Good Governance – The Chairman’s Role

Oct 262008

Dr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com

I have served as Chairman of the Board a number of times and helped others fill the same role. It is the most critical position on any board for two fundamental reasons. First, the Chairman is responsible for the operation and effectiveness of the board. The fiduciary obligations, which each director has to protect and enhance shareholder value, can only be accomplished by a well-organized and focused board. Second, the Chairman is the principal contact with the senior management – particularly with the CEO. In corporate terms, the board as represented by the Chairman is superior to the CEO in authority and power. Nevertheless, many Chairmen fail because they reflexively assume a subordinate role. Recent scandals demonstrate the risk inherent in that approach. The Chairman must be strong enough to dominate the CEO and senior team when necessary.

The Chairman of the board of directors is a key leadership position. This role requires focus and attention to issues other directors may not need to observe. The Chairman must oversee the organization and management of the board meetings. Here are just a few of the issues that require attention:

assembling and approving an agenda
determining board and advisory board composition
clarifying board and management responsibilities
developing board leadership effectiveness

The Chairman determines which items are on the board’s agenda. Corporate boards typically meet ten to twelve times per year. The board will not have time to consider more than a few key issues during any meeting. The Chairman, usually in partnership with the CEO, must strategically plan the agenda to maximize the results of board meetings. A strong CEO will handle operational and personnel issues, but may need feedback on certain strategic alliances or sudden shifts in the company’s market. Board members or shareholders may request certain items on the agenda due to scrutiny by the stockholders. The CEO/chairman should also consider each director’s focus when itemizing the agenda.

The Chairman should understand the board’s composition. This entails understanding the perspective of each director. The Chairman must be mindful of each director’s level of experience and his or her background in business. The Chairman’s leadership style will determine the reaction to crises and approach to committee service. The Chairman must also understand and tend the lines of communication among directors and facilitate the interaction of directors between boards of directors meetings.

The Chairman must be prudent in assigning directors to work together or when making committee appointments. The Chairman should consider the characteristics, experience and style of individual directors as seriously as expertise. Certain leadership styles do not work well together, and a close assessment by the Chairman before making committee assignments will enhance committee performance.

Each agenda item will likely stimulate comments and discussion. As the board discusses or hears reports on each item, the Chairman should maintain order and clarify the comments for the minutes. The Chairman should also clarify the responsibilities of the board and corporate management as it relates to each point addressed by director. The Chairman should also be responsible for ensuring each committee has the delegated authority from the board to manage its responsibilities efficiently and effectively.

The Chairman should also use his assessment of individual directors to develop a leadership development program to increase board effectiveness. Providing coaching for promising but inexperienced directors can be an effective strategy for developing and retaining talent for the long-term good of the stockholders. A portion of each board of directors meeting can be set aside to allow an external adviser or a seasoned director to review important information and to assist new or inexperienced directors with specific expertise valuable to the organization. New directors will experience significant personal growth while seasoned directors reconnect with tools they may not have used recently. The organization will be the real winner as directors have a common understanding of issues.

Good corporate governance requires the dedication of the entire board of directors. As the board looks for leadership, the Chairman should be a seasoned director with strong, respectable leadership skills and honed interpersonal skills. The Chairman should be able to direct meetings and keep directors on task. The Chairman should be able to define and clarify comments and convey the meaning of other directors clearly for the minutes. The Chairman will become the face of the board and as such should be able to communicate effectively with employee, customers, suppliers and most importantly with shareholders.

The balance of power between the Chairman and CEO is one of principal focuses in my work with boards. Many of my clients have suffered because that relationship is out of balance. A dysfunctional board is a major corporate liability. Not only dies it subject the individual directors to extreme legal liability, it also exposes the shareholders to the possibility of major loss of value. If the board is unsuccessful in protecting and extending shareholder value, it has failed in its fiduciary obligation to the shareholders and they will have recourse that may prove severely uncomfortable to board members.

If you are a Chairman or a board member and want to know more about my board services, send me an e-mail and we will arrange a time to talk.

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