to be Chairman.

Another argument for separating the roles is the additional responsibilities created by all the corporate governance requirements that have been imposed. Better to let the Chairman, assisted by his Company Secretary, deal with ‘all the compliance stuff’ than distract the Chief Executive from his operational duties.

Sir Derek Higgs suggested the Chairman is responsible for:

leadership of the board, ensuring its effectiveness on all aspects of its role and setting its agenda

ensuring the provision of accurate, timely and clear information to directors

ensuring effective communication with shareholders

arranging the regular evaluation of the performance of the board, its committees and individual directors

facilitating the effective contribution of non-executive directors and ensuring constructive relations between executive and non-executive directors.

After talking to a number of present and recently retired FTSE 100 Chairmen, I believe Sir Derek’s list is a good one. What has struck me is how much the role

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