CHAIRMAN : the corporate governor
Separation of company ownership from management has provided the opportunity for shareholders to build giant corporations that rule the market space nationally, regionally and globally. Shareholders define the corporate purpose – what specifically they want to accomplish but do not have to all sit down and drive it. That paved the way for the emergence of corporate democracy and the election of the corporate governor.
Having a common interest in the realization of the mission of their company, shareholders gather to elect a few of their members with reasonable stakes in the business of the enterprise to act on their behalf in directing the affairs of the company. Those so elected form the company’s board of directors.
Corporate democracy then moves on to round two. The elected board members now proceed to elect one of their members to man the steering wheel of the corporate ship to destination – which is to grow the wealth of shareholders. That man or woman is the chairman of the board of directors.
Board members may or may not be skilled in the business of the company and so they proceed to appoint a management team they judge capable of delivering the results expected by shareholders. That management has to be led, controlled and assessed on a continuous basis to ensure it does not lose direction.
The body of shareholders at both the directors’ level and the general assembly has to be carried along by way of continuous communication of the state of affairs of the company and their involvement in deciding the policy direction. The chairman therefore acts as a direct liaison between the board and the management of the company, through the chief executive officer. How he is able to lubricate the relationship, reduce friction, resolve conflicts and keep the corporate wheel streaming satisfactorily is a key test of the stuff he is made of.
No longer a ceremonial head
In the past, the board chairman used to be somewhat ceremonial and was not held directly responsible for corporate failure. In that era, people who had little or no knowledge of the business easily qualified as chairmen of the board and they headed sleeping boards. It was quite easy for managements to deceive the board and shareholders and drive the corporation into bankruptcy. That era came to the climax in the case of Enron, the American energy company in which the directors confessed they had no inkling that the company was in trouble until a deep corporate rupture, hidden from them for years, got out of hand.
That era is now in the past. With increased competition and operating difficulties as from the 1980s, demands for increased quality of corporate governance grew. In response, company regulation around the world has widely expanded the role and responsibilities of corporate boards and with that, the chairman has assumed far greater role and responsibility in company operations.
Shareholders now take greater pains in electing their boards and the boards in turn have grown extremely cautious in deciding who becomes the chairman. The chairman himself has to go to school to equip himself properly for the increased demands of his office. He has to be sufficiently knowledgeable in the business in order not to be deceived by management and he has to be pragmatic on the corporate governance job in a business world in which survival is no longer possible by just following the rule book.
With significantly increased demands in corporate governance, it is no longer possible for corporate boards to be sleeping on duty. Compared with what used to be in place, company boards have become significantly empowered. The principal role of the chairman, which is to manage and to provide leadership to the board, has equally increased. The demands for accountability to the board and to shareholders have never been this tasking.
He is the most powerful in the company
Separation of the role of the chairman from that of the CEO became a requirement for public companies in Nigeria under the code of corporate governance issued in 2003. This rule was aimed at ensuring that the chairman is independent of management and therefore free from any interest and any business or other relationship which could interfere with his independent judgment.
Yet how influential the chairman is differs widely among companies. If the chairman is a former CEO of the corporation, apparently the person who installed the current CEO, he is very likely to play a very powerful role in the organisation. The ability to use his position to keep management on its toes in achieving company objectives and lead the board in charting the course of the organisation is the ultimate responsibility that attaches to whatever amount of powers the chairman exercises.
What makes an effective Chairman?
The chairman is the company’s governor and whether he is so in practice or is letting the CEO do the governance action is the key determinant of how good is the chairman. An effective leadership of the board must happen for the corporate purpose designed by shareholders to remain on course.
Providing effective corporate leadership demands that the chairman should be trusted by the other members of the board of directors, by the officers and management of the company as well as the general assembly of shareholders. He is not likely to gain that kind of all-round trust unless he is fair. Fairness means open mindedness in working with other directors, giving them the opportunity to voice their views and ensuring their views matter in decision making.
Directors normally comprise people with different types of knowledge and experiences. The best decisions in shaping the company’s future can therefore be expected in an atmosphere of a free and open sharing of views by people with such varied experiences. This is the beauty of the whole concept of having a company board. Able chairmen optimize the effectiveness of the board of directors by encouraging discussion, questions and conflicting opinions.
For the chairman to be trusted, he has to demonstrate a great deal of credibility in terms of committed pursuit of the interest of shareholders rather than his personal interest. He cannot provide effective leadership where other board members and management officials have reason to doubt his credibility.
He is a strategist
That does not in any way mean the chairman should compromise his key role of ensuring that meetings are run efficiently. He is a strategist; in a sense a dramatist when it comes to board proceedings. Business decisions must be delivered on target to enable the company to compete. Board members therefore have a limited time to make their contributions and an endless debate isn’t going to deliver results in a competitive space that is continually astir.
How good is the chairman again reflects his ability to strike a balance between encouraging discussion and questions and moving the meeting forward to make important decisions within relatively short time periods. The chairman may strategically have to call an end to discussion and call for a vote before all directors satisfy themselves in driving home their viewpoints. Dramatically ending debate and driving the board to a decision without hurting the atmosphere for healthy discussions in future meetings is considered the hallmark of a good chairman.
By setting the agenda for board meetings, chairmen define the direction and scope of board meetings. By adding or omitting issues from the agenda, the chairman can exercise a great deal of power – that could swing widely from a useful engagement of strategy to deliberate corporate mischief. For instance, by putting an item last on the agenda might be deliberate to ensure the item is never addressed.
It could also mean that items top on the agenda are so positioned to explain contentious issues listed last on the agenda. By the time the controversial agenda is called up towards the end of the meeting, agitated directors would have shielded their swords even for the rush to the airport to catch flights home. In such a manner, the chairman is able to drive the company towards a desired direction.
Tough chairman for big business
Size of the organisation and the composition of the board are critical factors in who becomes the chairman. Where the number of board members is large or the board is composed of representatives of multiple interests, the company usually looks high up the ladder for who can provide effective leadership in a situation of conflicting constituencies of the board or shareholders.
A reputable company needs a chairman who understands how to jump through the right hoops in difficult situations that could otherwise embarrass the organisation. It needs a chairman able to drive through a special meeting where the board is divided over a particular matter and a regular meeting is not scheduled in the near term.
An effective chairman is able to attract new investors into the business and this is where the mark of credibility matters a lot. To the extent that he is seen to be shareholder-centered in his decisions, intending investors tend to flock to which ever company he happens to be the chairman.
It is therefore not surprising that track records of the chairman have become critical in deciding who will lead the companies of the future. How many companies has he led into success? Have there been any closures or bankruptcies under his leadership. Has he been indicted in fraud cases? These are the kind of probing questions from shareholders who are looking for an able chairman. A stream of successful leadership of companies, including rescue missions accomplished and clean records of credibility in financial dealings are the guiding principles in the making of a model corporate board chairman.
In the leadership of Nigeria’s corporate world, there are a good number of men and women who are the best in the boardroom. There are many people who have been tried and tested through the thick and thin of the business cycle and they stand out. Nigerian business has survived the wide swings of the oil market cycle through the times because it has able people on the job of corporate leadership. This study takes a look at just a few of them whose names ring a bell in the boardroom.