By Didier Cossin and Michael Watkins
The move from CEO to Chairman is a major role shift. Success requires a set of leadership qualities which few CEOs have exercised in their previous roles. In this article, the authors elaborate on the qualities of great Chairmen and how executives can prepare for this new governance role.
The qualities that make a great CEO do not make a great Chairman.1 The role of non-executive Chairman, long a fixture in European companies, is becoming increasingly prevalent in the United States (See below – The changing face of governance in the U.S. and Europe). The job of the Chairman is also increasing in importance and complexity, as companies grapple with more technological disruption, geopolitical instability, regulatory uncertainty and social transformation. These can be blind-spots for operating executives, who by design are incentivised to focus on shorter-term performance. As a result, non-executive Chairmen increasingly are leading transformations that go far beyond CEO removal. Shareholders and society at large look at the Board, led by the Chairman, as having ultimate responsibility for business failure or success, having picked the CEO and approved the strategy.
We will focus specifically on CEOs who are making the transition to being non-executive Chairmen, and giving up their executive role in the process. However, much of what we say about the challenges and skill requirements apply to CEOs who are adding the role of Chairman to their responsibilities, and to those who are appointed to the non-executive Chairman role from another executive position, such as CFO, COO or General Counsel.
There is nothing easy about moving from CEO to Chairman. There are two primary reasons for this. First, many CEOs find it hard to stop wielding executive power and “over-manage” the new CEO, setting up potentially dysfunctional battles over power and influence. This is not surprising, given that executive ability and the need to “run the show” is what gets CEOs to the top in first place; it’s core part of their identities and the impulse to want to continue to run things can be irresistible. This is why many corporate governance experts consider the move from CEO to non-executive Chairman in the same company as inadvisable. Interestingly, however, some great Chairmen (e.g. Peter Brabeck at Nestlé) have successfully navigated this transition. Some individuals seem to have the flexibility to shift roles and avoid falling into the control trap. Regardless, every executive becoming non-executive Chairman needs to learn to let go while still remaining ultimately responsible. This is, for example, something that Phil Knight struggled with in working with his first CEO at Nike, William Perez. He subsequently made it work with Mark Parker, who became the long lasting CEO (and now is Chairman).
However, there is a second, more subtle reason why CEOs often struggle with the transition to Chairman: success in the roles requires a very different set of leadership skills. The implication is that great CEOs can be mediocre Chairs and, perhaps more interestingly, average CEOs can be great Chairs. Indeed, some individuals that barely made the CEO job ended up being strong chairs. Just look at Michel Demaré, who, as CFO of ABB, was briefly interim CEO, but led Syngenta from the chair through a takeover attack from Monsanto, a CEO change, and finally a sale to ChemChina.
The Qualities of Great Chairmen
The move from CEO to Chairman is a major role shift. Success requires a set of leadership qualities which few CEOs have exercised in their previous roles. Even if they are present in the person making the transition, they need to be developed over time. Moving from an executive to a governance role requires a different style all together, one of balance and controlled distance, that allows for support, supervision and co-creation while jointly setting high-level objectives.
Great Chairmen are:
1. Able to subordinate their egos.
Effective Chairmen accept that the CEO is the public face of the company (except in certain situations and exceptional circumstances – see on the right – When the Chairman needs to take charge) and are willing to cede the limelight in order to operate effectively in the background. Another reason this is important is that Boards tend to work better when members feel that they are roughly on the same level. This means that effective chairmen operate more as “firsts-among-equals” and less as leaders-in-charge.”
2. Graceful in the exercise of power.
Effective Chairmen have authority, but rarely resort to using it, as the most legitimate authority comes from the Board as a body rather than from any individual. They use their authority to foster open and honest debates as well as shape consensus. They act as agenda-setters, promoters of constructive dissent, builders of authentic consensus, and the voice of the Board, and not as authoritative leaders.
3. Dedicated to ensuring success in the long run.
They keep the management team focussed on the 1 to 5 year time frame and the Board focussed on the 5 to 10 year time frame or beyond. Some privileged Chairmen can even have a 25 year, cross generational focus (e.g. in family businesses and sovereign wealth funds).
4. Stewards of their companies.
Effective Chairmen embody and defend the core values of their organisations. They set the tone on the Board, steer the development of the vision and strategic framework, shape the culture, and establish the constraints within which the CEO can operate. They thrive for continuous improvement and rejuvenation of skills on the board and beyond to ensure adaptability and agility for long-term survival.
5. Able to work in tandem with the CEO.
They understand that the CEO and the Chairman should be complementary roles, not competing ones. They establish boundaries (more and more in writing to ensure clarity) and empower the CEO and the management team to operate within them. They monitor the performance of the CEO (at least via the appropriate committees), but also act as a sounding board. Critically they foster the trust and rich communication required to make the role split work.
Key Decisions About Enacting the Role
Chairmen are of course not all alike, and neither are the circumstances they face. The implication is that Chairmen need to be thoughtful in deciding how to play the role. Key decisions include:
1. Supervise vs. support
Of course every Chairman needs to monitor the performance of the CEO through appropriate reporting, auditing and supervision. But they need to explicitly decide whether, to what extent, and how they will provide support in the form of coaching and/or mentoring. Indeed, depending on the context the organisation is in, simple, complex or chaotic, and depending on the readiness and maturity of the CEO, the Chairman needs to tune his or her role. Even in simple times, and blessed with a well-established CEO, a strong Chairman, while holding on to more of a supervisory role, will understand and be involved enough to be able to coach and support when times change.
2. Passive vs. active
The relationship between the Chairman and the CEO is quite different if the Chairman enacts an active role in the company. Being “active” can mean representing the company in dealings with external stakeholders in ways that the CEO cannot, connecting with the parts of society that are less on the radar screen of the management team, or simply less reachable. Stephen Lee, as non-executive Chairman of Singapore Airlines, famously engaged with unions on a personal basis, regularly averting difficult situations. Critically, however it doesn’t mean engaging as an immediate decision-maker. Another form of activism emerges when the Chair takes responsibility for driving a strategic initiative in ways that the CEO and the management team cannot, for example in transformational transactions. Consider the sale of BG to Shell: Andrew Gould, the non-executive Chairman, with a lifetime experience in oil and finance, was the necessary element to drive what amounted to the largest transaction in Europe in 2016. In all cases, however, activism must be driven by the need, and not by the desire of the Chairman to be “shadow CEO”.
3. Internal vs. external
Given limited time, where will the Chairman focus his or her attention? If an internal strategy is well established, a restructuring is required, or a culture transformation underway, then the Chairman will focus more on internal issues, engaging in supervision or support depending on the need. The archetype of this will be a private equity Board driving an operational excellence initiative. In a well-aligned, finely-tuned organisation, the need to deal with external issues related to technology, regulation, political instability and social transformation will lead the Chairman to have more of an outside focus. Ultimately, a Chairman who is supported by organisational excellence at all levels up to CEO, will focus his or her energies on understanding and shaping the external environment in support of strategy.
Preparing for the Role
The transition into the Chairman role is a time of particular vulnerability and opportunity, so it’s essential to do the right things to get ready. As we have discussed, executives who have been effective in other roles (particularly CEO) can struggle with taking on the Chairman role. This is especially the case when they are giving up the CEO role to focus solely on being the Chair. There are some things the new Chairman can do that really help:
• Require world-class onboarding. The new Chairman often needs to be able to drill into the company at a much higher level of detail than management expects. Gone are the days when a Chairman could operate just at the 10,000 foot level, or not even know the value of the assets of the business (although we still see some cases today). To make the process of learning about the business as efficient and effective as possible, the new Chairman must have an excellent onboarding process, including well-constructed briefing books, organised meetings with internal and external key stakeholders, and exposure to company operations and facilities.
• Get a mentor. It’s lonely at the top. But if the job of the CEO is lonely, the role of the Chairman is lonelier still. By the nature of the role, for example, the Chairman cannot develop trusted advisors within the company’s executive team or with key external advisors who work with the company. However, it’s very difficult, for the reasons outlined above, for new Chairmen to make it up as they go along when facing, for example, a hidden shareholder fight on the Board or unethical behavior by a conflicted Board member. Advice from experienced Chairmen is invaluable in helping to avoid common traps, make sound decisions, and navigate Board politics through the transition and beyond. Mentors need not, indeed possibility should not, come from within the same industry or geography. The Chairman of a leading German retailer, for example, has been successfully mentored by a leading Swiss industrial chair, despite national and industry differences.
• Cultivate a network of expert advisors. Considering the small size of their “team”, a successful chairman relies on expert advice on board renewal, strategic reviews, M&A and more. He or she is keenly aware of advisors’ potential conflicts of interest and find ways to manage them to better serve the firm. Great chairmen often rejuvenate their board to ensure skills are fresh and focussed. One chairman of a 200 billion+ company told us he was rotating the HR consultant for board search every two to three years, as “the advisor starts playing his own game in board nominations very soon”. Another chairman recruited a famous investment bank only to do the mechanics of a successful 70 billions transaction (to ensure that the bank would not work for the other side) but used extensively the advice of a niche firm (less than 20 employees) with whom he had a trusted relationship.
• Get and stay educated. Board work is evolving rapidly, and new best practices are being developed almost on a daily basis. Great governance has become a competitive advantage and investors look at it more and more as a differentiator. Staying current on the latest and best thinking on core topics, such as: How do I keep individuals that meet a few times a year fully engaged? How do I make the Board a positive contributor to strategic innovation? How do I ensure a level of information that is integrative, enlightening, and helps provide perspectives beyond management views?
• Ensure best in class support. The Board secretary has become a discrete but essential asset for large organisations. Rigorous, efficient Board processes (such as strategy process, risk process, nomination process, non-financial audit process) have become absolutely critical to organisational resilience. Despite their relative isolation, Chairmen must not be tempted by the do-it-alone syndrome. While your team has now extended far beyond the staff (and even beyond the Board members), the secretary is a good anchor to have within.
About the Authors
Didier Cossin is Professor of Governance and Finance at IMD. He is the Founder and Director of the IMD Global Board Centre, the originator of the Four Pillars of Board Effectiveness methodology and an advocate of Stewardship. He is the author and co-author of the book Inspiring Stewardship.
Michael D. Watkins is Professor of Leadership and Organisational Change at IMD. He has spent the last two decades working with leaders as they transition to new roles, build their teams and transform their organizations. He is the author of the international bestseller The First 90 Days, which The Economist recognised as “the on-boarding bible”.