LEADERSHIP INSIGHTS

Changing role of the Chairman and Board

The failure of numerous banks and businesses in the current recession raises questions over the role of non-executives and the Chairman in corporate governance and managing risk. For example, were the Boards of failed companies too far removed from the operational side of the business to fully appreciate the magnitude of the risks involved? And what can we do in the future to ensure organisations are governed in such a way that minimises the chance of a similar economic crisis? In this week's newsletter, I want to look at the role of the Chairman and how it needs to evolve in 2009 as we continue through the economic downturn? We've asked a number of Chairmen from leading organisations what they think. 

Sir John Egan, Chairman of Severn Trent plc and newly appointed Associate for Criticaleye, believes that over diversification could be the reason that many Boards, especially in the banking sector, failed to anticipate the risks that their companies were taking. He explains: "You can't diversify to the point where Boards and Chairmen can't assess and understand the major risks flowing through the organisation. Chairmen need to make common sense decisions based on thier understanding of the operational risks and an ability to handle them properly." 
 
Mark Wood, Chairman and CEO of ITN (see this week's featured Criticaleye film) believes, in light of the current crisis, the way Boards are composed will change. He explains: "The steady increase in governance requirements has created an inevitable safety-first approach to Board composition which favours financial, legal and regulatory experience. But given the current dramatic changes impacting every business, it is increasingly important for Chairmen to balance out the governance skills with directors able to test management on strategy and vision, and to contribute themselves to strategic thinking. Some injection of international experience will create greater value as there is going to be a need to identify partnerships and growth markets with greater precision than ever before."

Alastair Lyons CBE, Chairman of Admiral Group plc, adds to these comments with his thoughts on changes to the Chairman's role in the difficult economy. "Now more than ever, Chairmen have to ensure that their Boards think the unthinkable, consider how their companies would react to such scenarios and what can practically be done to reduce the likelihood of these scenarios turning into reality. Chairmen should be able to take a detached view of their business and provide a sounding board for executive thinking whilst keeping abreast of the issues and concerns of all key stakeholder groups including regulators, shareholders, employees, management, customers, suppliers, analysts and journalists, to name a few. Above all, they must understand their Board's thinking, both non-executive and executive, to drive effective alignment of all the directors with the agreed direction for their business."

Vanni Treves, Chairman of Korn/Ferry International, believes that the responsibilities of Chairmen, and what will be expected of them by shareholders, will never be greater than in 2009. He says: "Pressures on revenues, margins, balance sheets and credit lines, all against a backdrop of truly awful macroeconomic conditions, will require testing degrees of oversight, resilience and luck. And for the robust and far-sighted, there will be substantial, unexpected opportunities too."

Clearly, there are great challenges for executives looking to move into a Chairman role in the current climate. But there are also great opportunities. As I've said in previous newsletters since the financial crisis began, this is the time when good leaders can really make their mark. It is a time when individuals with drive and talent stand out from the crowd and seize the challenge of steering their companies through the difficulties that arise.

Mark Wood offers this advice to aspiring Chairmen: "Clearly the major task for any new Chairman is to ensure the Board assembles the requisite skills and experience for governance requirements, and is ready to test and challenge management rigorously but openly and constructively. Essentially the chairman needs to be able to manage the delicate task of remaining hands-off day to day operations but also ought to be a very important contributor to the company's strategic thinking."

Changing role of the Chairman and Board Insights

Criticaleye organises a number of tailored events for both inspiring and aspiring Chairmen and non-executives. We also provide a range of thought-leadership for non-executives including some great films of our Breakfast Forums including The Relationship Between the Chairman and the CEO, The Changing Role of the Non-Executive Director and How to Be An Effective Board Member . There is also the article from our latest copy of the Review entitled Inspiring Tomorrow's Non-Executive Directors for upcoming NEDs.