As part of this series, Genius offers Boards a series of free self-assessments, focusing on various aspects of Board Effectiveness. Links will be provided at various stages during the series.
Why start a series on Board Effectiveness with Leadership?
I suppose it is about starting at the beginning, in this case at “the top”.
We hear about “tone from the top” and we know of many cases where a change in the Chairman creates a fundamentally different Board “Character” and equally impacts the culture of the Board.
An example being Jeroen van der Veer taking over from Sir Phillip Watts at Shell and setting in motion a transformation change program, as did Sir David Walker on taking over Barclays from Marcus Agius at the time of Bob Diamond departing as CEO.
In this article we shall address:
– Team Dynamics
What kind of leadership do we expect from a Chairman? There are many answers to this question and to a degree, it does depend on the size of the business, its ownership, the industry, the stage in the company life cycle, the strategic purpose, the immediate business focus and the performance.
In my view, there are five key leadership roles we expect from a Chairman:-
– Chairing the meeting
– Mentoring and challenging the CEO
– Leading the Board
– Engaging relevant stakeholders
– Setting the moral compass
Reviewing these in more detail:
1. Chairing the meeting
This is a very specific skill I liken to that of a conductor of an orchestra, the lead person, but yet one who does play an instrument and may at most hold two batons to deliver the outcome.
The Chairman should consider this analogy, which will guide performing the role effectively of being a non-executive Chairman.
When chairing a meeting, the Chairman is guiding the conversations, first by using the Agenda to frame the work of the meeting, introducing the topics, creating a safe place for challenge, giving all Directors fair airtime, supporting and encouraging where necessary ensuring that the challenge is relevant, add value and contributes to more effective decision making.
Chairmen, as Directors, have a fiduciary role as equal Directors, but their role in the Board meeting is not to be the first, loudest or most influential voice. Like the conductor, they say little, but guide and lead to a successful outcome.
2. Mentoring and challenging the CEO
A very different role, an opportunity to support the CEO in many ways, offline, outside of meetings and often fairly frequently.
If the Chairman and CEO can work together with mutual respect, where the CEO can draw on the Chairman for learning, guidance, professional input and mentoring, the opportunity to learn, to grow as a CEO and to constantly improve as the leader of the business is real.
It is a close bond, but equally can be a relationship on constructive tension to allow for challenge and personal growth.
There is the mentor part to the role where there is the support for the person in their journey as CEO, and very effective if this works with the Chairman as both leaders are focused on the successful outcome of the same business.
3. Leading the Board
The Chairman is a leader of a number of groups of people, those groups will depend on the same various factors mentioned earlier.
Therefore, one would expect different leadership in the case of a startup digital business, to one that is focusing on a listing, to one that is already listed within the FTSE 350 to different industries, those that are more regulated than others. Family businesses offer different governance challenges as would businesses in construction and manufacturing grown over decades versus an innovative technology company that has a small workforce relative to turnover and, potentially, profit.
There are some common factors to these leaders, that I would like to explore.
The Chairman needs to be competent for the role, needs to be respected by the Directors, should have good communication skills and a healthy respect for corporate governance whilst recognising they are only one voice in the boardroom and that there are many other needed skills and capabilities to bring to bear from the team.
To be a good leader does not require the person being the best industry knowledge in the team. Studies done by Google reflect that their best team leaders were those with the ability to lead people rather than those that held the expertise.
Within the Board team, there are typically either a Senior Independent Director or Deputy Chairman, the Executive Directors, the independent Non-executive Directors, other Non-executive Directors, all supported by a Company Secretary.
Each of these people or groups of people require a different engagement with the Chairman to ensure they can effectively perform their roles and responsibilities under Section 172 (more widely considered Section 171 to 177) of the Companies Act 2006.
The Chairman should proactively engage with the Company Secretary and each Director within their role focus to ensure they know the person well, understand their points of reference, the value they can bring and their needs for further development.
4. Engaging stakeholders
Outside of the Board, discussed above, the Chairman should be considering many other stakeholders. Stakeholders will differ by industry, size of company, regulated status and business offering.
The first two stakeholders that need consideration are the internal stakeholder – the staff and the external stakeholder the customer. Without the customer, there is no reason to have the staff or business. Customers are key and can only get what they want from the business if this is effectively delivered by the Board, the management and the staff.
Other key stakeholders are investors, regulators, industry bodies and a new “stakeholder”, the modern 21st-century ESG stakeholder – who range from planet to community.
Each Chairman has to determine how they will engage with these various different groups, how they will engage, how frequently and for what purpose.
5. Setting the Moral Compass
Our UK Corporate Governance Code does not mention “ethics” as does the South African “King IV Code”.
In the UK Corporate Governance Code, 2018, in Principles A & B, the following words are used “led by an effective and entrepreneurial board”, “long-term sustainable success”, “value for shareholders”, “contributing to wider society”, “establish purpose, values and strategy”, “culture is aligned”, “act with integrity”, “lead by example”, “promote the desired culture”.
Moral Compass – definitions include – “an internalised set of values and objectives that guide a person with regard to ethical behaviour and decision making”, “that which serves or guides a person’s knowledge, sense, or intuition of correct virtues, morals, or ethics”, “an inner sense which distinguishes what is right from wrong, functioning as a guide for morally appropriate behaviour.
Stated in “Futurity”, Leaders who value morality outperform their unethical peers and lead calmer, happier lives.
A leader with the wrong moral compass can cause very questionable decisions to be made, an example being Philip Green and BHS.
Having the right ethics, integrity and moral compass in the Chairman will help to keep the Board and therefore the organisation on the right track of ensuring all stakeholders are considered.
Many organisations believe that having the top expert or titled individual or most recognised person will deliver them a good Chairman. This is not a given. A good Chairman comes from a good leader, addressed above and a good communicator.
A Chairman should be able to “read” all the Directors, “sense” the importance of a moment, “read” the emotion, “see” the impending problems, “hear” the unspoken word, “sense” the mood, “feel” the needs of the people, business or stakeholders and be able to act and interact to gain success from all these communications.
A seriously tall order.
Many Chairman would admit that they do not always fully understand the interactions occurring, act in a timely manner on impending issues, understand their fellow Directors or effectively assess and mitigate risks.
Probably the most difficult outcome to get right. Thinking again back to the conductor of the orchestra, that role is knowing which instrument and which person is most needed and to what degree at various stages of the performance. The conductor of the orchestra knows what combinations work well, which to follow and which to bring to fore. This is in line with the score, the music; the music is analogous to the strategy of the business, the Chairman knowing when which strengths should be brought to the fore.
Similarly, the team needs to work in cohesion, respecting each other’s roles. Musicians do not need to all like each other, but they will find working together if there is mutual respect for capability, input and role played in the outcome.
Board directors should not suffer from groupthink, need to act independently of mind but at the same time, find a respectful way to work together, to build upon one another for the greater team effectiveness.
The Directors of the Board are equally responsible with the Chairman for the effective performance of that Board.
A key requirement for an effective Board is an effective Chairman.
There are other dynamics at play that influence Board effectiveness beyond this most important influence which we shall address in future articles.