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The Chairman of the Board

February 21, 2012 Leave a comment

This position varies from company to company however certain things should be maintained in order to have a system to run good board meetings.

These include:

Independence:Is the chair really independent? Watch for the CEO trying to capture the chair through perks, office support, vacations, jobs for family members, donations to charities, social relations—anything below the radar. In the words of one director during an assessment, “the chair is owned by the CEO.” He was right. Chairs are very candid with me on how influence happens.

Chair criteria: Integrity, commitment, financial literacy, compatibility with the CEO, the ability to hold people accountable, to chair meetings, to build consensus and maintain healthy dynamics—all attributes and skills of successful chairs.

Chair performance: I have observed firsthand, and have seen data confirming my observations, many chairs or even lead directors that are ineffective and beholden to either management or a significant shareholder. Be skeptical.

Chair selection: The chair should be selected from and by independent directors. Each director should offer confidential views and a formal vote should be taken. A committee should have chair succession planning in its mandate. All directors who participate in chair recommendation to the board should be uninterested in the role. The CEO should have no influence whatsoever, although he or she should be appropriately consulted given the importance of chair-CEO fit.

Chair tenure: Have a three-year appointment, with the option of one further term only if there is a clear consensus that no one else is better.

Chair compensation: Watch for the quantum of total compensation, as it gives rise to reasonable perception of independence. A board chair is a part-time position and should be paid as such. I remember when a CEO said to me in the board meeting that he needed to get paid a lot so he wouldn’t “get nervous” and the lead director—also paid a lot—chuckled and agreed.

Chair Evaluation: Chairs should be assessed by each director and reporting to management annually. Debriefing should occur between the board chair and the governance/nominating committee chair. Each director should be able to make use of this person/position if he or she has any performance-related concerns with the chair.

Focusing the board on value: Last but not least, the most important role of the chair is to ensure the maximization of company performance and shareholder value. Research In Motion and other companies take note. When there is a value deficit, independent chairs must have the courage to act. The chair must have value-creation skills, experience, leadership and the proper mindset—one that is focused like a laser on this end and the board’s responsibility to maximize performance and value.

The above points apply equally to lead directors in the American context, but because lead directors don’t chair full board meetings, it is critical that the attributes and selection of the person—particularly independence, influence and impact—be carefully thought through.

Next to the selection of CEO, the selection of board chair is probably the most important decision a board makes. If a board is ineffective, it is likely the chair is also ineffective and should be replaced. The chair has the single greatest impact on board effectiveness.

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