Not all firms have someone as the appointed chair of the board but, where they do, it\u2019s a role that interests regulators. In very broad terms, I see the CEO function (SMF1), the chair of the board function (SMF9) and the chief risk officer function (SMF4) attracting the most regulatory attention. It\u2019s common for the Prudential Regulation Authority, in particular, to ask to meet the Chair, from time to time, without anyone from management or other directors being present. And assume this will happen where the PRA has concerns about a firm, the board or the CEO.<\/p>\n
So, what are regulators looking for, what should firms and their boards be looking for and what makes an effective chair of the board of directors?<\/p>\n
1\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Independence<\/strong> \u2013 the Chair should be independent and count towards the total number of INEDs on the board. Because there\u2019s a different label \u2013 \u2018Chair\u2019 \u2013 this is often forgotten but it\u2019s important.<\/p>\n 2\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Ability to command the respect of the board and continue to do so<\/strong> \u2013 an obvious point but one that\u2019s worth making and digging into. To be respected over time<\/em>, a Chair needs to be seen to be consistently impartial. There\u2019s no room for favourites and any glitches in relationships with particular directors need to be set aside. All directors need to be given equal air time.<\/p>\n 3\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Ability to build a good working relationship with management (particularly the CEO) but not be part of management<\/strong> \u2013 the relationship between the Chair and the CEO is extremely important and I think it\u2019s fair to say that, where the relationship breaks down, one of them will usually leave soon after. In start-ups and early-stage companies, the Chair can act as the CEO\u2019s mentor. In longer-established companies facing difficulties or a crisis, the relationship between the Chair and the CEO can underpin the work in turning around the business and the board\u2019s support and review of that process. But the Chair needs to stay out of the management lane. That\u2019s not the board\u2019s role and it isn\u2019t the Chair\u2019s role either.<\/p>\n 4\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Ability to give meaningful feedback<\/strong> \u2013 there should be annual review of the performance of each director and the Chair should lead that process. Feedback should be honest and constructive, delivered in an appropriate way, with an eye to expected developments on the board over the next twelve months and the firm\u2019s strategic direction. Action items and development points should be agreed and documented, with follow-up to check how they\u2019re being addressed.<\/p>\n 5\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Ability to command the respect and confidence of regulators<\/strong> \u2013 again, an obvious point, but one that can be critical for a regulated firm. If the Chair loses the confidence of regulators, that will impact the firm\u2019s relationship with regulators and will need to be addressed. Unfortunately, this is most likely to come to light where there\u2019s an issue at the firm that catches the attention of regulators. Any loss of confidence in the Chair would therefore be yet another problem for a firm under regulatory scrutiny.<\/p>\n 6\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Willingness to deal with tricky issues and \u2018bother\u2019 the board with them<\/strong> \u2013 I\u2019ve heard Chairs say that they want to remove an issue from the agenda or not add a critically important item because the board has had too much to deal with, board members are tired or they don\u2019t want to bother the board. Clearly, a degree of triage is needed but that\u2019s about the item to be addressed \u2013 does it need to be considered by the board and does it need to be considered now? \u2013 and the importance of that item compared to other items on the board agenda. It isn\u2019t about how long the board meeting has been, how many meetings there have been recently and whether the directors might be tired.<\/p>\n 7\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Set the tone for the board and contribute to setting the culture<\/strong> \u2013 a few boards have a tone that\u2019s different from that set by the Chair but my experience is that they\u2019re pretty rare and, where it happens, the board tends to part company with the Chair. (As an aside, a director \u2013 particularly an INED \u2013 out of step with the board\u2019s overall tone also tends to leave.) The tone set by the Chair will affect how the board operates and how it addresses topics such as risk management, compliance, business and product development and operational resilience.<\/p>\n <\/p>\n This note is intended to provide general information about current and expected topics and perspectives that might be of interest. It does not provide or constitute, or purport to provide or constitute, advice relevant to any particular circumstances. Legal or other professional advice relevant to any particular circumstances should always be sought.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Not all firms have someone as the appointed chair of the board but, where they do, it\u2019s a role that interests regulators. In very broad terms, I see the CEO function (SMF1), the chair of the board function (SMF9) and the chief risk officer function (SMF4) attracting the most regulatory attention. It\u2019s common for the […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[163],"tags":[53,88,167,8,168,16],"class_list":["post-483","post","type-post","status-publish","format-standard","hentry","category-governance-reframed","tag-board-effectiveness","tag-boards","tag-chair","tag-culture","tag-effectiveness","tag-regulators"],"_links":{"self":[{"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/posts\/483","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/comments?post=483"}],"version-history":[{"count":2,"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/posts\/483\/revisions"}],"predecessor-version":[{"id":486,"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/posts\/483\/revisions\/486"}],"wp:attachment":[{"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/media?parent=483"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/categories?post=483"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ruthfinch.com\/website\/wp-json\/wp\/v2\/tags?post=483"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}