In the past decade the role of the Chair has evolved significantly, in UK governance and internationally.
To that end Fidelio hosted a Chair Masterclass earlier in the year for those new to the role of Chair; and more recently we designed and moderated a panel for the Harvard Business School Club of London exploring “What the Chair Wants From His/Her Board”. Our panellists were a distinguished group of UK FTSE Chairs:
- Mike Clasper CBE (Chair of Coats Group plc)
- Bronwyn Curtis OBE (Chair of JPMorgan Asian Investment Trust plc)
- Carl-Peter Forster (Chair of Chemring Group plc)
- Sir Peter Gershon CBE (Chair of National Grid plc)
- Jamie Pike (Chair of Cobham plc & Spirax-Sarco Engineering plc)
The purpose of the debate was to review the role of the Chair, how the Chair adds value and how the Chair builds a Board.
On the evening we were joined by ca. 100 HBS Alumni, at very different stages of their careers, and all keen to understand more about Chair effectiveness with excellent questions for our panellists. Two questions stood out:
- Does the Chair need to have been a CEO to succeed in the role?
- What is the Chair’s contribution to sustainable success?
To answer these questions, in this Overture we draw upon some of the key observations from our panel of Chairs, as well as Fidelio’s insights from our Chair assignments in the UK and internationally.
The demands and expectations of the Chair are considerable and the Chairs on our panel underscored the leadership and judgement required in this critical role.
Leadership from the Chair remains essential in balancing the at times competing demands of shareholders and other stakeholders, especially “when the sun’s not shining”. All companies go through challenging times, and it’s vital that the Chair act as a role model in responding calmly and without agitation to the issues facing the company.
But to the question whether prior CEO experience was an important advantage for a Chair, we received mixed and nuanced answers. Indeed of our five Chairs, three had previously been serving corporate CEOs/Managing Directors; one had held senior Civil Service roles and the other held senior executive roles in finance and media.
The advantages of prior CEO experience are clear:
- Senior experience within a corporate providing an understanding of the challenges and pressures facing the CEO. This clearly gives the Chair greater insight into the needs and effectiveness of the CEO and Executive team. Prior CEO experience may well make the Chair more results oriented. If the Chair has previously served as a CEO in the same sector this brings obvious advantages in the understanding of the issues and the dynamic.
- On the other hand, one of our Chairs argued that the role of Chair is very distinct from that of the CEO, and therefore prior CEO experience is not essential and may even be a hindrance. The Chair has to allow the CEO to flourish and the Chair’s role is a skilful blend of overt leadership when required with quiet effective leadership behind the scenes, often involving a high degree of diplomacy. This may well require “the unlearning of CEO behaviours”.
The UK corporate governance code gives strong guidance to companies that “the roles of Chair and Chief Executive should not be exercised by the same individual” so that it is exceptionally rare in the FTSE 350 to find examples of the combined role. Fidelio’s Chair panel was also strongly in favour of Chair/CEO separation, as combining the roles vests too much power in one person and can allow the Executive Chair to dominate the Board and company making it extremely difficult to drive change.
Equally, reservations were expressed about a former CEO becoming Chair of the same company: this has been a major governance concern in the German market, leading to the introduction of a two-year “cooling off” period in the latest German Corporate Governance Code. A Chair who has previously served as CEO is deemed less likely to dispassionately review past decisions taken on her or his watch.
Stimulating Debate, Making Difficult Decisions
Our HBS Panel explored not only the route to the appointment as Chair but also some of the granular and practical aspects of effectiveness in the role, including how best to Chair a Board or Committee Meeting.
Our experienced Chairs advocated that the Chair does well not to express an opinion at Board meetings until the topic at hand has been thoroughly discussed and all Board members have had their say. This is can be a delicate business. Clearly the framing of the topic and the debate will also serve to shape the outcome and Fidelio has also seen Boards struggle with Chairs who are too studiously neutral. Judgement and leadership clearly come in to play here.
Decision making on big issues can be tough for the Board and Chair. But this is what Boards are appointed to do. An example was given of a Board decision to put all surplus cash into the company’s under-funded pension scheme. It was not clear at the time that this was necessarily the right thing to do, but the action enabled the stock market to look beyond the pension funding issue and resulted in a significant upward revaluation of the company. This was a difficult call by the Board and illustrates how the best decisions are typically made drawing on collective rather than individual wisdom.
Setting the Agenda
A key concern that Fidelio sees across our Board assignments is that Boards feel too weighed down by governance/compliance/administrative matters and that not enough time is spent on strategy. Our Chairs echoed this:
- The Chair sets the Board Agenda and plays a critical role in ensuring the Board strikes a balance between governance and strategy.
- The Chair is responsible for a Board process that generates real sustainable outcomes
- An effective Chair will lead a Board that is substantially more than a talking shop or rubber stamp, and is also capable of thinking beyond the limits of today’s business model and challenges
Equally an experienced Chair will understand how an effective Committee architecture can support the work of the Board by ensuring that key issues ranging from risk, financial reporting and health and safety receive the granular attention required with critical issues coming to the Board’s attention.
A wise Chair will understand how to structure a Board Agenda to create space for strategic, forward looking matters with the flexibility to deep dive when required.
Managing the CEO, Planning Succession
The relationship between the CEO and the Chair is a vital one, with the Chair acting as sounding board and mentor: the relationship should be close but maintain a performance-driven tension.
Arguably a Chair who has CEO experience will indeed have greater insight into the demands on the CEO and her/his ability to address those demands. But the Chair needs to be able to make a dispassionate judgment here.
As one of our Chair panellists flagged a Chair inheriting an incumbent CEO needs to decide quickly if they are part of the solution, or of the problem. If the latter, a succession plan is needed as soon as possible, and the process can for a number of reasons be a lengthy one. If it is mismanaged it can have a lasting negative effect on the company: CEO succession is a vital measure of Chair effectiveness.
CEO succession planning benefits from good judgement, strong governance and an effectively run appointment/ Search process. Prior CEO experience does not guarantee this. Good Chair skills do.
Driving Board Composition
Ensuring the Board composition is aligned to strategic objectives and serves the needs of the company is a major element of the Chair role. Specific and relevant skills are vital for Non-Executive Directors; our Chair panel also flagged the importance of personal attributes and characteristics.
One of our Chairs boiled this down to the concept of the “critical friend” – someone who is able to provide challenge, but remain on the team at the same time. Everyone on the Board needs to feel comfortable that they will be listened to; the Chair must also be able to move the discussion on, if necessary closing a Board Member down. A good Chair will be comfortable with diversity and drawing upon potentially very different perspectives. This is a Chair skill that is much underestimated.
Concluding with Long-Term Results
Fidelio’s Chair panel put clear emphasis on the importance of sustainable long-term results. The Chair clearly has a pivotal role here and seven priorities were identified for a Chair seeking to ensure the long-term success of the company:
- Ensure the Board focuses on the issues that matter and the wise decisions needed on these issues
- Build a Board capable of working collaboratively and able to tolerate and learn from dissent
- Develop a good Board-level understanding of stakeholder expectations and ensure that the company is indeed doing the right thing by its stakeholders
- Maintain Board and Company cohesion under stress
- Through short term pressures, distractions and opportunities keep the long-term strategy on track
- Avoid the temptation to squeeze the company for short term results which may gratify the markets but undermine the company in the longer-term
- And ultimately leave the company in a stronger and more sustainable position when handing over to the successor Chair.
Fidelio was delighted to collaborate with HBS Club of London and our five very thoughtful and thought-provoking Chairs on this panel discussion. While we shed a great deal of light on what makes an effective Chair and the Chair’s contribution to long-term success, we did not definitively answer the HBS Alum’s question “Does the Chair need to have prior CEO experience?”. Rather we highlighted the complexity and distinctiveness of the Chair role and while a good understanding of the CEO role is essential, a very strong former CEO will also need to think carefully about unlearning CEO behaviours on becoming Chair.
Fidelio supports Chairs in the UK and internationally through Search, Evaluation and Development. For further details please contact Gillian Karran-Cumberlege at firstname.lastname@example.org.