1. The role of the Chairman in a nutshell:

Good Boards are created by good Chairmen.The Chairman creates the conditions for effective Boards and the effectiveness of individual Directors. It is the responsibility of the Chairman to lead the Board and manage Board Meetings. 

The essential tasks of a Chairman are as follows:

  • To lead the Board, sets its Board Agenda which should be primarily focused on strategy, performance and values.
  • To promote a culture of openness and debate – managing the Board’s relationship with the executives and in particular the CEO and ensure the Board is an effective working group.
  • To support the CEO/MD (It is the CEO’s responsibility to run the Company).
  • To demonstrate the highest standards of integrity and probity, and set clear expectations concerning the company’s culture, values and behaviours, and the style and tone of Board discussions.
  • To conduct Board meetings effectively getting all Directors including the Non-Executive Directors involved in the Board’s work and ensuring the Board focuses on its key tasks.
  • To ensure effective communication with shareholders/stakeholders (as appropriate).
  • To take responsibility for the Board’s composition, development and succession planning.

Many Non Execs say they have much more to give and a good Chairman will encourage them to contribute more. Strong ethics, good culture and proper conduct come from the top – a good Chairman ensures these are present in the company.

The Chairman of each Board Committee (Audit, Risk, Remuneration, Nomination, Corporate Social Responsibility etc) should be a Non-Exec rather than the company’s Chair.

The Chairman can be an Executive (full time) Chairman or a Non-Executive (part time) Chairman and has the same legal duties as other Directors.

 

2. The UK Corporate Governance Code


The Corporate Governance Code applies to listed companies which does not include AIM Companies although they, growth companies and organisations without shareholders should aspire to comply with the provisions of the Code as best practice; some key provisions are as follows:

  • “The Chairman is responsible for leadership of the Board and ensuring its effectiveness on all aspects of its role.” (Main Corporate Governance Code Principle A.3)
  • “The Chairman is responsible for setting the Board’s agenda and ensuring that adequate time is available for discussion of all agenda items, in particular strategic issues. The Chairman should also promote a culture of openness and debate by facilitating the effective contribution of Non-Executive Directors in particular and ensuring constructive relations between Executives and Non-Executive Directors.” (Supporting Principles A.3)
  • “The Chairman is responsible for ensuring that the Directors receive accurate, timely and clear information. The Chairman should ensure effective communication with shareholders.” (Supporting Principles A.3)
  • “The Chairman should hold meetings with the Non-Executive Directors without the executives present.” (A.4.2)
  • “The Chairman should ensure that new Directors receive a full, formal and tailored induction on joining the Board.” (B.4.1) 

 

3. What makes an effective Chairman?


Being a good Chairman requires considerable skills including:

  • Creating the right Board ‘dynamic’ and ‘culture’ - just how open to constructive challenge and debate are we? Is everyone heard? How far down is visible? It is all about team dynamics and harmony but not overly cosy.
  • Contributing to and challenging the company’s strategy.
  • Striking the right balance of confidence and humility.
  • Constructively challenging to ensure Executive team have performed.
  • Being happy for others to take the credit.
  • Putting the company’s interest ahead of everything else.
  • An innate ability to “do unto others as you would have done unto you” as productive business is all about relationships.

The principle considerations of Chairmanship are clear...the difficulty is putting them into practice.

Areas where Boards are not working well are generally due to a lack of trust and respect plus either the wrong or ineffective Chairman &/or Non Execs.


4. The Chairman should:

  • Act as a buffer between the CEO and other Board members as well as investors. For this reason, it is important that the Chair is truly independent and not a crony of the CEO.
  • Have the ability to effectively listen to the CEO and not constantly second-guess him/her or try to run the company which is the CEO’s job.
  • Ensure that the Non Execs are truly independent so that they can function effectively.
  • Understand the business so put enough time in.
  • Be a good listener as well as something of a diplomat if the going gets rough. A good Chairman keeps Board Meetings short and to the point. They should not be long drawn-out affairs which waste time and sap energy. Short meetings with a focus on key strategic and Governance issues are the ones which work best.
  • Carry out regular Board Evaluations and act on its recommendations; smaller companies should consider mini internal or external Board Evaluations.
  • Ensure effective communication with shareholders and other stakeholders.
  • Insist that proper Corporate Governance standards are met. For instance, proper management accounts should be produced.
  • The Board pack should be a readable size and sent out a week ahead of the meeting. Any papers missing the deadline should wait until the next meeting so Board members are not presented with a plethora of last minute information.
  • An independent Chairman role is fundamental as a counterweight to strong-willed CEOs.

A poor or weak Chairman will cause poor leadership of the Board and can come about through:

  • Not being involved enough in the business &/or being too busy on other commitments
  • Being too domineering, arrogant or unapproachable
  • An inability to reach decisions
  • Poor communication skills.

Summary

Good Boards are created by good Chairmen and a good Chairman is crucial to the effective running of the Board and an effective Board is in turn crucial to the success of the company.

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