It's fashionable these days to suggest that the financial crisis was (at least to some extent) due to failures in corporate governance: that time-serving directors failed to ask enough tough questions of their over-reaching CEOs. Two oft-cited examples are RBS and Northern Rock, where CEOs Fred 'the Shred' Goodwin and Adam Applegarth were allowed to take such disastrous risks with the banks' money. But Ron Sandler, the man who now sits in the chair at the Rock, reckons we've gone too far: he reckons it's daft to expect non-execs to play a key role in setting strategy or assessing risk, and that if anything they need to step further back in times of crisis…
Sandler, who was speaking at the Institute for Turnaround's annual dinner (so a group of people who know a lot about dealing with companies in crisis), argued that the fundamental point of the board is 'to challenge managements, to hold them to account and, in extremis, to replace them when things go badly wrong'. But it was 'naive', he said, to expect a board consisting largely of independent non-execs to get involved in 'setting corporate strategy or defining risk appetite' – since the executive team are far better placed to make decisions like that.
In a similar vein, he also believes that if things cut up rough, non-execs shouldn't start throwing their weight around and pressurising management. 'Just as in times of war, the back-room generals give way to their field commanders, so in times of crisis boards must step back and trust the CEO and his management team to take charge and make the right decisions.'
Or to put it another way (if you'll forgive Ron mixing his metaphors): 'You don't want to be in a car in which a group of back seat passengers, most of whom do not possess a valid driving licence and have only rudimentary knowledge of the particular road with all its twists and turns, are fighting with the driver to get their hands on the wheel and their feet on the brakes.' Let’s hope none of the Rock’s non-execs take exception to that.
But just in case you think this is just a clever way of absolving himself of all future responsibility for the Rock’s fate, Sandler also thinks the chairman's role actually becomes more important than ever in these difficult situations: since he sits between the executive and the non-executive branches, he's ideally placed to keep the rest of the board at bay (if necessary), while also offering 'guidance and counsel' to his CEO. Undoubtedly a big ask.
We certainly agree with Sandler that blaming everything on the board is going to make it harder (and thus more expensive) to find talented non-execs - and that non-execs don't always have the power (or the visibility) to intervene. But it's also true that some boards failed to do that fundamental job of holding management to account, for which they deserve to be criticised. And you might also argue that if setting direction and managing risk isn't part of the job description, perhaps it should be...
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