Success Can Breed Secrecy

Your CEO is a star and the company is cash rich. This is precisely the time a good Chair should raise questions, says Svein Ruud, Leader of Amrop’s Global Board Practice. “The Board depends on the information it gets from the CEO. If the CEO wants to play his own game and exclude the Board he can for some time, until the board feels it’s in the dark and the trust between Board, Chair and CEO is lacking. Even when a company is performing well there can be cause for the board to remove its CEO. A Board that doesn’t know what’s going on inside a company is adding risk on risk. Eventually it will go wrong.”

The Challenge of the Two Hats

Two in One No Longer Flies

A Swedish-American global manufacturing company has flourished under its strong CEO. But the company is listed on the American stock market, so the Chairman and CEO can be combined. Svein Ruud warns: “that person has too much power over the Board and executive management team. If he is always on the right track then it could be fine, but the day he or she is not, and nobody dares to oppose him or her, then you have a huge risk that the wrong decision will be taken.”

The Challenge of the Forester

Chairs and Dead Wood

Assuming the separation of CEO and Chair roles, the Chair must ensure every Board member adds value. Amrop Switzerland Managing Partner Fredy Hausammann believes the first task is to clear dead wood - inevitably a controversial process. One board: “thought it was unjust, even though they had been there over ten years. They felt it was a fair reward to be on the board.” But strong, confident chairs reap great benefits when they turn an ‘old-boy’ board into a value-adding one. Hausammann cites such a case: “Now the CEO tells us that the governance body gives them much more valuable feedback, and there’s a much improved sparring relationship between the executive and non-executive Boards.”

The Challenge of the Sounding Board

One Hand Clapping

For Fredy Hausammann, the right Board composition will bounce value back to management. Sadly, competencies are regularly missing, raising questions around how well chairs are ensuring effectiveness. “Today it’s a given that the CFO has a sparring partner at board level, namely, the Head of the Audit Committee. But if you look at other disciplines, many roles don’t have a sparring partner like that at non-executive board level. In digitization it fails to happen, HR nominations too, and maybe even in marketing and sales.” Yet: “Every director should have someone with similar experience at non-executive level to spar with.”

The Challenge of Distance and Closeness

Guide, Don’t Smother

The qualities of a great CEO don’t necessarily make a good chair, says Fredy Hausammann. “Let’s say a CEO becomes a Chairman. Sometimes he comes in every week and gets too involved with day-to-day operations. Then at the other end of scale you have the chairman who meets with the board five or six times a year, only thinks about vision and strategy, and doesn’t know the key people in the company. Neither scenario is right. You have to be close enough to the business and its people to be able to guide, steer and spar, but not be so close that you’re taking up too much management time, even burdening them with special tasks and questions from the board,” he says.

The Challenge of the Warm Fire

The Cost of Failure

Svein Ruud cites a once-thriving media company. “They had been taken over by hedge funds, attracted by the large cashflow and good dividends. The chair, instead of challenging the owners, who were slaughtering the company, rather relaxed into simply being Chair of a listed company and enjoyed himself. The balance sheet over time became an anorectic and they couldn’t invest in the digital sphere of their business. A succession of CEOs and CFOs came and left, all lacking in support from the Chair. And now the company has almost gone bankrupt. This is the fault of the Chair. He should have staked his position and given an ultimatum to the hedge fund owners.”

The Challenge of the Dominant Owner

Legacy Problems

Despite India’s robust code of conduct, its Chairs and Boards are often criticized for being toothless. And, as in other markets, company ownership in too few hands can be a problem, says Preety Kumar, Amrop Board Member and Managing Partner of Amrop in India. “An over-dominant owner may want to retain authority in running the Board and curtail its power. When it comes to the chairmanship, the owner may assume the role, or employ someone weak. This may be due to a lack of understanding of the added value of a high performing board, or it may be unconscious. If it is a deliberate choice, then this is an ethical question. And particularly when the interests of the owner and the company diverge, it becomes a problem.”

The Challenge of Future and Past

Growing Pains

In Japan, the duration of board meetings in large companies has grown from a rubber-stamping thirty minutes to two or three hours featuring some actual discussion of management issues, an insider told us. “Increasingly, as Japanese executives return from postings in western countries, western ideas of openness are entering the boardroom. Discussion is more open, opinions are more often expressed officially. And this change is ultimately directed by the Chairman.” Still, traditions persist: “essentially, the role of the Chair, from the age of the Qin dynasty, or ancient Rome, to the present day, has not changed all that much. At least, not in Japan.”

The Challenge of the Tightrope Walker

Leader and Organizer

A study by Amrop and PwC of Supervisory Boards in Poland concluded that the Chair’s role had two components: leader and organizer. Tomasz Magda, a Founding Partner of Amrop in Poland, explains: “Leadership means creating a functioning style involving all Board members, taking their personalities into account and ensuring they are engaged in constructive dialogue, with all their energies focussed on the business. The Chair has to be able to steer discussions towards consensus and/or compromise. This is made more complicated given the increased emphasis on diversity and increasingly dispersed shareholder views. As ‘capable organizer’ the chair defines the agenda’s direction, ensures that proceedings have a harmonious rhythm and are conducted in an orderly way. He or she must also keep the board continuously focussed on monitoring key issues and implementing board decisions. Given the multiple forms of disruption facing today’s businesses, this is less simple than it sounds.”