Do ex-CEOs make better chairmen than outsiders?

The chairman's role is getting harder. Are they right to think their CEO is best-placed to succeed them?

Last Updated: 14 Sep 2010

What should the role of a public company chairman be? It's an issue that's been thrown into focus lately by the apparent failings of low-profile BP chair Carl-Henric Svanberg, who thus far seems to have done little to support beleaguered CEO Tony Hayward. Clearly much more is expected of the chairman these days, and it requires a broader range of skills. The City likes to see big companies appoint an independent heavyweight to the job (as M&S and more recently Tesco have discovered) - yet new research from recruiter Heidrick & Struggles suggests that the majority of chairmen still think their ex-CEO is the best bet to replace them...

This was, at any rate, the result of a vote taken among the 50 FTSE 250 chairmen present at the launch of Heidrick's latest report, on the changing role of the chairman: just over half said they’d rather promote a former CEO than bring in an outsider. This is hardly in line with City orthodoxy on governance best practice: Sir Stuart Rose got all kinds of stick when he took on the executive chairman role, while Tesco is under pressure to appoint an independent chairman when present incumbent David Reid steps down in 18 months or so. But Reid may feel differently, if this is anything to go by - particularly since he was an internal appointment himself (having been one of the candidates passed over for the CEO job when Sir Terry Leahy was appointed).

Nor is it the case that ex-CEOs will necessary have the right skills to be chairman. The panel at the event (which included ex-Boots boss Richard Baker and former Bupa chief exec Val Gooding) suggested that CEOs and chairmen now play crucially different roles: CEOs should be responsible for the day-to-day running of the business, they said, while the chairman should be there to back them up. The relationship needs to be supportive – so if the company runs into crisis, the chairman should be ‘facing the public’ and reassuring shareholders, while the CEO gets on with actually solving the problem, said one panellist (pity nobody seems to have explained this to Svanberg). Being good at the latter doesn't necessarily mean being good at the former.

And although the panel felt that chairmen should act as mentors, the idea of a ‘teacher/pupil’ setup is now out of favour. ‘In my experience, it’s an equal partnership,’ said one panellist. That means, for instance, that all concerned should be able to evaluate each other (although this can get complicated: another panellist remembered an instance where the chairman encouraged feedback, only to turn churlish in the face of criticism - apparently, ‘he had to go’). Chairmen also need to be able to provide strategic input by highlighting potential issues before they arise, build up 'bench strength' by working closely with other senior execs, and act as a link between shareholders, the board and the CEO. So it's a tough gig, and not all CEOs will necessarily be suited to it (Heidrick actually thinks FDs may increasingly become candidates, due to the advisory nature of their role).

With the failings of recent years resulting in widespread calls for stricter governance, the role of chairman has arguably never been more difficult or more pressurised. So it's going to be harder and harder to recruit good ones. Ex-CEOs might not even want the job; and if they do, they aren't necessarily the best choice.

In today's bulletin:

BSkyB shares rocket after News Corp takeover bid
Tesco looks abroad as UK sales growth grinds to a halt
Inflation finally falls - but house prices shooting up again
Letters from Malawi: Bribery without corruption
Do ex-CEOs make better chairmen than outsiders?

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