Key to effective governance, long-term growth, and protection of shareholder interests is the caliber of the Chairperson

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Professor Douglas BOATENG

Insights into Directorships and the Boardroom

In today’s business rapidly changing business environment, the chairperson of a board regardless of the size or mission of the organisation, is needed to perform a faultless leadership role. The individual is expected to ensure that all of the duly authorised personalities, talented as they are in their own right, come together to protect and grow shareholder and stakeholder interests.

The Chairperson heads up the board of directors of a company. This leadership role and that of the Chief Executive as rightly pointed out by the Institute of Directors(IOD) and its various affiliates including IOD Ghana are “collectively responsible for the leadership of the organisation and for promoting the highest standards of integrity, probity organisational leadership, and governance.

There is however a clear and effective division of accountability and responsibility between the two individuals with each expected to play their respective roles whilst complementing and supporting each other to ensure no one has “free reign” over decisions and control. The Companies Act contains the law that regulates the conduct of engagements and it is in the context of this that the position of Chairperson arises.

A Chairperson may be either appointed beforehand on the spot per the rules and customs of the organisation. The role can be either a non-executive or executive position. In some companies, (e.g smaller and large privately held companies*) the roles of CEO and Chairperson are at times combined. Some experts including King M, Wixely T, Leblanc R,  Davis P., Midanek D.H., are of the view that if there is a weak board the combination of the Chairperson and the CEO could lead to transparency and accountability issues.

Independence is seen as key to the realisation of good corporate governance practices at the board level. Indeed, Deloitte recommends “that the Chairperson should be an independent non-executive director and not also the CEO.” This, they claim, is because, “while the Chairperson is required to retain an objective viewpoint of the affairs of the company, the CEO is often required to become intimately involved in developing and executing management plans for the company.”.

Others including King M, Everingham G., and recently Boateng D. are of the view that it is not necessarily the issue of the executive Chairperson but rather the composition and experience of the board members that matters. Increasingly, several organisations are appointing “quasi-chairpersons” with partial executive responsibilities to both mentor the CEO and also co-help to protect and grow shareholder interests.

The core role of the Chairperson as advocated by the Institute of Directors is to “lead the board of directors to ensure that the board is effective in its task of setting and implementing the company’s direction and strategy.” They delineate the main features of the role as follows:

  • As well as being the Chairperson of the board, the individual is expected to act as the company’s leading representative which will involve the presentation of the company’s aims and policies to the outside world.
  • To take the chair at general meetings and board meetings. Concerning the latter this will involve: the determination of the order of the agenda; ensuring that the board receives accurate, timely, and clear information; keeping track of the contribution of individual directors, and ensuring that they are all involved in discussions and decision-making. At all meetings, the Chair should direct discussions towards the emergence of a consensus view and sum up discussions so that everyone understands what has been agreed.
  • To take a leading role in determining the composition and structure of the board. This will involve regular reviews of the overall size of the board, the balance between executive and non-executive directors, and the balance of age, experience, and personality of the directors.

In addition to this, Deloitte highlights the core functions of the Chairperson as including:

“Setting the ethical tone for the board and the company; providing overall leadership to the board; formulating (with the CEO and company secretary) the yearly work plan for the board against agreed objectives, and playing an active part in setting the agenda for board meetings; presiding over board meetings and ensuring that time in meetings is used productively; managing conflicts of interest and acting as the link between the board and management and particularly between the board and the CEO.”

In line with thought-leading board-level corporate governance practices various securities exchange commissions and financial services regulatory bodies including that of the USA, United Kingdom, Hong Kong, and South Africa succinctly provide the below role definition for the Chairperson of an organisation operating under a Companies Act:

  1. “Provides leadership and governance of the Board to create the conditions for overall Board’s and individual Director’s effectiveness, and ensures that all key and appropriate issues are discussed by the Board on time
  2. Promotes effective relationships and open communication, and creates an environment that allows constructive debates and challenges, both inside and outside the boardroom, between Non-Executive Directors and the management
  3. Ensures that the Board as a whole plays a full and constructive part in the development and determination of the Group’s strategies and policies and that Board decisions taken are in the Group’s best interests and fairly reflect Board’s consensus
  4. Ensures that the strategies and policies agreed by the Board are effectively implemented by the Chief Executive and the management
  5. Sets, in consultation with the Chief Executive and Company Secretary, the Board meeting schedule and agenda to take full account of the important issues facing the Group and the concerns of all Directors, and ensures that adequate time is available for a thorough discussion of critical and strategic issues
  6. Ensures that the Board is properly briefed on issues arising at Board meetings and receives, promptly, adequate information which must be accurate, clear, complete, and reliable, to fulfill its duties, such as reports on the Group’s performance, the issues, challenges and opportunities facing the Group, and matters reserved for it to make decision
  7. Arranges informal meetings of the Directors at least annually, including meetings of the Non-Executive Directors at which the Chief Executive is not present, and ensures that sufficient time and consideration is given to complex, contentious, or sensitive issues
  8. Ensures that there is effective communication with shareholders and that each Director develops and maintains an understanding of the stakeholders’ views
  9. Establishes good corporate governance practices and procedures and promotes the highest standards of integrity, probity, and corporate governance throughout the Group and particularly at the Board level”
  10. Takes the lead on issues of director development, and, with the company secretary having a key role, ensures that these needs are met. This includes induction programmes for new directors, acting on the results of the annual board evaluation, and ensuring directors continually update their skills, knowledge, and familiarity with the company sufficient to enable them to fulfill their role on the board and board committees.

To be able to effectively fulfill the responsibilities and duties of a Chairperson, certain key qualities according to Mckinsey, Deloitte, Ernst & Young, PriceWaterhouseCoopers are needed. Of utmost importance is the ability to chair meetings. Leading the board through their various meetings is an important part of the Chair’s role.

Being able to communicate clearly with various organisational stakeholders is an essential quality of a good Chair and is highly important for ensuring that the Board remains confident in the direction and leadership of the Chair. On top of this, being able to communicate effectively helps to ensure that the future direction of the organisation is understood and supported by external stakeholders. Others as rightly pointed out by Kral R., Charan R., Davis P., include:

  1. Understanding the Business: In addition to wider industry issues, a chairperson must understand the business, its culture, people, and processes. They must quickly be able to identify opportunities and potential risks facing the organisation.
  2. Strong but not a dictatorial personality– An effective chairperson gives strength and support to others while being resilient. This requires a strong personality.
  3. Ability to influence others, without dominating- An effective chairperson, must ensure that all Board members are acting independently for the good of the organisation plus contribute to discussions and not allow their personalities or that of others to dominate.

Chairpersons of government-owned entities in especially developing economies tend to be appointed by the President or a sector minister. In most cases, there are enacted laws, which govern such appointments. Now and then chairpersons appointed under these circumstances are given specific powers and functions, sometimes they are given de facto powers as a result of presidential and ministerial directives or for an ad hoc intervention. In some cases, their powers are equivalent to those in the private sector acting as executive chairpersons.

The qualifications required in a chairperson as rightly pointed out by Egan P. are hard to define. However, “a pleasing presence, a good voice, while desirable, are not essential, but self-confidence, fair-mindedness, and the ability to arrive at correct decisions on the spur of the moment are necessary. While the chairperson should possess the power to express with facility and discretion the mind of the meeting on the particular question under discussion, he must avoid both garrulousness and secretiveness”. Said Egan

The chairperson can have significant powers and clout when it comes to influencing decisions made by the board including choosing the CEO*. In most governance-compliant organisations. the chairperson is considered the patrician. With other board members, they have the power to overrule the CEO. In some cases, they have the power to veto a decision by the board if it not in the interest of the shareholders.

To sum up, the chairperson may not always be a part-time non-executive. Today many are full-time and are described as executive chairpersons, but the roles of chairperson and managing director/chief operations officer under such circumstances are at least distinct.

The Chairperson’s main duties are often be summarised to include chairing board meetings, setting agendas, and providing leadership. They are required to have a clear understanding of the business that they are leading and should be aware of its culture, people, and processes. Nor is this all for they should also have insights about the industry and society within which the organisation operates and be able to identify and manage risk plus prepare the organisation for any eventualities.

Today, the chairman is expected to devote much time to his role as is requisite for him to satisfy himself that the board is functioning effectively, the company is carrying out the strategy set by the board and the executive is conducting the company’s business on the basis and by the principles set out by the board.

Chairing a large organisation requires diplomatic and leadership skills at a high level. A one size fits all approach in terms of the role has proven to have unintended consequences. Adaption is thus the key to effective governance. It is for this reason why in some companies, there could be an executive chairperson and/or a managing director/ or a chief operating officer.

In conclusion, the job of the Chairperson is not always an easy one. The current economic context plus the threat of criminal and civil action has led to even greater responsibility and pressure being placed on the Chairperson. Being accountable for the overall leadership and performance of the board of directors as affirmed by Cole T., Davis P., and Moran S. is a “challenging role and when things go wrong, the Chair is usually the first person in the line of fire”. An effective chairperson must therefore have a strong personality that can withstand criticism, embrace organisational challenges, and should have the ability to influence and lead the board in a way that is supportive, respectful, and encourages the long-term success of the company.  To end, what defines an effective Chairperson as rightly pointed out by Wixely T, Sparks W. Boateng D, Haigh J, Brown J. is the ability to run a performance-driven Board and to manage relationships within the board and with shareholders and stakeholders.

>>>the writer is an international chartered director and Africa’s first-ever appointed Professor Extraordinaire for Industrialisation and Supply Chain Governance. Independently recognised as one of the vertical specific global strategic thinkers on industrialization, supply and value chain governance and development, he continues to play leading academic and industrial roles in sectorial reforms both in Africa, and around the world. He is the CEO of PanAvest International and the founding non-executive chairman of MY-future YOUR-Future and OUR-Future (MYO) and the highly popular daily Nyansa Kasa series. For more information on COVID-19 updates and Nyansakasa visit www.myoglobal.org.

 

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