When things go wrong, call the chairman

Crises develop; the death or sudden departure of the chief executive; discovery of a serious fraud; a downturn in the market putting pressure on bank borrowings; a product safety issue exploding into the public domain causing reputational harm.

Well-run companies usually know how to deal with such issues and where that leadership should come from. Crises define leaders.

A good leader will have to possess the timeless leadership qualities as well as those unique to the time. During the week of the Lehman Brothers collapse, Barack Obama declined to abandon his campaign and join the stampede to Washington because he said that at any one time the president would have more than one issue to deal with and you could not be in all places at once.

That, he claimed, was a measure of leadership and he was right. It was a defining moment of the contest. Cometh the hour, cometh the man?

But who provides what and when? Is it the chief executive, chairman, or in the US the combined chairman/chief executive. “Where’s Henry (van der Heyden)?” was the question Fran O’Sullivan raised in the New Zealand Herald last year when Fonterra was first beset by the San Lu issue. And why was TVNZ chairman Sir John Anderson called upon to calm troubled waters when the media were all over the Veitch affair? Weren’t both jobs essentially the chief executives' responsibility?

Fonterra chief executive Andrew Ferrier was valiantly fronting up but some clearly felt that this was a governance issue that also needed the involvement of the chairman. With TVNZ, because questions were raised over managements’ performance, the calming hand of Sir John was required on the tiller.

The function of the chairman is one of the most fully studied aspects of corporate governance. It has been said that chairmen must have leadership skills, the patience of Job and the sixth sense that leaders possess in order to steer a board to effective decisions. It is a rare set of skills – not hard to identify, but difficult to find.

Shareholders in the normal course of events have little control over the actions of the board they have appointed or acquiesced to. The safeguard on which they are relying is that the board keeps their interests in mind and monitors management. This is structurally weakened if the chairman of the board is also responsible as chief executive for the management of the business, a situation which has been the norm in corporate America and which is common in closely held companies, for example in many SMEs.

Separation of the two roles builds in a check and balance. The chairman is responsible for ensuring that the board is mindful of shareholders’ interests whilst acting in the best interests of the company as a separate legal entity. In fact, a principal role for chairmen is external shareholder management, as evidenced by the fact that they chair shareholders' meetings. In general the chief executive fronts the media whilst the chairman is reserved for shareholder issues. Inevitably, in some organisations this distinction becomes blurred, as was the case with TVNZ.

A chairman’s skills are those of a conductor, someone who can lead the setting of the agenda, run meetings effectively, enabling discussion and dissent, moving towards consensus and communicating with colleagues and management, especially the chief executive. Taking an adversarial approach to decision-making by pitching different points of view against each other is a good way to understand several sides of the same issue. President Clinton was reportedly adept at this kind of openly contentious decision-making and was well on his way to being an extremely well-regarded president until the Lewinsky scandal hit. The successful leader needs to have a strong ability to resist temptation.
In other words, they need to actively demonstrate the positive values that should form the company’s culture. They, and the board are the custodians of the company’s reputation, hence the call for Henry in the San Lu scandal.

But these skills should not be applied to daily management of the company, which is the chief executive’s domain. The power of the chairman added to the power of the chief executive presents a formidable combination. No company is likely to run effectively and efficiently unless there is a good working relationship between the chair and the chief executive and unless each respects the other.

There are those who lead from the front by force of personality and there are those that fit the classical description: “he that governs sits quietly at the stern and scarce is seen to stir”. A particular kind of chairman will suit a particular board at a particular time. The chairman always needs to be a superb relationship manager, seen by stakeholders of all hues as a moderating influence and heard as the voice of well-informed reason. In difficult economic times, where uncertainty and fear prevail, the two most important senses a chairman needs to instil are realism and confidence. The Institute of Directors believes that every chairman should try to ensure that this responsibility is discharged in the best interests of the company.