Board relationships



Odgers Berndtson's Board Practice works for a diverse group of select clients – including Fortune 500, FTSE 350 and AIM-listed companies, major national corporations, international groups, private equity-backed businesses, family-owned and managed organisations, the world’s largest charities and a range of public sector and small and medium sized enterprises – to find Chief Executives, Finance Directors and other Executive Directors. They also have a dedicated Chair & Non-Executive Director Practice which specialises in the recruitment of Chairs, Senior Independent Directors, Chairs of Audit, Remuneration and Nomination Committees as well as independent Non-Executive Directors and Supervisory Directors. Odgers Berndtson’s consultants discuss how the relationship between Board Executives and Non-Executives has evolved.

Kit Bingham

Kit is Head of the Chair and Non-Executive Director practice at Odgers Berndtson, with experience of working for clients ranging from FTSE 100 companies to AIM-listed, privately-held and international businesses.

Simon Hayes

Simon is a Head of the Financial Services practice at Odgers Berndtson. He works with financial institutions, regulatory bodies, trade associations and consultancies globally to attract senior leaders to executive and non-executive positions.

Anna Ponton

Anna is Head of Practice, Legal & Professional Services at Odgers Berndtson. Her primary focus is on undertaking senior lateral hires of partners, key management staff for law firms and General Counsel/Company Secretary positions.


1

How has the relationship between Board directors changed?

2

With NEDs spending more time with an organisation, are they becoming more operational?

3

Is there an increased team dynamic in the Boardroom?

4

How have Chairman and Executive relationships evolved?

Kit: The relationship between Executives and Non-Executives has noticeably changed in part due to the composition of Boards – they have become smaller. In the past, the balance between Executives and Non-Executives was almost half-and-half but now most Boards only have two Executive members represented by the CEO and CFO.

What this has created is an area of engagement that is softer for the executive team. They probably come to the Board quite often to present and answer questions, but it is the activity of Executives and Non-Executives engaging outside of the Boardroom that has increased. A number of companies have set-up mentoring relationships between Non-Executives and senior executive directors on the management committee.

Furthermore, there has been a specific relationship change between the CEO and the Chairman due to them spending more time together. Previously a Chairman was only required for a few tasks in-between chairing Board meetings, but now the role is a lot more time-consuming. Within Financial Services it is largely a full-time job, while in FTSE 100, and even through to the FTSE 250, the role requires a day-a-week or more. Therefore the volume of engagement has gone up and so has the need for that relationship to be a strong one.

Simon: Because of all of this, professionalism has increased in a plethora of ways. Firstly, there is more thought given to Board dynamics with an increase in Board reviews and appraisals. Secondly, Board hiring and induction processes have become more structured – for both Executives and Non-Executives.

Anna: Another important consideration for the relationship between Executives and Non-Executives is the role that the Company Secretary plays. These individuals tend to have an all-embracing relationship. They often look after the Non-Executives to make sure they are fully briefed prior to meetings and also act as a sounding board to anyone that may have any issues or concerns.

Anna: By the very nature of a Non- Executive’s role they shouldn’t be too operational, they should be independent.

Kit: However, the ability to get out there and touch the business is essential for any Non-Executive. Obviously if they are on the Board of a supermarket it is a lot easier to get a feel for the company’s operations than it would be for a Board member of an offshore oil and gas organisation, but most are investing time to understand the business more fully. And that needn’t be crossing the line or interfering with executive responsibilities at all – I think confident management teams encourage it.

Simon: The vast majority of companies are encouraging their Non-Executives to spend more informal time in the business so that they can challenge constructively and add to the strategic debate. In doing so Non- Executives shouldn’t adopt any Executive responsibility, it is just about them obtaining a greater understanding complex businesses to a greater extent.

Kit: And that can be done that without meddling. A Non-Executive can identify a problem, but it is not their responsibility to follow it up; for example, they could raise a concern about customer service to the relevant executive, but it is not their job to check if it was dealt with – that would be clearly crossing the line. And so getting that balance right is important.

Also, it is possible for Boards to get drawn-in to concentrating solely on governance and focusing the majority of meetings around regulations then forgetting to talk about the business. It requires great Chairmanship to ensure that the company is well-governed, overseen and risks are well managed in addition to ensuring that there is also real engagement with how the business is performing and how to improve.

Anna: The governance piece has always got to be kept in, but it is the duty of the General Counsel/Company Secretary to keep everybody’s eyes on it while keeping the commercial picture in mind as well. And so the new breed of Company Secretary has to very much have that balance in mind; making sure that governance is true but also that the commercial picture doesn’t become distorted by an emphasis on governance.

Kit: Good Boards have always been strong teams, and dysfunction occurs on Boards that aren’t well led or well managed. There are cases where Executives sit on one side of the table and Non-Executives sit on the other side in a very adversarial manner. But a good Chair recognises that and goes against it.

The triangle between Chair, CEO and CFO is critical. If the relationship between the Chair and the CEO is toxic then the Board will suffer, likewise; the relationship between the CEO and the CFO, how those three interact with each other and how they interact with the other Non-Executives is also critical. And so there is clearly a team dynamic that needs to be right, but within that there is a number of bilateral relationships that have to be strong as well.

Good individuals spend time thinking about it and spend time working on it.

Kit:One interesting point to consider is: Who got there first. Any relationship will be different if there is an incumbent Chair bringing on a Chief Executive – rather than the other way round. This is particularly relevant when both posts are coming up for renewal, and so companies have to think quite carefully about how they order that.

Also, these individuals have just got much better at talking to each other; right from the beginning they sit down and talk about how they are going to work together. They identify what each other’s roles are, how often they will meet and what they will do as a team when things go wrong or get stressful. They will also discuss what is unacceptable – what the red lines are in terms of behaviour.

Then, if that is agreed upfront, it is just about taking the pulse and ensuring that these expectations are achieved.

Simon: And in terms of when Boards actually go through that succession planning process, they are much more cognisant of having to look at what has worked and what hasn’t worked.

When replacing the Chairman, Senior Independent Directors are very good at planning and identifying how to make a better hire.

In contrast, when looking at CEO succession, Boards and Chairman are much more conscious of looking at internal candidates. They are better at identifying strengths and weaknesses, giving candidates the opportunity to demonstrate what they can do and putting plans in place for development.

Overall there is much more forward thinking about this in the whole structure.

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