CEO & Chairman: The Perfect Chemistry

Trust between the CEO and chairman is essential if a business is to achieve its goals. Without that basic element, communication soon breaks down and rifts appear in the boardroom. No one expects a match made in heaven, but a weak and ineffective relationship will quite easily lead to a business losing its focus.

Debbie Hewitt, Non-Executive Chairman of clothing retailer Moss Bros Group, says: “There needs to be mutual respect and trust so that there is sufficient and relevant challenge from the chair, who knows when to push and when to support. [There should be] complementary skills and experience, a clear division of duties and open and frequent communication.”

This can easily go awry where ambitions are at play and motives may not be all they seem. Ian McCaig, CEO of energy saving specialist First Utility, recalls seeing a situation – in a different company – where the chairman had conversations with another executive board member and agreed things without discussing them with the CEO. “It completely fractured the trust in that relationship and from that moment on the effectiveness of that relationship evaporated,” he says.

The nightmare scenario unfolds when a chairman wants the CEO’s position and vice versa. Mark Hunter, CEO of claims and risk management business Airclaims Holdings, says: “The minute the chairman becomes too hands-on you begin to question the trust and then also begin to wonder whether you, as the CEO, are perhaps not delivering to the chairman’s liking.”

It’s an issue that can be as relevant for a private-equity backed company as a publicly listed one. Lady Barbara Judge, Chairman of the Pension Protection Fund, says: “It can be the case that problems arise where the chief executive and the chairman both want to do the same job. In today’s corporate world there are two jobs there, not one, and they need to have an agreement and understanding of who does which role.”

Call me

Politics aside, the demarcation of roles remains simple enough. “The chief executive should run the business and the chairman should run the board,” says Barbara. “It is important that they agree on strategy but the chief executive has the main job of proposing it. The chairman and the board act in an advisory capacity.”

Ian Bowles, CEO of Allocate Software, agrees: “The chairperson should be a coach and mentor to the CEO, but it is the CEO who runs the business; the chair runs the board and only one of the roles can make the final decision on strategy and direction and that should be the CEO.”

The relationship has to be robust enough to withstand candidly exchanged views. Ian continues: “From my perspective there needs to be mutual respect and an agreed common set of goals. However, the CEO is not there to be a ‘yes man’ to the chair: the two must challenge each other in terms of thinking and ideas.”
Tension isn’t necessarily a bad thing in a business as ideas need to be worked through and questioned. “It’s the job of the CEO to come up with the strategy and the job of the chair and board to probe, check and balance it,” states Brendan Hynes, CEO of soft drinks business Nichols plc. “For me a healthy dynamic must involve open, honest communication about both the successes but also the challenges and the problems the CEO has to deal with.”

That’s why it’s important for the pair to meet informally too, away from the boardroom. Mark says: “If the chairman and CEO are only meeting in terms of the monthly board meeting, I think it sort of demonstrates too much of a distance between people. You need the type of relationship whereby the CEO can pick up the phone to the chairman and say: ‘Can we have a chat?’”

That said, the last thing any business needs is a chairman who is too friendly with the CEO. Alan Giles, Chairman of the PE-backed clothes retailer Fat Face, says: “You don’t have to be best mates and indeed it is unhealthy to be too close but, inevitably, much of the contact is by phone and like any other relationship conducted at a distance that leaves scope for misunderstanding and mistrust to creep in. Good personal chemistry helps minimise the danger of losing touch, as does seizing every opportunity for face-to-face contact.”

Equally, there can be problems if the relationship goes the other way. Ishbel Macpherson, Non-Executive Chairman of support services firm Speedy Hire, comments:  “Sometimes there are concerns with companies where the chairman is going native and just agreeing with whatever the chief executive says. The chairman has got to be there to challenge and ultimately be the person who fires the chief executive if he’s not doing his job correctly.”

Public & private life

In private-equity backed companies, it’s easier for a chairman – invariably appointed by the PE firm – to step on the toes of the management team. David Harding, Chairman of eco-friendly detergents maker Aquados, says: “Managing expectations is a key role for the chairman, helping both private equity owners and executives understand what is possible and agreeing a plan and performance metrics with both parties.”

It’s a conversation that needs to be had at the very start of the relationship. Alan adds: “For most of the time, everyone’s interests are fully aligned, but tensions can come into the relationship between shareholders and management as an exit arises, or when performance problems set in. An independent chairman has to take care not to become too closely aligned with either group, and has a vital role to play in helping mutual understanding, resolving conflict and reconciling differences.”

The governance and compliance requirements of public companies may change the duties of the chairman, but the essential components of a good working relationship are universal. David says: “The CEO has to ‘own’ and believe in the strategy, so she or he must lead the process. But if the chairman has the right relationship they can influence the direction substantially without undermining that ownership. Preparing the CEO for board-level challenge involves [the chairman] asking all the difficult questions and this process enables the CEO to make sensible adjustments without losing ownership or face.”

Those CEOs who have the best relationships with their chairman are able to talk about strategy before a brave new vision is officially announced. Ishbel says: “Smart CEOs never bounce a new strategy on the board. They have discussions about direction and thinking and see if there is buy-in or not; they listen to challenges and comments so that by the time you get to a strategy session broadly everybody is there already and you’re just putting the details around it.”

Again, that can only happen if the two parties are focused and committed on trying to achieve the same outcome. “For me the basic thing is trust,” says Ian McCaig. “It is essential because the chairman has to be a sounding board for the CEO and must be able to discuss things that he/she might be concerned about, or questions the CEO has where there might be sensitivities about discussing them with the team.”

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

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