Challenging chairmen

Boards would do better to select an outsider for the top role, rather than a chum.

by Patience Wheatcroft
Last Updated: 31 Aug 2010

Those who complain that the top ranks of British business remain an old boys' club can no longer include the chairmanship of Pearson in the accusation. The company's new leader is not a member of the obvious networks that criss-cross the upper echelons of corporate Britain. Yet those who usually cavil as the familiar faces move around the boardrooms could be heard greeting the news of Glen Moreno's appointment with equal disdain. What on earth was the company doing choosing someone they had never heard of?

If Pearson had opted for any of the other three candidates on its shortlist, the 'boys' club' criticism might have been justified. Among them was Chris Gibson-Smith, who had glided seamlessly from the senior ranks of BP to assume the chairmanship of National Air Traffic Services and then the London Stock Exchange. With the NATS role coming to an end, he'd have been happy to move into the Pearson chair. The other two finalists apparently had a similar establishment pedigree.

Moreno has a much lower profile, but is no stranger in British boardrooms. Although he retired from full-time employment 14 years ago, he has been a director of Man Group, the FTSE-100 fund manager, for more than a decade.

The canny chaps at the hedge fund specialist reckoned that the man who had helped build Citigroup and then Fidelity International in Europe would have something to offer them as they expanded.

Investors disheartened by the dismal share-price performance at Pearson might wish for someone in the chair who sees things from a fund manager's point of view. Much as Marjorie Scardino, CEO of the company that combines Penguin publishing and the Financial Times with its increasingly important educational business, cheered Moreno's appointment with the observations that he loves reading books and is a regular subscriber to the FT, investors will want a chairman able to coolly apprise the Pearson portfolio and not be wedded to any part of it.

Ironically, the Pearson director who led the recruitment search has found himself accused of being a boys' club member. Lord Burns is to be the new chairman of Marks & Spencer, a controversial appointment, as the current chairman, Paul Myners, had let it be known that he wanted to remain in the post, while others on the board, led by Misys chairman Kevin Lomax, had made it clear that they wanted Myners out. The generally jovial Burns, a former Treasury mandarin who had a difficult reign as chairman of Abbey, may be the man to bring peace to the M&S boardroom, but can he inspire a struggling retailer?

A long career in Whitehall may be a fine primer for dealing with the politics of the boardroom and with the City, and some CEOs may prefer a chairman whose background doesn't equip them to become too involved in the actual business. But if a chairman can bring business experience and make it available to the chief executive, there should be even greater benefits for the company. Which is why retiring CEOs are still considered natural material to become chairmen elsewhere.

The combined code on corporate governance frowns on such a promotion made internally, on the grounds that a new chairman should be able to take a fresh look at an organisation - difficult if he has been instrumental in shaping it. If the new chairman comes not only from a different company but a different industry, or even country, he may really stimulate change.

Thus, when former BP man Sir John Collins took over from Sir Stanley Kalms at Dixons Group, he was able to question the basic tenets of the business that had brought it far too many high street shops.

Investors are expecting Sir Christopher Gent, the former Vodafone chief who now chairs GlaxoSmithKline, to challenge some of the conventions at the drug company. And Jorma Ollila will certainly be a very different chairman from anyone who has previously led oil giant Shell.

Ollila was a surprise choice for the task, but the market quickly warmed to the idea of the Finn taking over. He transformed Nokia, on whose fortunes Finland depends so heavily, and is a national hero there. He is an internationalist, having been educated in Britain and done business round the world. And he is unhampered by a background in the energy industry.

Shell has plenty of people who know about oil and gas; what has become all too apparent in the past couple of years is that it needs a new style at the top. As CEO, Jeroen van der Veer is trying to provide that, but an energetic outsider in the chair will make a big difference. After all, how many people can name the current chairman?

Aad Jacobs has been in the role since 2002, as the business has gone through its restructuring from two companies into just Royal Dutch Shell.

He can hardly be counted as a member of the old boys' club. But if Ollila lives up to expectations, he will almost certainly become a very well-known figure on the British business scene.

Patience Wheatcroft is business and City editor of The Times.

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