Tuesday, 11 March 2008

The non-non-executive chairman

The papers today are full of the news that Sir Stuart Rose is to become Executive Chairman at Marks & Spencer. This breaks at least two parts of the ‘good governance’ code. Firstly, CEOs should not be elevated to Chairman and secondly that the roles of Chairman and CEO should not be combined. Indeed the ‘model code’ strongly favours a Non-exec Chairman. Although this might look like a non-tech issue, there are plenty of tech companies where this issue is equally contentious.

I’ve sat on around 20 boards in the last 20 years – a mixture of private and publicly quoted companies. I think I can therefore talk with some experience.

1 – In private companies I actually favour a strong Executive Chairman or a combined ‘Chairman and CEO’. It can make for decisive leadership. It works because the person concerned is almost always the most significant shareholder and therefore aligns with the key objective of any Chairman (indeed any director) to work in the best interests of the shareholders. Additionally I think any private company should have at least one NED. At the very least, it’s the cheapest form of consultancy you can buy.

2 – Once the company goes public, however, it is extremely unlikely that any Chairman will have a particularly significant stake. In a public company, I believe very strongly – and from some bitter experience – that there should be a non exec Chairman and a strong CEO.

Many of the problem companies in our sector have been caused because of combining the roles. This can apply to the very smallest companies like Total Systems (why they are still quoted is beyond me) to the largest where the eventual problems at Misys were created (or at least compounded) by Kevin Lomax combining the two roles.

A good Chairman should be just that. There is an art to ‘chairing’ – both at board meetings and outside. It requires an ability to allow people to have their say and not be railroaded by one strong individual. It also requires debate to be focussed and decisive. The combination of a strong CEO and an equally strong non exec Chairman, acting as a mentor to the CEO, is unbeatable. It stops bully tactics. It also provides all the right checks and balances to avoid excesses (in pay and bonuses for example) and avoiding the temptation of dodgy accounting.

See The resistible rise of the non-non-executive chairman in Lombard in the FT today.

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