The United Kingdom: Indirect Leadership

Abstract

This chapter reveals that effective chairs of boards of directors in the UK are accomplished professionals with strong views, who lead the board without “taking up much space” and avoid the limelight. They engage directors in a collective effort, creating an environment for effective collaboration and encouraging productive behaviours by providing feedback and opportunities for collective and individual learning and development.

The Chair’s Work in Context

The United Kingdom of Great Britain and Northern Ireland (UK) consists of England, Scotland, Wales and Northern Ireland, each with various degrees of autonomy. The UK has a constitutional monarchy, a parliamentary system of governance and a developed economy. In 2017, gross domestic product (GDP) was US$2.6 trillion¹ (ninth largest in the world at purchasing power parity) with per capita GDP of Int$43,268.² Of this total, value added in the service sector represents 79% of GDP, industry 14% and agriculture 6%.³ The UK is ranked 14th in the world on the Human Development Index.⁴

Almost 6 million businesses in the UK employ some 26.7 million people.⁵ Privately held companies employ 83% of the labour force.⁶ There are approximately 10,000 listed companies, in which financial institutions, foreign investors and private stockholders are the main shareholders. The UK is one of the most active shareholder communities in the world with a 59% voting turnout.⁷

The UK also has one of the oldest systems of corporate governance in the world, largely based on “soft law” (governance guidelines) and “comply or explain” principles, as defined in the UK Governance Code, updated in 2016.⁸ There is no mandatory structure for boards, but the single-tier model with both executive and non-executive directors predominates. As the highest governing body, the board makes key executive appointments and takes decisions about the remuneration of top managers, strategy, major capital investments, risk management and disclosure.

In practice, board engagement varies greatly, as reflected in the number of meetings held per year. Boards of larger companies have a standard set of committees for audit, nomination and remuneration. Committees for strategy, environment, ethics, and health and safety may also exist. The average number of board committees for a listed UK company is 3.8⁹ (EU average 3.4).¹⁰

UK boards are not large with 10.2 members on average for Financial Times Stock Exchange (FTSE) 150 companies (EU average 12.3). Large boards—more than 15 members—are virtually non-existent. The proportion of independent directors has been steadily increasing over the last two decades and has now reached more than 60% for large public companies. Women represent 25% of board members and 4.7% of chairs.¹¹

The UK Governance Code recommends the separation of the CEO and chair positions, as adopted by most publicly owned companies. UK companies can have executive, non-executive, affiliated or independent chairs, and the last of these categories is on the rise. The number of full-time chairs is decreasing, making them a small minority.¹²

The Code provides detailed guidelines about the role, duties and responsibilities of the chair. As the leader of a collective body (board of directors), the chair is responsible for the following:

• Creating the conditions for the board’s and individual directors’ effectiveness

• Demonstrating the highest standards of integrity and probity, setting clear expectations concerning the company’s culture, values and behaviour, and establishing the style and tone of board discussions

• Developing productive working relationships with the CEO and other executive directors

• Guiding the company secretary

• Communicating with external stakeholders, including shareholders. Conducting periodical board evaluations.

Existing Research

No other country from our sample can compete with the UK in terms of the number of academic articles devoted to the chair of the board. Thanks to these publications, we know a great deal about British chairs’ demographics, backgrounds, roles and competencies. This knowledge contributed significantly to the design of our study. In the following sections, we present a short overview of the most relevant literature.

Earlier research in the UK focused on the chair’s demographic, background, relation to the company and influence within it. Scholars examined such variables as chairs’ titles, professional backgrounds, relationships to ownership, prior ties with their companies and time spent performing the role, among other factors. Empirical studies confirmed that a chair who also holds the CEO job is likely to have more power than the individual who is only a chair.¹³ Similarly, full-time chairs were found to carry more weight in a company than their part-time colleagues.¹⁴ Chairs promoted from within the organization are likely to have stronger influence than outsiders, by building on their superior company knowledge (expert power).¹⁵ Older chairs tend to be considered by other directors as more effective than younger board leaders.¹⁶

Building on the work of other researchers, McNulty , Pettigrew, Jobome and Morris developed a nine-model chair typology which predicts the type of influence a chair will have based on her status (executive vs non-executive), background (insider vs outsider) and time commitment (full vs part time). Their empirical study of 160 chairs from FTSE 500 companies established that, in addition to overall greater power, executive chairs with a full-time commitment exert greater influence in strategy and resource allocation tasks, while non-executive board leaders with a part-time commitment have more power in monitoring and controlling tasks. For their studies, the authors developed a list of tasks chairs perform on the job, taking an important step towards identifying what chairs actually do.¹⁷

Another stream of research is dedicated to the roles and the functions of board chairs. Often referred to as “the first among equals,” UK chairs take on a number of specific roles, some of them managerial and other of a supporting nature. Kakabadse, Kakabadse and Myers built on the previous research and designed a large-scale survey-based study for a sample of FTSE 350 companies. The authors identified such core functions as delineating chair and CEO roles, leading the board, managing directors’ and executives’ succession and contributing to strategic decision-making.¹⁸ Executive chairs are active both inside and outside the boardroom. They set their boards’ agendas, frequently communicate with the CEOs and senior executives and interact with institutional shareholders. Non-executives are less active in external relations and let CEOs have a bigger say in setting boards’ agendas.¹⁹ Some researchers emphasize the uniqueness of each chair’s role and the need for each board leader to find individual ways of dealing with specific challenges.²⁰

Chair-CEO relations have been the subject of a number of studies. The main recurring theme is the need to define the responsibilities of these two key people in the company and then stick to them.²¹ On the basis of interviews with chairs and CEOs in the National Health Service organizations, Stewart suggested that the two roles should form a dynamic partnership and complement each other. This idea resonated with other scholars and was supported in later publications.²² Yet other researchers emphasize the chair’s role as a counterweight to the influence of the CEO and suggest that the chair should lead the process of appointing, evaluating and, if necessary, dismissing the CEO.²³

A few studies have focused on the personal attributes and professional competencies associated with effective board chairing. On the basis of interviews with chairs, CEOs and independent directors from FTSE 100 companies, Kakabadse, Ward, Kakabadse and Bowman identified such qualities as maturity, relational skills, meeting skills, political and social competence, and coaching capabilities.²⁴ Roberts interviewed 35 chairs, CEOs and non-executive directors and found that lack of ambition for executive power, complementarity to the CEO and ability to preside over meetings and create trust among directors are critical for effective chairing of a board.²⁵ In the above-mentioned study of directors, Kakabadse et al. identified wisdom, sensitivity and resilience as important chair qualities.²⁶

We could not find a study devoted specifically to describing and analysing the practices of chairs, as understood in this book. However, some scholars provide interesting insights into the subject while focusing their attention on other research questions. Pettigrew and McNulty identified the chair’s attention to what happens outside the boardroom and the ability to conduct an informal dialogue with other directors and executives as vital practices for ensuring effective board process.²⁷ Lee-Davies, Kakabadse and Kakabadse wrote about “deliberative practice”, which implies asking good questions, and gathering and sharing useful information to support decision-making, without taking and defending a position, as a foundation for effective chairing of the board.²⁸

UK Culture Map

UK culture is described as relatively “low context”, medium on the “dimensions” of deciding and disagreeing, medium-low on trusting and scheduling, and high on applications-first (as opposed to principles-first) reasoning (see Appendix A for a full explanation). On the basis of this assessment, we hypothesize that UK chairs provide the board with low-profile but firm leadership and tend to focus on effectiveness. They communicate in a clear and concise manner, but not without metaphors and humour. They demonstrate discipline and demand it from other people, but they prefer to deal with disciplinary problems behind closed doors rather than in the boardroom. British chairs respect deadlines and other commitments, but they are pragmatic about prolonging a board meeting or giving a director extra time to speak. They work on building consensus, but they can put gentle pressure on dissident directors. They are very respectful in their interactions with board members, executives and shareholders, but they have a high respect for the chair’s role and defend its autonomy and authority. They do not like surprises and pay particular attention to avoiding them (Fig. 2.1).

Fig. 2.1

UK Culture Map . Source: Based on the work of INSEAD Professor Erin Meyer, and her The Culture Map book (Meyer, E. (2014). The Culture Map: Breaking Through the Invisible Boundaries of Global Business. New York: PublicAffairs)

Data

Two INSEAD-sponsored studies—the INSEAD Global Chair Survey 2015²⁹ and the INSEAD Global Chairs Research Project 2016³⁰—primarily provide the data for this chapter. Within the framework of the former, we received 36 questionnaires from the UK chairs. The following profile emerged:

• Aged just under 60

• Educated to Master’s level (only one PhD)

• Chairs two boards

• Sits on another two or three boards as an independent director

• Very experienced as a board member

• Has worked as a CEO or senior business executive (or more rarely as an academic or civil servant)

• Receives around US$78,000 a year per chair position

For the Global Chairs Research Project, we conducted semi-structured interviews with eight experienced chairs—three women and five men, aged from 54 to 72—who at the time of the encounters chaired a total of 15 boards of directors, including 7 boards of publicly listed corporations, 7 privately held companies, 2 charities and a government agency. None of them held a significant stake in the companies they chaired or was engaged in any private business or full-time employment. The business boards they chaired consisted of 5–11 directors, meeting between 5 and 12 times per year. Board composition varied in terms of the gender, age and professional backgrounds of members, but all included executive, non-executive, independent and affiliated directors. All boards had nomination, remuneration and audit committees (sometimes audit and risk management or audit and control). Some boards had committees for strategy, ethics and health/environment/safety.

The people we interviewed for the more qualitative research project are somewhat more senior and more experienced, as both directors and chairs, than the survey participants. In general, they come from a variety of industries and companies, and are well paid. They have an executive background and later became full-time board chairs and directors—a path that seems to be almost universal in the UK. Although most are independent and non-executive, they spend a lot of time at their companies—between four and ten days per month.

In addition to the chairs, we interviewed three professional CEOs, three experienced independent directors and three representatives of shareholders to form a 360-degree picture of the chair’s work (we refer to them collectively as “observers”). The CEOs (one woman and two men) had 32 years of combined chief executive experience at two private and two publicly listed companies and worked with eight chairs. The directors (one woman and two men) had, over the course of their careers, been members of 25 boards of directors, at both private and public companies and had worked in this capacity with 37 board chairs. The shareholders (three men) represented an investment fund, a venture capital company and a family holding, each of them having worked with dozens of board chairs.

UK Chairs: Principal Challenges and Practices

The INSEAD Global Chair Survey 2015³¹ identified the following main challenges for the chairs of British companies in descending order of importance:

• Managing difficult board members (special cases)

• Relationships with controlling or large shareholders

• Relationships with minority shareholders

• Level of collaboration and team work among board members (board dynamics)

All the chairs we interviewed agreed that relationships with shareholders and collaboration among board members were top priorities. All observers confirmed this view and added a further challenge: not getting buried under the ever-growing regulatory mountain and keeping the strategic focus of the board. The observer-directors emphasized the importance of containing “rogue” directors for effective functioning of the board. The observer-CEOs put chair-CEO relationships among the top three priorities. The following discussion explains both general strategies that UK chairs use to deal with these challenges and specific tools that they use to implement their strategies.

Relationships with Shareholders

In dealing with shareholders, UK chairs strive for a balance between proactivity and equality. They want to be seen as available, listening and attentive but independent and non-partisan at the same time. They seek to put the interests of the company before those of individual shareholders, no matter how big or important the latter may be.

Several respondents emphasized that they do not distinguish between majority and minority shareholders. They are careful not to give preferential treatment to any shareholder group or even the impression of such treatment, especially in publicly listed companies. Some will not initiate consultation with a particular shareholder unless others are party to the discussion. In the words of one chair, they “give them enough information, but not more than to other shareholders”.

The chairs in our sample agreed that, for public companies, executive compensation is the number one topic in their interaction with shareholders. One formally consults with the top 25 largest shareholders on remuneration and personally supervises the preparation of the annual remuneration report. They are aware of activist shareholders but have limited interaction with them. Overall, respondents regard interaction with shareholders of public companies as a time-consuming, sensitive activity that does not always add value to the business but has to be undertaken to avoid conflict.

For chairs of private companies, the independence and equal treatment of all shareholders are important, although the smaller number of shareholders and less strict governance rules than in public companies allow for more intense interaction. One chair of a private company with three shareholders sends a board book and speaks to a representative of each of them a few days before the board meeting, walking her counterpart through the agenda. She does not look for “input or guidelines, but makes sure the shareholders are aware of what is on the next agenda”. Ideas from each shareholder are shared with her at meetings specially convened twice a year. Another chair writes to the largest shareholders to enquire whether they would like a private meeting; about half take up the invitation. One chair of a public company invites the five largest shareholders and independent directors for a working dinner once a year to discuss business within permitted boundaries.

For observer-shareholders, effective chairs serve as the most important interface between themselves and the company. Good chairs are attentive to the shareholders’ concerns, understand them and effectively translate their ideas for the board and the management. They are proactive in sharing information and seeking shareholders’ positions. One respondent from a private equity company shared that: “Good chairs help us to manage relationships with other shareholders by listening to all sides and bringing objectivity.”

Effective chairs at private companies write to shareholders, periodically (from one to three times a year) meet with them in person, speak on the phone and communicate via e-mail and messaging apps. They make sure that shareholders understand what is happening at the company, what the board is preoccupied with, what decisions it has made and the implications of all of these. In public companies, chairs ensure that shareholders are treated equally and fairly, organize shareholder assemblies in a transparent way and are available for communication .

As we originally hypothesized, good chairs in the UK maintain a constructive dialogue with shareholders for the benefit of the company, but not in the boardroom. They emphasize the importance of protecting the independence of the board and their authority over its workings. As one put it: “We operate under the two meeting principles: one is for directors (the board), another for shareholders. If you happen to be both, learn to behave yourself.” Another respondent shared his experience of threatening to put an unexpected proposal from a large shareholder to an immediate vote, so that it would be outvoted by independent directors. We came across examples of legally binding written agreements between large shareholders and companies, as well as informal agreements between shareholders and chairs.

Managing Difficult Board Members

According to the INSEAD Chair Global Survey 2015, “managing difficult board members” was the number one challenge for chairs in the UK. Director-observers confirmed this, although chair-respondents seemed to take the challenge in their stride. As one said, “You have to work with what you’ve got—you are not a CEO selecting your team.” Generally, “challenging directors” fall into two categories: first, those who do not listen but speak a lot, and second, those who say little or do not speak at all. A common strategy for dealing with directors with “verbal diarrhoea” is containment, and for the silent type engagement.

A number of tactics for containing vocal board members were cited: having a private word in their ear, offering to help (sometimes calling it “coaching”), suggesting professional support or making a formal performance evaluation. Perhaps the simplest step of all was direct but polite confrontation in the boardroom: “Bill, you are talking too much”; “Margaret, I will have to ask you to stay quiet for the next quarter of an hour”; “James, thank you. Now we need to hear from other board members.” If nothing worked, our respondents resorted to recommending that the individual should not stand for re-election. There was general agreement that, if the chair was firm and consistent, most cases could be remedied.

Effective chairs pay a lot of attention to engaging otherwise silent members and ensuring that even those not inclined to speak at meetings contribute to the collective work of the board. One commented: “My major task is to make silent directors speak—they are my major underutilized asset.” Rather than calling on them in the boardroom, he solicits their opinions before the meeting and then presents their views to the board, acknowledging the source. Some ask for written opinions to ensure that everybody participates. Others adopt the format of asking every director to state his or her opinion. One observer-director recalled how a chair personally coached “timid board members” and their involvement visibly increased.

In summary, “special cases” are dealt with in a tactful but firm way. UK chairs do not hesitate to challenge directors since this contributes to the main focus identified by respondents: the board’s effectiveness.

Board Dynamics

Helping the board to reach good collective decisions is a top priority. Aware of the multiple identities and commitments of directors, chairs are modest in their team-building ambitions: “I don’t think the board needs to become a team,” or “Perhaps it is a very special team.” Observers tend to support this approach. One experienced independent director said: “The good chairs in my life were quite careful not to make attempts to convert a board into their ‘executive team’: they respected the autonomy and independence of directors.”

However, good chairs deploy specific strategies to make this diverse group of people, which meets only a few times a year, work productively. These fall into pre-meeting, in-meeting and post-meeting categories, as summarized in Table 2.1.

Table 2.1 UK chairs’ strategie s and practices

Pre-meeting

All respondents agreed that the pre-meeting stage is critically important, and invest time and energy in preparation, the ultimate goal being to ensure that they have motivated, well prepared directors in the boardroom. They therefore conduct induction interviews with new members, at which expectations are set. One observer-director recalled her experience:

When I joined my first board I had a two-hour conversation with the chair, who in a very concise manner explained: the mission and the rules of the board; the roles of the chair, committees and corporate secretary; how the relationship with the executives worked; what was expected of me in terms of time commitment, preparation, and participation, etc. It was like attending a business school course!

The induction programmes also include meetings with executives, site visits, product introductions and so on. As one chair explained: “We organize induction programmes for all new directors—they visit key units and functions, and spend time with the risk department.”

Chairs reach out to directors before each board meeting to re-engage. Some consult with other members about the agenda. One said: “I ring every director before approving next meeting’s agenda to ask what they want to see on it.” While members rarely come up with drastic alterations, such conversations help to concentrate their minds on the upcoming meeting. To observer-shareholders good chairs table agenda items that are essential for the company and its stakeholders, ensure the strategic focus of the meetings and do not let their boards discuss issues they have not prepared for.

Pre-board dinners are another way to engage directors, review the agenda and ensure that everybody is on the same page. Most chairs limit these to non-executive directors; others extend it to executives. One noted: “A board dinner is a good way to make sure we have no ugly surprises in the boardroom next morning.”

The quality of materials is critically important for effective board work. Respondents cited the need for clarity, limited volume and enough time to study the board book in advance. Some chairs set the format of board materials; others co-define it with the CEO. Some check the materials before they are sent to directors, but most trust the management to produce a quality board book: “I don’t check materials before they go to the board members—it’s too controlling and interfering. The company secretary has the power to turn them down.” A number of boards chaired by respondents have gone 100% digital (electronic communications rather than print).

To improve directors’ knowledge of the company and its business, some chairs facilitate site visits and meetings with employees, customers and so on. The chair of a hospital board introduced a routine whereby “every non-exec spends one day with patients.” Another described how “we conduct board meetings in different geographies and always visit operations and meet with customers.”

Leading the Meeting

The success of a board meeting is a function of three variables: the right agenda, the preparedness and motivation of the participants—and the right process. Items on the agenda should be, in the words of one of the chairs, “strategic”, “ripe for a decision”, “material” and such that “no else in the company could make a quality decision” about them. Another chair insists that there should be no less than four and no more than six items on the agenda for one meeting. In most cases, the chairs we interviewed partner with the CEO to set the agenda. Others invite all directors to review the agenda and pitch their ideas.

Respondents believed the board should spend most of its time on discussions rather than listening to management or committee presentations. One imposes a 30:70 ratio—30% of time for presentations and questions, 70% for discussion and making decisions. Others use similar but less strict approaches.

For a discussion to be productive, it has to be candid and involve all board members. The chair’s task is to create an appropriate atmosphere. When asked how they approached this task, our respondents spoke about “trust, respect, and personal attention”. The most common strategies to achieve this were equal treatment for all, facilitation of discussions and self-restraint. As one chair explained:

I have two rules —every director has to have roughly the same amount of airtime, and we should reach consensus . Sometimes one board member is more knowledgeable than another on the subject matter and wants to have more time, but I say: “You are an expert—you should be able to make your point quicker.” Usually people smile and accept it.

Another affirmed: “You build trust by demonstrating respect, and you show respect by valuing everybody’s opinion and acknowledging everyone’s contribution … I always thank every director who put forward an idea after the decision has been made, even if that particular idea was rejected.” Another strategy was to ask each board member to state his or her personal position on the subject matter before concluding the discussion.

Restraining their own participation in the discussion is another tactic used by chairs to promote trust and engagement. As one put it: “I try to take as little room as possible. My task is to help others to speak their minds.” Another added: “I always try to avoid indicating personal views and preferences. If I have to speak, I speak last .”

The task of facilitating a discussion includes stating the facts; framing the question, providing every director with an opportunity to speak; summarizing; formulating a resolution; and making sure that every director understands and supports it. One respondent explained:

As a novice chair, I underestimated the degree to which people participating in the same discussion and listening to the same proposed decision may have different ideas about what it actually means. As a result we would have some unpleasant conversations. Later on I learned the lesson and now always take time to make sure everybody understands the proposed resolution the same way.

Another chair writes the proposed resolution on a flip-chart and walks the board through it.

The independent directors interviewed for our project emphasized fairness in allocating time and organizing discussions as essential elements of effective board chairing. According to them, good chairs energize the board (without over-exciting it), focus directors on a task and facilitate interaction. They do so by opening board meetings with energetic constructive statements, formulating clear discussion questions, concentrating on the discussion process (rather than the potential decision), engaging silent directors and containing talkative ones. Effective chairs use body language to communicate with the board. As one of the respondents put it: “Chair A animates the board, he does not say much, but the way he says it and what he does without saying a word makes directors motivated and concentrated.”

Many chairs conduct some sort of evaluation at the end of each board meeting. This reinforces respect for each director, builds trust and helps the board to learn and improve. One respondent said: “At the end of the meeting I ask every director to comment on how we did as a team and how I did as a chairperson.” Another puts three questions to the non-executive directors at the end of the meeting: “What worked well? What did not work? What should we do differently next time?”—and implements their recommendations at the next session.

Post-meeting

Formal board evaluation is a well-established practice in the UK. Board assessments are conducted every 12–24 months, sometimes with the help of external consultants, sometimes via an anonymous survey of board members (and, in some cases, senior executives). One respondent explained: “We do 360 digital evaluation every year and every three years we invite an independent consultant to conduct a thorough assessment with the help of semi-structured interviews with all directors and key managers.” According to a 2016 Spencer Stuart study, 56% of FTSE 150 boards conducted an internal evaluation and 43% used external help, while three companies did not have board evaluations at all.³²

Some chairs arrange off-site meetings to discuss how collective decision-making could be improved: “Once every year, we go to an off-site dedicated to improving board dynamics. With the help of a facilitator we brainstorm how to improve and try out new approaches.” Others combine gatherings like these with strategic discussions. Overall, loosely structured off-site sessions are seen as an important tool to improve a board’s cohesiveness and performance.

Working with the board as the whole is complemented by one-to-one interactions. One chair rings “each director every month to keep them concentrated on the company.” Another invites every board member for lunch once a year. Yet another has a Skype conversation every six weeks. One commented: “They [the directors] should feel that you are available, you care about them and their views, but you are not intrusive.” Observer-directors back this view. For them, effective chairs reach out to directors between meetings, share news from the company and consult about upcoming meetings. They also pay individual attention to each board member, providing advice and coaching if requested. Good chairs establish two-way communication with directors via phone, e-mail and messaging apps—and promptly reply to them.

Relationships with the CEO and Management

Maintaining a good relationship with the CEO is high on the chair’s agenda. Interaction is usually more intense, complex and nuanced than “I run the board—you run the company,” and goes beyond the supervisory or mentoring functions prescribed by the Code. Although our respondents asserted that “CEO development is one of my annual objectives” and “I question and challenge the CEO both privately and in the board room,” the notion of cooperation, partnership and support emerged as more important practices. A very experienced chair put it this way: “I am helping him to deal with loneliness, almost acting like a shrink,”—and they have an open-agenda meeting or a phone conversation every two weeks. Another considers herself “a sounding board for the CEO”. In this particular case, they meet every two weeks and talk about both current business issues and the personal challenges of the CEO, who defines the content of their conversations. One respondent, who holds multiple chairs and has solid experience in executive development, lets the respective CEOs define the format of their interactions: “At the global food company we always have a one-to-one meeting a couple of days before the board meeting, he sends me a lot of SMS and I answer. At another company, we have regular Skype meetings. At the third organization, we exchange e-mails almost daily.”

One respondent described how he negotiated a “non-aggression pact” with the CEO: “You never bump a board with an important decision without sufficient time to analyze it—I make sure they know about all important concerns before the board meeting, rather than at the meeting.”

There was consensus among respondents that developing strategy is the CEO’s business, which the board should “endorse” (unless there is a crisis, in which case it should take over temporarily as a collective chief executive). The chair’s role is to help by listening, asking questions, challenging assumptions, connecting the CEO with experts and sharing personal experiences of being a CEO. Some respondents performed other services at the CEO’s request such as meeting with customers, regulators, suppliers and the media. In general, however, respondents believed that chairs should not interact with third parties except shareholders. The only time they should intervene is in a crisis.

For observer-CEOs, effective chairs are first and foremost available yet non-intrusive. One CEO recalled with horror her experience of working with a chair who would send her 400 e-mails a day! Another chair she worked with was the opposite—no e-mails, rare and minimal interaction, but always negative feedback. A third chair, whom she considered to be effective, took time to listen, asked a lot of questions, said comparatively little, provided comprehensive feedback once a year and offered specific advice after important events. Observer-CEOs agree that effective chairs play a number of important roles vis-à-vis the chief executive, namely partner, mentor, adviser and occasionally provider of services or resources. In their view, good chairs partner with CEOs in defining the board’s agenda, in managing communication with shareholders and in planning and preparing CEO succession. The former serve as mentors to the latter helping them run the company and/or develop specific skills.

In contrast to the chairs in our sample, the CEOs believe that industry knowledge is essential for good chairs, who must advise their chief executives on such issues as business strategy, regulatory issues, senior appointments and capital investments. They also help CEOs to fulfil their duties by occasionally speaking on behalf of the company to external stakeholders and the media, engaging with regulators and meeting with key customers and suppliers. Some observer-CEOs also mentioned that their chairs introduced them to important people in business and government, thus sharing their social networks with the chief executive.

Observer-shareholders emphasized the critical importance of a healthy relationship between the chair and the CEO, with some adding the CFO into the equation. For them, effective chairs use a variety of practices: they know the company’s business inside out (by maintaining intense communication with CEO, CFO and internal and external auditors); they attract the chief executive’s attention to potential problems and opportunities; they provide feedback on a regular basis; and they mentor the CEO or have another board member play this role. One private equity investor shared his perspective:

In the companies we invest in we have very effective chairs. They sit down with their CEOs every month for an hour or two. This conversation always includes feedback to the CEO, business updates, and discussion of upcoming events. They also translate our expectations to the CEO. And they disrupt the CEO and management team by asking difficult questions.

We found a noticeable difference between institutional shareholders, on the one hand, and private equity investors on the other hand, with regard to the chair’s role in CEO evaluation and succession. The former believe it is responsibility of the board, while the latter consider it the business of the chair.

Other Challenges and Practices

In the UK, unlike other countries, informational asymmetry with the CEO and management is not seen as a major challenge to the work of the chair. Most are philosophical about it. In the words of one: “You should acknowledge it and live with it. You will never know as much as the CEO does, but you have to trust him/her. If trust is not there, you should change him/her.” Some chairs resort to asking the CEO to write monthly one-pagers, holding meetings with the chief executive’s direct reports, having lunches with high potentials and convening company conferences to improve their feel for what is going on in the organization. One chair insists that “other executives, at least the CFO, should be on the board”. Another describes the chair-CEO-CFO triangle as a “critical factor for the business’s success”.

Respondents acknowledged that multiple identities and a lack of commitment from directors can become a real issue if not properly managed: “This is a huge challenge. No matter how much you say upfront, people will fail you.” To deal with it, they make their expectations clear at the outset. One respondent told us: “I say at the recruitment stage—‘You need to commit 40 days a year to this board, are you ready?’” Another went further: “I set a rule at the induction interview: three missed meetings and you’re out.” Enforcing the rules is critical, although it may be enough to remind the board of them from time to time. Some respondents are more candid in confronting directors who come unprepared or unfocused: “I say, ‘It was obvious you did not read the materials. Is something special going on or did you lose interest?’ or ‘I need your voice in the boardroom!’” Such conversations take place behind closed doors rather than in the boardroom.

On the enabling side, respondents emphasized the importance of: thorough and long-term planning (“Planning is critical -we set all board and committee meetings dates for two years, and I do everything to stick to them”); the quality of materials (“People prepare when materials are crisp, concise and have good visuals”); and availability of resources (“I make sure directors when necessary have access to company and external experts”). Setting an example to other board members is paramount: “Although I try not to reveal my position, I always make sure directors see that I have done my homework.”

Chair Succession

The corporate governance guidelines say little about the role of the incumbent in the process of identifying and preparing a successor. Some academic scholars advocate active participation of the existing chair in planning and preparing for his or her succession.³³ Attitudes among respondents differed remarkably—from “I have been thinking about it from the day I became a chair” to “I should not mess with it; a senior independent director will organize the process when the time comes.” One fascinating story of succession deserves to be reproduced here in full:

When I had to go through that for the first time I looked at the Code and found nothing there. I spoke to other chairs and executive search consultants. There was no clear formula so I invented my own. First, I wrote a memo to all directors indicating my intention to step down and asking if they were interested in the position. Two said “yes”. In the memo I made it clear I should have no say in choosing my successor, but I would organize the process. I put together a committee of two independent directors (those who did not want to be considered) and the CEO to oversee the process. They developed a profile (and ran it by me) and hired an executive search firm. Together with the headhunters they assessed three external and two internal candidates, and picked one from within. We sat down with him few times before I left and it worked very well.

Observer-shareholders expressed strong views on the subject of chair succession. One private equity investor evaluates all the chairs of the companies his business has invested in and proactively helps to choose a candidate for succession. He is also constantly scouting for potential chairs. Similarly, a representative of a family business explained that family “owns” chair’s succession in its companies and only involves the incumbents when necessary.

“Regulatory Mountains” and Strategic Focus

A number of directors and CEOs (although none of the chairs we interviewed) pointed to a final challenge and described some practices for dealing with it. As one of the observers-CEOs put it:

Corporate governance regulation is constantly evolving and has become increasingly complex and detailed. There is a real risk of boards becoming box-ticking machines. Good chairs see this risk and find the right balance between what is prescribed and what is important for the company.

Effective chairs manage this challenge by familiarizing themselves with the relevant laws and Code requirements. They actively collaborate with the corporate secretary, delegate what can be delegated, deal with technical matters in an efficient manner and systematically put on the board’s agenda such items as: macro and industry dynamics; company strategy; organizational reputation; risk management; and leadership talent development and succession.

Summary: Profile of the Chair in the UK

In the UK, chairs have two circles of interaction, both fairly small. The inner circle consists of a dozen or so board members, including the CEO, CFO and sometimes one or two other executives, and the company secretary. The outer circle includes large shareholders, company managers, and in some cases important customers or vendors, representatives of regulators, the media and professional associations. The chair interacts with the members of the inner circle relatively frequently, meeting face to face every one to two months and remaining in regular communication in between. Meetings with the members of the outer circle happen a few times a year.

An unexpected finding of this research was that one of the most popular ways in which UK chairs accomplish their business is… to share a good meal! They eat out with board members, executives, shareholders and other stakeholders, at business breakfasts, tête-à-tête lunches, afternoon tea or group dinners. This may have something to do with London’s recently acquired reputation as a global culinary destination, but we believe that it reflects the importance of personal relationships for the job of the chair and the British tradition of fostering them through a shared meal.

In the UK context, effective chairs are important figures, but they stay out of the public eye. The chair is responsible for and represents the board, while the CEO is responsible for and is the public face of the company. Chairs are accomplished professionals with strong views, but they lead without taking up much space and avoid the limelight. They lead board members and executives by: engaging them in a collective effort; creating an environment for effective collaboration; and encouraging productive behaviour, by providing feedback and opportunities for collective and individual learning and development. They do not give orders or issue directives. Instead, they steer or nudge followers by setting agendas, framing discussion items, soliciting opinions and seeking and providing feedback. They set clear expectations and establish rules, but the latter serve as guidelines rather than laws set in stone. Chairs provide exemplary leadership by consistently displaying the attitudes and behaviour they expect others to adopt. “Indirect” is probably the most accurate term to describe their leadership style.

Yet when required—in times of crisis—they step forwards, assume responsibility and demonstrate hands-on leadership. As one observer-director recalled: “When a competitor launched an unexpected hostile takeover bid, the chair of our board moved into the company offices for three weeks and worked with the CEO and other directors day and night to defend the company. His dedication energized everybody else and became one of the key success factors.” According to our respondents, understanding that such situations may occur and being mentally ready to take an active role is integral to the effective British chair’s mindset. While not seeking the limelight, they are passionate about the companies they chair and ready to go the extra mile to serve them.

This chapter describes effective board leaders, but our research also demonstrates that there are many chairs of British companies who do not fall into this category. They lead dysfunctional boards that provide management with poor oversight and guidance or have strained relationships with shareholders and other stakeholders. We have identified four factors that reduce the effectiveness of these board leaders, who in most cases have similar personal and professional backgrounds to those of high-performing chairs.

The first factor is time devoted to the role. According to the observers, chairs who spend fewer than 30 full days a year doing their job during “normal times” or who cannot fully dedicate themselves to it during times of crisis just cannot get it right. Time commitment is one of the reasons why celebrity chairs (defined as people chairing more than three boards) are becoming extinct in the UK. The second factor is personal ego and the inability to manage it. As one director explained:

Unfortunately, I was a member of several boards chaired by larger-than-life characters. These leaders turned board meetings into a one-man vanity fair, alienated directors and undermined collective decision making. Some of them were very bright, but they presided over weak boards that were unable to collaborate effectively.

The third factor is the chair’s mental model about the board, its role and modus operandi. Our observers had participated in “managing” boards that dived deep into operational issues, “ceremonial” boards that were content to rubber-stamp management decisions, “confrontational” boards that were constantly undermining executives and other dysfunctional models, most of which stemmed from their chair’s misguided ideas about what a good board looks like.

The last—but far from least—reason for inadequate board performance revealed by our research is the chair’s lack of the skills and competencies required to use the productive practices that we have described throughout this chapter.

Corporate governance —where rapid change is not always welcome, and tradition plays an important role—will continue to evolve in the UK. Looking ten years ahead, we expect to see the following trends with regard to board chairs:

• They will concentrate even more on the board and stay out of the limelight.

• They will put in more hours and have fewer directorships, although there will be very few executive or full-time chairs.

• The relationship with the CEO will remain a top priority. It will be more intense, and evolve towards partnership, mutual mentoring and collaborative work.

• UK boards will appoint more foreigners to the chair, but the majority will remain UK citizens.

• Board leaders will become somewhat younger.

• Around 20% of chairs will be filled by women.

• Most chairs will continue to come up through the CEO school, but more of them will have backgrounds in consulting, academia and technology.

• They will have strong personalities, highly developed social skills, systemic thinking, a global mindset, advanced listening skills and strong ambitions, but enough humility to channel these into the collective work of the board.

• They will lead indirectly: engaging, enabling and encouraging directors through nudging, creating an environment of mutual respect and trust, and “walking the talk”.

• Boards will take chair succession more seriously. The UK code will formulate comprehensive guidelines, and incumbents will have more ownership of the process.

• Technology will slowly but steadily conquer the boardroom. In the next decade, all UK boards will go digital, and many board meetings will become virtual.

• Much informal one-to-one communication will move online. By 2027, technology will become what sharing a good meal is today—a stable platform for leadership.