Community Update

Making the Switch from CEO to Chairman

There are CEOs who make the move to chairman without missing a beat. They understand how to support the executive team and won't interfere with their decisions unless the long-term interests of the business and its stakeholders are threatened. Others, it’s fair to say, aren’t quite so enlightened.

That’s why it’s often advisable to gain non-executive director experience first, especially if you’re thinking about stepping into the public company arena. Leslie Van de Walle, Criticaleye Associate and Chairman of building material company SIG Plc and recruitment concern Robert Walters Plc, says: “Before becoming chairman you need to learn a bit more about chairing board committees and understand that one of the roles of chairman is to foster a consensus. People don’t always come from the same angle or share the same view and chairing a committee is a good way to start learning that skill.”

Geoff Brady, Non-executive Chairman of Harvey Jones Kitchens, recalls that he only took on his first chairman role after four years in NED positions: “I decided my first NED roles should be a mixture, so I got one in a family-run business, one in a Plc and one in a private-equity backed business because they are very different animals.

“It’s important to understand not only the difference between being an exec and non-exec, but also between being a non-exec and a chairman in each of those arenas as the chemistry needed for success is different. Clearly, if you are in a listed company you are a little more of a policeman and a little less of a strategist and sounding board, whereas in a PE-backed business you are at the other end of the spectrum.”

There are a number of companies where the CEO moves into the role of chairman or takes on the title of ‘executive chairman’, which can prove problematic. Douglas Quinn, Chairman of care home developer Castleoak and former CEO of Voyage, which operates in the care sector, says: “Before becoming chairman of Castleoak I had stayed on the Voyage board as a non-exec having been the chief executive, which was quite difficult. I did it to provide a bit of continuity and a period of transition, so I took on the chair of the governance committee. To be a NED of a business where you’ve been a CEO is difficult, but being a chairman of a business of which you’ve been a CEO is nigh on impossible…

“The chair should allow the CEO to shine, so if you’ve been the CEO previously you’re still seen as the person in the spotlight… you’ll know all the details of what the CEO does so it must be very difficult to tread the line between challenging without sounding a bit defensive.”

Personal ambitions have to be kept in check. Clive Sharpe, Chairman of Quorn Foods and former CEO of Golden Wonder, makes a similar point: “I have seen chairmen wanting to be CEOs and it is important that you don’t think you can do a better job. If I ever felt like that, I’d need to review the CEO’s performance, address any deficiencies or change them.”

Chairing the new normal 

So once the move has been made, what can you expect? Lady Barbara Judge, Chairman of the Pension Protection Fund, comments: “Chairmen have to be strategists and very good with people. There are times when problems can occur between the executives and the only one who can effectively sort things out is the chairman. That is the situation I have seen a number of times and in which I have been personally involved.

"In order to have the stature and knowledge to do the job effectively, the chairman needs to really understand the business and should spend much more time on it than any other non-executive. The chairman has a real opportunity to add value with respect to strategy and people management.”

The executive team must be driving the execution of strategy, but the qualities a chairman brings to a business, particularly if it’s family owned or backed by PE, will go beyond the efficient and timely running of board meetings.

“Chairmen are increasingly becoming involved in understanding the day-to-day of the business,” says Clive. “Quorn, for instance, has a lot of overseas business and I visit partners in different countries, whether that’s distributors, joint venture partners or even customers.”

The profile and expectations placed on the chairman are rising too. Leslie says: “In today’s world, when there’s a problem, people will not just go after the CEO for answers but the chairman too, so the chairman has a duty to be able to influence and be aware of what is being decided.”

Douglas comments: “The level of involvement is higher, particularly in difficult times. That’s why it’s important to understand the nuts and bolts of the business. It’s no longer enough to just go along to the board meeting and read the newspapers.

“In the care sector, for example, it looks likely that the government’s proposals on corporate and personal liability of boards and directors are going to be pushed through… so that sense of responsibility is going to be accentuated more than before, and a good chairman is going to have to know what’s going on in the business.”

Businesses need strong and genuinely knowledgeable, experienced chairmen. Geoff says: “Chairmen do need to be a little more hands-on in tough times… As soon as you have a problem, a NED will spend more of their time looking after the shareholders’ interest, changing personnel on the board and getting more involved in strategy and spending time in the business. You have to keep a little bit of distance from the CEO and not get too close because you never know when you’re going to tap the CEO on the shoulder and say, ‘Look, this just isn’t working out.’”

The skill is in knowing when to step in and when to remain at arms’ length as too much of either can create serious problems. Alan Giles, Chairman of clothing retailer Fat Face, says: “Your principal duty as chairman is to manage the board, ensuring that the right strategy and management is in place, that there is a focus on performance and management of risk, and that the organisation has sound values.

“To do that you must be able to constructively challenge, support and mentor the management but it’s your responsibility to hold the CEO to account, which ultimately might result in firing them, stepping in if necessary and hiring a replacement. Your primary duty is to shareholders, so you must understand their views and represent their interests in the boardroom.”

That harsh reality is and always should be there but, on the upside, when the relationship functions properly it provides fantastic momentum and energy for a business. Douglas says: “If you’ve got a good chairman and a good chief executive, and the two are working together well and each understands how the other operates, it can be a very powerful and important thing. Having been a chief executive, I valued the role my chairman played and I am trying to replicate that and make sure I add value as a chairman.”

I hope to see you soon.