Is the salvation of corporate governance to be found in strengthening the board chair?
The Walker Report makes a series of recommendations to improve the governance of British financial institutions, anchored, one may argue, by a dramatically enhanced role for the board chair. While an effective chair is essential to a well functioning board, how much power is appropriate? Does the power shift inherent in these recommendations aggrandise the chair at the expense of the chief executive – and the board itself – by concentrating power in another set of hands?
Walker’s recommendations 7–10 specifically address the chair, dealing with enhanced time commitment to the role, requisite industry experience and business leadership skill, facility in board leadership and administration, and accountability via annual election. The requirements for such skills and experience in the leadership of businesses and boards, while onerous, justified and well articulated, are not novel. Such attributes are rare and immensely valuable and make for appropriate criteria for election to the role.
It is the first of these recommendations that sets the expectation for a fundamentally new understanding of the role of chair – a role that would see a near-singular business focus by the chair on the organization. With such focus, and the effort born of it, the chair would develop an unparalleled opportunity to influence and check the power of management. The assumption is that a strong chair is good for governance insofar as the board will have much greater awareness of what’s going on in the company. This reduces the traditional disadvantage of a board: a vast knowledge gap as compared to management that constrains a board’s ability to assess strategy and evaluate corporate performance.
But are there unforeseen risks in this picture? Several come to mind. First, chair recruitment will be more difficult: will the qualified, potential chairs that corporations need be willing to devote the lion’s share of their time to a single company’s oversight, narrowing the range of active interests from which they may draw credibility?
Second, there is a greater likelihood of confusion between the roles of the chair and the chief executive. Might such an expected commitment appeal instead to those wishing to exercise executive power rather than governance oversight, increasing the chances of putting the chair in conflict with the chief executive and destabilizing relations between the board and management? Third, the independence of the chair could be negated. Will the near full-time involvement of the chair with a company’s management diminish the objectivity of an otherwise outside point of view, and eliminate a critical source of disinterested reflection and feedback?
Finally, it could also see the power of the board skewed toward the chair. Will the influence of directors and their motivation to contribute wane in the face of a much more powerful chair?
Canadian boards, like those in the UK, accept the logic of separating chair and chief executive roles to keep distinct the power to oversee management from the exercise of that power. But the degree of responsibility envisioned by Walker for the chair would not be well received by Canadian directors, as it would re-muddy the distinctions between chair and chief executive and diminish the distributed burden of governance shared by the board as a whole. American boards, already wary of splitting the leadership at the pinnacle of corporate power, tend to interpret Walker’s new model as chair supremacy – and thus as confirmatory evidence of out-of-control boards grabbing power and weakening the very chief executives vital to corporate success.
While there is much to recommend the Walker Report, directors and regulators should revisit the rationale for separating the chair and chief executive roles: to remove the conflict of having someone chair the body that counsels and oversees them and to provide a means for channeling strategic advice to the chief executive via an independent voice. The recommendation to increase the power of the chair in effect begins to reverse that separation by re-conflating the roles and asking the board to counsel, oversee and evaluate an executive largely influenced by its own chair.
David Anderson is president of The Anderson Governance Group, an independent advisory firm dedicated to assisting boards and management teams enhance leadership performance.
This article first appeared in Chartered Secretary.
Originally published in the March issue of Chartered Secretary (the ICSA magazine).