The critical role of the Chair

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18 November, 2022
Blog | Board Performance

Businesses face increasing pressure across a broad set of issues, including a looming recession, geopolitical and climate change impact, and digital disruption. Balancing short-term and long-term priorities is increasingly essential and the strain on top leaders is intense.

The role of the Chair is increasingly critical for success in a progressively uncertain corporate environment. The CEO and the other board members rely on them to be a trusted sounding board. Chairs face challenges ranging from unforeseen events, such as the pandemic or geopolitical disruption, to climate change and sharper investor scrutiny.

The role of a Chair is a balancing act; to be both leader and follower. Because they have fewer traditional instruments of organizational power, such as unilateral decision-making authority, investment budgets, or a pyramid of subordinates, they must literally lead through others.

 

 

Six research initiatives have recently examined the role of the Chair based on the study of more than 2,000 Chairs and board directors across the globe. In this article, we explore examples of good practices for successful Chairs that were identified in the research and summarize our findings in four action areas.

The Chair is instrumental in focusing and engaging the board and CEO on the issues that matter most, ensuring that key stakeholders are understood, and promoting increasingly dynamic board work to adjust to heightened demands.

 

The leading Chair of the future excels in four areas 

  • Engage and lead the board on the issues that matter most
  • Engage the board for effective impact
  • Engage and guide the CEO
  • Engage with prioritised stakeholders

     

    Good practices of successful Chairs

    • Engage and lead the board on the issues that matter most

      • to ensure that the board keeps abreast of current business, actively assessing market insights and frequently sharing news and new trends among members
      • to define an engaging purpose, differentiating strategy, and ambitious, clear goals and agenda for value creation
      • to agree on materiality, key risks, and opportunities that guide company agility
      • to focus on and decisively drive the most critical matters
      • to promote agreement on the board’s role and critical areas of involvement
      • focus on crisis practice and company resilience

    The Chair has an overriding responsibility for a company’s long-term success. The Chair sets company direction, provides general guidance to the board and management, and ensures that the company meets its strategic objectives. The role differs significantly depending on ownership structure. The role is increasingly demanding because staying on top of market insights takes experience, curiosity, and time. Making the appropriate strategic pivots requires courage and ambition. The most successful boards are 11% more focused on what matters most than the average board.

    Jim Hagemann Snabe, the Chair of Siemens and the former Chair of Maersk, guides his board to spend more time and focus on the future. As one example, he develops a list of 20 questions to inspire an outside-in point of view and sends it to management four months before the annual strategy meeting.

    • Engage the board for effective impact

      • to support a competent, diverse board that invites and listens to outside perspectives
      • to make sure that great questions are asked, fostering quality debates, and summarizing with clarity
      • by holding regular board and CEO evaluations, providing directors with constructive feedback, which drives improvement
      • by making sure there are regular learning opportunities and guides for insights and training, including personal development
      • by establishing key policies and relevant control systems for progress monitoring
      • by establishing effective and dynamic board process, board year, board structures including committees, meeting forms, and informal interactions

    Boards have never before had to handle so many diverse topics in the time they have at their disposal. Even if they allot hours to strategy and new issues such as geopolitics, recession, digital disruption, and sustainability integration, it’s never enough. The most common solution is to handle additional topics in committees or form new or temporary committees. Or add meetings. Whatever the solution, the Chair is key to organizing the work to make it effective.  

    Successful boards are 11% more likely to run annual board evaluations, 12% better at seeking different points of view, and 15% better at giving directors constructive feedback.

    The former Chair at Hilti ensures that board members attend a two-day culture camp each year to discuss upcoming culture initiatives at the company. 

    • Engage and guide the CEO

      • to ensure appropriate separation and controls in case of carrying both roles
      • to foster a trusted relationship with open and frequent communication, collecting and providing regular constructive feedback
      • to encourage the CEO and management to be bolder, faster and rethink operating models and foster inclusive and high-performing culture
      • to agree and guide critical performance targets, reporting requirements
      • to suggest CEO development, training and succession planning
      • to make sure the board agrees on CEO performance and remuneration, and potential actions as a result, including needed hire and fire

    The Chair has a challenging role in leading through others. The Chair works a delicate balance in guiding the CEO, without getting too operational or taking over the job. The Chair also needs to consolidate the board’s view and, in an engaging and trustful way, ensure that the CEO becomes as effective as possible.

    • Engage with prioritised stakeholders

      • to take a broader ecosystem, value chain, and systemic view
      • so that the board monitors insights from stakeholders such as shareholders, customers, employees, society, partners, and suppliers
      • to engage and communicate with prioritized shareholders and other stakeholders
      • to give exposure to broader management and key employees, concerning appropriate development, and succession planning, including grandfather principle at recruitment
      • to help understand the company’s impact on stakeholders, and vice versa
      • to help balance requirements and value between prioritized stakeholders

    As societal challenges multiply, the role of the board and business as a force for good has dramatically increased. Historically, the Chair has been highly engaged with shareholders, and that role is now expanding to more stakeholders.

    Paul Bulcke, the Chair of Nestle, has ensured that key stakeholders are represented on the board. For example, when Nestle announced its climate net zero roadmap, the company recruited a professor of food systems to the board. 

    In the past, the Chair was chiefly a facilitator in board meetings. Today, Chairs must have a solid understanding of the business and its operations. They must also be able to help (re-)define the company’s vision and strategy and engage with shareholders and other stakeholders. In addition, chairs must be highly skilled in communication, negotiation, and conflict resolution.

    Sustainability, including climate action, is another essential topic area. The Chair and the board need to understand the issues and recognise which stakeholders are impacted. When exploring the integration of sustainability into strategy, risk and opportunity must be weighed against each other and potential ecosystem collaborations considered. Initiatives must be prioritized so that different stakeholder perspectives are balanced and external commitments shared. Finally, a multi-year plan and the supporting data it needs to progress must be established.

     

     

    The Chair is responsible for the continued development of the board, its members, and the CEO. Evaluations and constructive feedback are essential tools and board evaluations are typically carried out yearly to various extent. In some jurisdictions, they are mandatory. Many successful Chairs also ask for evaluations at the end of every board meeting to facilitate open discussion and provide an opportunity for more anonymous feedback. The insights are used both for direct action and to promote more effective board work.  

     

    Conclusion

    The role of the Chair is critical for business success. A good Chair can provide invaluable insights, help make difficult decisions, and keep the company on track. It is essential to carefully consider who is best suited for the role. A company can achieve great things with the right person in the position.

    1.      “Board Effectiveness and the Chair of the Future” based on insights from 300 board chairs in 16 countries (Article by Deloitte, July 2022) 

    2.     What the world can learn from Nordic boards” based on insights from 300 board chairs, board directors and CEOs in Nordic Countries (Paper by INSEAD, Digoshen and Scandinavian Executive Institute, June 2022)

    3.      “Leading a board; Chairs’ practices across Europe” insights from 1195 chairs, board directors and CEOs across Europe (Book by INSEAD, Digoshen and a group of other European INSEAD partners, 2021) 

    1. The critical role of the Board Chair in Driving Board Performance” insights from 1100 chairs and board directors from 41 countries (Article by Russel and Reynolds, July 2022)
    2. Reinterpreting the role of the board of directors (Deep interview with three chairs by London Business School Aug 2022)
    3. The Chairpersons’ guide to a just transition (A guide by Deloitte, World Economic Forum together with Climate Change Initiative, Sep 2022)

     

    (all pictures from Unsplash)