INSEAD, in collaboration with Scandinavian Executive Institute and others, has conducted the first international survey on how chairpersons of boards actually act and under what conditions.
Chairpersons of boards hold the most significant position in a company, but they have no executive power.
They have no boss and no colleagues. Nevertheless, their work and decisions are crucial for the company’s development, profitability, and future. Chairpersons are often anonymous power brokers.
The cigar smoke behind the boardroom’s drawn curtains has cleared. Those days are long gone when the board’s main (and in some cases, sole) task was to act as a rubber stamp for the company’s daily management and collect fees for well-performed “work.”
The modern board must work for its keep
Today, one must earn their keep. The board and its members are expected to create value and serve as strategic partners in the development of the company. Meanwhile, the curtains have been lifted, and the board’s work is increasingly subject to scrutiny from regulators, journalists, and the company’s stakeholders.
In other words, the modern board faces significant demands, which place substantial expectations on the board chair. To address this, INSEAD established the specialized program “Leading from the Chair” to enhance understanding of what it takes to be an effective board chair. The program is led by Senior Affiliate Professor Stanislav Shekshnia, who is also the program leader for Scandinavian Executive Institute’s board education programs, including the Executive Board Programme and the Advanced Board Programme (for high-profile board roles).
Few Differences, but Common Challenges for Board Chairs
Professor Shekshnia has also led a comprehensive study on the conditions, differences, and similarities in how board chairs manage their roles. The study includes 80 boards across 9 different countries and is based on questionnaires as well as interviews with 60 board members. I had the pleasure of conducting the Danish part of the study on behalf of Scandinavian Executive Institute and in collaboration with Professor Shekshnia’s research team. The results culminated in the report: Board Chairs’ Practices across Countries – Commonalities, Differences, and Future Trends. This report is a preliminary overview of the work, which is expected to culminate in the publication of a book at the end of 2018.
“The report is probably the first study of what board chairs actually do and how they actually work. In Europe, we have entered 80 different boardrooms across 9 different countries to investigate what board chairs actually do. Not to describe what we expect them to do or what they should do, but what they actually do,” says Professor Shekshnia, who has previously presented parts of the report at Scandinavian Executive Forum Master Classes in both Copenhagen and Oslo.
ew cultural differences in the role of the board chair
The study revealed that there are actually very few cultural differences in the role of the board chair and how board chairs perform their duties in different countries. Instead, differences are mainly found in the size of the companies, ownership structures, and industries, as well as in the composition and size of the boards and, importantly, the chair’s own qualifications, experience, personality, and relationship with the ownership group.
Professor Shekshnia was also able to conclude that there are several common challenges and global trends for board chairs across countries, industries, and types of companies. This has led to eight key principles on how a good board chair should act.
The four challenges
1. Increasing Regulatory Pressure
Although boards are increasingly expected to create value and provide strategic direction for the company, this does not mean that the demands on the board as a supervisory body are being relaxed. On the contrary, in light of recent failures and scandals, including those in Denmark, both the media and legislators have intensified their focus on the legal responsibilities of companies and their boards.
2. Turbulence and Disruption
Traditional business models and industry boundaries are being challenged in the digital age, where competition can arise from unexpected corners. The board, and the chairman, must understand this context and stay abreast of developments in order to steer the company forward.
3. Technology
Technological advancements present both increased risks and opportunities for disruption. However, it is crucial that the board remains level-headed and views the adoption and use of new technologies as a means to develop the company, rather than an end in itself.
4. Generational Changes
As demands on boards increase, members, including chairs, are becoming progressively younger. The board chair must bridge generational gaps within the board and leverage the diverse strengths of its members for the benefit of the company.
The Role of the Board Chair – The Six Global Trends
- Board Chairs will spend more time on board duties and consequently will hold fewer board positions in the future. We will see more board chairs who are exclusively dedicated to their roles
- Most board chairs will continue to have a background as CEOs, but we will see more consultants, academics, and technologists in the future.
- Technology will gradually but surely make its way into the boardroom. Over the next decade, most boards will become digital, and many board meetings will take place virtually.
- A significant portion of one-on-one communication will move online. By 2025, technology will be a stable platform for the leadership of board chairs.
- The number of female board chairs will increase, but this will happen slowly.
- We will see more younger board chairs (under 50).
The Eight Principles
1. The Chairman’s Past
The chairman often has a past, or present, as a CEO, but the study shows that this is far from guaranteeing that they will also be a good chairman. On the contrary, a chairman should, for example, be reserved, patient, and accessible, rather than taking center stage.
2. Teaming instead of Teambuilding
Focus on teaming rather than teambuilding to fully utilize the diverse competencies of board members. The bulk of a chairman’s work happens between board meetings, and the key responsibility during the meetings is to ensure that all relevant inputs are brought to the table.
3. Steering over Preparation
Take control of the meeting preparations. The chairman must ensure that all relevant (and only relevant) items are included on the agenda. Additionally, it is the chairman’s responsibility to ensure that the material is sent to board members well in advance of the meeting, that it is accurate and engaging, and that it facilitates decision-making.
4. Well-functioning committees
Well-functioning committees are a key factor for effective boards. Often, the majority of a successful board’s work is established in the committees’ preparatory work. Therefore, the composition and leadership of the committees is a critical discipline that the chairperson must focus on.
5. Step into the background
Step into the background and be impartial. Many inexperienced board chairs are eager to bring their own expertise to bear, but this often ends up undermining collective productivity. It is the chairman’s responsibility to ensure and organize an optimal and constructive discussion of the issue.
6. Measure input – not output
Measure input – not output. Another “inherited burden” of many board chairmen in their capacity as former CEOs is the urge to measure the board’s performance on the basis of output. The board’s output is typically decisions that cannot be measured and weighed immediately after they have been taken. Therefore, the board should evaluate the quality of the input it has available for its work. The better input the board has, the better it will function and the better decisions it will make.
7. You are NOT the boss
You are not the boss – not even for the director. Instead, the chairman of the board must represent the views of the board as a whole in his cooperation with the executive board.
8. Build a good relationship
Build a good relationship with the shareholders, but keep the focus on being the board’s representative. It is not your individual position pitted against the owners, but rather the positions of the entire board that you must represent. The possibilities for building relations with shareholders are very dependent on the ownership structure.
If you want more in-depth information about the eight commandments and the role of the chairman of the board, you can find it here.
Article written by CEO, Steen Buchreitz Jensen.
