What makes a good chairman?

If an organisation is poorly chaired, its governance will suffer as well

SEVERAL chairmen have been in the news lately. They separately chair organisations such as a foundation, a committee and a government-owned company. Each is part of a story that raises questions about transparency, governance and conflict of interest.

Now is therefore a good time to have a look at what is required of the chairman of a listed company.

Some of the corporate sector’s laws and regulations, structures and expectations are significantly different from those in other spheres, but a lot that has been documented about the role of a company chairman easily applies to the leadership of many other entities.

We can start with the seminal Cadbury Report issued in December 1992 by Britain’s Committee on the Financial Aspects of Corporate Governance, which was chaired by Sir Adrian Cadbury.

Many countries, including Malaysia, have referred to the 90-page publication when formulating policies and rules on corporate governance.

The report says the chairman’s role is critical in securing good corporate governance.

“Chairmen are primarily responsible for the working of the board, for its balance of membership subject to board and shareholders’ approval, for ensuring that all relevant issues are on the agenda, and for ensuring that all directors, executive and non-executive alike, are enabled and encouraged to play their full part in its activities,” it adds.

“Chairmen should be able to stand sufficiently back from the day-to-day running of the business to ensure that their boards are in full control of the company’s affairs and alert to their obligations to their shareholders.”

It’s up to the chairmen, according to the committee, to make certain that the non-executive directors receive timely, relevant information tailored to their needs; that they are properly briefed on the issues arising at board meetings; and that they make an effective contribution as board members.

At the same time, the chairmen must ensure that executive directors look beyond their executive duties and accept their full share of the responsibilities of governance.

The committee recommends the separation of the chief executive and chairman positions.

“If the two roles are combined in one person, it represents a considerable concentration of power,” it adds. A clearly accepted division of responsibilities at the head of a company, it argues, will ensure a balance of power and authority so that no one individual has unfettered powers of decision.

These views are echoed in an essential document in corporate Malaysia’s history, the February 1999 Report on Corporate Governance, also known as the Green Book.

Among the best practices promoted in the report are that the positions of chairman and CEO should be held by different individuals, and that the chairman must be a non-executive member of the board.

In addition, the Green Book provides an interesting take on what else a chairman should bring to the table.

“One issue that surfaces in the Malaysian context in respect of the role of the chairman is the almost ‘too ready’ acceptance of the views of the dominant voice at the meeting.

There is a general unwillingness by boards to pursue debate and a perhaps an overeager desire to find a consensual resolution to issues and problems. Achieving consensus more often than not is a compromise towards the most entrenched view on the board, of sometimes a single voice, rather than that of the majority of board members,” it observes.

“The role of the independent chairman becomes crucially important in two respects. First, he should encourage a healthy debate on the issue and bring to the board a healthy level of scepticism and independence. Second, he should ensure that every board resolution is put to a vote to ensure that it is the will of the majority and not that of the dominant owner that prevails.”

With the release of the Corporate Governance Blueprint in 2011, the Securities Commission updated the ideas and approaches on how to improve corporate governance in Malaysia. This document too talks about the separation of the CEO and chairman roles, and the independence of the chairman.

Having different individuals acting as the CEO and the chairman is crucial for corporate performance, says the blueprint, because it allows the chairman to focus on governance and compliance, while the CEO takes care of the business and the day-to-day operations of the company.

“Strong independent leadership of the board is critical to striking the right balance between ownership and control,” it adds. “An independent chairman will be in a position to marshal the board’s priorities more objectively and provide a voice for the independent directors.”

Another good source of current thinking on the qualities of solid board leadership is Bursa Malaysia’s second edition of its Corporate Governance Guide, issued in October 2013.

“Every board should be subject to the firm and objective leadership of a chairman who brings out the best in each director,” the guide declares. It also notes that the position has become more demanding in a complex environment in which many companies now operate.

Indeed, the job of a chairman is not getting any easier. That is partly because the stakeholders have grown to expect more from the chairmen. The laws too have evolved to impose greater obligations on the chairmen.

Dare we hope for the day when key organisations won’t be chaired by mere figureheads, pliant characters, crooks and the incompetent?

Executive editor Errol Oh is wary of the notion of chairmanship as a reward for past services.

BY ERROL OH