The role of the chairman has been in the spotlight recently as a result of the high profile cases where the part played by management in alleged breeches of competition legislation is under scrutiny. Chairmen have played a leadership role in ensuring that the commitment of their companies to high standards of integrity is not negotiable.
The question to be answered is whether the role of the chairman in South Africa is changing from what has historically been largely a governance role to more of a leadership role, as is the case in the United Kingdom?
Historically, the function of the chairman has included:
- providing overall leadership to the board;
- actively participating in the selection of board members – usually via a nomination committee;
- overseeing a formal succession plan for the board, chief executive officer and senior management;
- determining the annual work plan for the board, with the chief executive officer setting the agenda for board meetings;
- acting as a formal link between the board and management; and
- setting the ethical tone in the company.
The setting of the ethical tone is increasing in importance, and is best achieved by setting and communicating clear expectations – and by leading by example.
In recent years, following the publication of the King II Code on Corporate Governance, the role of the chairman has been formalised to include:
- ensuring that directors play a full and constructive role in the affairs of the company;
- insisting that the board papers are informative and meaningful;
- monitoring how the board and its committees function collectively, how individual directors perform, and how they interact at meetings;
- ensuring that the board has the right skills and balance, and that it is appropriately representative;
- mentoring to enhance directors’ confidence, and encouraging them to speak up and make an active contribution; and
- removing non-performing or unsuitable directors from the board.
In my experience, the primary role of the chairman, after ensuring that the best management team is in place, is to ensure that there is alignment of thinking between the board and management with regard to strategy.
The chairman should ask:
- does the management team have a clear and focused strategy in mind for what it wants to achieve?
- does the board understand and support the strategy, and can the strategy be improved?
- has the strategy been thought through thoroughly?
- will the strategy make money and will it provide a competitive advantage?
- how will the capital markets react? and
- is there consensus between the board and management?
My experience as a director has taught me that there are three key areas where a board’s views need to be harmonised with the following views of management:
- Mergers and acquisitions.
- Offshore expansion, and
Having achieved this consensus, the chairman must ensure that adequate but not excessive resources, both as financial and a human, are available to management to achieve the agreed strategies.
In this process of strategic alignment, the chairman should act as a facilitator and catalyst.
Thereafter, the chairman should work with the chairman of the remuneration committee to ensure that the remuneration structure is aligned with the strategy. The correct measurements must be in place to ensure that the right actions and behaviours are rewarded.
An additional duty of the chairman centres on the management of possible conflicts of interest. It is no longer sufficient for directors merely to table a register of interests. Affected directors should be asked by the chairman to recuse themselves from certain discussions and decisions.
Increasingly, chairmen are playing a greater leadership role in health, safety and environmental affairs, by ensuring that the correct policies are in place and that they are taken seriously. The chairman should also give these matters prominence at board meetings so as to ensure transparency, and to demonstrate the commitment of the board.
Of special importance in the South African environment is the focus the chairman places on social and transformation issues in the context of sustainability, including BEE, employment equity, diversity management and social investment.
Another leadership challenge for a chairman is to know where vigorous debate at board meetings ends and where conflict begins. Again, this is a question of balance. In exceptional cases conflict should perhaps be allowed so that disagreement does not fester under the surface. The board should come out of a meeting more united by having had the opportunity to air the issues rather than burying them and causing general dissatisfaction.
A further item of debate on which no doubt guidance will be given in the King III Code on Corporate Governance to be published later in the year, is the role of the chairman in maintaining constructive relationships with major shareholders and other important other stakeholders. This has typically been left in the hands of management, especially the chief executive and chief financial officers, other than at the Annual General Meeting. International trends, however indicate that a more active role by the chairman may be necessary.
Chairmen need to exercise judgement in ensuring that the authority and motivation of the management team are not undermined, while at the same time playing a clear leadership role. This is a fine line that will shift according to the circumstances of the company, and the qualities and experience of the chairman and chief executive officer. What is clear, however, is that the role of the chairman in South Africa is becoming more challenging and embraces both governance and leadership.
“Commanding Heights” by Roy Andersen – Penguin Books 2006
The King II Code on Corporate Governance
Roy Andersen CA(SA), CPA (Texas), is a Director of Companies.