It is often assumed that wise and experienced board directors will quickly reach agreement on what is best for all concerned. Not so. And Cadbury, with its emphasis on non-executives, makes conflict in the boardroom more likely than ever.
A company, it is often remarked, is like a family; a diverse and often conflicting group of people, bound together frequently against their will and better judgment. If so, however, it is a very extended family, including a multitude of second cousins and great aunts. But at the top, on the board, the model is more akin to the nuclear family; a small, close-knit group of people who all depend on one another for their common prosperity.
Just as families can become dysfunctional - warring, squabbling and sometimes splitting asunder - so too can boards. Open the City pages regularly, and the headline that most often jumps out concerns a boardroom row. This is not just because newspapers like to dwell on the sensational; it is also because disputes at the top of companies have become a regular occurrence.
And, says Ian Smith, MD at management consultancy Monitor Europe, the rapid rate of change in most industries has meant strategic decisions have to be made more often and more rapidly, an acceleration which only increases the potential for conflict. 'As decisions become more complicated, this factor will become the single greatest limiting influence on a company's ability to grow,' says Smith. 'If the board cannot move quickly, the business will suffer.'
Examples of troubled waters abound. At Emap, for example, the fast-growing media company, an extra-ordinary general meeting had to be called to throw two non-executive directors, Professor Ken Simmonds and Joe Cooke, off the board. Earlier the pair had called on the chairman, Sir John Hoskyns, to resign, and although the dispute was dressed up by both sides as being purely about matters of corporate governance, it was difficult for impartial observers to escape the conclusion that the men involved simply did not want to have to sit around the same table any more.
Meanwhile, over at Cable & Wireless (C&W), there was an even more spectacular clash at the close of 1995 between the company's chairman, Lord Young, and chief executive, James Ross. Both men wanted to stay in ultimate command of the firm, and through weeks of public squabbling, the pair waged bitter battle with one another. But in the end, both turned out to be losers; as the non-executives despaired of finding any workable solution to the painfully protracted conflict, it was agreed that both men would simply have to go, while the company started merger talks with British Telecom.
Boardroom struggles are really very common, as any executive will readily testify. In one sense they are just an extension of office politics; after all, most workplaces witness a daily parade of power struggles as people vie for influence, prestige and promotion. But whereas most office struggles are of little consequence to anyone other than the people intimately involved, boardroom power battles often have more significant repercussions. The share price will inevitably fall on any rumours of conflict at the top, hurting the investors in the company. Morale within the firm may slump too, as employees catch scent of the disharmony at the top. What's more, the company can start to drift, with important decisions being postponed as directors pursue their own private agendas. And, in the most dramatic examples, a company can leave itself wide open to an attack by a predator while a boardroom battle is being played out; in the example of C&W, it was just after the two top men had departed amid scenes of confused acrimony that British Telecom, scenting the weakness of its prey, wheeled up with a merger proposal.
And yet, for all the damage dysfunctional boards can cause, relatively little is done to address the problem. It is often assumed that so long as a dozen or so wise and experienced executives are gathered once a month around a long, mahogany table, they will quickly reach agreement on what is best for all concerned. Curiously, factors such as ambition, greed, egotism and plain obstinacy are assumed to play little part. Yet, in reality, those are often the most important drivers of a company's decision-making - and of boardroom rows. The fall of Bob Horton as chairman of BP is a classic example. Colleagues at the time described Horton as a man who had made up his mind to capture the chairmanship, and, once there, was determined to push through a radical series of reforms at the oil giant. But a groundswell of opposition within the company, coupled with poor financial results, finally provoked a boardroom coup, and saw him replaced with his internal rival, Sir David Simon.
'There is often an escalating impasse between directors because of the low quality of the dialogue within the boardroom,' confirms Monitor's Smith, who says that, 'the collective IQ of the board is often lower than that of individual members ... Often people just find themselves taking up duelling positions.'
Colin Sewell-Rutter, a director of The Results Partnership, a consultancy that specialises in improving board level communications, has a slightly different take on the question. 'The single most important source of problems within the boardroom is the lack of a shared vision, and shared corporate goals,' he says. 'All the major difficulties ultimately stem from that.'
The lack of a shared vision can cover a multitude of problems. At its most innocuous level, it is the result of the directors clashing over the next corporate moves a company should make. One director may, for instance, believe passionately that the company should launch a takeover bid for a rival, while colleagues disagree. On subjects such as these, there is obviously room for legitimate disagreement. But such conflicts can also mask the fact that the board has never fundamentally agreed on what it believes the company should be about; to stick with the above example, some directors may believe that it should grow organically through investing in its products, while others may believe it should grow quickly by gobbling up its rivals. If that essential decision had been made earlier, the conflict might never have arisen in the first place.
The 1993 departure of Ernest Mario as chief executive of pharmaceutical firm Glaxo (as it then was) is a case in point. Mario is thought to have been preparing a takeover of American rival Warner-Lambert even though the then chairman, Sir Paul Girolami, believed that the company should stick with its strategy of investing for organic growth. The result was a row that culminated in Mario's departure with a £3 million pay-off (it was only after Girolami retired that Glaxo made its first takeover in decades when it bid for Wellcome).
The potential for conflict has a marked tendency to explode when the chairman or chief executive looks set to leave. 'Succession is often the time when conflicts emerge in the boardroom,' says Patrick Dunne, who is responsible for the independent director programme at the venture capital provider 3i. 'Humans are not that different from chimpanzees. Indeed the patterns of behaviour are often quite similar.'
Dunne has identified a number of strategies that are common to groups of both chimpanzees and directors. Often an ageing leader, a chairman approaching retirement age, say, will groom a chosen one - the person he or she would like to take over. So long as that person enjoys personal support, there should be few problems. But often personal ambitions emerge to disrupt the process. Sometimes a young pretender will start claiming the throne, usually with some act of threatening behaviour. Either the departing leader can back down, making way for the more aggressive, younger successor. Or they can fight. But if they do battle it out, a conflict will inevitably result, in which both sides struggle for control. If that happens, the fight will usually be bloody. The 'coconut routine' is how Dunne characterises the conflict; essentially the warring board members bang each other on the head with coconuts until a victor eventually emerges.
The sequence of events at the motor distributor T Cowie would certainly seem to bear out the theory. Founder Sir Tom Cowie survived as chairman for 45 years before the group of younger executives he had bought in to handle day-to-day management of the business decided that they had seen enough. Officially, Sir Tom retired, but the rumours at the time were that the company CEO had been kicked out in a boardroom coup.
Big policy issues and successions may be the most common triggers for boardroom conflicts, but they're not the only ones.
Just as within families, conflicts can emerge from seemingly trivial incidents, so within companies huge rows can flare up about almost nothing; at Emap, generally regarded as a very successful company, the row was about a relatively obscure change to the rules governing the removal of directors. Often, as within families, directors are just playing out their own anxieties and neuroses and imposing them on the board.
To complicate matters further, the scope for boardroom rows has widened dramatically in recent years. Up until five years or so ago, a typical British quoted company was essentially little more than an autocratic fiefdom; even where the titles chairman and chief executive were not held by the same person, there was a very clear understanding of who was the boss. And few - if any - directors would have the power to challenge him or her. The style was perhaps most pithily described by film mogul Sam Goldwyn when he said, 'I don't want yes-men around me. I want everyone to tell me the truth, even if it costs them their job.' Occasionally, as at Hanson plc, there was a pair of executives, whose combined power reinforced the perception that the board only existed for technical reasons; Lord White, who made up the other half of Hanson's dynamic duo, did not even sit on the board.
The introduction of the Cadbury code, and the heavy emphasis now given to corporate governance, has sought to drive out such autocracy. Cadbury demanded that there be a clear separation of the powers of the chairman and the chief executive, and that the board have a certain number of non-executive directors. Moreover, the non-executives were meant to be people of weight and substance in their own right, and not just chaps who went to prep school with the chairman. This drive has certainly tended to increase the number and volume of heated words bandied about over that mahogany table, for reasons which Michael Goold, a director of the Ashridge Strategic Management Centre, explains. 'It is in the nature of an internal corporate hierarchy,' he says, 'that everyone is eventually reporting to the CEO. Some degree of conflict is allowed but ultimately the CEO has the say-so, and others need to keep a lid on dissent. But if you bring in non-executives who are not beholden to the CEO for their position and prospects, it is possible for those individuals to voice disagreements more freely.'
The problem, says Monitor's Smith, is not the ability of non-executives to speak out as such but the quality of these interventions.
'There is,' he explains, 'a question mark over whether having a group of non-executives who feel empowered is always in the best interests of shareholders. The Cadbury code does not look at how management teams can make better business decisions.'
The chief issue here is what Costas Markides, associate professor of strategy at the London Business School, terms 'asymmetry of information', a polite way of saying that executive directors will know far more about the business than outsiders who look in occasionally. 'As CEO, I know much more than the non-execs who come in every two months,' he sums up.
He goes on to say that, given this advantage, as an executive director, 'I ought to be able to make anything sound reasonable and sell it to them'. The implication is that where the executive management is sound, non-executives who dissent are doing so without any real basis for the conflict.
Goold, writing in a recent paper published in Long Range Planning, agrees that, 'There is something seriously wrong if executive management cannot convince the board of the validity of their decisions in the vast majority of situations. On most issues, the board is therefore unlikely to add value by re-reviewing the decisions and proposals of executive management.'
For this reason, while autocracy may be out of fashion, says Sewell-Rutter, 'in practice there is a necessary requirement for the chairman in particular to exert a smack of firm governance and leadership to enable the board to function properly. Autocracy is a very strong word - what is required is strong leadership.'
Yet, however strong the chairman's leadership talents, the increasing determination of some big institutional shareholders to become more directly involved in the running of companies has also upped the stakes within many a boardroom. A particular non-executive may be placed on the board at the behest of one or more of the institutions, and may not be the sort of character the directors would have chosen themselves (so much the better, some would say). If and when a conflict does erupt, the non-executive director in question can turn outside the company for support. Where once a dissident voice might just have been dismissed, now the director who disagrees with a decision can, often with just a few phone calls to the City, line up a series of shareholders to back his or her view. The conflict then becomes open, and usually becomes much more bitter. Nowadays, boardroom battles regularly result in a general meeting of shareholders; in the past, any conflict would have been resolved behind closed doors, usually resulting in the early retirement of the dissident.
The saga of Maurice Saatchi's departure from the company he founded with his brother Charles, Saatchi & Saatchi (now Cordiant), is a case in point.
A group of executives and non-executives felt that Saatchi was no longer an asset to the business, but it is unlikely that they would have been able to dismiss him without the backing of shareholders. It was only after the company's merchant bank conducted a straw poll of the institutions that the board finally agreed to dispose of Saatchi.
Against the backdrop of such conflicts, Sir Ronald Hampel, ICI's chairman and chairman of the successor committee to Cadbury, will be looking at further reforms that might enable boards to work together more harmoniously.
The committee may well look at the US model, where the number of non-executives is now being reduced, or the German, two-tier board, where the executives and non-executives are clearly separated.
One issue Hampel will surely be considering is the fundamental question of how important the board actually is - or put another way, whether a company can run effectively without an effectively run board. For Sewell-Rutter, the answer is obvious: 'An effective board will set a clear purpose and clear policy and enable there to be a consistent focus across business units,' he says.
'In the absence of this, there is an opportunity for units to be moving in different directions and therefore dulling the potential of the whole.'
For Markides and Goold, the answer is equally clear - just completely different. With the essential caveat that the executive management team is a good one, they argue that the role of the board in toto is extremely limited (witness Emap again). 'If the management team of the company is good, the board won't have much influence on the company,' says Markides. 'I have never seen a board in my life where non-executive directors actively come up with new strategies - they approve or disapprove what the management is proposing. But the role of the board is important when you have a lousy management team - then the directors come out like a police force. If the board doesn't discipline these managers, there will be a takeover. But the board is a much more efficient and economical way to discipline managers.'
Goold agrees with the general drift of what Markides has to say, even carrying the logic further. 'If you have good unit managers, there is quite a strong possibility that the business can take care of itself ... The fundamental health of a company stems from the individual businesses,' he says. Reinforcing his point in his paper, Goold argues that, 'Perhaps the most essential task of the board is ... hiring and firing the CEO'.
Whatever the true influence of the board in theory, in practice conflicts between directors have never been known for helping the share price.
That said, few would advocate the total removal of tensions within the boardroom. Conflicts can leave bitter legacies. But so long as they do not spin out of control, they can also be creative. After all, a company that was always in harmony would be a dull place indeed. And nobody would have anything to gossip about in the corridors.