THE HUMAN FACTOR

THE HUMAN FACTOR - Power comes with personality as much as with board structure. A domineering chairman can be all-powerful - as the BAE debacle shows. Congratulations to Daphne Statham and Alan Dexter, two little-known heroes of the boardroom. Not only have they resigned their directorships but they've publicly explained why. In February they quit the board of Reed Health protesting that 'our independence has been compromised' and that there was a 'climate of mistrust' at the company.

by Patience Wheatcroft, business and City editor of The Times
Last Updated: 31 Aug 2010

Power comes with personality as much as with board structure. A domineering chairman can be all-powerful - as the BAE debacle shows. Congratulations to Daphne Statham and Alan Dexter, two little-known heroes of the boardroom. Not only have they resigned their directorships but they've publicly explained why. In February they quit the board of Reed Health protesting that 'our independence has been compromised' and that there was a 'climate of mistrust' at the company.

That the atmosphere was unhappy is easy to understand. When a public company is apparently being run by someone who is not even on the board with no protest from the chairman, it is likely to upset the directors.

But Alec Reed, the founder of the business who still controls just over half the shares, is used to getting his own way. With his friend Lord Sawyer installed as chairman and son James as a non-exec, Reed used his votes to oust the CEO and finance director.

Such power may be the privilege of ownership but it undermines the roles of the directors. So Statham and Dexter decide to sacrifice the pounds 30,000 a year that their directorships brought them and maintain some dignity.

It's rare for a director to resign over the way a business is being run; it's even rarer to go public with the reason for resignation. Yet unless investors are alerted to what brought about the departure, resignation serves little purpose beyond easing the director's conscience.

The company will be able to make the usual trite tribute for services rendered, as Sawyer did in the case of Statham and Dexter, and the outside world will imagine there is nothing controversial in their leaving.

The latest effort to reform corporate governance, the Higgs Report, makes much of the importance of non-execs and demands that if they are unhappy enough with the way a firm is run to resign, they write to the chairman explaining their position. But too many chairmen would express their thanks for the letter, stash it in the files, and carry on. The exchange should be public.

Good corporate governance depends on having boards packed with people who are both bright and brave. Higgs believes that independent non-execs will be the force to keep British businesses on the right path. Yet my recent experiences make for a jaundiced view of non-executive strength.

Take this tirade from a non-exec at a FTSE-100 company. 'Our chief executive just does not listen. He's running the show and if I dare to make any suggestion about the need to tackle particular issues, he gets furious and demands whether I think I should be running the business.' Knowing the CEO concerned, I'm not surprised by this view of corporate governance in the raw. The dispirited non-exec was not an obvious pushover but was clearly reluctant to do battle with a chief executive he admired. He should have resigned.

But directors of FTSE-100 firms just don't do that. It can't be only the pounds 30,000 to pounds 50,000 a year that keeps them there when they are unhappy with the way the business is being run. Perhaps they fear that being seen as trouble-causers will exclude them from other boards. Or perhaps they are cowed by the powerful personalities that get to the top and then brook no opposition.

The insistence that the jobs of chairman and CEO be split is meant to guard against too great a concentration of power. But power comes with personality as much as with board structure. A strong CEO with a weak chairman will dominate a boardroom. Equally, a domineering chairman can be all-powerful - as the recent debacle at BAE Systems shows.

The company's share price lost two-thirds of its value in less than a year, reflecting the botching of important contracts and the damage inflicted on profits. As major investors made clear their dissatisfaction, mutterings of boardroom conflict reached the media. The forceful chairman Sir Richard Evans was on the receiving end of most criticism, but there were suggestions that some board members were unhappy with CEO Mike Turner. At least one said the culture at BAE was in desperate need of change.

There had been dissent from some in the boardroom, yet, in advance of the announcement of a pounds 616 million loss, the senior non-exec, Sir Robin Biggam, publicly declared the board's unanimous support for the top management without, it seems, having cleared it with all his boardroom colleagues.

Evans said he'd stay in his role till the end of his extended contract in mid-2004, with Turner as CEO. He was also able to add that there'd been no suggestions from directors that this should not be the case. And although two non-execs are now retiring, there is not a single resignation in protest over Evans' handling of the matter.

Would Statham and Dexter have been as compliant?

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