UK boardrooms cannot remove ineffective chairmen

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New research out today, Tuesday 30 September 2008, highlights that 40 per cent of the UK’s boardrooms have no structures in place to remove an ineffective chairman. The Directorbank Group, a UK market leader for boardroom appointments, spoke to 430 directors who sit on more than 900 boards. Almost eight out of ten of these revealed they had worked with an ineffective chairman and that most companies did not know how to fire them.

The research looked at what makes an outstanding company chairman. The essential qualities were charisma, patience, an ability to listen and ability to be supportive.

The survey also identified characteristics of poor ones: the ditherer who could not communicate or listen and who failed to keep the board on course. One of those surveyed said: “He was only there for the title and money....abandoned management at the first sign of trouble”. And another: “Public school/Oxbridge education, totally into networking and nothing much else. Did not like to get his hands dirty.”

Yet two out of five companies had no structures in place to remove the top person. And only one director in five of those interviewed thought it worth even trying to improve an under-performing chairman.

Chief Executive of the Directorbank Group, Elizabeth Jackson, said the survey revealed near universal agreement that the skills required to be a company chairman were very different from those of a chief executive and that was not always fully understood.

“There are significant benefits attached to a chairman coming into a company with no baggage and an entirely fresh perspective. And that is every bit as true for a family business as a plc,” she said.

“With the challenges facing so many businesses over the coming months, and some difficult and painful decisions likely to be made, companies need to have everyone pulling their weight, not just on the factory floor or in the office but also in the boardroom. No-one should be immune”.

The directors named 132 chairmen who they had worked with and rated as outstanding, with an elite nine receiving more than one nomination. These were:

Sir Dominic Cadbury, former chairman, Cadbury Schweppes plc
Jon Foulds, former chairman, Huntsworth PLC
Ronnie Frost, former chairman, Hays plc
Ian Irvine, former chairman, Reed Elsevier PLC
Eric Kinder, former chairman, Smith & Nephew PLC
Allan Leighton, chairman, Royal Mail
Sir Rob Margetts CBE, chairman, Legal & General Group Plc
Lord Marshall of Knightsbridge, former chairman, British Airways plc
Sir Peter Thompson, chairman, Phoenix Asset Management

The Directorbank team interviewed more than 30 of the nominees to gain their views about what makes an outstanding chairman.

Sir Rob Margetts CBE, chairman of Legal & General Group said: “They’re quite happy to enjoy their executive being triumphant without ever being in the limelight themselves; it’s more of an unselfish role than the hero person who’s going to be in the newspapers most days.”

A degree of candour is needed. Sir Harry Solomon, former chairman of Hillsdown Holdings, advises: “Never be frightened of asking what might appear to be a silly question” and others emphasised the need to immerse themselves in a company from the outset, learning how it functions from ground level to the top.

Views on whether an executive director can become an effective non-exec on the same board were mixed – 58% said it could not work – but there was almost universal agreement that the skills required for the two roles are very different, and the route from chief executive to chairman should not be seen as a natural progression.

There are significant benefits attached to a chairman coming into a company with no ‘baggage’ and an entirely fresh perspective, provided they take every opportunity early on to immerse themselves in the workings of the business. A similar view applies to family run businesses – 83% believe that a non-family member should be appointed to the role of chairman.

Directors felt strongly that the role of chief executive and chairman should not be combined – 85% said the two roles should never be held in one position. Even those who did not agree clearly see the combined role as appropriate either for smaller businesses or in exceptional circumstances, such as in a crisis or where there is a new, inexperienced chief executive.

Lord Marshall, former chairman of British Airways plc, commented on Sir Stuart Rose taking on the combined role of chief executive and chairman at Marks & Spencer plc.

“I think their mistake is not having appointed the chief executive and that’s really asking for condemnation. They should have delayed Stuart’s rise to chairman – Terry Burns did not have to go then.”

The biggest and most painful challenge for any chairman is to sack the chief executive. Other challenges included market downturns, turning around failing businesses, dealing with bad press and managing large-scale crises.

Free copies of the report, What Makes an Outstanding Chairman?, are available via direct download from www.directorbank.com or calling 0113 297 8000.