Leading a Board

Chairs' Practices Across Europe

Stanislav Shekshnia, Veronika Zagieva, Stanislav Shekshnia, Veronika Zagieva

• Publisher: Palgrave Macmillan
• Year: 2019
• ISBN:
  9789811331978
• Topic: Commerce
• Subtopic: Stratégie commerciale

This book represents the first cross-country study of the work of boardchairs in Europe. It includes unique data collected through interviews withalmost 200 experienced board chairs and their key stakeholders – boardmembers, CEOs and shareholders.
The book focuses on what board leaders actually do, rather than what theyshould do, and elaborates on a conceptual contingency framework forunderstanding chairs' work in Europe. This includes a comprehensive list ofchair practices – iterative behaviour strategies for getting things done, comparisons of contexts for chairs' work and practices among ninecountries, and identification of cross-European and country-specific trendsthat will shape the work of board leaders in the next decade.
The book will benefit incumbent and future chairs, directors, shareholders, CEOs, executives and regulators in developing a systemic understanding ofthe work of a chair in the European business context and gaining insightsinto how the leader of the board deals with specific challenges.

© The Author(s) 2019

Stanislav Shekshnia and Veronika Zagieva (eds.)Leading a Boardhttps://doi.org/10.1007/978-981-13-3197-8_1

Begin Abstract

1. Work of a Chair in Europe: Context, Content and Evolution

Stanislav Shekshnia¹ and Veronika Zagieva²

(1)

INSEAD, Fontainebleau, France

(2)

Ward Howell Talent Equity Institute, Moscow, Russia

Stanislav Shekshnia (Corresponding author)

Veronika Zagieva

Email: [email protected]

End Abstract

A Brief History of Chairing the Board in Europe

Some forms of boards of directors existed in Europe as early as the Middle Ages,¹ and they have become a permanent feature of European business life since the seventeenth century. At that time, investors in Western Europe began to form joint stock companies to finance trading expeditions to the newly discovered lands in the East and the West. In 1600 Queen Elizabeth I of England granted a Royal Charter to 215² aristocrats and merchants to become “a body politic and corporate”³ under the name of “Governor and Company of Merchants of London trading into the East Indies”, known later as East India Company. The charter stated that shareholders of the company would annually elect 24 people called “committees” to oversee its business. Two years later, the Dutch government sponsored the foundation of Dutch East India Company (Verenigde Oost-Indische Compagnie or VOC), which became the first multinational enterprise to offer its stock to the public. The company had two types of shareholders—participanten (non-managing members) and 60 bewindhebbers (managing members). However, the 60-person body was too cumbersome, so later the VOC formed a smaller board with 17 members called the Collegium.⁴ In both companies, “committees” and the “Collegium” were responsible for choosing a chief executive (or “governor”), distributing profits and raising capital from shareholders for new voyages. The term “director”, used to describe a member of a governing body, was mentioned for the first time in 1694 in a charter of the Bank of England, which prescribed a “court of proprietors” to elect 24 directors to oversee the Bank’s operations.

Today, in all the European countries we have studied, the board of directors is the highest decision-making body in a corporation. It consists of experienced individuals who may or may not be employees of the company (executive vs non-executive directors) and may or may not have a financial interest in it (affiliated vs independent directors). The directors meet periodically to debate and make decisions. Every director has the same rights and responsibilities, except in special cases (such as a conflict of interest).

Directors elect one of their number to preside over their joint work. At different times and in different countries, this person may be called a “chairman”, “chairwoman”, “chairperson”, “president” or—our preferred term—simply “chair”. The chair is one of the directors but is responsible for the smooth functioning of the board and communicating on its behalf with the firm’s key stakeholders—shareholders, management, regulators and so on. Just like academics who research boards, the participants in our research project repeatedly referred to the chair as “the leader of the board”.⁵ Since leadership is a highly contextual business, in order to understand the work of a chair, it is also important to understand the impact of key contextual factors and the interplay between them.

The Chair’s Work in Context

In order to understand the context of the chair’s work, we used a two-level model inspired by the work of Professor Alena Ledeneva and her colleagues, and informed by the respondents in our research project⁶ (see Fig. 1.1).

Fig. 1.1

Context for the chair’s work

Formal rules are the laws and “soft laws” (regulations , including corporate governance guidelines) that constitute the legal framework within which the chair’s work is carried out. In all of the countries that we studied, corporate governance is developing significantly, with more and more aspects of the work of the board and the chair becoming regulated (directly and indirectly). In addition to stiffer regulations, respondents emphasized the following trends:

• More public scrutiny
• More transparency for the company, the board and the chair
• More accountability for boards and chairs
• More reporting.

Although the countries we studied have had very different systems of corporate governance in the past, today their national governance codes define the role and functions of a chair in a similar way—even if some codes such as the UK’s and the Netherland’s—are more elaborate on the subject. The underlining message is that the chair has to provide leadership for the board. According to UK code: “The chairman is responsible for leadership of the board and ensuring its effectiveness on all aspects of its role.”⁷ The major functions of a chair, as defined by the various European codes, can be summarized in the following way:

• Creating the conditions for the board’s and individual directors’ effectiveness
• Conducting board discussions that lead to effective collective decisions
• Organizing periodical board evaluations
• Serving as a role model for directors and executives
• Developing productive working relationships with the CEO and management
• Communicating with the company’s stakeholders, including shareholders

Some country codes mention other chair functions, such as providing comprehensive board materials for directors in a timely manner, integrating new board members, setting and demonstrating corporate values, guiding the company secretary and so on. In summary, national codes define the chair as the leader of the board, leaving to the incumbents, their boards and other stakeholders, significant discretion in interpreting this definition and adapting the role to the context.

The levels of enforcement and acceptance of corporate governance laws and regulations vary among countries. Many chairs reported that, while the developments of the last decade or two had changed the formal side of their work, many former practices remained intact. Chairs from Russia shared stories of directors with major shareholdings attending the meetings of remuneration committees and influencing the outcomes, even though they were technically barred from membership. Chairs from Denmark, Italy , Russia and Turkey reported that certain significant shareholders actively participated in setting the agendas of board meetings, proposing resolutions and even attending uninvited!

We discovered that acceptance of formal rules is strongly influenced by a number of other macro factors (see Fig. 1.1). Societal norms and values (national culture) serve at times as enablers and at times as constraints for the formal rules, as well as influencing the work of chairs directly. We found culturally specific practices in all countries. However, traditional norms are more dominant in those where society applies stronger informal sanctions for deviation. Some Russian chairs reported using the traditional practice of razgovor po dusham (literally “heart-to-heart”)—a tough informal conversation behind closed doors—to persuade board members to come prepared or to stop misbehaving in meetings. Pulling strings through informal social networks to improve board effectiveness by changing its composition (primarily in government-linked companies) is another commonly reported practice. Some Turkish chairs shared tales of trying to balance board effectiveness with managing the relationships between directors. In chairing meetings, for example, they identify directors with higher social status and treat them accordingly. Organizing social events, such as dinners, outings and conferences for board members, is an important element of their work. Chairs may give directors specific tasks and projects not directly related to the board’s work, such as paying customer a visit, helping an executive with an investment plan or taking a company banker for lunch. In Italy, where professional and personal networks tend to mix, some chairs spend holidays with directors, shareholders and executives, thus combining business with pleasure. One-to-one conversations over coffee are one of the “core” practices of Italian board leaders, while British chairs get a lot of business done over a meal in a restaurant.

The macroeconomic situation in a country is another factor influencing the work of a chair. According to our respondents from all countries, their work becomes more intense in times of economic crisis or slowdown: they focus boards on short-term issues, become more assertive in setting agendas, spend more time with CEOs and challenge them, and run board meetings in more authoritative ways. One chair from Russia said, “As the economic situation worsened, I began to rely more on informal practices to lead the board and motivate management.” In good times, the board’s agenda becomes more future-oriented, directors spend more time on strategy and leadership development, and chairs adopt a more supportive leadership style.

One of the unexpected findings of this research project was that chairs see technology, and especially information technology, as a permanent factor impacting their work. As one UK chair put it:

Information technology has dramatically changed and will keep changing how I work. We have gone 100 percent digital and paperless at two boards I currently chair. I communicate with my boards and CEOs via WhatsApp chat. All directors have access to the companies’ financial and operating data in real time—we don’t need to listen to management reports during board meetings. We run committee meetings on WebEx. And I am available to my directors and CEOs 24 hours a day no matter where I am physically.

Or, as a chair from Russia said, “Technology is a great enabler for ...

Table of contents

• Cover
• Front Matter
• 1. Work of a Chair in Europe: Context, Content and Evolution
• 2. The United Kingdom: Indirect Leadership
• 3. The Netherlands: High Engagement in Building Institutions
• 4. Switzerland: Diversity and Diplomacy
• 5. Denmark: Attentive Master of the Boardroom
• 6. Italy: Alignment for Effectiveness
• 7. Smooth Operator: The Chair as the Drive Belt of the German Governance System
• 8. Turkey: Between Traditional and Modern Leadership
• 9. Russia: Powerful Moderation
• 10. “Top Fives” of Chairing a Board in Europe
• 11. The Future Role of the Chair in Europe
• Back Matter