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High CEO turnover and the role of the chairman

Johann Redelinghuys is previously founder and chairman of Heidrick & Struggles South Africa, now The Director of the Chairman's Institute and of Portfolio&Co

The job of CEO has become very tricky. Now activist shareholders and the increasing demands of the market are reshaping the job of the chairman. A genial hands-off approach is not cutting it any more.

There has been much coming and going of CEOs and other senior people in the past few weeks. The media has had a field day speculating, analysing and looking for whom to blame. Companies like Absa, Altech, Impala, Cell C and others have been scrutinised up and down. And this is not even to speak of the turmoil in state-owned enterprises like the Post Office or the SABC. In companies where senior executives reporting to the CEO have left, the CEO is held to account and has to deal with the inevitable market and stakeholder criticism. Sometimes the market takes note, with relief, when a controversial person departs. But it can also register its displeasure in the falling share price.

We all agree, being a CEO today is a difficult and very tricky job. But the question we have to ask is this: Is the main governance job of the board not to see to it that the right management is in place? That means that the right CEO and the right top team are selected. When they, in their covenant with the board, are doing what is expected, then surely the chairman, in his role representing the board, must be the person to look to. Isn’t that right? 

There was a time when all a chairman needed was some stature in the business community and the right ‘old school’ tie. He needed a broad, rather than a deep knowledge of the business and an agreeable manner with people; a ‘safe pair of hands’. No more. The role and responsibilities of the chairman are now becoming much more challenging.

The chairman, of course, must have the skills and the balanced judgement to manage a good board meeting. He must make sure that board members express their opinions and that the all the ‘good governance’ boxes are ticked. That has always been the case. The relationship with the CEO was to be congenial, but a little at arm’s length so as not to be too ‘cosy’. Experts have said that there ought to be a ‘creative tension’ in this relationship for it to work optimally.

Now, however, according to research conducted in the UK and confirmed by our experience in South Africa, things are changing. Whereas chairmanship used to be a prestigious but not too demanding way to end a distinguished business career, now activist shareholders and the increasing demands of the market are reshaping the job of the chairman. The research suggests that the chairman now needs to be more involved in areas such as corporate communications, risk management and strategy. A genial hands-off approach is not cutting it any more.

But it is in the most critical area of his responsibility where the skills of the chairman are becoming more strongly into focus. It is in his relationship with the CEO. The high turnover of CEOs in recent times and the boardroom squabbles, which are sometimes reported in agonising detail, are evidence that something is amiss. We believe that a critical part of the chairman’s relationship with the CEO is that of a mentor, and collaborating partner, working alongside the CEO. That, of course, has to be achieved without in any way usurping the CEOs executive role. The chairman is non-executive, and if King III has its way, he is independent. His mandate and main responsibility to the company and its shareholders is to work with the CEO, providing guidance and counsel where needed, and helping to test the CEO’s thinking. Wouldn’t a dose of such wise counsel have brought a little more balance into some of the critical upsets and precipitous departures we have witnessed lately? Do CEOs in these times just try to do too much on their own and fail to invite the challenge that a skilful chairman can provide, or do the chairmen simply keep too much distance?

The CEO can use any member of the board to test thinking or discuss particular problems, but it is in the slightly more intimate, one-on-one relationship with the chairman where the most critical interaction finds its alchemy.

With the committee that has been selected to collaborate with him, the chairman must look after any potential succession problems and ensure the CEOs peace of mind by assessing, developing and gauging the top team. He may even have to dispense career advice to manage the retention and sustainability issues.

It is an article of faith in corporate culture that it is the CEO who must ensure that a suitably qualified successor is identified, if not inside the top team, then at least in a visible position outside the business. CEOs who fail to ensure this have frequently been criticised. But the question which has to be asked is: is this not the job of the chairman? Is it not the job of the chairman to do the annual review of the CEO and the take full charge of the succession process?

What seems to happen quite often is that a chairman will harness the nominations committee of the board and try to spread the accountability and the risk of the CEO succession. Working with the nominations committee is obviously the right thing to do, but is there not also a strong mandate for the chairman to step up as an individual in these matters? DM


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