August 6, 2020
Are you ready to become a board chair?
If you’re thinking of becoming a FTSE chair, now is a good time. Despite or even because of the pandemic, the opportunities are becoming more numerous and the role more interesting.
More than half of FTSE 100 boards are currently led by led by people who are chairing a listed company board for the first time. Of the 46 chair appointments in the FTSE 100 in the four years to the end of 2019, 24 went to individuals who had never chaired a quoted company before. The arrival of a new generation of chairs, usually former executives, with fresh ideas and fresh approaches should be celebrated.
In this way the UK economy can continue to benefit from the most experienced business talent in the land. That people are willing to work for longer, albeit part-time, has to be a competitive strength for UK PLC and the UK economy as a whole, as it broadens the pool of chair talent.
At the time of writing, several boards are delaying chair succession for obvious reasons related to the pandemic. However, we anticipate an increase in the number of chairs likely to retire in the next few years, brought about by the recent change in the UK Corporate Governance Code that advises against chairs remaining in post more than nine years from the date of their first appointment to the board.
Onerous responsibilities
A FTSE boardroom is challenging ground for a new chair to tread. As a newcomer, you will be all the more effective if you can draw on the best practices identified by veterans, while jettisoning conventions that no longer work well.
The responsibilities of the chair are more onerous than used to be the case and the time commitment necessary is more significant. Public expectations of the role of companies in society are growing, driven by political demands, investor pressure and grassroots movements. New reporting requirements reflect a growing focus on stakeholder interests. Recently, many boards have been struggling to ensure the company’s survival, to rapidly reassess strategy in an uncertain and fast-changing business outlook, or even to look for previously unheard-of opportunities in the crisis.
Investor expectations
In both normal and extraordinary times, the board, led by the chair, sets the company’s purpose, establishes a long-term vision for the business, shapes its response to societal demands and safeguards its social licence, taking a position on matters such as climate change, sustainability, the treatment of employees, suppliers and customers. Large institutional investors such as BlackRock, State Street and Vanguard frequently stress the importance of corporate purpose and culture in the form of annual open letters to public companies. These longer-term shareholders require evidence of an all-round sustainable business model if they are to remain loyal investors.
Shorter-term investors are a very different matter. They are becoming increasingly vocal and assertive when they believe performance could be improved. Activists can behave like hostile pressure groups at the gate; occasionally, they come onto the board as fellow non-executive directors and true business partners. Increasingly often, long-term institutional investors work in alliance with activists in an attempt to improve the performance of investee companies. Either way, the buck stops with the chair.
Never before has the pressure to move in opposite directions – satisfying both short- and long-term expectations – been so strong. The board, led by the chair, sets the response, balancing conflicting demands of investors and other stakeholders. Part of the role involves reconciling contradictions. This makes it all the more interesting.
Despite having had a successful executive career, the transition to chair can difficult, but deeply satisfying. The mature executive learns to lead a team or a business, but the hardest task is to lead leaders. Some CEOs do that. All chairs should. It is the ultimate form of leadership and the most subtle.
In my next blog I will explore the qualities that make an effective chair.
This article is an extract from Becoming a non-executive chair, a guide for people who aspire to become chair of the board or are becoming a chair for the first time. It describes the steps to becoming a chair, what the role involves, and the personal characteristics needed to chair a board effectively.
Will Dawkins leads the UK Board Practice at Spencer Stuart. If you would like to discuss any of the issues raised in this blog, please contact him via email. You can follow him on LinkedIn.