So you want to be the chairman?

It is very difficult to train, audition or prepare for the role of chairman. Tony Featherstone provides tips on how aspiring chairmen can design a path to the busiest boardroom job.

Some directors were born to lead boards. Bill d’Apice, a lawyer, has chaired more than a dozen in a distinguished governance career in the not-for-profit (NFP) sector. He enjoys the role, yet has never coveted it or lobbied to be chairman. More often than not, the appointment just happened.

Like many chairmen, d’Apice was an effective non-executive director (NED) for several years, led various board sub-committees and took on extra governance projects. When it became time to appoint a new chairman, his fellow directors were confident in his ability to lead the board.

D’Apice never planned his ascent to the chair, at least in the way other executives might map out their careers, express their ambition to lead the organisation and compete with other executives for the top job.

"You can’t approach a chairman’s role in the NFP sector in an ambitious way," he says. "Being too overt about your aspirations to lead a board can be counter-productive."

The seeming randomness of some chairman appointments can frustrate directors who have their heart set on leading boards. In many ways, the traditional path to becoming a chairman is at odds with the competitive streak, goal-setting focus and "need to lead" that characterises many successful former executives, who wrongly see the chairman’s role as the top job, when it is to lead a group of equals.

Certainly, the chairman’s role has more status and informal power than that of directors, and fees are usually two to three times higher, depending on the commercial organisation. But few experienced chairmen take on the role only for higher income; leading the board is more about accepting a great responsibility, having a larger challenge, mentoring other directors and ensuring the organisation has first-rate governance.

Several directors and chairmen interviewed for this feature say the best way to position for a chairman’s role is to be a highly effective NED, chair board sub-committees or smaller organisations, develop your governance skills, participate in debates and lift your board profile. And, wait patiently for an opportunity, rather than try to create one.

When the chairman indicates the current term will be his or her last, the director might signal his or her interest to lead the board during a director performance evaluation, or a separate discussion with the chairman or board nomination committee. Directors should not openly discuss their chairman ambitions with other directors or lobby for their support. The goal is to be ready to lead the board if asked – without stepping over other directors along the way.

The chairman might have a strong say in his or her replacement or abstain from such deliberations so that a more independent decision can be made. Alternatively, the board might form a special nomination committee to find a suitable internal or external candidate. Typically, the chairman is appointed from within the existing group of directors.

The logic behind this approach is sound: director collegiality is a precious asset, the boardroom is no place for internal politics and the best directors usually have a selfless quality that helps them put the organisation and board before themselves. Good directors who miss out on the chairman’s role quickly overcome their disappointment and work effectively with the new incumbent – or retire gracefully from the board if they cannot.

That does not mean the traditional approach in chairman appointments is always the best one. Some governance observers believe succession planning is woeful on many boards and that board performance would lift if there was more open competition among directors for the chairman’s role. Nor does this traditional path to the chairman’s role mean directors cannot prepare for a career leading boards; it just needs a different type of preparation.

As a partner of law firm Makinson & d’Apice, and principal legal adviser to the Australian Catholic Bishops’ Conference and many charities, d’Apice has long experience with NFP boards. He is the immediate past chairman of the board of Catholic Church Insurances and has served on boards of several public and private companies, charities and religious organisations.

D’Apice says chairman succession planning in the NFP sector is changing. "The chairman appointment was often more about seniority than skill," he says. "NFP boards now realise there are problems if you have an incumbent chairman for too long, or if a longstanding director is appointed chairman because it’s his or her turn to lead the board. The appointment must be based on skill."

He says chairing an NFP enterprise is not about personal ambition. "First and foremost, you must demonstrate to your fellow directors, through your actions, that you are capable of leading the board, and that you understand the differences between being a chairman and director. You must also show a deep understanding of the organisation’s mission, values and ethos – and a longstanding commitment to it."

Showing leadership is the key to being selected as a chairman, d’Apice says. Directors who aspire to chair NFP boards should work on board committees and take on extra projects. "With the chairman’s permission, get involved in the organisation’s strategic planning and lead a special project that needs to be done," he says.

D’Apice clearly enjoys chairing NFP boards. "I like the bridge you build as chairman between management and the board, and the ability to gain a deeper understanding of the organisation, be it an NFP or commercial entity. As chairman, you are a lot more involved in the organisation and spend much more time with the executive team than you do as a director."

Former Macarthur Coal chairman Keith De Lacy AM FAICD says directors should think carefully about their suitability for the chairman role. "People should not desire the role of chairman just for the status," he says. "You should consider if you have the equipment for the role and whether it will make your corporate life more fulfilling or more frustrating."

He adds: "The chairman is the so-called ‘first among equals’, but this can represent a lot more than it appears. Ultimately, the chairman is responsible for the effective functioning of the board, which entails a lot more than the efficient and productive operation of board meetings. The chairman is also responsible for the board’s accountability to shareholders and other stakeholders."

De Lacy chairs Australia’s largest cotton producer, Cubbie Group, Nimrod Resources and Hynes Lawyers Australia. He is also a director of the Reef Hotel Casino in Cairns and Queensland Energy Resources, and is the Australian Institute of Company Directors’ Queensland President and a director on its national board.

"It is very difficult to train, audition or prepare for the role of chairman – apart from swotting up on the duties and responsibilities," De Lacy says. "The best way to put yourself in the frame is to be a competent NED who is conscientious, constructive, collegiate and keen to accept and discharge additional responsibilities. When looking for a chairman, boards want someone they respect and know is ‘safe’, and who has shown they know the job of being chairman."

De Lacy says you never know if you are ready to chair a board. "But if you know the game, and have the self-confidence, you can keep putting yourself in the frame. A good mentor is always helpful, but nothing is as helpful [in becoming a chairman] as good luck."

Diane Smith-Gander FAICD, deputy chairman of NBN Co and a NED of Wesfarmers, Transfield Services and CBH Group, says a chairman appointment can be quite "situational".

She says: "You can’t plan to chair a particular enterprise at a particular point in time. You just have to make sure you are capable and willing to lead the board if and when you are asked."

Smith-Gander says qualities that define a good chairman are not easily learned. "Boards look for someone who has courage, intellect, strong problem-solving skills and has demonstrated personal qualities over a long period, and an element of ‘no surprises’. Most of all, they want someone who can lead in the really difficult, unpredictable moments all organisations have at some point. Being able to handle the procedural aspects of a board is important, but by no means the critical skill."

Chairing board sub-committees and smaller organisations is a good way to prepare for chairing the board of directors, Smith-Gander says. She has chaired audit committees and is the former chairman of the Australian Sport Drugs Agency and Basketball Australia.

"It’s a good way to develop your leadership skills and get used to the role and responsibility that comes with chairing."

Smith-Gander has interesting views on the role of deputy chairman. She does not see the position as a "stepping stone" to a chairman’s position on any board and believes such a structure only works in certain circumstances.

"The deputy chairman role has worked well for NBN because of its geographic diversity, start-up nature and the breadth of its project," she says.

"In more established companies, directors need to sit around the table as equals and the special relationship between the chairman and directors must be preserved. Carving up responsibilities between the chairman and deputy chairman, and having another layer of authority, can cause problems if not handled well."

Smith-Gander aspires to leadership roles on boards, but stops short of declaring an ambition to chair them. "Aspiring to be chairman for the sake of being chairman is absolutely the wrong thing to do. You have to see the chairman’s position as the leadership role among a group of equals, not the top job. I would hate to be on a board where there was obvious competitive tension for the chairman’s role."

Smith-Gander says directors should follow a protocol when the chairman announces his or her intention to retire. "The starting point is for the board to make the process to find a new chairman as transparent as possible. The director can then discuss his or her desire to lead the board, knowing it is part of a well-managed process that will not upset boardroom dynamics or create unintended consequences with other directors."

Knowing how to respond if the chairman does not see you as a suitable replacement is equally important, Smith-Gander says.

"It’s one thing to have the conversation about your leadership ambitions with the chairman, and quite another to be told you are not ready to lead the board, or that the CEO or other directors might balk at your appointment. You need to make sure you are genuinely ready to lead the board before expressing your ambitions to be chairman."

Reed Resources deputy chairman Steven Cole FAICD says directors can underestimate the workload and responsibility of chairing boards.

"Although the chairman’s role can be immensely rewarding, in some ways you lose other things. The chairman’s workload is at least two or three times more than that of a NED and often many times more again during a crisis. You always have your sleeves rolled up a lot more as a chairman, compared to being a director."

Cole adds: "You also carry a lot more responsibility as chairman and are under a lot more pressure, compared to a NED role. As they say in sport, when the team fails it is the coach who gets the sack, and the same is often true for a chairman in a struggling organisation."

Cole says the added workload and responsibility as chairman does not carry with it special powers or significantly extra fees in many companies.

"Legally, you have no more power as chairman than another director. You might have added responsibilities, such as running board meetings, but the chairman has very little formal power, except in organisations where there is a special charter about the chairman’s role. The chairman usually has to rely on exerting informal power."

Like others interviewed for this story, Cole recommends chairing board sub-committees and smaller NFP organisations to develop chairman skills. He adds that a public profile and ability to deal with an executive team are other key qualities to be an effective chairman.

Cole says: "Although the CEO is the public face of the organisation, the chairman also has a visible role and needs to have appeal to shareholders or stakeholders. An aspiring chairman will show he or she can represent an organisation well and perform in a public setting. Raising your profile is an important step to becoming a chairman."

Building an effective relationship with the executive team is just as important.

"The chairman usually spends more time with the CEO than all the other directors put together," says Cole. "So it is important that an aspiring chairman demonstrates he or she is capable of building a relationship with the CEO, and supporting him or her, while being able to make tough calls on CEO performance if needed."

Cole says an exceptional chairman needs a long list of personal qualities and skills to lead a board effectively. He or she is also half of the company’s most important relationship – that between the chairman and CEO – and must help develop directors and set the governance standards. Given such high stakes, it can seem odd that chairman succession planning is not more rigid.

Egon Zehnder International managing partner Neil Waters says chairman succession planning is not nearly as sophisticated as executive succession planning. "The chairman is usually an internal appointment, yet the board might only meet 12 times a year for a day or a half," he says. "Directors often don’t know each other all that well, yet have to make a critical decision on who to appoint as chairman. There is a lot at stake: the difference between a good and bad chairman can be a nightmare for companies.

"I suspect many directors don’t fully understand how different the role of chairman is and that many chairmen are not good at articulating what they do. Directors usually do not see all the work the chairman puts in or the skill required to deal with the CEO of a large organisation. There’s a lot more to being a chairman than leading the board meeting, especially during times of crisis."

Waters believes boards should test the market for external chairman candidates when a replacement is needed. "There are good reasons why most chairman appointments are made internally; the board wants continuity and somebody who can maintain an effective relationship with the CEO. But just assuming the board has someone who is capable of chairing it is dangerous. Boards should be canvassing external candidates for the chairman role, if only to benchmark their internal candidates."

Waters’ view might seem self-serving at first glance, but he raises a good point. The special skills required of a chairman, and the delicacies in positioning oneself for the role, suggest an independent third party can be useful in board succession planning and chairman appointments. "The process of appointing the chairman is just too random in too many companies," says Waters. "That makes it unnecessarily hard for aspiring chairmen to position for the role and develop suitable skills."

A more linear path to the role – from director, to deputy chairman, to chairman – in a neatly planned governance career path, sounds good in theory. In reality, the best boards act as one, with no rigid chain of command, internal politics or directors climbing over each other to be chairman. That looks more like leadership foresight rather than an antiquated approach.

Qualities often seen in successful chairmen:

• Tact, diplomacy and facilitation
• Confidence (but not arrogance)
• Knowledgeable (but a lifetime learner) with a genuine interest in a wide variety of issues
• Openness and willingness to be transparent but aware of sensitivities
• Clarity of purpose and commitment
• Goal oriented and able to prioritise over the short, medium and long term
• Focus
• Strength of character
• Perseverance

Source: Chairman of the Board, 2nd Edition, Australian Institute of Company Directors

10 Tips for aspiring chairmen

1. Understand the differences

   a good chairman does a lot of behind-the-scenes work that is not always immediately obvious to directors. The role usually has a much higher workload and greater responsibilities and pressure than that of a non-executive director (NED). It can be a lot more hands-on with management. A strong chairman has an excellent working relationships with the CEO, company secretary and other directors.

2. Understand the trade-offs

   Chairing a board can be immensely rewarding: it has higher fees (on for-profit boards), status and informal power, and is more challenging than a directorship. But it usually means working on fewer boards because of time commitments. This narrower, deeper focus can deter directors who like the variety and freedom of having several board roles across different sectors.

3. Understand the protocols

   Talk to the incumbent chairman first about your aspiration to lead the board one day. Do not openly discuss your ambitions with other directors or aggressively lobby for their support. Aim to be ready and capable if and when you are asked, but do not push to lead the board. Always view the chairman’s role as the first among equals, not the top job that should go to the hungriest, most competitive director.

4. Be an effective NED first

   Focus on becoming an effective director who has a range of board and governance experience across different sectors and organisations. Consider committing to a full-time governance career if you are serious about becoming a chairman on a few for-profit boards in coming years.

5. Take on extra projects

   Show initiative and ask the chairman if you can lead special board projects. In the NFP sector, for example, ambitious directors might spend more time with management on certain projects. The key is showing a willingness and commitment to add extra value to the board.

6. Chair board sub-committees

   When ready, look to chair audit, remuneration, nomination or other board sub-committees. Chairing audit and remuneration sub-committees in particular is increasingly becoming a larger, more specialised role and an excellent training ground for directors who want to take the next step, and be rewarded for their efforts with extra board fees and recognition.

7. Look to chair smaller organisations

   A director with several commercial board roles might look to chair a smaller NFP enterprise or a government enterprise. That helps develop chairman skills and shows you are willing to give something back to the community and the broader governance sector. Aim to excel in your NFP governance role; do not see it as simply a stepping stone to bigger commercial board roles.

8. Build your profile

   Stakeholders of larger organisations want a chairman in whom they have confidence. Those of small organisations, such as an exploration company, might want a chairman who can lift the company’s profile. Attend Australian Institute of Company Directors events, participate in governance debates, develop a well-researched position on governance issues and be seen to be a thought leader. Keep networking.

9. Specialised education

   Company Directors’ The Role of the Chairman course provides excellent advice for chairmen, deputies and chairs of committees, and those aspiring to the role. The course considers the role of the chairman under the Corporations Act 2001, as well as their broader role both internally and external to the boardroom. It explores how board meetings can be more effectively run and examines the best approaches for handling problematic situations. There is also a specialist course for chairmen in the NFP sector.

10. Find a mentor

    Seek counsel from a director who has sound experience in chairing boards and is willing to share his or her governance wisdom. Do not assume that years as a NED will comfortably prepare you for the chairman’s role. Advice from those you trust is invaluable.

The five key roles of a chairman include:

• Setting the tone at the top. Ethics and standards, values and culture must flow within the board and from the board to within the organisation and reflected outwardly to shareholders, other stakeholders and the public at large.
• Managing board effectiveness. This includes paying attention to board composition, nomination, recruitment, succession, issues articulation, decision-making and general quality of board operations, including evaluation and review.
• Leading the corporate agenda. This involves a focus on key governance, strategic and operational issues (at board level).
• Maintaining a good relationship with the CEO. This covers recruitment, appointment, interchange with the board, accountability to the organisation, mentorship, clarity and how roles are split (vis-à-vis external relationships).
• Representing the board externally. Taking overall leadership for shareholder/member communications and governance matters with other stakeholders, such as government, regulators, the media and the general public.

Source: Graham Bradley AM FAICD from Chairman of the Board, 2nd Edition, Australian Institute of Company Directors

Chairman succession planning

Most chairmen take responsibility for designing the succession plan for the board as a whole, in consultation with the nomination committee. This will include planning for the chairman’s potential successors. It is important that the nomination committee be closely involved in this process and, when settling or changing board committee membership or recruiting new directors, the board has an eye out for potential future chairmen.

"In my view, the key to successful chairman succession is ‘quiet soundings’. If there is only one candidate it is, of course, easy, but if there is more than one, the more open the ‘electoral’ processes, the more likely it is that the unsuccessful candidate will not only lose the race but also lose face. This can lead to unnecessary bitterness," warns Peter Duncan FAICD, chairman of Orica, Scania Australia and the Cranlana Programme Foundation.

In listed companies it is unusual to find set term limits for directors or chairmen, and it is often important to ensure continuity at board and chairman level, particularly if a change of CEO leadership is on the horizon.

Once the decision is made that it would be in the interest of the company for the chairman to retire, it is good practice for the succession process to be handled by either a lead independent director or chairman of the nomination committee, rather than the chairman directly.

Experienced chairmen agree that the chairman should step back from the process after expressing his or her views on the merits of possible successors. It is rarely a good idea for a retiring chairman to remain a NED after retirement.

"In my experience there are many factors to consider when you are choosing a chairman," says David Gonski AC FAICD Life, chairman of Coca-Cola Amatil, Investec Bank Australia and the Guardians of the Future Fund.

"One is clearly finding the right person for the right time. If you have a calamity, you need a strong person who takes the leadership role. If the company is going quite well, you may need someone who is not so dominant and more collegiate. Change is always happening. It used to be that you sat out your time and became chairman by natural progression.

"The question is often asked whether a chairman should be asked to remain on the board after he or she stands down from that role. In favour of this is the fact that corporate knowledge may be lost from his or her departure. Against this is the difficulty of the new chairman being able to make changes, establish his or her authority and do things their way without concern for offending their predecessor. In general, the negative surpasses the positive."

Gonski adds: "There is also the question of whether a chairman who has been the CEO (either permanently or for a short term) can be or continue to be an independent chairman. There is strong argument that a person in such circumstances is tainted and to get the best from the existence of an independent chairman it is generally wise for such a person not to be or continue to be the chairman."

Source: Chairman of the Board, 2nd Edition, Australian Institute of Company Directors

The chairman's role

The role inside the boardroom generally includes:

• Acting as an important link between the board and the company without inhibiting the direct access of fellow directors.
• Establishing and maintaining an effective working relationship with the CEO.
• Setting the tone for the board, including establishing a common purpose.
• Chairing board meetings efficiently and shaping the agenda in relation to goals, strategy, budget, executive performance and governance matters.
• Obtaining appropriate information to present to the board.
• Encouraging contributions by all board members and seeking consensus when making decisions.
• Motivating board members and, where appropriate, dealing with underperformance.
• Instituting the process for appraising board members individually and the board as a whole.
• Overseeing negotiations for the CEO’s employment and evaluating the CEO’s performance.
• Planning for the succession of senior executives, including the CEO.
• Assisting with the selection of board committee members.

The role outside the boardroom includes:

• Communicating with shareholders on matters of corporate governance.
• Chairing annual and extraordinary general shareholder meetings.
• Being available to speak with large institutional investors (for listed companies).
• Being available to consult with financial sponsors, members and other stakeholders (for NFPs).
• Interacting with other stakeholders, including regulators, the media and the like (in consultation with fellow board members and with an agreed communications split with the CEO).

Source: Chairman of the Board, 2nd Edition, Australian Institute of Company Directors