Should board chair be the cop?
Should the board chair be the cop?
Monday September 19 2022
For there is nothing hidden that will not be disclosed, and nothing concealed that will not be known or brought out into the open. Luke 8:17
Quoting from the Bible seems to be de rigueur lately and far from it for me to be left behind. In the last decade of facilitating corporate governance discussions with private, public and not-for-profit boards of directors a key question often emerges: “Should the chairperson of the board come to the institution daily?”
Well, the answer depends on who you ask. If you were to ask management they will probably look around the room, ensure that there’s no board member within earshot before proceeding to mumble “Heck no!”
If you were to ask a board chairperson who is all of five minutes into retirement from a powerful job with absolutely nothing to do currently other than twiddle their thumbs and drive their spouse singularly nuts, they will quite likely say “Heck yeah!”
Following the global financial crisis in 2008, the then UK Prime Minister Gordon Brown appointed a commission to provide an independent review and examination of corporate governance in the UK banking industry.
The commission was chaired by Sir David Walker who published in July 2009 a report recommending that a director of a financial institution should be ready to spend 30 to 36 days a year on that institution’s business, up from the previously recommended 25 days a year.
This would translate to about three days a month. However, a chairperson of a major financial institution was recommended to dedicate at least two-thirds of their time to the business of the entity, with a clear understanding that in the event of need, that chairmanship role would have priority over any other business time commitment.
In essence, Walker was recommending that a chairperson of a financial institution could not possibly be envisaged to have another day job. But you must remember that these recommendations were being made following a global banking crisis that was underpinned by management risk-taking excesses in prior years.
Just like constitutions are borne out of political crises, much of today’s corporate governance jurisprudence has emerged from corporate existential crises of hitherto poster child companies.
Truth is, the role of the chairperson of any board is limited to the leadership of that board, rather than leadership of the organization which is the principal role of the chief executive officer.
Conflating the two leadership roles is where trouble begins and a duality of power emerges that never ends well. Now it can be said that the shareholders delegate execution power to the board and therefore the board is ultimately in charge. That is correct.
But, subsequently, the board either expressly via delegation of authority documents or impliedly via the CEO’s appointment letter gives execution authority to the CEO and therefore cedes that role via delegation.
By having a chairperson who sits in the office permanently, two doors away from the CEO’s office, an alternate center of power is created which more often than not is exploited by staff members out to undermine the CEO.
Furthermore, it is not only staff members who may wish to exploit this delectable power gap. Politicians, suppliers and whichever external stakeholder that wishes to penetrate the inner decision sanctum of the organization now have found a worm hole into the black power space.
Walker summarizes the role of the chairperson well. The chairperson is responsible for leadership of the board, ensuring its effectiveness in all aspects of its role and setting its agenda so that fully adequate time is available for substantive discussion on strategic issues.
The chairman should facilitate discussion and decision-taking on matters of risk and strategy and promote effective communication between executive and non-executive directors.
The chairman is responsible for ensuring that the directors receive all information that is relevant to discharge of their obligations in accurate, timely and clear form. In summary, the chairperson’s role is limited to the effective running of the board and not running the organization.
In tandem with the CEO, the chairperson can be used to engage key stakeholders such as regulators, shareholders and the government where necessary. But always in tandem. In partnership. But never alone. The chairperson is not supposed to sit in the office daily to police management.
A properly functioning risk and control management framework should cover this. How that framework is subsequently monitored by the board in its oversight role ensures that a system, rather than an individual brings out into the open that which is concealed. Amen!