With the former chairmen of some of the UK's major institutions in disgrace, the chairman role, the top job in public enterprises, is under scrutiny like never before. Far from being benign or restraining, chairmens' influence brought catastrophe for both their business and the economy. So what is a chairman for? Boardroom veteran ROGER PARRY explains how this subtle duty should be carried out.
There is no simple formula for doing the job of non-executive chairman. Success or failure is more complex than growing the share price or profits. Mitigating a disaster can be as big a result as a victory. What follows is one perspective on what is needed. (The term chairman, by the way, is taken throughout to mean a man or woman.)
For most people, the main challenge of being appointed to chair a public company is that they have not done it before. One day you are a CEO or a director on one board, then suddenly you are chairman elsewhere. There is no set of rules to follow, no manual, no training course.
There is more to the role than the mechanics of board meetings. At its core is managing the relationship with the chief executive. He or she is the boss, yet you have the power to fire them. It's a potentially difficult double act. I was lucky that when I was CEO of a plc I had an experienced chairman. His sage words to me on our first day were: 'I will back you in every way until the time comes that I feel I have to sack you.' Fortunately, it never came to that.
There are three crucial tensions for a chairman to manage: independence vs advocacy; leadership vs control; and strategy vs tactics.
The notion that the chairman is independent of the company is an illusion. Non-executive directors should demonstrate tough-minded independence, but the chairman is, in reality, aligned with the management team. The chairman has to represent the company with pride and fight for its reputation. This requires commitment, conviction and passion, which does not sit well with ethereal detachment. But the chairman represents the shareholders too, and should have regular contact with them.
Some issues may divide owners and management interests. On behalf of the shareholders, the chairman should question complex financing schemes that boost earnings and bonuses but increase risk. And he should challenge charity or political donations that enhance management status but do not create value. The chairman should exercise independent judgment, but cannot be dispassionate.
The chairman is not the CEO. He must accept that the role is to support and coach the CEO, not try to supplant him or her. You cannot have two people in charge.
Chairing the board effectively requires leadership through influence rather than command and control. It means getting good information prepared, ensuring all key points are raised and all voices are heard. Leadership is not to dictate answers but to make the team functional. The power to issue orders and hire and fire staff rests with the executives. The chairman can persuade and cajole, but not direct.
If the chairman has an (obviously brilliant) commercial idea, the best way to raise it is with the CEO in private. If the CEO is enthused, he can then take it to the board as an executive proposal. The worst place to come up with new ideas is in the middle of a board meeting. Regular, informal meetings between chairman and CEO will help smooth the process.
There should be no conflict between strategy and tactics, but often there is. The need to achieve growth in quarterly earnings can be at odds with the desire to invest in a market, skills or a technology.
A good CEO will be focused on the next 12 months, so the chairman should help him or her to consider the big picture, to plan three years ahead and ensure that the board discusses the long-term, not just the next set of results.
Strategic insight can come from a chairman having external links with experts, legislators and advisers. He talks to directors not as a manager but as a consultant. A chairman can listen to shareholders, customers and competitors in a way the CEO may find difficult to do.
A crucial part of the chairman's role is to keep the board dynamic, which means considering recruitment of non-executives - and planning for his/her own succession.
The ideal non-executive is in a senior job elsewhere or is financially and intellectually independent as a result of past adventures. Beware the professional non-executive who is on multiple boards and really needs the fees. There will be noble exceptions, but such figures are often focused on governance rather than performance, and will always be first in line for the corporate golf day.
Chairmen must plan their own exit. They should set the criteria for a proper external search. Letting it be known that a successor might emerge from the current board is an invitation to infighting. It is better that current non-execs go off to be chairmen somewhere else, rather than vying with each other for the vacant role.
JOHNSTON PRESS: A MISTAKE I WOULD NOT MAKE AGAIN
The media sector is a brutal place at the moment. I'm chairman of three media companies that are regarded as doing well in the circumstances, and one that has suffered from the downturn. I think there are clear lessons.
Johnston Press, where I've been chairman for eight years, had a decade of spectacular success and was feted as the best-run media company. Board meetings focused on delivering operational excellence and driving annual earnings. Dependable performance left us comfortable with taking on a high level of debt. When the recession and Web 2.0 came, we faced dramatic falls of more than 30% in some revenues. We should have spent more time on strategy and less on tactics, and seen that the past is not a good guide to the future. Radical thinking is better. As Andy Grove of Intel said: 'Only the paranoid survive.'
The other boards I'm part of are suitably paranoid and quizzical. They have challenged conventional wisdom and sought innovation. All have operations in the US, which provided early warning signs of dramatic change. A fear for the dangers of the unknown resulted in strong balance-sheets as the credit crunch hit, which has given more flexibility. RP
Roger Parry is stepping down as chairman of Johnston Press this month after 12 years on the board, eight as chairman. He remains non-executive chairman of three other quoted companies: Future, Mobile Streams and YouGov
TEN RULES OF THE BOARD GAME
is not the boss
runs the board, not the company
is not really independent
is a conduit to shareholders and customers
should meet the CEO informally and often
be paranoid and sceptical
be a team, not an audience
be small rather than big
take decisions, not just have discussions
review strategy more than operations.