Cover Story : Balancing Board Control; Tim Watkin Looks at the Balance of Power on New Zealand Boards. Does the Chair Have Too Much Control, Too Little, or Are the Dynamics Pretty Much Right?

New Zealand Management, October 1, 2008 | Go to article overview

Cover Story : Balancing Board Control; Tim Watkin Looks at the Balance of Power on New Zealand Boards. Does the Chair Have Too Much Control, Too Little, or Are the Dynamics Pretty Much Right?


Byline: Tim Watkin

When New York radio host William B Williams dubbed Frank Sinatra "chairman of the board" it was recognition that the New Jersey-born singer ruled the music business. He was the boss, the leader of the pack, the dominant force in his industry, end of story. But, how much power does a chair really have? And is it too much? As companies here in New Zealand demand more from their boards, just what style of leadership is expected of a chairperson anyway?

Chairman of the board, or just chair as we tend to say these days, is still a title that reeks of authority, a swaggering metaphor for power. It conjures names such as Steve Jobs, Warren Buffett, and Rupert Murdoch. Or if you're politically minded, chairmen Mao and Arafat.

Questions around just how that power is, and should be, exercised attract numerous academic studies, such as that conducted by Richard Leblanc from Canada's York University. Given access to nearly 200 directors on 21 boards of North American companies, he came up with the '10 Cs' of director behaviour. On the plus side of board leadership is the "conductor-chair", who serves as a hub for board activity; on the negative the "caretaker-chair" who can't run meetings, handle dissent, or communicate well with management. Worst of all, he says, is the "controller-director" who dominates a board for his or her own ends, using superior knowledge, manipulation, or even anger to get his or her way.

Yet describing what a chairperson shouldn't be is the easy part. By their nature, bullies stand out. Knowing how to handle chair-power in a Goldilocks fashion - not too much, not too little, but just right - is much harder to pin down. For one, it depends on a business' size and maturity. For another, rules governing how chairs should lead their boards are neither universal nor especially detailed.

Companies may include requirements in their own constitutions, but the Companies Act, while it defines the meaning of director and board, is silent on what it means to chair a board. It goes out of its way to say that the chair is by no means required to have a casting vote and notes that even having a chair is optional.

As Susan Watson, deputy director of Auckland University's new Governance Centre says, "Under law a chairperson has no more authority than other directors."

The New Zealand Exchange's corporate governance code only uses the word chairman once - to urge that the same person not hold that position and be chief executive at the same time. The Securities Commission's guidelines encourage the same practice but go a little further, stating that a chairperson should be "formally responsible for fostering a constructive governance culture", "independent", and should not chair any sub-committees.

The Institute of Directors is perhaps the most detailed, saying that a chairperson sets the agenda for board meetings, ensures other directors receive "sufficient and timely" information and are encouraged to express their views, and is "the link" with management.

Nothing in those codes and regulations suggests that board-table Napoleans should thrive in this country; indeed, they seem to restrict more than empower. Our corporate traditions reinforce that. Joint CEOs and chairs have been unusual here, keeping a company's two power-bases in separate hands. Chairs are typically elected - and removed if necessary - by the board. Chairs don't tend to hold majority or dominant shareholdings in their companies. And, as in most realms of New Zealand life, anyone getting too big for their boots in the boardroom tends to get short shrift.

In brief, chairs in New Zealand have little official power; they are expected to be the first amongst equals, not little tin gods.

The story, however, doesn't end there. New Zealand chairs wield significant power, sometimes in destructive fashion. …

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