Sudden departures from listed companies in recent times include Andrew Darfoor from Alexander Forbes, Thabo Dloti from Liberty, Peter Matlare from Tiger Brands, Darryll Castle from PPC, Sifiso Dabengwa from MTN, Wim de Klerk from Arcelor Mittal, Johan Claassen, also from PPC, and David Constable’s expensive exit from Sasol. In each case, irrespective of what the official explanation was, the departure of the CEO has been linked to some element of performance related to personality.
This sudden-exit history is evidence of our firmly held belief in the full accountability of the CEO. Mostly such departures were supported by the investment community whose reliance on their relentless, unforgiving judgment is well known.
But is this fair? Is it right that the punishment for poor performance should be shouldered primarily by the CEO? And is it fair to let the chairman and non-executives off with no more than a slap on the wrist but leave them all more or less in place?
Yes, the leadership of the business resides with the CEO and his executive committee. They manage the company. But the board and particularly the chairman and non-executive directors are there to keep a watching brief over the executives. The oversight role is in place specifically for the board to provide the wisdom and the independent counsel needed to keep the ship afloat and steering in the right direction. Critical to this process is the constant assessment of performance of the executive team, particularly the CEO, and if he stumbles they should be there to catch him before he falls.
In most of the examples of sudden CEO departures the boards of the companies have stayed largely intact.
The question to ask is why the non-executives, including the chairman, have not provided more assertive board leadership? And why they have failed in the most important mission of any board, which is to ensure that there is competent leadership in place to drive the business of the company?
Boards of directors attach much value to the various King codes. As a result, when appointing new non-executive board members, they have developed a strong awareness of a potential board member’s independence. The purpose of this is to ensure that there is objective deliberation and independence when making decisions about the board’s business. Why then, when we can rightly expect informed judgment and vigorous participation in board governance, do we find the disappointing evidence of lazy, poorly committed directors in the business of the board? After all, if the non-executive board members were exercising their proper mandate, the performance of the CEO would have been detected and responded to well before a dramatic exit had to be orchestrated.
We are approaching the anniversary of Markus Jooste’s announcement of the “irregular accounting” that resulted in the demise of Steinhoff and R160-billion of investor funds written off the market; massive destruction of value. The real problem, of course, was not the dodgy accounting practices he claimed. It was Jooste’s greedy, opportunistic personality and his relentless appetite for risk that should have been picked up and been made aware of by Steinhoff’s impressive list of high profile non-executive directors. Where were they? And more importantly, where was the non-executive chairman?
When selecting new non-executive directors, boards tend to focus on an impressive CV, high-profile qualifications and good experience, hopefully in a similar or related industry. “Trophy” directors, especially those that have been CEOs themselves, as in the case of Steinhoff, are particularly prized. There is relatively little emphasis on personality and fit. That which is there is mostly informal and relies on positive references from previous employers or members of other boards where the candidate has served. But the circumstances on which positive reference checks are based may be quite different to those for which they are being considered.
Taking stock of the performance of boards and their doubtful track record of independent and sustained CEO evaluation, we must conclude that they are too often not performing at the level that is intended.
The question leads to a provocative article reported in the Harvard Business Review in which the author Michael Schrage, a research fellow at the MIT Sloan School of Management, says “board members should take a personality test”. In it he says that there is an increase in the use of personality profiles where greater accuracy is sought in the assessment of candidates for management appointment. He says that if companies are relying extensively on personality tests to improve their selection hit rate for managers, why are they not doing the same for board members?
Think of the consequences if such a measure might be implemented. It could upset the whole dynamic of prospective board members being invited to take a seat on a board instead of being processed as candidates. And the question that will remain is what about non-independent directors that represent shareholders?
Serving as a non-executive director on a prestigious board has become a badge of successful achievement for the new generation of aspiring leaders. Serving on several boards, even better. But understanding the real responsibilities and willingness to contribute fully to the board’s challenges must be properly understood if we are going to raise the bar on board leadership. DM