THE ROLE OF THE CHAIRMAN
The role of the chairman is very important role in the company. They have to provide strong leadership in the running of the affairs of the board and ensuring the corporate health of the business. As such the chairman must bring a considerable depth of business knowledge, experience and leadership abilities. The chairman must be capable of being a source of great counsel for the management team on all sorts of disciplines together with having the ability to steer the board on investor and corporate governance matters.
It must be clear, the driving and running of the business is the responsibility of the chief executive. It’s not the role of the chairman to run the business and it’s important the chairman does not assume that role when he or she enters the building. It’s always important to maintain the delineation between the roles. Crossing these lines, as it’s common to see, causes confusion and often a lot of friction between the chairman and the executives.
A key responsibility of the chairman is to ensure there is a strategy and agreed business plan in place for the business and that the executive Board is up to the challenge of implementing that strategy. It’s also the responsibility of the chairman to ensure effective financial controls are in place and that trading performance is clearly visible and sufficient for the board to monitor, understand, contextualise and make decisions in line with their fiduciary duties.
Occasionally the chairman will need to get into the operational detail of the business and thus will need to ensure he or she has sufficient capacity to allow this when needed – i.e. when there are performance issues, mergers, acquisitions or simply to help and support executive management with their thoughts, worries and decisions.
In the case of private equity backed businesses the chairman will have a key role to play in managing the communication and relationship between investors and the management team. If there is a dispute between investors and management, the independence of the Chairman is critical to resolving this issue to the benefit of all – management, the shareholders and the business as a whole.
The question often arises whether the Chairman needs to have sector experience to be effective. There is no exact answer to this and there are many prejudices surrounding this issue. There can be situations where sector experience is valuable and others where it matters less. Usually there is no shortage of sector knowledge and experience within the management team. The chairman’s job, alongside the other non-executive directors is to constructively challenge management on a wide range of subjects to test for clarity of thinking, disciplined execution and that management are delivering on their promises.
The signs of a good chairman are clear. In addition to carrying out well the duties just mentioned a good chairman maintains a healthy atmosphere and relationship with management, among investors, and makes sure this is carried into the boardroom – spotting underlying issues and potential conflicts and dealing with them constructively before they cause difficulty. Never engaging in politics and ensuring a politics free atmosphere is maintained at all times is a very valuable skill.