LEADING A BOARD chairs practices across europe. 9789811607271, 9811607273

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Leading a Board Chairs’ Practices Across Europe

Edited by Stanislav Shekshnia Veronika Zagieva

Leading a Board

Stanislav Shekshnia · Veronika Zagieva Editors

Leading a Board Chairs’ Practices Across Europe

Second Edition

Editors Stanislav Shekshnia INSEAD Fontainebleau, France

Veronika Zagieva Ward Howell Talent Equity Institute Moscow, Russia

ISBN 978-981-16-0726-4 ISBN 978-981-16-0727-1 (eBook) https://doi.org/10.1007/978-981-16-0727-1 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2019, 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. Cover credit: gettyimages runeer This Palgrave Macmillan imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Acknowledgments

We are grateful to the many anonymous respondents from eight European countries—busy professionals who gave us their time and shared their priceless insights about the work of a board chair. Without their contributions, this book would not have been possible. Many people helped us to imagine, to design, to research and to write this book. We are grateful to Ludo Van der Heyden, INSEAD Distinguished Professor of Corporate Governance and founding Academic Director of the INSEAD Corporate Governance Center (ICGC), for supporting the project, advising on the early stages and making recommendations on improving the draft and Professor Jose Luis Alvarez, Academic Director of ICGC, for his encouragement and support. We thank also Muriel Larvaron, formerly Assistant Director of the ICGC, and Sonia Tatar, Executive Director of the ICGC, for identifying and contacting respondents and giving us encouragement. Special thanks go to Sergey Mamzin, Alexandra Matveeva, Maria Nazarova and Alena Filichkina from Ward Howell Talent Equity Institute for their invaluable help with data collection and analysis and to Alexey Ulanovsky from Ward Howell and Vincent H. Dominé from INSEAD and Dominé & Partners for their great contribution to the first part of the project. We would be remiss if we did not express our gratitude to Elin Williams for her unfaltering enthusiasm in editing the manuscript. We would like to thank our assistants Tatiana Shuvalova and Aurelia Merle for keeping us focused and meeting deadlines. v

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ACKNOWLEDGMENTS

Many colleagues from academia have given us feedback and advice after reading the manuscript or parts of it and hearing our ideas. We would particularly like to thank Professors Manfred Kets de Vries, Alena Ledeneva, Erin Meyer, Subi Rangan and Tim Rowley. We are very grateful to our clients, partners and friends from the corporate world who helped us develop the concepts presented in this book by listening, sharing and providing critique, especially George Abdushelishvili, Kirill Androsov, Gleb Frank, Olga Gorbanovska, Pavel Kiryukhantsev, Oksana Paraskeva, Alexander Saveliev, Vitaly Vassiliev, Maxim Vorobiev and Sergey Vorobiev.

Introduction to the Second Edition

We are glad to be able to publish this second substantially revised and enhanced edition of Leading a Board: Chairs’ Practices in Europe during extraordinary times. As we write, in November 2020, the world has been fiercely fighting the COVID-19 virus for almost a year. To date, 53.5 million people have been contaminated and 1.3 million have lost their lives.1 The global economy has contracted by 4.2 percent,2 millions of people lost their jobs.3 The virus accelerated some global trends—such as digitalization, sustainability and concern about social justice and nationalism—and added other issues—such as personal and public health—to the global agenda. The pandemic also highlighted some serious shortcomings of the contemporary world: the unpreparedness of both democratically elected and authoritarian governments to manage large-scale crises and to collaborate effectively; the failure of international institutions such

1 World Health Organization (2020). WHO Coronavirus Disease (COVID-19) Dashboard. Available from: https://covid19.who.int/ [Accessed 1 December 2020]. 2 OECD (2020). OECD Economic Outlook, 2020 (2). Available from: https://www. oecd-ilibrary.org/economics/oecd-economic-outlook/volume-2020/issue-2_39a88ab1-en [Accessed 1 December 2020]. 3 OECD (2020). OECD Employment Outlook 2020. Available from: https://www. oecd-ilibrary.org/employment/oecd-employment-outlook-2020_1686c758-en [Accessed 1 December 2020].

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as the European Union, the United Nations or the World Health Organization to lead and coordinate a global anti-virus response; the inability of the international scientific community to provide policy-makers with coordinated data-based advice; and the failure of the global media to supply the world population with an objective yet inspiring picture of the events. At the same time, during 2020 we became witnesses to the everyday heroism of frontline medical workers, the unparalleled generosity of companies and individuals supporting the fight against COVID-19 and countless other examples of human solidarity. This pandemic has hit humankind very hard, but life goes on. People have learned to work and fly with facemasks, earn academic degrees without leaving their homes, party by Zoom and travel via Instagram. Companies keep adapting to ever-changing conditions, rethinking their strategies, reinventing their business models, redesigning their processes, restructuring their operations, retraining and redeploying their employees. In this book we will show how leaders of the highest decision-making body in a company—board chairs—adapted their work during the pandemic. We will also examine what has changed and what has remained in how they lead their boards and represent them in relationships with stakeholders. We began our research for the second edition of the book as soon as the first one was published. We wanted to cover countries that did not make it into the first edition—Finland, France, Norway, Spain, Sweden and Ukraine, but we also wanted to see how digital technology and sustainability was impacting the work of board chairs across our sample of countries. When the research was almost finished, COVID-19 struck and we felt the book would not be complete without material about its impact. We are grateful to our co-authors, who agreed to go back into the field and conduct an extra leg of research devoted to the pandemic’s influence. As a result the second edition is different from the first in a number of ways. It covers 14 rather than 8 European countries. It addresses the impact of digitalization, sustainability and the COVID-19 pandemic on the work of a board chair in each of these countries. Finally, it presents new and updated conceptual models that have been developed on the basis of the recent research inputs. Since the work of the chair is done behind closed doors, little is known about this person who presides over the most powerful body in any organization. To shed light on the workings of board chairs in different European countries we undertook a large-scale research project supported by

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INSEAD Corporate Governance Centre and Ward Howell Talent Equity Institute. During the first stage (2014–2015) we conducted a survey of more than 600 chairs in different countries, including more than 400 in Europe. During the second stage (2016–2019), 18 experts from 14 European countries interviewed 130 chairs and 143 CEOs, directors and shareholders to detect and compare specific practices and instruments that chairs use to deal with the challenges identified in the first part of the project. During the third stage (April–October 2020) we conducted a pan-European survey of 266 chairs, directors and CEOs and an additional 56 interviews with board chairs and directors from the 14 countries to assess the impact of the COVID-19 pandemic on the work of chairs and the boards they lead. This book is based on our research. It presents a conceptual contingency framework for understanding the work of a board chair. It also describes the three core roles of a chair in leading the board, ideal types of chair and emerging trends in chair–CEO and chair–shareholder relationships. Most importantly, the book identifies specific practices—iterative behaviour strategies or ways to get things done—that chairs use to perform their duties. We describe specific contexts for the chairs’ work and their practices in 14 European countries—Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland, Turkey, Ukraine and the UK, identifying cross-country similarities and context-bound differences. We argue that, while the COVID-19 crisis modified some elements of chairs’ work, such as conducting board meetings online, shortening feedback loops and dedicating more time to the job, the fundamentals of effective board leadership have not changed. We conclude by presenting a number of pan-European trends in the work of a board chair, which will develop over the next decade. Chapter 1 builds on the existing literature and findings of the research project. It offers a conceptual model of the environment in which board chairs operate, combining three macro factors—business context, laws and soft laws and societal norms—and three micro factors—company, board and chair. The unique combination of these factors defines what board chairs do (roles) and how they go about it (practices). There are strong similarities in the way chairs from various countries define the job itself and the way they go about it. Board leaders play three specific roles: engaging, enabling and encouraging, which we call “the 3Es of effective board leadership”. While these roles intertwine and reinforce each other, we have identified and classified specific practices that

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board chairs use to perform them individually. We also present typologies of chair–CEO and chair–shareholder relationships and supporting behaviours. The COVID-19 crisis put more stakeholder pressure on board chairs, increased their time commitment to the job, and forced them to move board meetings and other interactions online. It gave birth to new practices, such as informal exchanges with committee chairs via Teams or coaching sessions with exhausted board members over Zoom, but at the same time the general patterns have not changed—effective chairs proactively engage with shareholders, lead their boards, and collaborate with and mentor their CEOs. Chapters 2–15 describe in detail specific contexts for chairs’ work and their practices in 14 European countries—Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland, Turkey, Ukraine and the UK—identifying cross-country similarities and context-bound differences. Chapter 2 reveals that effective chairs of boards of directors in the UK are accomplished professionals with strong views, who lead the board without “taking up much space” and avoid the limelight. They engage directors in a collective effort, creating an environment for effective collaboration and encouraging productive behaviours by providing feedback and opportunities for collective and individual learning and development. They do not give orders or issue directives; instead they steer or nudge followers by setting agendas, framing discussion items, soliciting opinions and seeking and providing feedback. They delineate their spheres with the CEOs—“I run the board; you run the company”—and strive to strike a fine balance between “equal distancing” and proactivity in relationships with shareholders. During the COVID-19 crisis chairs of British boards demonstrated resilience, commitment and adaptability. They quickly moved their board meetings into an online format, increased the frequency of their interactions and adjusted their agendas. Chairs of UK companies also significantly increased their time commitment and made themselves available round the clock. At the same time, most of them steered their boards away from interfering with the management’s job. Chapter 3 uncovers the particularities of the chair’s work in the Netherlands, such as growth orientation and focus on building consensus (polderen). Board leaders make sure that value creation and business development are permanent fixtures on board agendas. They encourage CEOs

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to think big and to take reasonable risks, and when necessary help the business by working with customers, vendors and regulators. Chairs of Dutch companies use a variety of consensus-building strategies to prepare and make decisions that satisfy every director: equal treatment and equal allocation of airtime; proactive facilitation of discussions, involving silent directors and containing talkative types; and self-restraint. They do not mind pre-agreed schedules overrunning to achieve consensus and they reach out to board members before meetings to create common platforms and avoid surprises. Chapter 4 portrays board chairs from Switzerland as diligent professionals working for the long-term development of their companies and considering an effective board of directors as a core element of such development. Swiss board leaders describe themselves as “first among equals”, “shepherds”, “conductors” and “the link between the board and the CEO”. They plan for the long term, ensure quality of board materials, and combine discipline and freedom of expression during board discussions. They work proactively with shareholders and executives on behalf of the board and bring the information they gather back to the directors. Chapter 5 demonstrates that in Denmark board leaders operate as facilitators, striving for harmony and consensus—and effectiveness at the same time. They are informal, candid and accessible. They encourage everyone to speak their minds with vigour and determination, are not afraid of conflicting views and deal with disagreements in a proactive way. Board chairs work proactively with all stakeholders and, most importantly, shareholders, yet fiercely protect their independence and authority over board matters. Chapter 6 describes nuances in the work of board chairs in Sweden, a country with a high level of ownership concentration and strong traditions of consensus-based decision-making. Board chairs work towards longterm value creation, but also steer their boards and companies towards socially important issues, including sustainability, equality and employees’ health and well-being. Chairing board meetings is only the tip of the iceberg for leaders of Swedish boards, who do most of their work outside of the boardroom. They actively engage with owners and other stakeholders, serve as coaches for their boards and CEOs and constantly learn themselves. Chapter 7 shows that the prevailing governance philosophy in Norway emphasizes professionalism, fairness, independence, diversity and collaboration between all parties. Board chairs advance this collaboration by

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engaging with all those involved and respecting the boundaries between them. They make sure that the management creates value and that the board creates conditions enabling the management to do so effectively. In Norway chairs work hard to develop trust among their board members as a prerequisite for effective and efficient decision-making. They achieve this by being open themselves and instilling a spirit of openness at their boards, allowing every opinion to be heard and discussed and ensuring every request is addressed. Board leaders pay special attention to providing the board with adequate information in a timely and understandable manner. They are patient in managing board meetings, allow comprehensive and detailed discussions and strive for consensus. Chapter 8 demonstrates that in Finland a board chair is an important component of the governance ecosystem—not merely the most senior director with responsibility for the board’s effectiveness. Chairs see themselves as facilitators of collective discussions in the boardroom, which in turn lead to effective consensus-based decision making. Chairs bring directors into the game by reaching out before the meeting and focusing their attention at the opening. They ensure an adequate level of understanding in the boardroom by providing adequate materials and learning about the business on behalf of the board. They also provide time and create a safe space for collective discussions, as well as engaging the management and actively using technology. Chapter 9 describes the distinctive context for the work of a chair in Germany, which has a two-tier board system and, for large companies, mandatory employee representation on the supervisory board. Board leaders deal with these and other challenges by being very diligent with regard to the law and corporate governance guidelines, focusing the board’s work on a limited number of issues, maintaining order and discipline in the boardroom, and making specific efforts to reach out to employees’ representatives on the board. The COVID-19 pandemic increased the intensity of chairs’ work and their informal interactions with senior managers and board members. Board routines, however, stayed unchanged for most companies. Chapter 10 reveals that effective board chairs in France recognize the complex web of company stakeholders and the need to understand and balance their interests in order to ensure the long-term sustainable development of the company. Board leaders take on four principal roles: leading the board; interacting with the CEO and the management; representing the board in relationships with shareholders and stakeholders; and

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ensuring that the whole governance system functions properly. They are committed to their boards but keep a certain distance from their companies. They protect their own independence and the independence of their boards. They are patient with group decision-making and let the discussions flow. Yet they use authority when debates become dysfunctional. Effective chairs listen well, are modest and leave room for CEOs to shine in public. They combine a strategic mindset with good company knowledge but stay out of operational issues. They delegate the financial side of shareholder relationships to the management and concentrate on governance. Effective chairs support their CEOs by mentoring them, serving as their sounding boards, providing “air cover” and opening doors for them. Chapter 11 shows that board chairs in Italy operate under two types of constraints: law and tradition. While legal regulations define the role of a chair in a similar way to other European countries, Italian tradition emphasizes the functions of conflict resolution and communication. Thus board leaders not only organize the work of the board and ensure compliance, but also interact intensely with key stakeholders, often in informal settings. During the pandemic some Italian chairs played the role of “industry connectors”—they actively liaised with their counterparts from other companies, banks and regulators in order to learn about their responses to the crisis and bring this knowledge back to the board. Chapter 12 reveals that, in spite of the diversity of ownership structures in Spain, all effective board chairs serve as gatekeepers, setting and maintaining a shared vision and reconciling different shareholder and stakeholder interests with the goal of generating value for the company in the short, medium and long term. Maintaining ongoing and sometimes intense relationships with the most relevant stakeholders—especially shareholders, members of the board and the top management team— constitutes an important part of the board chair’s role. Board chairs engage the board as a group in collective reflection and decision-making. They avoid giving direct commands; instead they influence the board indirectly by setting meeting agendas, framing discussions and fostering debate. Chapter 13 tells the story of the emergence of a new profession— board chair—in the unique context of Ukraine, where informal governance practices often clash with formal regulations largely borrowed from developed European countries. In such an environment chairs’ effectiveness largely depends on their personal qualities, such as resilience to external pressure, knack for building trusting relationships, focus on

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innovation, lifelong learning, ability to consolidate diverse opinions and courage to play the role of a dedicated educator and reformer. Chapter 14 shows how globalization and tradition shape the working practices of board chairs in Turkey. Board leaders there pay a lot of attention to the social status of those they work with—board members, shareholders and executives. They maintain a focus on performance and relationships, rely heavily on social contacts and informal relations to get things done and place a high value on social events such as dinners, outings and conferences. At the same time, chairs take on the role of facilitators and mentors vis-à-vis their boards and their members. Chapter 15 is dedicated to board chairs in Russia, where relationships are more important than institutions. It depicts board leaders as pragmatists working both within institutional and informal contexts to get their job done. They balance authoritative and facilitating modes of operating, and use a range of practices from “traditional” conversations behind closed doors to “modernist” coaching sessions with directors. Chairs in Russia work proactively with significant shareholders, whom they often consider to be their ultimate masters. Engagement with CEOs is also high on their agenda, but it takes various forms—from dominant mentoring to advising—depending on the social status of the parties involved and their relationship to ownership. Chapter 16 synthesizes the findings presented in the previous 14 chapters on individual countries. We highlight five of the most common practices of European board chairs, identify six potential traps a European chair should be aware of and describe five personal attributes that make a chair effective in the European context. We conclude the chapter by presenting one highly original chair practice from each of the 14 countries. Chapter 17 offers the research team’s view on how the chair’s role and function in Europe will evolve in the next decade. The changes will be evolutionary rather than revolutionary, but their impact will be felt across multiple dimensions. In ten years there will be (a few) more female chairs in European companies than there are today and the average age of the chair will fall (slightly). “Celebrity chairs”—people chairing many boards thanks to their personal prestige—will disappear. External pressures on chairs will increase and their work will intensify. Technology will actively move into the boardrooms of Europe and become one of the main tools of the chair’s trade.

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We tried to write this book in a reader-friendly way, keeping in mind business practitioners as our main target audience. For those with an interest or background in research, we include a description of our methodology and processes in a separate appendix. We also list a bibliography at the end of each chapter. There are different ways to read this book. “Traditional” readers may go through all the chapters in order. “Busy” readers may limit their efforts to Chapter 1, which summarizes our research and the theory on which it was built, and Chapter 17, which synthesizes our findings and predictions—and their practical implications. People interested in a particular country may read just the corresponding section of the book. Indeed, Chapters 2–15 are each designed to be stand-alone. To further assist the busy reader, the chair practices identified in this research—matched with the challenges that emerged from the INSEAD Global Chair Survey—are listed in Appendix 2. This is the essential guidebook for new and seasoned chairs, as well as for directors, shareholders and executives who want to understand how board leaders operate and how to interact with them more effectively. This book will also help regulators, educators, corporate governance scholars and experts to develop unique insights into the work and mindset of a board chair. Stanislav Shekshnia, Fontainebleau, France Veronika Zagieva, Moscow, Russia

References OECD (2020). OECD economic outlook, 2020 (2). Available from: https:// www.oecd-ilibrary.org/economics/oecd-economic-outlook/volume-2020/ issue-2_39a88ab1-en Accessed 1 Dec 2020. OECD (2020). OECD employment outlook 2020. Available from: https:// www.oecd-ilibrary.org/employment/oecd-employment-outlook-2020_1686 c758-en Accessed 1 Dec 2020. World Health Organization. (2020). WHO coronavirus disease (COVID-19) dashboard. Available from: https://covid19.who.int/ Accessed 1 Dec 2020.

Contents

1

Work of a Chair in Europe: Context, Content and Evolution Stanislav Shekshnia and Veronika Zagieva

2

The United Kingdom: Indirect Leadership Stanislav Shekshnia

3

The Netherlands: Nudging Towards a Consensus Mik van den Noort

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Switzerland: Diplomacy and Diversity Rolf Frey

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Denmark: Attentive Master of the Boardroom Steen Buchreitz Jensen and Stanislav Shekshnia

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Sweden: Proactive Chairs Engaging Stakeholders Liselotte Engstam

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Norway: Guardians of Trust Steen Buchreitz Jensen

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Finland: Powerful Downplay Stanislav Shekshnia

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CONTENTS

Smooth Operator: The Chair as the Drive Belt of the German Governance System Elena Denisova-Schmidt and Peter Firnhaber

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Chairs in France: Conducting a Grand Orchestra Stanislav Shekshnia and Bertrand Richard

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Italy: Alignment for Effectiveness Anna Zanardi and Veronika Zagieva

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Spain: From Honoured Authorities to Articulators of Expectations Carlos Losada and Yuliya Ponomareva

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Ukraine: Navigating the Maze Kateryna Timonkina

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Turkey: Between Traditional and Modern Leadership Hande Ya¸sargil and Elena Denisova-Schmidt

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Russia: Powerful Moderation Ekaterina Ryasentseva and Veronika Zagieva

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“Top Fives” of Chairing a Board in Europe Stanislav Shekshnia and Veronika Zagieva

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The Future Role of the Chair in Europe Filipe Morais and Andrew Kakabadse

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Appendix A: Research Methodology and Data Collection

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Appendix B: Chairs’ Challenges and Practices

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Index

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Notes on Contributors

Elena Denisova-Schmidt is a Research Associate at the University of St. Gallen (Switzerland) and Research Fellow at the Boston College Center for International Higher Education (USA). Previously, she held appointments at the Humboldt University of Berlin, the Kennan Institute of the Woodrow Wilson International Center for Scholars, the German Institute for International and Security Affairs, the UCL School of Slavonic and East European Studies, the Edmond J. Safra Center for Ethics at Harvard University and the Aleksanteri Institute of the University of Helsinki. Before moving into academia, Elena Denisova-Schmidt worked for the VSMPO-AVISMA Corporation in Russia.2 Liselotte Engstam is a non-executive chair and board member at listed and private companies, with a background in international leadership positions in the technology industry. She serves on the INSEAD Directors Network Board and as advisor to European Commission on digitalization and corporate governance. As the founder of Digoshen, with an international board network, she develops chairs and board members. She engages in academic research on boards’ leadership of innovation and AI and is a co-author of the book AI Leadership for Boards. She is a fellow

2 This book is a product of a collective effort and we wish to present and to thank our

co-authors.

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at the Institute of Coaching, Harvard Medical School, has an MSc in Engineering and Sustainability and is certified IDP-C by INSEAD. Peter Firnhaber is an executive coach, team coach and coaching supervisor. He is part of the coaching faculty of INSEAD, IMD, LBS, ESMT and ESCP. For 15 years he has worked with senior executives from all functions within private and public companies, governments and NGOs and from all continents. Peter’s business education includes a B.Sc. in Marketing and an M.B.A. from INSEAD. He is also an alumnus of the Tavistock Institute’s Leicester Conference. Rolf Frey is a Managing Partner of Dominé & Partners, a Swiss-based international leadership consultancy firm advising executive teams and boards. He is a member of the coaching faculty at IMD Business School in Singapore and Switzerland and at the European School of Management and Technology (ESMT) in Berlin. Rolf is also Chair of a company offering cloud-based personal leadership development for professionals and teams. Rolf holds a Master of Science in Consulting and Coaching for Change from HEC Paris and the University of Oxford. Steen Buchreitz Jensen is the CEO and an owner of the Scandinavian Executive Institute. He worked for over 25 years as a senior executive in FMCG and fashion companies. He has served as a board member or chair for several organizations and has supported business transformations in his board capacity and as an independent consultant. Andrew Kakabadse joined Henley Business School in July 2013 after 30 years at Cranfield School of Management, where he finished as Professor of International Management Development and was awarded the honour of Emeritus Professor. He was also Vice-Chancellor of the International Academy of Management and Chairman of the Division of Occupational Psychology, British Psychological Society. His current areas of interest focus on improving the performance of top executives, top executive teams and boards, excellence in consultancy practice, leadership, corporate governance, conflict resolution and international relations. Carlos Losada is an Associate Professor in the Department of Strategy and General Management at ESADE and an academic member of ESADE Corporate Governance Center. He has served on more than 15 different boards in Spain (GNF/Naturgy, Clickair/Vueling and others), France (SFN), Netherlands (Innoenergy) and Argentina (Fundación para el

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progreso economico y social). He was also Director General of ESADE, where he teaches strategy, leadership and corporate governance. He has published both academic and professional articles in these fields. Filipe Morais is a Lecturer in Governance at Henley Business School and Director of the M.Sc. in Management for Future Leaders. He is coauthor of the book The Independent Director in Society, with Gerry Brown and Andrew Kakabadse. His research interests include board governance, performance of top teams, CEO and chair leadership, strategic change, ESG and shareholder engagement. Filipe’s research has been published as book chapters, articles and case studies, and presented at prestigious academic and practitioner conferences. Filipe spent 10 years as an HR professional for a variety of multinational firms. Mik van den Noort is an executive coach and team facilitator with a private practice in the Netherlands. She began her career in the legal business, aviation and publishing. As a partner at KPMG she set up its coaching company in the Netherlands, which she continued working with independently on leaving KPMG in 2004. Her clients include international companies and family organizations in publishing, aviation, retail, finance, energy, transport and biotechnology, as well as professional firms in the fields of strategic consulting, tax and law. She regularly works for INSEAD (Fontainebleau and Singapore) and for the Kets de Vries Institute (Paris and London). Her educational qualifications include an Executive Master of Coaching and Consulting for Change from INSEAD. Yulia Ponomareva is a Lecturer in the Department of Business at Universitat Autònoma de Barcelona. She earned her Ph.D. in Management from Linnaeus University in Sweden. Yuliya’s research interests include boards of directors, top management teams and ownership. She teaches courses on corporate governance in Bachelor’s, Master’s and M.B.A. programmes and has co-authored several teaching cases. Yuliya is an associate editor for SN Business & Economics and serves as an ad hoc reviewer for several other leading management journals. Bertrand Richard co-led the European board practice of a leading global executive search company Spencer Stuart, drawing on 30 years of headhunting expertise and 10 years of experience in the financial services industry. He now serves as a senior advisor for several firms. He is the author of two books on governance and graduated from ESSEC business school and IHEDN (Institute for Higher National Defence Studies).

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He also has a postgraduate qualification in economics from Sorbonne University. Ekaterina Ryasentseva is Head of Leadership Development at Ward Howell in Moscow. She is responsible for a wide range of consultancy projects: from corporate culture transformations and corporate governance to team and individual effectiveness. As an associate executive coach at INSEAD’s Global Leadership Centre, she works with top management across various industry sectors for both Russian and multinational clients. Stanislav Shekshnia is a Professor of Entrepreneurship at INSEAD, a Director of the “Leading from the Chair” executive development programme and a senior partner at Ward Howell. His research concentrates on leadership, leadership development and effective governance in regions and organizations. Kateryna Timonkina is an international executive coach at INSEAD. She is a Certified Executive and Organizational Coach with Columbia University and Marshall Goldsmith Stakeholder Centered Coaching Programmes. Kateryna is a bilingual coach with 14 years of experience in leadership development, stakeholder alignment and career transition for executives globally. She holds an MBA degree from the University of Glasgow, UK, and a BA in International Business from the University of San Francisco, USA. Kateryna served as a board member at ICF Ukraine. She is a fellow at IOC, Harvard and a member of the Columbia Coaching Learning Association. Hande Ya¸sargil is a partner at The Alexander Partnership in London and founding partner at Mentor Leadership Development in Istanbul. She is the Lead Coach of the International Directors Programme at INSEAD. She is also the founding chairperson of the Women on Boards Association of Turkey. Hande holds a B.A. in Psychology. She also has an Executive Masters from INSEAD in Coaching and Consulting and a certificate from the Tavistock Institute in Dynamics at Board Level. Veronika Zagieva is a Director of Ward Howell Talent Equity Institute, an internal research and development division of the Ward Howell Group. Her research is focused on leadership development, CEO effectiveness, CEO succession and board dynamics. As a corporate governance consultant, she also works with Russian boards of directors across various industry sectors.

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Anna Zanardi is a Board Advisor for several boards of directors of listed and unlisted companies. She also acts as an executive coach to the chairs and directors in their decision-making processes. Anna is a board member for both a charity and a Zurich Stock Exchange-listed multinational company.

List of Figures

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Context for the chair’s work Roles of chairs in the European context Chair–shareholder relations: strongest impact factors UK Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs]) The Netherlands Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs]) Switzerland Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs]) Denmark Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs]) Sweden Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs]) “Word Cloud” created from interview transcripts

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LIST OF FIGURES

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Fig. 15.1

Fig. 15.2

Norway Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs]) Finland Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs]) Germany Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs]) France Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs]) Italy Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs]) Spain Culture Map (Source Based on the work of INSEAD Professor Erin Meyer and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs]) Ukraine Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs]) Turkey Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs]) Russia Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs]) Chair–CEO relationship matrix

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318

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Table 5.1 Table 12.1

Chairs’ practices for interacting with active shareholders Spanish chairs: strategies and practices

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CHAPTER 1

Work of a Chair in Europe: Context, Content and Evolution Stanislav Shekshnia and Veronika Zagieva

A Brief History of Chairing the Board in Europe Some forms of boards of directors existed in Europe as early as the Middle Ages1 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 1 Cawston, G. and Keane, A.H. (1968). Early Chartered Companies: A.D. 1296–1858. New York: B. Franklin, p. 15. 2 In some sources—218. 3 Cawston, G. and Keane, A.H. (1968). Early Chartered Companies: A.D. 1296–1858. New York: B. Franklin, pp. 86–87.

S. Shekshnia (B) INSEAD, Fontainebleau, France V. Zagieva Ward Howell Talent Equity Institute, Moscow, Russia © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_1

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into the East Indies”, known later as the 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 the 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 versus non-executive directors) and may or may not have a financial interest in it (affiliated versus 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 members 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, etc. 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 4 Gevurtz, F. (2004). The European Origins and the Spread of the Corporate Board of Directors. Stetson Law Review, 33, pp. 925–954. 5 Bezemer, P., Peij, S., Maassen, G. and van Halder, H. (2010). The Changing Role of the Supervisory Board Chairman: The Case of the Netherlands (1997–2007). Journal of Management and Governance, 16(1), pp. 37–55; Garratt, B. (1999). Developing Effective

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Fig. 1.1 Context for the chair’s work

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 (see Fig. 1.1) inspired by the work of Professor Alena Ledeneva and her colleagues, and informed by the respondents in our research project.6 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

Directors and Building Dynamic Boards. Long Range Planning, 32, pp. 28–35; Furr, R. and Furr, L. (2005). Is Your Chairman a Leader? The Corporate Board, 26(154), pp. 11–15. 6 See INFORM: Closing the Gap between Formal and Informal Institutions in the Balkans. Available from: http://www.formalinformal.eu [Accessed 1 December 2020].

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(directly and indirectly). In addition to stiffer regulations, respondents emphasized the following trends: • • • •

More More More More

public scrutiny transparency for the company, the board and the chair accountability for boards and chairs 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 Sweden’s—are more elaborate on the subject. The underlining message is: the chair has to provide leadership for the board. According to the UK Corporate Governance Code: “The chair leads the board and is responsible for its overall effectiveness in directing the company”.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 and guiding the company secretary. In summary, national codes define the chair as the leader of the board, leaving to the incumbents, their boards

7 Financial Reporting Council (2018). The UK Corporate Governance Code. Available from: https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f4806 9a2/2018-UK-Corporate-Governance-Code-FINAL.pdf [Accessed 1 December 2020].

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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 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 a 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 meals in restaurants. The macro context has a significant impact on the work of a chair. Such factors as the state of the economy, the political situation and social

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tensions influence the strategies and the practices of board leaders. 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 2020 the COVID-19 pandemic became the factor that shaped the work of board chairs in all European countries. It disrupted the context for chairs’ work, presenting extraordinary medical, economic and moral challenges to their boards. It undermined the traditional ways in which chairs conducted their business by making face-to-face meetings impossible. It created unprecedented levels of uncertainty for boards and their leaders. It sent European economies plummeting and put survival on the agendas of many corporate boards. Chairs intensified their work, moved board meetings online, expanded or contracted their agendas and increased the speed of interactions with key counterparts—directors and CEOs. As one respondent put it: “The role of a chair was suddenly to understand how we think about ourselves in these circumstances – what we need to change, how to develop working processes, how to make sure that they will last till the pandemic is over”. Technology, and especially digital technology, is a permanent factor impacting the work of board chairs in Europe. One UK chair explained: 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. 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.

The pandemic accelerated digital transformation in the boardroom. As one respondent from Finland put it: “Online board meetings have become the new normal. They will not disappear with the virus. Running them is a special skill every chair needs to develop”. Another macro factor influencing the work of the chair is the changing public agenda. COVID-19 made employees and customers’ health and safety top concerns for boards and their leaders. Public interest in sustainability also translates into boardroom discussion. As one chair from Sweden said: “We simply cannot ignore sustainability when the whole of society is concerned with it. I have no choice whether to put it or not put it on the board’s agenda”.

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The micro context of the chair’s work is largely defined by the characteristics of the company, the composition of the board and the incumbent chair (see Fig. 1.1). Company characteristics include the type of ownership, lifecycle stage (startup, initial growth, maturity, decline or revival), size and financial health. We found that company characteristics have a stronger differentiating impact on what chairs do than national or cultural differences. Both in public companies with multiple shareholders and in private companies with a small number of shareholders, the relationship with shareholders is a priority for the chair. However, the goals and supporting practices may vary. In private companies chairs may proactively seek shareholders’ views, engage them in dialogue about the business, invite them to attend some board meetings or have them meet with directors informally. One chair from Denmark has developed a questionnaire to gauge shareholders expectations on a range of issues from dividends to company values. He interviews shareholders annually and feeds the information back to the board. Chairs in Sweden use the meetings of nomination committees as venues to discuss the broad range of issues with major shareholders, who usually are members of the latter. At the same time, chairs of companies with reference shareholders make special efforts “to keep them out of the boardroom” (as a chair from Denmark put it) and to separate “shareholders ’ meetings from board meetings ” (a chair from Russia). In public companies with dispersed ownership, chairs strive for equal treatment of shareholders and pay a lot of attention to respecting regulations. Direct proactive communication with a particular shareholder is the exception rather than the rule in most of the countries we studied. However, chairs generally try to be responsive when shareholders require their attention. At private equity-owned companies chairs often consider themselves “members of a team”, consisting of an investment manager, CEO and the chair, and act towards shareholders accordingly. At companies in the earlier stages of development with relatively inexperienced senior managers, chairs usually make sure their boards are involved in developing strategy, raising funds and mitigating operational risks. One experienced director from Italy, who serves on boards of both public companies and startups explained: “In a startup board all boundaries are blurred. The chair drives an agenda, but he is equal to other directors, while in a public board, the chair should have authority and stand apart ”. In large mature organizations leaders tend to steer boards

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towards controlling and advisory functions. Compliance also sits high on their agendas. In family businesses, chairs pay special attention to nurturing relationships with family members of various generations, often doing more than the book prescribes. Examples include: discussing long-term business and shareholders’ strategy (Denmark, Netherlands, Sweden, Switzerland); fostering harmony between family, other shareholders, board and management (Finland, Netherlands, Spain); defining and selecting board members (Norway, Sweden, Switzerland, Ukraine); advising on talent development (Denmark, Finland, Sweden); and mentoring family members (Denmark, Finland, Spain, Turkey, Ukraine). Such characteristics of a board as its size and composition (presence of executive and non-executive directors, membership of shareholders or their representatives, inclusion of directors with high social status and differing skill sets of directors) also impact a chair’s practices. However, we found no significant effect of such factors as presence or absence of female directors. In companies with larger boards (more than 10 members), chairs often try to shift analytical work to committees. They work thoroughly on meeting agendas, carefully monitor timing and restrict individual directors’ airtime. Chairs of smaller boards allow for more freedom of expression and may tolerate—or even encourage—unstructured spontaneous discussions, sometimes adding more items to the agenda during meetings. In the case of boards with both executive and non-executive directors, many chairs either start or finish regular board meetings with in-camera sessions for non-executives only (Netherlands, Russia, UK, Ukraine). Some chairs also organize informal meetings for non-executive directors only (Netherlands, Denmark, UK). Sometimes consciously and sometimes unconsciously, chairs pay special attention to VIP board members: shareholders, their representatives or people with a special social status, such as high-ranked government officials, politicians or prominent businessmen. These “celebrities” may get more airtime. They may also be consulted before and during the board meeting, or asked to open or close a discussion. This tendency is more pronounced in cultures with high power distance, such as Italy, Russia, Spain, Turkey and Ukraine. Chair practices may be affected by the financial health of a company. Board leaders do not significantly change their board routine if decline in

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corporate performance is gradual, but a sudden plunge or unusual event leads to an increased intensity of their involvement and interaction with directors and the CEO. At the same time, effective chairs are conscious that they should not overshadow the CEO even at times of crisis. As one Russian chair put it: “In this situation [a crisis] I supported the CEO, because I believed he could manage it – he just needed time. As chair I could take responsibility and try to fix it, but I was not sure it would be a smart decision”. In some situations, the CEO and chair divide their responsibilities. While the CEO focuses inwards, the chair covers the “outward perimeter”, talking with regulators, suppliers, creditors and the media. However, the majority of chairs try to avoid publicity. One Swiss chair describes the responsibility of chair as “to be seen more in the office than in the newspaper”. The poor financial health of a company leads to more intense communication with not only majority but also minority shareholders: regular calls, pre-board meetings and even brainstorming sessions help not only to calm their worries, but also to solicit support and advice. As one Italian director said: “Some of these formal procedures can be cumbersome and time consuming, especially when your company is in crisis , but a chair must take to them like a duck to water”. We found that certain variables—like the incumbent chair’s relationship to the company’s owners, prior experience as a CEO, professional background and social status—can result in somewhat different practices. These findings correlate with previous research on sources of power and corresponding practices of board leaders.8 Chairs with relatively high power resulting from ownership (whether their own significant shareholding or a close relationship with major shareholders), previous CEO experience, industry expertise or high social status tend to be more assertive in chairing the board than those who lack such advantages. We term these, respectively: ownership power; structural power; expert power; and prestige power. These “powerful” chairs usually set the boards’ agendas themselves, actively interact with CEOs and other executives by mentoring and even managing them, and communicate widely with external stakeholders. In 8 McNulty, T., Pettigrew, A., Jobome, G. and Morris, C. (2011). The Role, Power and Influence of Company Chairs. Journal of Management and Governance, 15, pp. 91–121; Pettigrew, A. and McNulty, T. (1995). Power and Influence in and around Boardroom. Human Relations, 48, pp. 845–873.

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the boardroom they often take centre stage and do not hesitate to speak their mind, proposing decisions and defending them robustly. Chairs “without power” operate in a more facilitating mode. They collaborate with CEOs and committee chairs to develop board agendas and leave external communication to senior managers. At the same time, we noted that effective chairs who lack all of the four traditional sources of power develop their own form of power over time. They gain respect and followership from directors by professionally exercising their role of a chair. One director from Russia told us: In one of my boards we have three shareholders , two industry experts and two high-profile businessmen. They all respect and follow our chair, who has no stake in the company, has never worked in the industry, is not a billionaire, but really knows how to run a board.

The Three Main Roles of the Chair The academic literature on chairing a board is limited. Most publications are based on theoretical concepts and secondary sources rather than field research. Some authors emphasize the procedural aspects of the chair’s work—setting board agendas, supplying directors with relevant information, conducting board and shareholder meetings, organizing periodical board evaluations—thus reducing the role to that of a senior moderator.9 At the other end of the spectrum, scholars highlight the leadership responsibilities of the chair, who acts as the guardian of the values of the firm and maintains the highest standards of integrity among directors and executives.10 A few scholars who examine what chairs actually do portray them as board leaders playing a number of specific roles. Earlier studies emphasize: managing the CEO and senior executives; integrating, developing

9 Bezemer, P., Peij, S., Maassen, G. and van Halder, H. (2010). The Changing Role of the Supervisory Board Chairman: The Case of the Netherlands (1997–2007). Journal of Management and Governance, 16(1), pp. 37–55; McNulty, T. and Pettigrew, A. (1999). Strategists on the Board. Organization Studies, 20(1), pp. 47–74. 10 Higgs, D. (2003). Review of the Role and Effectiveness of Non-Executive Directors. Available from: http://www.ecgi.org/codes/documents/higgs.pdf [Accessed 1 December 2020]; Hossack, R. (2006). Together at the Top: the Critical Relationship between the Chairman and the CEO. Ivey Business Journal, Jan/Feb, pp. 1–4.

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and supervising directors; and representing the company externally.11 Later researchers focus on what chairs do to maximize the collective decision-making power of the board.12 Today there is a consensus among academics that the work of a chair is to lead the board. However, what this leadership entails remains a subject of a debate. This situation is perhaps best summed up by one of the founding fathers of the contemporary corporate governance movement in the UK, the late Sir Adrian Cadbury. He was head of the commission that issued the famous “Cadbury Report” 13 in 1992 on best practice in corporate governance and long-term chair of Cadbury Schweppes. His view was: “The role of a chairman is a personal one. Chairmen have to decide what they are going to do for their boards and for their board colleagues ”.14 As we indicated earlier, personality plays a part in how chairs go about executing their role. However, in all the countries that we studied, we found that incumbent chairs define their role in a similar way. Two types of board chairs dominate the European board landscape: owners or their representatives, whom we call chair-principals; and independents with no significant stake in the company or special relationships with the owners, whom we call professional chairs. Both types agree that the work of the chair consists primarily of interacting with the board, shareholders and CEO/senior management. These three groups of stakeholders take up the majority of the chair’s time, energy and emotion, and to a large 11 Stewart, R. (1991). Chairman and Chief Executive: An Exploration of Their Relationship. Journal of Management Study, 28(5), pp. 511–527; Garratt, B. (1999). Developing Effective Directors and Building Effective Boards. Long Range Planning, 32(1), pp. 28– 35; Roberts, J. (2002). Building the Complementary Board: The Work of the PLC Chairman. Long Range Planning, 35(5), pp. 493–520. 12 Kakabadse, N., Knyght, R. and Kakabadse, A. (2013). High-Performing Chairmen: The Older the Better. In: A. Kakabadse and L. van den Berghe, ed., How to Make Boards Work. London: Palgrave, pp. 342–349; Kakabadse, A. and Kakabadse, N. (2008). Leading the Board: The Six Disciplines of World Class Chairman. London: Palgrave; Nahum, N. and Carmeli, A. (2020). Leadership Style in a Board of Directors: Implications of Involvement in the Strategic Decision-Making Process. Journal of Management and Governance, 24, pp. 199–227; Veltrop D., Bezemer, P., Nicholson G. and Pugliese A. (2020). Too Unsafe to Monitor? How Board–CEO Cognitive Conflict and Chair Leadership Shape Outside Director Monitoring. Academy of Management Journal (in press). 13 The Committee on the Financial Aspects of Corporate Governance (1992). Report of the Committee on the Financial Aspects of Corporate Governance. London: Gee and Co. 14 Cadbury, A. (2002). Corporate Governance and Chairmanship: A Personal View. London: Oxford University Press.

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Fig. 1.2 Roles of chairs in the European context

degree define the complexity of the job. In some countries chairs’ interaction extends to stakeholders other than shareholders. In addition, chairs in Europe, especially chair-principals, take on some auxiliary functions, such as: speaking on the company’s behalf; interacting with regulators, key customers or vendors; and mentoring executives or high-potentials. The extent of these duties varies from chair to chair and is largely defined by the contextual factors presented in Fig. 1.1. In the remaining part of this chapter we will concentrate on the three core roles of European chairs (Fig. 1.2). Leading the Board A good chair, as respondents from all countries largely agreed, provides effective leadership not for the company but for the board, enabling it to function as the highest decision-making body in the organization. As one respondent put it: “The chair is responsible for and represents the board, while the CEO is responsible for and is the public face of the company”. This

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is an important distinction, which makes being the chair a very different job from being the CEO. Eighty-five per cent of the chairs in our survey had been CEOs at some point in their career, yet they emphasized that leading a board requires a different mindset and a distinct set of skills. CEOs thrive by setting a vision, making bold moves, appointing people, giving them specific orders, assuming responsibility and setting an example. They are the stars of the show. Chairs operate in a different context, which requires a different mode of leadership. Boards are very special social groups—their members are mature, accomplished professionals with multiple affiliations and often full-time jobs somewhere else.15 They meet infrequently, spend little time together and yet have to make decisions that will determine the fate of the company for years to come.16 Their leader has to maximize the return on the limited time they are able to invest in the company. Moreover, he or she must do so without having access to such traditional CEO tools as: hiring and firing; offering compensation or promotion as an incentive; organizing team-building sessions; allocating investment budgets; or bringing in an executive coach. Effective chairs do not try to make their boards operate like teams, but rather master what Harvard Business School Professor Amy Edmondson calls “teaming”—effective collaboration among professionals without forming traditional teams. This implies creating the conditions for collaboration to emerge naturally whenever the group convenes. Lorsch has identified the “chairman’s ability” to nurture dialogue among all board members as the key success factor.17 We found that this ability translates into three distinct functions: engaging, enabling and encouraging. Hence our term: 3E-leadership. Engaging board members. In most cases, board members are highly capable individuals selected for their knowledge, experience and decisionmaking skills. Yet they are often physically detached from the company,

15 Hillman, A., Nicholson, G. and Shropshire, C. (2008). Directors’ Multiple Identities, Identification, and Board Monitoring and Resource Provision. Organization Science, 19(3), pp. 441–456. 16 Barroso-Castro, C., Villegas-Periñan, M. and Dominguez, M. (2017). Board Members’ Contribution to Strategy: The Mediating Role of Board Internal Processes. European Research on Management and Business Economics, 23(2), pp. 82–89. 17 Lorsch, J.W. and Zelleke, A. (2005). The Chairman’s Job Description. Directors and Boards, 30(1), pp. 28–32.

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have many issues on their plates and experience multiple demands on their time. Bringing their attention to the concerns of a specific company is not an easy task and experienced chairs recognize this well. As one respondent put it: “You need to make sure they are physically there, they are emotionally engaged, they know what we are talking about, and they put their brains to collective work”. Directors need to be engaged from the beginning to the end of every board meeting, but also stay connected to the company in between board meetings. As one chair explained: “I call my directors every five to six weeks just to remind them they are on this particular board and the next meeting is coming ”. The study uncovered a multitude of specific practices used by chairs to keep directors engaged from WhatsApp messages to one-to-one dinners, which all serve as gentle reminders about their duties. Engagement within the boardroom comes from fair allocation of airtime, personal attention to each director, dynamism in discussions and effective handling of “rogue” board members. COVID-19-imposed restrictions made many traditional practices of engagement obsolete, as physical meetings became impossible. However, the importance of keeping directors engaged only increased in the face of anxiety, stress and fatigue. Board leaders had to expand the use of such practices as personal phone and video calls. They also adopted new practices such as increasing the frequency of board meetings while reducing their length and organizing informal coffee meetings for directors before or between board meetings. One chair sends board materials to directors four days before the meeting and asks them to come back within two days not only with clarifying questions but also with specific themes they would like to discuss within each agenda item. Many chairs offered informal mentoring and counselling to help their directors to stay engaged. Some chairs started virtual board meetings by asking each director to answer questions like “How do you feel at the moment ?” and “What would you like to share with the board?” Enabling board members is about creating a productive working environment for board discussions; removing informational and psychological barriers; and supporting each board member and the group as a whole. It requires pre-meeting, in-meeting and post-meeting work that goes far beyond merely facilitating discussions. Effective chairs fulfil their enabling function by carefully selecting items for the board’s agenda. As one respondent put it, “It has to be strategic, material, ripe for decision and no one else in the company can decide on it ”. COVID-19 added such items as “employees’ and customers’ health and well-being ” and

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“business resilience”—highly unusual for most companies. The pandemic also increased boards’ attention to sustainability, social corporate responsibility and digital technology. As one chair-respondent put it: “We have asked management to align all development and innovation efforts to our sustainability goals ”. Board leaders must also allocate enough time for each item and keep board meetings reasonably short, as well as: providing crisp, concise and readable materials in advance; framing discussion questions, facilitating productive discussions and articulating decisions; quickly providing detailed minutes after the event and ensuring effective follow-up; and informing directors about important developments at the company. One respondent summarized it this way: I have enormous power without having any material resources. By controlling what goes onto the agenda, how the discussion question is framed, who gets to speak first, I can make a huge difference to the outcome. I have to use this power wisely for the benefit of the board.

The lockdown and travel restrictions have forced chairs to move board meetings online and rethink their enabling strategies. The transition was swift for most chairs and boards in Europe. In general chairs have made online meetings shorter, limited time for individual directors’ interventions and insisted on better preparation. More preparatory work has been done outside board meetings through one-to-one or small group conversations. Some meetings are spread over a few days. New board rules have emerged, such as keeping the video on throughout the meeting, banning phones, limiting time for management presentations and directors’ contributions. Some chairs even turn off the mikes of talkative directors. One chair uses digital polls to facilitate online discussions. Chairs have also had to deal with a lack of health, safety and epidemiology expertise among board members. Board leaders have reacted by inviting external experts to virtual board meetings; creating COVID-19 subcommittees charged with the task of acquiring relevant knowledge and sharing it with the rest of the board; and organizing online seminars for board members. Many chairs are immersing themselves in the subject. Encouraging board members involves keeping them motivated and productive by providing feedback; creating opportunities for reflection and learning; and making them feel important, impactful and appreciated. One respondent explained:

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These people [directors] rarely get feedback – they are successful high-powered individuals, but it does not mean they don’t need a slap on the back or a word of encouragement. I regularly let them know how I value their contribution and how they could make it even more valuable.

Helping directors to learn has become an important part of a board leader’s job. As one chair from Finland explained: “Since I am more involved with the company than other directors, I know what they need to learn and I try to help them with acquiring this knowledge”. Chairs organize seminars for their boards, take directors on field trips and invite analysts, investment bankers or brokers to speak at meetings. One board leader assigns specific subjects such as “talent management ” or “Ireland” to directors and asks them to make a deep dive in order to enlighten the rest of the board. Chairs also act as educators for their directors by sharing both conceptual and practical knowledge during board and committee meetings, thematical seminars or informal one-to-one meetings. One chair from Ukraine organizes breakfast for members of his boards and uses them to spread his ideas on sound corporate governance. During the pandemic effective chairs doubled their efforts to support directors who experienced uncertainty, anxiety and high levels of stress— and added an element of health protection element to their list of “encouragement” duties. One chair explained: “I feel it is my responsibility to look after the health of board members. I introduced some simple measures to keep them safe and sane. I also increased the frequency of one-to-one interactions to show my empathy and support ”. Today chairs spend more time in personal conversations with board members, show empathy and care, organize informal get-togethers online and conduct board reflection sections at the end of each virtual meeting. Technology plays its role. Some chairs have introduced express digital evaluation at the end of each meeting, whereby each director rates the quality of discussion and decisions, as well as the level of engagement and quality of contribution of each board member. The anonymized data is available immediately and serves as an input to the reflection session. While the functions of engaging, enabling and encouraging intertwine and reinforce each other, our research uncovered specific practices that board chairs use to perform each of them. We will present these in the chapters that follow.

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Relationships with the CEO and Management The CEO (along with in some cases other senior executives) is an important counterpart of the chair. In the European countries we studied, the law or corporate governance guidelines oblige board leaders to maintain productive working relationships with their chief executives to communicate with them and to provide advice and feedback. Some countries go further: board chairs are expected to mentor and develop the CEO. Earlier academic studies emphasize chair–CEO complementarity, partnership and the need to draw a line between what each of them does for the company.18 According to Higgs, the chair should not seek executive responsibility and should let the chief executive take credit for his or her achievements. The chair can be an informed, experienced and trusted partner, the source of counsel and challenge designed to support the chief executive’s performance. However, the chair must not get in the way of other non-executive directors questioning the chief executive.19 Drawing a line between the work of the chair and that of the CEO was essential in the context of the transition from combined to separate positions, which started in the UK and other European countries in the 1990s and has largely become standard practice everywhere in Europe, except France. Our study found chair–CEO interaction to be intense, complex and more nuanced than is prescribed by the regulations. These relationships are shaped by contextual factors: the chair and CEO’s respective relationship to the company’s owners; their previous experience; the personalities of both individuals; and societal norms. Nevertheless, we have identified several “archetypes” of chair–CEO relationships. Collaboration. This is a close, intense and well-structured interaction between professionals with equal status and shared goals. Chairs and CEOs work together on issues requiring cooperation, such as board agendas, format of board materials and communication with external stakeholders. They let the other parties play their role independently but support, challenge and advise each other when required. Some respondents’ quotes illustrate this type of relationship: “We set every board 18 Parker, H. (1990). The Company Chairman—His Role and Responsibilities. Long Range Planning, 23(4), pp. 35–43; Stewart, R. (1991). Chairman and Chief Executive: An Exploration of Their Relationship. Journal of Management Study, 28(5), pp. 511–527. 19 Higgs, D. (2003). Review of the Role and Effectiveness of Non-Executive Directors. Available from: http://www.ecgi.org/codes/documents/higgs.pdf [Accessed 1 December 2020].

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meeting agenda together” (Netherlands); “a dialogue of equals, who have their specific roles in the company” (Finland). We found that collaboration prevails in relationships between chairs and CEOs who have no significant stake in the company, similar social status and no history of superior–subordinate interaction. “Collaborating” chairs usually have no other major commitments and have not been CEO of the company. This type of chair–CEO relationship is typical for professional CEOs and professional chairs (not shareholders) and in countries with low-context and low-power-distance cultures: Denmark, the Netherlands, Norway, Sweden and Switzerland. Cohabitation. The name for this archetype comes from the French governing practice of cohabitation, whereby a rightwing president may coexist with a left-wing parliamentary majority—and vice versa. In the corporate world it implies that the chair and the CEO work independently towards goals defined by each of them separately. They interact rarely and formally, with cooperation limited to the regulatory minimum. Here are some quotes from our interviews: “I never talk to the CEO’s direct reports – it’s his area of responsibility” (Switzerland); “I write to all board members to solicit ideas for the annual board agenda, the CEO is one of them – I don’t feel I need to do anything special for him” (chair from Russia); “We never have one-to-one meetings with my chair; mostly we communicate via the corporate secretary” (CEO from Russia). Cohabitation usually emerges when the chair and CEO have conflicting views on how the business should develop or their respective roles, yet neither has the expertise, ownership or prestige to prevail. This type of relationship also arises between celebrity chairs and strong-minded CEOs who are not ready to bend to the demands of the board’s boss. Mentoring occurs when a senior professional (the chair) interacts with a junior partner (the CEO). The main goal is for the former to provide the latter with the knowledge, experience and resources to perform the CEO’s functions. Sometimes the mentoring relationship is formalized, as in the following case: “We establish developmental objectives for the CEO and we have formal mentoring sessions with him once a quarter” (chair from Russia). More often there is an informal understanding and agreement between the parties and mentoring may take different forms—from helping to draft a strategy presentation to introducing the CEO to important people. These are just a few examples of such an approach: “The chair is a sparring partner of the CEO. The latter will test his ideas and share his doubts with the chair on strategy, governance, business and people. The chair

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should bring to the CEO maturity, distance and experience” (France); “It is my job to guide the CEO to be good at receiving and processing the response from the board” (Denmark). The mentoring archetype develops when the chair is more experienced, has been a CEO before and has the time and inclination to help the incumbent CEO. The CEOs who enter this type of interaction usually have no stake in the company, have been recently appointed and have never been a CEO before. This type is more prevalent in countries with a culture of apprenticeship, such as Denmark, France and especially the Netherlands. Commanding (or “boss”). Under this model a superior (chair) directly manages a subordinate (CEO). The former establishes targets and objectives, conducts formal and informal performance reviews, determines compensation, provides corrective and supportive feedback and sometimes reviews or approves major decisions to be made by the latter. Here are some examples of this type of interaction: “The CEO prepares a ‘Chair Report’ – monthly update of his performance for me and then I review it with him” (Netherlands); “I made it clear to my CEO – I need to preapprove all deals exceeding $50 million, all social media campaigns and all hiring for the top 200 positions ” (Turkey). The chair becomes the boss of the CEO when there is significant power distance between the two. Most commonly the power is derived from the chair’s position as a significant shareholder (or representative of such a shareholder), while the CEO has no stake in the company. In the course of our research we also came across a number of cases where the power distance came from the chair’s high status as a current or former member of the government. Unsurprisingly, we found more cases of commanding relationships in countries with a culture of high power distance—notably, Russia, Turkey and Ukraine—but they exist in other European countries as well. Advising . This is the least common type of chair–CEO relationship, yet there were several respondents from Denmark, Switzerland, Russia and Ukraine who reported operating as counsellors to all-powerful CEOs. The boards they chaired acted mostly as ceremonial bodies to legitimize the CEO’s decisions. In this archetype the CEO shapes the relationship, while the chair assumes the role of junior partner. As one chair from Russia explained:

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I come to see him (the CEO) every month; we speak one-to-one, very informally. I update him on the board’s work, ask his opinion on important issues. He may ask my views on anything from US politics to the last remuneration committee meeting . Sometimes he asks for help in specific deals. I feel that he values my advice.

This type of relationship arises when the CEO is a significant shareholder, almost always the founder of the company, while the chair has no stake and has often had previous professional relationships with the CEO as a consultant, advisor or employee. None of the archetypes described above exists in its pure form. In reality chairs combine elements of different modes of interaction with CEOs, yet it is important to distinguish a typology in order to help chairs strike the right balance for a specific company, board and CEO. Another reality is that the relationships between board chairs and CEOs are dynamic and in many cases constantly evolving. Many chairrespondents had noticed that both the content and the form of their interactions with chief executives were developing over time. Nevertheless, in our interviews with chairs, directors and CEOs, we sensed an emerging consensus about an effective model of chair–CEO relationships for the future. This is based on the notion that the chair is the leader of the board not an individual player. The board serves as a collective “boss” of the CEO. The task of the chair is to make sure that the board creates a dynamic framework for management action, which includes setting goals, allocating resources, and establishing rules and accountability. Creating and managing this framework is an important part of the joint work of the board, which a good chair initiates, orchestrates and encourages—but never monopolizes. As a rule, in good times boards of directors develop a tendency to be over-supportive of the management, which may lead to some unpleasant surprises. Conversely, in bad times directors tend to become too critical.20 Experienced chairs are aware of these biases and nudge their boards towards an optimal balance between support and challenge. A chair from the Netherlands put it this way: 20 Haleblian, J. and Rajagopalan, N. (2006). A Cognitive Model of CEO Dismissal: Understanding the Influence of Board Perceptions, Attributions and Efficacy Beliefs. Journal of Management Studies, 43(5), pp. 1009–1026.

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The board should support the incumbent management and the CEO unconditionally. If they lose your support, you should fire them. So you never challenge management – only their specific ideas, projects, and plans – but do so constantly. As a chair I make sure it happens in the boardroom and outside of it, but I am not the “chief challenger”. I organize the process.

Usually, the chair interacts with the CEO more often than the other board members. They may discuss board agendas and plans, review board materials, finalize a company press release, follow up on board decisions or meet regulators together. Good chairs, however, always remember that, in this interaction, they represent the board rather than themselves. They also keep other directors informed about new developments and insights—and involve them whenever they can be more effective than the chair alone. During the COVID-19 pandemic effective chairs moved closer to the chief executives of their companies, spent more time with them and made sure that their boards provided emotional and intellectual support for CEOs. As one chair put it: “I provide air cover, so the CEO can move the troops on the ground”. During the crisis European chairs mostly followed collaboration and mentoring strategies in their interactions with the CEOs. Relationships with Shareholders If a CEO’s “boss” is the board of directors, the board’s “boss” is the shareholders. The relationship with the people and institutions that have entrusted the board to govern the company on their behalf is a key concern for the leader of the board. Corporate governance guidelines suggest that chairs should conduct effective communication with all shareholders, while stock market regulations impose severe restrictions on how and when this communication can take place. Chairs of private companies have more freedom in structuring the relationship with shareholders. Most European countries have relatively high levels of ownership concentration and many public companies have significant shareholders, such as entrepreneurs, families, venture capitalists and private equity investors, who have personal stakes in, passion for and

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Macro factors

Economic growth

Company characterisƟcs Company ownership Public with dispersed ownership Government- linked Private

Company crisis

CharacterisƟcs of shareholders (acƟve/passive) and incumbent chairs (proacƟve/defensive) Shareholders:

Chairs:

acƟve/passive

proacƟve/compliant

Turbulence Company life cycle

Fig. 1.3 Chair–shareholder relations: strongest impact factors

strong views about the business.21 Such owners expect and often seek special attention from the board and its leader. This creates an additional challenge for the chair, who has to balance expectations with the legal constrain of treating all shareholders equally. The type of ownership and shareholder profile has a strong impact on chair–shareholder relationships, but other factors presented in Fig. 1.1 are also influential. Our research allowed us to identify the sources of the strongest impact, as summarized in Fig. 1.3. We found that chairs take two attitudes towards relationships with shareholders. Compliant chairs focus on what is prescribed by the existing regulations, strive to minimize the risks of noncompliance and do not show the initiative in interacting with shareholders. One chair described her motto as “equal treatment of all shareholders even at the cost of no treatment ”. Proactive chairs venture beyond what is prescribed by the book, reach out to shareholders and often prioritize performance over compliance. 21 McNulty, T., Pettigrew, A., Jobome, G. and Morris, C. (2009). The Role, Power and Influence of Company Chairs. Journal of Management and Governance, 15(1), pp. 91– 121; Huse, M. (2007). Boards, Governance and Value Creation. Cambridge: Cambridge University Press.

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One from our sample “invites representatives of large and small shareholders to the board meetings to express their concerns ”, while another gives shareholders a “structured questionnaire” about their expectations. Depending on circumstance, the same person may operate in both “compliant” and “proactive” modes at different times. Similarly, shareholders differ in their attitudes. “Active shareholders”22 hold the company close to their heart because of the size of their holdings, their emotional attachment to it or the organizational mission. They actively seek information, and may challenge the management, board and chair. Sometimes they may even try to impose their own alternative ideas on the board. Usually private equity investors, business founders, venture capitalists, family shareholders, activist funds and governments operate in this way. “Passive shareholders” are content with what they are entitled to based on corporate governance regulations and limit their engagement with the company, board and chair. Individual and institutional equity investors, usually fall into this category, as do mutual and pension funds. As we mentioned earlier, companies with dispersed ownership and companies with significant shareholders present noticeably different contexts for chair-shareholder interactions. Companies with significant government participation or influence (we call them “government-linked” borrowing the term from Singapore) are a special case, as government representatives may consider the chair “their person” and try to impose specific ideas on the board through its leader. More generally, when a company goes through a crisis the intensity of chair-shareholder interaction increases, with both sides usually becoming more proactive—if not assertive. We noticed similar dynamics in startups and companies going through serious restructuring, while in mature, stable organizations these relationships tend to be less intense and more formal. Two macro factors influence the nature of chair–shareholder relationships: turbulence and the general economic climate. When a new piece 22 Anderson, R.C. and Reeb, D.M. (2003). Founding-Family Ownership and Firm Performance: Evidence from the S&P 500. Journal of Finance, 3, pp. 1301–1328; Hillman, A.J. and Dalziel, T. (2003). Boards of Directors and Firm Performance: Integrating Agency and Resource Dependence Perspectives. Academy of Management Review, 28(3), pp. 383–396; Desender, K. (2009). The Relationship between the Ownership Structure and Board Effectiveness. University of Illinois at Urbana-Champaign, College of Business Working Papers 09-0105. Available from: https://ssrn.com/abstract=1440750 [Accessed 1 December 2020].

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of corporate governance regulation comes out, a disruptive technology hits the market, terrorists stage an attack on the country’s capital or the economy experiences a prolonged depression, the chair and shareholders tend to interact more, seeking collaboration and going beyond the prescribed frameworks. In stable and economically favourable macro environments, on the other hand, both parties tend to become either more assertive or less engaged, focusing on their own agendas or reducing the intensity of their interaction. The COVID-19 pandemic confirmed this dynamic. As the virus spread and created unprecedented uncertainty, shareholders put more pressure on chairs and boards and the intensity of chair–shareholder relationships increased. Our research revealed numerous practices that board chairs use to manage their relationships with shareholders. We will describe them in detail in Chapters 2–15. In fact, the chair–shareholder relationship is the area where we perceived the most diversity among types of companies and countries. In the meantime, we present below eleven strategies that board chairs across Europe use to deal with the shareholders of their companies. None of these strategies exists in its pure form. In practice they overlap and interfere with each other, but our classification provides an effective lens through which to examine and understand the complexity of chair-shareholder relationships across European companies. Compliance-driven informing. This is the basic strategy for chairs to ensure that shareholders receive the information they are entitled to. Some chairs limit their personal participation to talks and Q&A sessions at general assemblies and delegate the rest to investor or public relations departments. Business -driven informing. As one chair from the UK explained, “One of my top priorities is to make sure that shareholders understand what happens at the company, what the board is preoccupied with, what decisions it has made and what the implications are”. This type of relationship is characteristic for proactive chairs leading boards at companies with significant shareholders. It takes the forms of periodical written reports or memos to shareholders; personal formal and informal meetings; phone calls, e-mails and messages. The first two strategies do not assume any feedback from shareholders, putting them on the receiving side only. In the two types that follow, the owners are actively involved.

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Seeking shareholders’ expectations . Proactive chairs believe they need to understand shareholders’ views on key issues for the company— and to pass this information on to the board. They not only listen attentively to shareholders but also help them to formulate their expectations. Usually this approach works with a limited number of key shareholders. Traditional practices—formal and informal meetings, shareholder conferences, breakfasts, lunches and dinners—are complemented with innovative approaches, such as invitations to speak to the full board or questionnaires. One respondent presents shareholders with a set of questions representing key strategic dilemmas. He uses this so-called “matrix of expectations ” as the basis of structured interviews with shareholders and the questions change depending on the context. When in the next one to fifty years should we sell? Which do you prefer: to reinvest profits or to take dividends? What growth strategy should we pursue: organic or non-organic? What is more important: pride in ownership or rational professionalism? Some corporate governance pundits may consider this approach an invitation to shareholders to step into the shoes of directors and executives, but the Danish author of the model believes that it allows for the shareholders and the board to see eye to eye and greatly benefits the company: “I am not promising them we will do what they want, I am promising that we will keep it in mind”. Engaging. This strategy goes beyond pure information exchange to exchanging—and at times co-creating—ideas with shareholders. As one chair from Switzerland advocating this approach said: “Don’t look at them [shareholders] as enemies, they are your owners and they are your partners ”. Engaging usually takes place between proactive chairs and active shareholders when the parties have a broad agreement about their respective roles and the boundaries between them. It often emerges in family businesses or startups and at times of strain or crisis. Standard engaging practices include: sharing board materials with shareholders and discussing them; seeking ideas on specific issues; preparing summaries of board meetings for shareholders; and inviting them for meals. Some chairs encourage continuous exchange through WhatsApp groups and organize brainstorming sessions for all board members and shareholders. They may even hold strategic retreats for the shareholders only or invite them to visit the company and discuss their impressions. Some respondents reported asking shareholders for help in

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recruiting new board members and executives, and in interacting with regulators, vendors or customers. Many chairs emphasized that engaging relationships require a significant time commitment and high level of flexibility. As one put it: “You just need to be available. They may have what they think is a brilliant idea and want to share it with you at the most inconvenient (for you) moment, but if you are not there they will share it with somebody else, and the whole governance system will be at risk”. Another agreed: “I think I spend 60 to 70% of my time working with shareholders. If you get it right, the rest is easy”. Equal-distancing . This is about avoiding the risk of giving preferential treatment to any shareholder—or even the perception of such treatment. It is about giving shareholders enough information, “but not more than to other shareholders ”, in the words of one interviewee. Some chairs reported that they would not initiate consultation with a shareholder unless all others were party to the discussion, would not have a meeting with a shareholder unless similar meetings were due to take place with all other shareholders, or would copy all shareholders in answering an e-mail from one of them. Although quite common in public companies, many complianceconscious chairs of private companies follow the equal-distancing approach. As one experienced chair from Italy put it: “When you have a limited number of shareholders you have to show that you treat them equally”. Bridging . Proactive chairs help shareholders to interact effectively among themselves, so that both the board and the company can benefit from the owners’ alignment. As one private equity shareholder explained: “Good chairs help us to manage relationships with other shareholders by listening to all sides and bringing objectivity”. The research showed that this type of relationship mostly emerges at companies with multiple active stakeholders, where chairs use a variety of practices from organizing and facilitating regular formal or informal meetings and shuttling between shareholders to setting up WhatsApp or Telegram groups, hosting shareholder dinners and getting on the phone when required. In Sweden chairs facilitate the development of the Owners’ Directive, the document that defines the principles of the relationships between the owners and the company and, where relevant, between individual owners. Assisting. Sometimes board chairs go beyond their strict duties and help shareholders to deal with challenges not directly related to the board

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or the company. In many cases they help significant shareholders to plan family succession or to assess and even mentor future generations. As one chair put it: “I find it natural to spend some time with the future owners, because if we prepare them well, the company will have competent shareholders in the future”. Other forms of assisting include sharing general business knowledge and information resources, introducing shareholders to members of the chair’s network and reviewing non-related business projects. Resisting. This strategy is used in reaction to shareholders’ attempts to “cross the line” by becoming too involved with the board and the company. It also occurs when the chair and the shareholders disagree on the company’s focus and strategy. One chair summarized this approach: “The first thing I say to every shareholder is, ‘I am the master in the boardroom. If you don’t like it, fire the board and elect a new one’ ”. The chairs we interviewed reported on resisting: activist shareholders who wanted to change the company’s strategy, its board composition or its management; active reference shareholders who tried to have the board adopt a specific resolution, invite themselves to board meetings or speak directly with senior executives; and family shareholders who sought to influence the board in decisions on CEO succession. They used such practices as: signing a non-aggression pact establishing clear limits to shareholders’ involvement in exchange for constant information flow from the chair; proactively setting the borders in oral conversations with shareholders; organizing separate regular meetings between shareholders and the chair—and sometimes other board members; threatening to resign; and rallying the board against intrusive shareholders. The potential risk of shareholder intervention in the business of the board turned out to be very sensitive and important to many chairs we interviewed. As one of them stated: “I focus on what is best for the company and I am in charge of doing it. If shareholders hire me, they should let me do the job”. Accommodating. In some situations, chairs choose to yield to the shareholders rather than resist them. This often happens in companies with government participation. It also occurs in cases of an all-powerful founder–shareholder interacting with a professional chair of the board, mostly in private companies and in countries with high power distance (such as Russia, Turkey and Ukraine). “Accommodating chairs” may put the interests and agenda of a specific shareholder above those of the company and the board. As one of them admitted: “I always remember

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who nominated me as chair!” They may proactively solicit shareholders’ views on a specific item on the board’s agenda—or indeed all of them—before the board meeting through informal consultation at lunch or dinner or formal written communication. When the government is a majority shareholder, a chair may become a conduit—rather than a partner—of government. One respondent commented: “It is a highly political function. 70 percent of initiatives come from the government and only 30 percent are generated by the board”. Ignoring. Although most respondents emphasized the importance of relationships with shareholders, some ignored them in practice, preferring to spend their time on leading the board or interacting with the CEO. This happens mostly at large public companies with many small shareholders during relatively good times. The most common practice is to delegate this function to company officers, such as the investor relations director, public relations director, CFO or CEO. Imposing. Proactive chairs use this assertive approach to deal with shareholders, when they have the power, consider the issues to be important, or have no time or willingness to use other strategies. Imposing can take the forms of a tough face-to-face conversation; a public attack on the opponent; a court case against a shareholder; or a networking activity. One chair explained: Government is an institution, but there is always a real man behind the institution. There are people who are responsible for the government stake in our company and I have good working relationships with them. Most of the time we find common ground. In rare cases when we don’t agree, I speak to people in my network who are above them or can influence them.

Effective European board chairs use a variety of strategies and specific practices to manage their relationships with shareholders and their effectiveness is a function of multiple contextual variables, yet there is one common thread in their approach: in these relationships they represent the board of directors rather than themselves. This was emotionally summarized by an experienced chair from Denmark: Who am I to deal with a significant shareholder on equal terms? A parttime board chair getting the equivalent of US$100,000 a year. Not serious. But when the whole board speaks to them, they listen. So I always remind shareholders that I am an interface between them and a board. I never speak my mind; it’s the collective voice of the board of directors they are hearing.

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Summary In all of the European countries we have studied the board of directors is the highest decision-making body in an organization and the chair is its leader. The work of the chair takes place in a specific context, and macro, mezzo and micro contingencies have a noticeable impact on it. One of the major findings is that that cultural differences do not affect the work of board leaders as much as other variables, such as the ownership structure of a company, its financial health, board composition or the macro context. Chairs from all the countries we studied define their responsibilities in similar ways and strive to play three core roles: leading the board, representing the board in relationships with shareholders and stakeholders and managing relationships with the CEO/senior executives. They use similar high-level behaviour strategies to play all of these roles, such as the engaging –enabling –encouraging triad in leading the board or the 11 modes of interacting with shareholders. We also found that respondents from different countries have largely overlapping views on the personal attributes that make chairs effective and the mistakes that reduce their effectiveness (to be described in detail in Chapter 16). Yet country specifics are important and worth exploring. They transpire not so much in what chairs do, but how they do it, creating an extremely rich variety of chair practices—what a psychologist might call “first-level iterative behaviours”—which board leaders use to get their jobs done. Discovering these practices and understanding the contexts in which they emerged was a very exciting journey for our research team. The findings of that journey—or rather, 14 journeys through 14 very different countries are presented in the next chapters. They constitute a very rich seam of data for practising and aspiring chairs and directors, shareholders, regulators and educators, indeed anybody who wants to understand what happens in and around the boardroom and to learn from the experiences of effective board leaders. We invite you to follow in our footsteps on this fascinating tour of Europe.

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Huse, M. (2007). Boards, Governance and Value Creation. Cambridge: Cambridge University Press. INFORM: Closing the Gap between Formal and Informal Institutions in the Balkans. Available from: http://www.formal-informal.eu [Accessed 1 December 2020]. Kakabadse, A. and Kakabadse, N. (2008). Leading the Board: The Six Disciplines of World Class Chairman. London: Palgrave. Kakabadse, N., Knyght, R. and Kakabadse, A. (2013). High-Performing Chairmen: The Older the Better. In: A. Kakabadse and L. van den Berghe, ed., How to Make Boards Work. London: Palgrave, pp. 342–349. Krause, R. (2016). Being the CEO’s Boss: An Examination of Board Chair Orientations. Strategic Management Journal, 38(3), pp. 697–713. Krause, R., Li W., Ma, X. and Brutton G. (2019). The Board Chair Effect Across Countries: An Institutional View. Strategic Management Journal, 40(10), pp. 1570–1592. Lekvall, P. (ed.). 2014. The Nordic Corporate Governance Model. Stockholm: TMG. Levrau, A. and Van den Berghe, L. (2013). Perspectives on the Decision-Making Style of the Board Chair. International Journal of Disclosure and Governance, 10(2), pp. 105–112. Lorsch, J.W. and Zelleke, A. (2005). The Chairman’s Job Description. Directors and Boards, 30(1), pp. 28–32. McNulty, T. and Pettigrew, A. (1999). Strategists on the Board. Organization Studies, 20(1), pp. 47–74. McNulty, T., Pettigrew, A., Jobome, G. and Morris, C. (2011). The Role, Power and Influence of Company Chairs. Journal of Management and Governance, 15, pp. 91–121. Nahum, N. and Carmeli, A. (2020). Leadership Style in a Board of Directors: Implications of Involvement in the Strategic Decision-Making Process. Journal of Management and Governance, 24, pp. 199–227. Parker, H. (1990). The Company Chairman—His Role and Responsibilities. Long Range Planning, 23(4), pp. 35–43. Pettigrew, A. and McNulty, T. (1995). Power and Influence in and around Boardroom. Human Relations, 48, pp. 845–873. Roberts, J. (2002). Building the Complementary Board: The Work of the PLC Chairman. Long Range Planning, 35(5), pp. 493–520. Roberts, J. and Stiles, P. (1999). The Relationship between Chairmen and Chief Executives: Competitive or Complementary Roles? Long Range Planning, 32(1), pp. 36–48. Shekshnia, S. and Zagieva, V. (2017). The Practices of Boards across the World. INSEAD Knowledge. Available from: https://knowledge.insead.edu/leader

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ship-organisations/the-practices-of-boardsacross-theworld-7056 [Accessed 26 March 2018]. Stewart, R. (1991). Chairman and Chief Executive: An Exploration of Their Relationship. Journal of Management Study, 28(5), pp. 511–527. Tran H. and Turkiela J. (2020). The Powers That Be: Concentration of Authority within the Board of Directors and Variability in Firm Performance. Journal of Corporate Finance, 60, 101537. Veltrop, D., Bezemer, P., Nicholson G. and Pugliese A. (2020). Too Unsafe to Monitor? How Board–CEO Cognitive Conflict and Chair Leadership Shape Outside Director Monitoring. Academy of Management Journal, 64 (1). Whitler, K.A., Krause, R. and Lehmann, D.R. (2018). When and How Board Members with Marketing Experience Facilitate Firm Growth. Journal of Marketing, 82(5), pp. 86–105.

CHAPTER 2

The United Kingdom: Indirect Leadership Stanislav Shekshnia

The Chair’s Work in Context The United Kingdom of Great Britain and Northern Ireland consists of England, Scotland, Wales and Northern Ireland, each with various degrees of autonomy. The UK has a constitutional monarchy, a parliamentary system of government and a developed economy. In 2019, GDP was US$ 2.8 trillion1 (ninth largest in the world at purchasing power parity2 ) with per capita GDP of Int$42,300.3 Of this total, value added in

1 The World Bank (2020). World Development Indicators. GDP Ranking. Available

from: https://datacatalog.worldbank.org/dataset/gdp-ranking [Accessed 1 December 2020]. 2 The World Bank (2020). World Development Indicators. GDP Ranking, PPP based. Available from: https://datacatalog.worldbank.org/dataset/gdp-ranking-ppp-based [Accessed 1 December 2020]. 3 The World Bank (2020). World Development Indicators. GDP per Capita, in International Dollars. Available from: https://data.worldbank.org/indicator/ny.gdp.pcap.cd? most_recent_value_desc=true [Accessed 1 December 2020].

S. Shekshnia (B) INSEAD, Fontainebleau, France © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_2

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the service sector represents 71.2% of GDP, industry (including construction) 14% and manufacturing 8.6%.4 The UK is ranked 15th in the world on the Human Resource Index.5 In 2019 the UK officially left European Union following the 2016 referendum. The COVID-19 pandemic hit the UK hard—the country registered the highest number of deaths among all European nations and its economy shrunk by 22.1% in the first six months of 2020.6 Almost 6 million businesses in the UK employ some 27.5 million people.7 Privately held companies employ almost 84% of the labour force.8 There are approximately 10,000 listed companies, in which financial institutions, foreign investors and private stockholders are the main shareholders. The UK is one of the most active shareholder communities in the world with a 59% voting turnout.9 The UK has one of the oldest systems of corporate governance in the world, largely based on “soft law” (governance guidelines) and “comply or explain” principles, as defined in the UK Governance Code, updated in 2018.10 There is no mandatory structure for boards, but the single-tier model with both executive and non-executive directors predominates. As 4 World Bank (2020). Services, Value Added. Industry, Value Added. Manufacturing, Value Added. Available from: https://data.worldbank.org/indicator/NV.IND.MANF.ZS? locations=GB [Accessed 1 December 2020]. 5 UNDP (2019). Human Development Report 2019: Beyond Income, beyond Averages, beyond Today. Available from: http://hdr.undp.org/sites/default/files/hdr2019. pdf. [Accessed 1 December 2020]. 6 Office for National Statistics (2020). GDP First Quarterly Estimate, UK: April to June

2020. Available from: https://www.ons.gov.uk/economy/grossdomesticproductgdp/bul letins/gdpfirstquarterlyestimateuk/apriltojune2020 [Accessed 1 December 2020]. 7 Rhodes, C. and Ward M. (2020). Business Statistics. Briefing Paper, 06152, p. 5.

Available from: researchbriefings.files.parliament.uk/documents/SN06152/SN06152.pdf [Accessed 1 December 2020]. 8 Office for National Statistics (2020). Public and Private Sector Employment. Available from: https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employ mentandemployeetypes/datasets/publicandprivatesectoremploymentemp02 [Accessed 1 December 2020]. 9 Van der Elst, C.F. (2011). Revisiting Shareholder Activism at AGMs: Voting Determinants of Large and Small Shareholders. European Corporate Governance Institute (ECGI), Finance Working Paper, 311. 10 Financial Reporting Council (2018). The UK Corporate Governance Code. Available from: https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f4806 9a2/2018-UK-Corporate-Governance-Code-FINAL.pdf [Accessed 1 December 2020].

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the highest governing body, the board makes key executive appointments and takes decisions about the remuneration of top managers, strategy, major capital investments, risk management and disclosure. In practice, board engagement varies greatly, as reflected in the number of meetings held per year. Boards of larger companies have a standard set of committees for audit, nomination and remuneration. Committees for strategy, environment, ethics, and health and safety may also exist. The average number of board committees for a listed UK company is 3.811 (EU average 3.4).12 UK boards are not large with 10.3 members on average for FTSE 150 companies (EU average 12.3). Large boards—more than 15 members— are virtually non-existent. The proportion of independent directors has been steadily increasing over the last two decades and has now reached more than 60% for large public companies. Women represent 30.5% of board members in the UK.13 The UK Governance Code recommends the separation of the CEO and chair positions, as adopted by most publicly owned companies. UK companies can have executive, non-executive, affiliated or independent chairs, and the last of these categories is on the rise. The number of fulltime chairs is decreasing, making them a small minority.14 The Code provides detailed guidelines about the role, duties and responsibilities of the chair. As the leader of a collective body (board of directors), the chair is responsible for: • Creating the conditions for the board’s and individual directors’ effectiveness

11 Spencer Stuart (2019). UK Board Index 2019. Available from: https://www. spencerstuart.com/-/media/2019/ukbi-2019/uk_board_index_2019_final_version.pdf [Accessed 1 December 2020]. 12 Heidrick & Struggles (2014). Towards Dynamic Governance 2014: European Corporate Governance Report. Available from: http://www.heidrick.com/KnowledgeCenter/Publication/European-Corporate-Governance-Report-2014-Towards-DynamicGovernance [Accessed 1 December 2020]. 13 Spencer Stuart (2019). UK Board Index 2019. Available from: https://www. spencerstuart.com/-/media/2019/ukbi-2019/uk_board_index_2019_final_version.pdf [Accessed 1 December 2020]. 14 Ibid.

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• Demonstrating the highest standards of integrity and probity, setting clear expectations concerning the company’s culture, values and behaviour, and establishing the style and tone of board discussions • Developing productive working relationships with the CEO and other executive directors • Guiding the company secretary • Communicating with external stakeholders, including shareholders • Conducting periodical board evaluations.

Existing Research No other country from our sample can compete with the UK in terms of the number of academic articles devoted to the chair of the board. Thanks to these publications, we know a great deal about British chairs’ demographics, backgrounds, roles and competencies. This knowledge contributed significantly to the design of our study. In the next few pages we present a short overview of the most relevant literature. Earlier research examined such variables as chairs’ professional backgrounds, relationships to ownership, prior ties with their companies and time spent performing the role, among other factors. Empirical studies confirmed that a chair who also holds the CEO job is likely to have more power than the individual who is only a chair.15 Similarly, full-time chairs were found to carry more weight in a company than their part-time colleagues.16 Chairs promoted from within the organization are likely to have stronger influence than outsiders, by building on their superior company knowledge (expert power).17 Older chairs tend to be considered by other directors as more effective than younger board leaders.18 15 Finkelstein, S. (1992). Power in Top Management Teams: Dimensions, Measurement, and Validation. Academy of Management Journal, 35(3), pp. 505–538; Udueni, H. (1999). Power Dimensions in the Board and Outside Director Independence: Evidence from Large Industrial UK Firms. Corporate Governance: An International Review, 7(1), pp. 62–72. 16 Pettigrew, A. and McNulty, T. (1995). Power and Influence in and around the

Boardroom. Human Relations, 48(8), pp. 845–873. 17 Finkelstein, S. (1992). Power in Top Management Teams: Dimensions, Measurement, and Validation. Academy of Management Journal, 35(3), pp. 505–538. 18 Kakabadse, N., Knyght, R. and Kakabadse, A. (2013). High-Performing Chairmen: The Older the Better. In: A. Kakabadse and L. van den Berghe, ed., How to Make Boards Work. London: Palgrave, pp. 342–349.

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McNulty, Pettigrew, Jobome and Morris developed a nine-model chair typology, which predicts the type of influence a chair will have based on her status (executive vs non-executive), background (insider vs outsider) and time commitment (full vs part time). Their empirical study of 160 chairs from FTSE 500 companies established that executive chairs with a full-time commitment exert greater influence in strategy and resource allocation tasks, while non-executive board leaders with a part-time commitment have more power in monitoring and controlling tasks. Another stream of research is dedicated to the roles and the functions of board chairs. Often referred to as “the first among equals”, UK chairs take on a number of specific roles, some of them managerial and others of a supporting nature. Kakabadse, Kakabadse and Myers built on the previous research and designed a large-scale survey-based study for a sample of FTSE 350 companies. The authors identified such core functions as delineating chair and CEO roles, leading the board, managing directors’ and executives’ succession, and contributing to strategic decision-making.19 Executive chairs are active both inside and outside the boardroom. They set their boards’ agendas, frequently communicate with the CEOs and senior executives, and interact with institutional shareholders. Non-executives are less active in external relations and let CEOs have a bigger say in setting boards’ agendas.20 Some researchers emphasize the uniqueness of each chair’s role and the need for each board leader to find individual ways of dealing with specific challenges.21 Chair–CEO relations have been the subject of a number of studies. The main recurring theme is the need to define the responsibilities of these two key people in the company and then stick to them.22 On the basis

19 Kakabadse, A., Kakabadse, N. and Myers, A. (2008). Chairman and the Board: A Study of the Role, Contribution and Performance of UK Board Directors. Cranfield School of Management and Manchester Square Partners. 20 McNulty, T., Pettigrew, A., Jobome, G. and Morris, C. (2011). The Role, Power and

Influence of Company Chairs. Journal of Management and Governance, 15, pp. 91–121. 21 Kakabadse, N., Knyght, R. and Kakabadse, A. (2013). High-Performing Chairmen: The Older the Better. In: A. Kakabadse and L. van den Berghe, ed., How to Make Boards Work. London: Palgrave, pp. 342–349. 22 Kakabadse, A. P., Kakabadse, N. K. and Knyght, R. (2010). The Chemistry Factor in the Chairman/CEO Relationship. European Management Journal, 28(4), pp. 285–296;

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of interviews with chairs and CEOs the National Health Service organizations, Stewart suggested that the two roles should form a dynamic partnership and complement each other. This idea resonated with other scholars and was supported in later publications.23 A few studies have focused on the personal attributes and professional competencies associated with effective board chairing. On the basis of interviews with chairs, CEOs and independent directors from FTSE 100 companies, Kakabadse, Ward, Kakabadse and Bowman identified such qualities as maturity, relational skills, meeting skills, political and social competence and coaching capabilities.24 Roberts interviewed 35 chairs, CEOs and non-executive directors and found that lack of ambition for executive power, complementarity to the CEO, and ability to preside over meetings and create trust among directors are critical for effective chairing of a board.25 In the above-mentioned study of directors Kakabadse et al. identified wisdom, sensitivity and resilience as important chair qualities.26 We could not find a study devoted specifically to describing and analysing the practices of chairs, as understood in this book. However, some scholars provide interesting insights into the subject while focusing their attention on other research questions. Pettigrew and McNulty identified the chair’s attention to what happens outside the boardroom and the ability to conduct an informal dialogue with other directors and

Roberts, J. (2002). Building the Complementary Board. The Work of the PLC Chairman. Long Range Planning, 35(5), pp. 493–520. 23 Stewart, R. (1991). Chairmen and Chief Executives: An Exploration of Their Rela-

tionship. Journal of Management Studies, 28(5), pp. 511–528; Kakabadse, N., Knyght, R. and Kakabadse, A. (2013). High-Performing Chairmen: The Older the Better. In: A. Kakabadse and L. van den Berghe, ed., How to Make Boards Work. London: Palgrave, pp. 342–349. 24 Kakabadse, A., Ward, K., Korac-Kakabadse, N. and Bowman, C. (2001). Role and Contribution of Non-Executive Directors. Corporate Governance: The International Journal of Business in Society, 1(1), pp. 4–8. 25 Roberts, J. (2002). Building the Complementary Board. The Work of the PLC Chairman. Long Range Planning, 35(5), pp. 493–520. 26 Kakabadse, A., Kakabadse, N. and Myers, A. (2008). Chairman and the Board: A Study of the Role, Contribution and Performance of UK Board Directors. Cranfield School of Management and Manchester Square Partners.

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executives as vital practices for ensuring effective board process.27 LeeDavies, Kakabadse and Kakabadse wrote about “deliberative practice”, which implies asking good questions, and gathering and sharing useful information to support decision-making, without taking and defending a position, as a foundation for effective chairing of the board.28

UK Culture and Board Chairs UK culture is described as relatively “low context”, medium on the “dimensions” of evaluating, leading, deciding and disagreeing, mediumlow on trusting and scheduling, and high on applications-first (as opposed to principles-first) reasoning (see Appendix A for a full explanation). On the basis of this assessment (see Fig. 2.1.), we hypothesize that UK chairs provide the board with low profile but firm leadership and tend to focus on effectiveness. They communicate in a clear and concise manner, but not without metaphors and humour. They demonstrate discipline and demand it from other people, but they prefer to deal with disciplinary problems behind closed doors rather than in the boardroom. British chairs respect deadlines and other commitments, but are pragmatic about prolonging a board meeting or giving a director extra time to speak. They work on building consensus, but can put pressure gently on dissident directors. They are very respectful in their interactions with board members, executives and shareholders, but they have a high respect for the chair’s role and defend its autonomy and authority. They do not like surprises and pay particular attention to avoiding them.

27 Pettigrew, A. and McNulty, T. (1995). Power and Influence in and around the Boardroom. Human Relations, 48(8), pp. 845–873. 28 Lee-Davies, L., Kakabadse, N.K., and Kakabadse, A. (2007). Shared Leadership: Leading through Polylogue. Business Strategy Series, 8(4), pp. 246–253.

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Fig. 2.1 UK Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs])

Data Two INSEAD-sponsored studies, the INSEAD Global Chair Survey 201529 and the INSEAD Global Chairs Research Project 2016,30 primarily provide the data for this chapter.

29 Shekshnia, S. and Zagieva, V. (2016). Chair Survey 2015. Available from: https://www.insead.edu/sites/default/files/assets/dept/centres/icgc/docs/chairsurvey-2015.pdf [Accessed 1 December 2020]. 30 Shekshnia, S. and Zagieva, V. (2017). Board Chairs’ Practices across Countries Commonalities, Differences and Future Trends. Available from: https://www.insead. edu/sites/default/files/assets/dept/centres/icgc/docs/board-chairs-practices-across-cou ntries.pdf [Accessed 1 December 2020].

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During the second stage of our research (2018) we conducted semistructured interviews with eight experienced chairs: three women and five men, aged from 54 to 72, who at the time of the encounters chaired a total of 15 boards of directors, including seven boards of publicly listed corporations, seven privately held companies, two charities and a government agency. The business boards they chaired consisted of 5–11 directors, meeting between 5 and 12 times per year. Board composition varied in terms of the gender, age and professional backgrounds of members, but all included executive, non-executive, independent and affiliated directors. All boards had nomination, remuneration and audit committees (sometimes audit and risk management or audit and control). Some boards had committees on strategy, ethics and health/environment/safety. Our chair-respondents come from a variety of industries and companies. They have an executive background and later became full-time board chairs and directors—a path that seems to be almost universal in the UK. Although most are independent and non-executive, they spend a lot of time at their companies—between four and ten days per month. In addition to the chairs, we interviewed three professional CEOs, three experienced independent directors and three representatives of shareholders to form a 360-degree picture of the chair’s work (we refer to them collectively as “observers”). The CEOs (one woman and two men) had 32 years of combined chief executive experience and had worked with eight chairs. The directors (one woman and two men) had been worked in this capacity with 37 board chairs. The shareholders (three men) represented an investment fund, a venture capital company and a family holding, each of them having worked with dozens of board chairs. During the third stage of our research (May–September 2020) we interviewed three board chairs (one woman and two men), two CEOs (one man and one woman) and three directors (one woman and two men) to discuss the impact COVID-19 had had on the work of a chair in the UK.

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UK Chairs: Principal Challenges and Practices The INSEAD Global Chair Survey 201531 identified the following main challenges for the chairs of British companies—in descending order of importance: • • • •

Managing difficult board members (special cases) Relationships with controlling or large shareholders Relationships with minority shareholders Level of collaboration and teamwork among board members (board dynamics).

All the chairs we interviewed agreed that relationships with shareholders and collaboration among board members were top priorities. All observers confirmed this view and added a further challenge: not getting buried under the ever-growing regulatory mountain and keeping the strategic focus of the board. COVID-19 presented chairs with a new challenge: to organize effective board work under unprecedented conditions of pandemic and lockdown. We describe below both general strategies that UK chairs use to deal with these challenges and specific tools that they use to implement their strategies. Relationships with Shareholders In dealing with shareholders, UK chairs strive for a balance between proactivity and equality. They want to be seen as available, listening and attentive but independent and non-partisan at the same time. They seek to put the interests of the company before those of individual shareholders, no matter how big or important the latter may be. Several respondents emphasized that they do not distinguish between majority and minority shareholders. They are careful not to give preferential treatment to any shareholder group or even the impression of such treatment, especially in publicly listed companies. Some will not initiate consultation with a particular shareholder unless others are party to the 31 Shekshnia, S. and Zagieva, V. (2016). Chair Survey 2015. Available from: https://www.insead.edu/sites/default/files/assets/dept/centres/icgc/docs/chairsurvey-2015.pdf [Accessed 1 December 2020].

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discussion. In the words of one chair, they “give them enough information, but not more than to other shareholders ”. The chairs in our sample agreed that, for public companies, executive compensation is the number one topic in their interaction with shareholders. One formally consults with the top 25 largest shareholders on remuneration and personally supervises the preparation of the annual remuneration report. Board leaders are aware of activist shareholders but have limited interaction with them. Overall, respondents regard interaction with shareholders of public companies as a time-consuming, sensitive activity that does not always add value to the business but has to be undertaken to avoid conflict. For chairs of private companies, the independence and equal treatment of all shareholders is important, although the smaller number of shareholders and less strict governance rules allow for more intense interaction. One chair of a private company with three shareholders sends a board book and speaks to a representative of each of them a few days before the board meeting, walking her counterparts through the agenda. She does not look for “input or guidelines, but makes sure the shareholders are aware of what is on the next agenda”. Ideas from each shareholder are shared with her at meetings specially convened twice a year. Another chair writes to the largest shareholders to enquire whether they would like a private meeting; about half take up the invitation. One chair of a public company invites the five largest shareholders and independent directors for a working dinner once a year to discuss business within permitted boundaries. For observer-shareholders, effective chairs serve as the most important interface between them and the company. Good chairs are attentive to the shareholders’ concerns, understand them and effectively translate their ideas for the board and the management. They are proactive in sharing information and seeking shareholders’ positions. One respondent from a private equity company shared that “good chairs help us to manage relationships with other shareholders by listening to all sides and bringing objectivity”. As we originally hypothesized, good chairs in the UK maintain a constructive dialogue with shareholders for the benefit of the company, but not in the boardroom. They emphasize the importance of protecting the independence of the board and their authority over its workings. As one put it: “We operate under the two meeting principles: one is for directors (the board), another for shareholders. If you happen to be both,

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learn to behave yourself ”. Another respondent shared his experience of threatening to put an unexpected proposal from a large shareholder to an immediate vote, so that it would be outvoted by independent directors. We came across examples of legally binding written agreements between large shareholders and companies, as well as informal agreements between shareholders and chairs. Managing Difficult Board Members According to the INSEAD Chair Global Survey 2015, “managing difficult board members” was the number one challenge for chairs in the UK. Director-observers confirmed this, although chair-respondents seemed to take the challenge in their stride. As one said, “You have to work with what you’ve got – you are not a CEO selecting your team”. Generally, “challenging directors” fall into two categories: first those who do not listen but speak a lot; and second those who say little or do not speak at all. A common strategy for dealing with directors with “verbal diarrhoea” is containment, and for the silent type engagement. A number of tactics for containing vocal board members were cited: having a private word in their ear, offering to help (sometimes calling it “coaching”), suggesting professional support or making a formal performance evaluation. Perhaps the simplest step of all was direct but polite confrontation in the boardroom: “Bill, you are talking too much”; “Margaret, I will have to ask you to stay quiet for the next quarter of an hour”; “James, thank you. Now we need to hear from other board members”. If nothing worked, our respondents resorted to recommending that the individual should not stand for re-election. There was general agreement that, if the chair was firm and consistent, most cases could be remedied. Effective chairs pay a lot of attention to engaging otherwise silent members and ensuring that even those not inclined to speak at meetings contribute to the collective work of the board. One commented: “My major task is to make silent directors speak – they are my major underutilized asset ”. Rather than calling on them in the boardroom, he solicits their opinions before the meeting and then presents their views to the board, acknowledging the source. Some chairs ask for written opinions to ensure that everybody participates. Others adopt the format of asking every director to state his or her opinion. One observer-director recalled how a chair personally coached “timid board members ” and their involvement visibly increased.

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In summary, “special cases” are dealt with in a tactful but firm way. UK chairs do not hesitate to challenge directors, since this contributes to the main focus identified by respondents: the board’s effectiveness. Board Dynamics Helping the board to reach good collective decisions is a top priority. Aware of the multiple identities and commitments of directors, chairs are modest in their team-building ambitions: “I don’t think the board needs to become a team” or “Perhaps it is a very special team”. Observers tend to support this approach. One experienced independent director said: “The good chairs in my life were quite careful not to make attempts to convert a board into their ‘executive team’; they respected the autonomy and independence of directors ”. However, good chairs deploy specific strategies to make this diverse group of people, which meets only a few times a year, work productively. These fall into pre-meeting, in-meeting and post-meeting categories, as summarized below. Pre-meeting All respondents agreed that the pre-meeting stage is critically important, and invest time and energy in preparation, the ultimate goal being to ensure that they have motivated, well-prepared directors in the boardroom. They therefore conduct induction interviews with new members, at which expectations are set. One observer-director recalled her experience: When I joined my first board, I had a two-hour conversation with the chair, who in a very concise manner explained: the mission and the rules of the board; the roles of the chair, committees and corporate secretary; how the relationship with the executives worked; what was expected of me in terms of time commitment, preparation and participation, etc. It was like attending a business school course!

The induction programmes also include meetings with executives, site visits, product introductions, etc. As one chair explained: “We organize induction programmes for all new directors – they visit key units and functions, and spend time with the risk department ”. Chairs reach out to directors before each board meeting to re-engage. Some consult with other members about the agenda. One said: “I ring

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every director before approving next meeting’s agenda to ask what they want to see on it ”. While members rarely come up with drastic alterations, such conversations help to concentrate their minds on the upcoming meeting. Pre-board dinners are another way to engage directors, review the agenda and ensure that everybody is on the same page. Most chairs limit these to non-executive directors; others extend it to executives. One noted: “A board dinner is a good way to make sure we have no ugly surprises in the boardroom next morning ”. The quality of materials is critically important for effective board work. Respondents cited the need for clarity, limited volume and enough time to study the board book in advance. Some chairs set the format of board materials; others co-define it with the CEO. Some check the materials before they are sent to directors, but most trust the management to produce a quality board book: “I don’t check materials before they go to the board members – it’s too controlling and interfering. The company secretary has the power to turn them down”. Most boards chaired by respondents have gone 100% digital and COVID-19 accelerated the process. To improve directors’ knowledge of the company and its business some chairs facilitate site visits and meetings with employees, customers, etc. The chair of a hospital board introduced a routine whereby “every nonexec spends one day with patients ”. Another described how “we conduct board meetings in different geographies and always visit operations and meet with customers ”. Leading a Meeting The success of a board meeting is a function of three variables: the right agenda; the preparedness and motivation of the participants; and the right process. Items on the agenda should be, in the words of one of the chairs, “strategic”, “ripe for a decision”, “material ” and such that “no else in the company could make a quality decision” about them. Another chair insists that there should be no less than four and no more than six items on the agenda for one meeting. In most cases, the chairs we interviewed partner with the CEO to set the agenda. Others invite all directors to review the agenda and pitch their ideas. Respondents believed the board should spend most of its time on discussions, rather than listening to management or committee presentations. One chair imposes a 30:70 ratio: 30% of time for presentations and questions; 70% for discussion and making decisions. Others use similar but less strict approaches.

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For a discussion to be productive it has to be candid and involve all board members. The chair’s task is to create an appropriate atmosphere. When asked how they approached this task our respondents spoke about “trust, respect, and personal attention”. The most common strategies to achieve this were equal treatment for all, facilitation of discussions and self-restraint. As one chair explained: I have two rules – every director has to have roughly the same amount of airtime and we should reach consensus. Sometimes one board member is more knowledgeable than another on the subject matter and wants to have more time, but I say: “You are an expert – you should be able to make your point quicker.” Usually people smile and accept it.

Another affirmed: “You build trust by demonstrating respect, and you show respect by valuing everybody’s opinion and acknowledging everyone’s contribution… I always thank every director who put forward an idea after the decision has been made, even if that particular idea was rejected”. Another strategy was to ask each board member to state his or her personal position on the subject matter before concluding the discussion. Restraining their own participation in the discussion is another tactic used by chairs to promote trust and engagement. As one put it: “I try to take as little room as possible. My task is to help others to speak their minds ”. Another added: “I always try to avoid indicating personal views and preferences. If I have to speak, I speak last ”. The task of facilitating a discussion includes: stating the facts; framing the question; providing every director with an opportunity to speak; summarizing; formulating a resolution; and making sure that every director understands and supports it. One respondent explained: As a novice chair, I underestimated the degree to which people participating in the same discussion and listening to the same proposed decision may have different ideas about what it actually means. As a result we would have some unpleasant conversations. Later on I learned the lesson and now always take time to make sure everybody understands the proposed resolution the same way.

Another chair writes the proposed resolution on a flip-chart and walks the board through it. The independent directors interviewed for our project emphasized fairness in allocating time and organizing discussions as essential elements of

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effective board chairing. According to them, good chairs energize the board (without over-exciting it), focus directors on a task and facilitate interaction. They do so by opening board meetings with energetic constructive statements, formulating clear discussion questions, concentrating on the discussion process (rather than the potential decision), engaging silent directors and containing talkative ones. Effective chairs use body language to communicate with the board. As one of the respondents put it: “Chair A animates the board – he does not say much, but the way he says it and what he does without saying a word makes directors motivated and concentrated”. Many chairs conduct some sort of evaluation at the end of each board meeting. This reinforces respect for each director, builds trust and helps the board to learn and improve. One respondent said: “At the end of the meeting I ask every director to comment on how we did as a team and how I did as a chairperson”. Another puts three questions to the non-executive directors at the end of the meeting: “What worked well? What did not work? What should we do differently next time?”—and implements their recommendations at the next session. Post-meeting Formal board evaluation is a well-established practice in the UK. Board assessments are conducted every 12–24 months, sometimes with the help of external consultants, sometimes via an anonymous survey of board members (and, in some cases, senior executives). One respondent explained: “We do 360 digital evaluation every year and every three years we invite an independent consultant to conduct a thorough assessment with the help of semi-structured interviews with all directors and key managers ”. According to a 2019 Spencer Stuart study, 61.3% of FTSE 150 boards conducted an internal evaluation and 37.3% used external help, while two companies did not have board evaluations at all.32 Some chairs arrange off-site meetings to discuss how collective decision-making could be improved: “Once every year, we go to an off -site dedicated to improving board dynamics. With the help of a facilitator, we brainstorm how to improve and try out new approaches ”. Others combine

32 Spencer Stuart (2019). UK Board Index 2019. Available from: https://www. spencerstuart.com/-/media/2019/ukbi-2019/uk_board_index_2019_final_version.pdf [Accessed 1 December 2020].

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gatherings like these with strategic discussions. Overall, loosely structured off-site sessions are seen as an important tool to improve a board’s cohesiveness and performance. Working with the board as a whole is complemented by one-to-one interactions. One chair rings “each director every month to keep them concentrated on the company”. Another invites every board member for lunch once a year. Yet another has a Skype conversation every six weeks. One commented: “They [the directors] should feel that you are available, you care about them and their views, but you are not intrusive”. Observer-directors back this view. For them effective chairs reach out to directors between meetings, share news from the company and consult about upcoming meetings. They also pay individual attention to each board member, providing advice and coaching if requested. Good chairs establish two-way communication with directors via phone, e-mail and messaging apps—and promptly reply to them. Relationship with CEO and Management The relationship with the CEO is high on the chair’s agenda. Interaction is usually more intense, complex and nuanced than the “I run the board – you run the company” approach, and goes beyond the supervisory or mentoring functions prescribed by the Code. Although our respondents asserted that “CEO development is one of my annual objectives ” and “I question and challenge the CEO both privately and in the boardroom”, the notion of cooperation, partnership and support emerged as more important practices. A very experienced chair put it this way: “I am helping him to deal with loneliness, almost acting like a shrink”—and they have an open-agenda meeting or a phone conversation every two weeks. Another considers herself “a sounding board for the CEO”. In this particular case, they meet every two weeks and talk about both current business issues and the personal challenges of the CEO, who defines the content of their conversations. One respondent, who holds multiple chairs and has solid experience in executive development, lets the respective CEOs define the format of their interactions: At the global food company, we always have a one-to-one meeting a couple of days before the board meeting, he sends me a lot of SMS and I answer. At another company, we have regular Skype meetings. At the third organization, we exchange e-mails almost daily.

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One respondent described how he negotiated a “non-aggression pact ” with the CEO: “You never bump a board with an important decision without sufficient time to analyse it – I make sure they know about all important concerns before the board meeting, rather than at the meeting ”. There was consensus among respondents that developing strategy is the CEO’s business, which the board should “endorse”. The chair’s role is to help by listening, asking questions, challenging assumptions, connecting the CEO with experts and sharing personal experiences of being a CEO. Some respondents performed other services at the CEO’s request, such as meeting with customers, regulators, suppliers and the media. In general, however, respondents believed that chairs should not interact with third parties except shareholders. The only time they should intervene is in a crisis. For observer-CEOs, effective chairs are first and foremost available yet non-intrusive. One CEO recalled with horror her experience of working with a chair who would send her 400 e-mails a day! Another chair she worked with was the opposite: no e-mails, rare and minimal interaction, but always negative feedback. A third chair, whom she considered to be effective, took time to listen, asked a lot of questions, said comparatively little, provided comprehensive feedback once a year and offered specific advice after important events. Observer-CEOs agree that effective chairs play a number of important roles vis-à-vis the chief executive, namely: partner, mentor, adviser and occasionally provider of services or resources. In their view good chairs partner with CEOs in defining the board’s agenda, in managing communication with shareholders, and in planning and preparing CEO succession. The former serve as mentors to the latter, helping them run the company and/or develop specific skills. In contrast to the chairs in our sample, the CEOs believe that industry knowledge is essential for good chairs, who must advise their chief executives on such issues as business strategy, regulatory issues, senior appointments and capital investments. They also help CEOs to fulfil their duties by occasionally speaking on behalf of the company to external stakeholders and the media, engaging with regulators, and meeting with key customers and suppliers. Some observer-CEOs also mentioned that their chairs introduced them to important people in business and government, thus sharing their social networks with the chief executive. Observer-shareholders emphasized the critical importance of a healthy relationship between the chair and the CEO, with some adding the CFO into the equation. For them, effective chairs use a variety of practices: they

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know the company’s business inside out (by maintaining intense communication with CEO, CFO and internal and external auditors); they attract the chief executive’s attention to potential problems and opportunities; they provide feedback on a regular basis; and they mentor the CEO or have another board member play this role. One private equity investor shared his perspective: In the companies we invest in we have very effective chairs. They sit down with their CEOs every month for an hour or two. This conversation always includes feedback to the CEO, business updates and discussion of upcoming events. They also translate our expectations to the CEO. And they disrupt the CEO and management team by asking difficult questions.

We found a noticeable difference between institutional shareholders, on the one hand, and private equity capitalists, on the other hand, with regard to the chair’s role in CEO evaluation and succession. The former believe it is the responsibility of the board, while the latter consider it the business of the chair.

Other Challenges and Practices The COVID-19 Challenge COVID-19 changed the context in which chairs of UK boards operate overnight. As one chair put it: “The COVID-19 pandemic created unprecedented challenges for me and my boards, but also unprecedented learning opportunities. My personal learning curve has not been so steep since my university years ”. Another respondent called the pandemic “a test of our board’s maturity, which we could not fail ”. Board leaders quickly—and in most cases smoothly—overcame the challenge of conducting board meetings by moving into Zoom/Teams/Skype format. One chair explained: For a couple of years I was trying to move some of our board and committee meetings online, but my directors resisted. Now they joke that I have provoked COVID-19 to make them do it. But they all learned how to use the technology quickly.

The online format brought some changes to the board process. Rather than trying to reproduce face-to-face meetings, experienced chairs

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designed their sessions specifically for the virtual format. One shared her approach: “My online meetings are shorter (never more than two hours). I insist on directors’ preparation and allow very little time for presentations , I encourage board members to be brief and I am more involved in the process ”. Many chairs followed a similar approach, increasing the frequency of meetings and reducing their length, especially during the first three months of the pandemic. Another COVID-19-related challenge that many chairs had to deal with was a lack of health, safety and epidemiology expertise among board members, who now had to understand the risks of the pandemic for their companies. Mitigation strategies included: inviting external experts to virtual board meetings; creating COVID-19 subcommittees charged with the task of acquiring relevant knowledge and sharing it with the rest of the board; seminars for board members; and chairs immersing themselves in the subject. Although the challenges of moving online and developing COVID19 expertise were significant, our respondents considered them technical. Two other substantial challenges were harder to deal with and required significant intellectual and emotional effort. The first was to find the right place for the board in the unfolding crisis. As one chair explained: When the uncertainty is so high, you ask yourself: where should we be? Should we roll up our sleeves and dive into the business as some crisis management theories suggest? Should we stay on the sidelines, let CEO manage the crisis and observe as other theories recommend? I was trying to answer these questions myself, but then I put them to the board. We had several discussions and we found what I believe was right for us.

The survey that we conducted in May–June 2020 showed that, while some boards increased their engagement and some distanced themselves from the business, most UK boards retained their role and their level of engagement. One chair said: When the pandemic struck, we asked ourselves a question: “Are our current CEO and the management team fit to manage through this crisis?” We had a good long discussion and we said “yes”. After we made that decision it became clear that we as a board needed to continue what we did before: support, challenge and oversee the management. The crisis shortens the feedback loop, but it does not change the nature of board–management interaction.

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The second substantial challenge our respondents spoke about was the physical and mental health of board members and senior executives, especially the CEO. One chair explained: “I feel it is my responsibility to look after the health of board members. I introduced some simple measures to keep them safe and sane. I also increased the frequency of one-to-one interactions to show my empathy and support ”. In addition to making directors’ health a top priority many board chairs initiated reviews of succession plans to enhance the length of the talent bench in their companies. As one of them put it: “Together with the CEO and VP of human resources the board took a close look at seven key executive positions, identified two backups for each of them and drew up development plans for these managers ”. COVID-19 put a significant strain on board leaders in the UK. As one of them explained: “I had to reorganize the board’s work, provide support for the directors and the CEO, learn something about the virus and stay positive. Initially I trebled my time commitment to the three boards I chair, but since June I have worked less ”. Another chair recounted a similar experience: “From the first days of March, when I realized how serious the situation was going to be, I said to all directors and senior executives that I was available 24/7. And we had meaningful conversations at 11 pm and 2 am more than once”.

During the pandemic effective chairs demonstrated personal resilience, which in turn made their boards more robust. According to our respondents “sense of duty”, “passion for the company”, “responsibility for the board”, “physical exercise”, “meditation”, “time with family” and “sense of humour” were the key factors that boosted their personal resilience during the tough times. On a more practical level, COVID-19 accelerated the adoption of technology by British boards. In the future, a hybrid format whereby some meetings are held face-to-face and some online will become the norm. Chair Succession The corporate governance guidelines say little about the role of the incumbent in the process of identifying and preparing a successor. Some academic scholars advocate active participation of the incumbent chair

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in planning and preparing for his or her succession.33 Attitudes among respondents differed remarkably—from “I have thinking about it from the day I became a chair” to “I should not mess with it; a senior independent director will organize the process when the time comes ”. One fascinating story of succession deserves to be reproduced here in full: When I had to go through that for the first time, I looked at the Code and found nothing there. I spoke to other chairs and executive search consultants. There was no clear formula so I invented my own. First, I wrote a memo to all directors indicating my intention to step down and asking if they were interested in the position. Two said “yes”. In the memo I made it clear I should have no say in choosing my successor, but I would organize the process. I put together a committee of two independent directors (those who did not want to be considered) and the CEO to oversee the process. They developed a profile (and ran it by me) and hired an executive search firm. Together with the headhunters they assessed three external and two internal candidates, and picked one from within. We sat down with him few times before I left and it worked very well.

Observer-shareholders expressed strong views on the subject of chair succession. One private equity investor evaluates all the chairs of the companies his business has invested in and proactively helps to choose a candidate for succession. He is also constantly scouting for potential chairs. Similarly, a representative of a family business explained that the family “owns ” the chair’s succession in its companies and only involves the incumbents when necessary. “Regulatory Mountains” and Strategic Focus A number of directors and CEOs (although none of the chairs we interviewed) pointed to a final challenge and described some practices for dealing with it. As one of the observer-CEOs put it: Corporate governance regulation is constantly evolving and has become increasingly complex and detailed. There is a real risk of boards becoming box-ticking machines. Good chairs see this risk and find the right balance between what is prescribed and what is important for the company.

33 Wertheimer, M. (2008). The Board Chair Handbook. Washington, DC: BoardSource.

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Effective chairs manage this challenge by familiarizing themselves with the relevant laws and Code requirements. They actively collaborate with the corporate secretary, delegate what can be delegated, deal with technical matters in an efficient manner and systematically put on the board’s agenda such items as: macro and industry dynamics; company strategy; organizational reputation; risk management; and leadership talent development and succession.

Summary: A Profile of the Chair in the UK In the UK, chairs have two circles of interaction, both fairly small. The inner circle consists of a dozen or so board members, including the CEO, CFO and sometimes one or two other executives, and the company secretary. The outer circle includes large shareholders, company managers, and in some cases important customers or vendors, representatives of regulators, the media and professional associations. The chair interacts with the members of the inner circle relatively frequently, meeting face-to-face every one to two months and remaining in regular communication in between. Meetings with the members of the outer circle happen a few times a year. An unexpected finding of this research was that one of the most popular ways in which UK chairs accomplish their business is… to share a good meal! They eat out with board members, executives, shareholders and other stakeholders at business breakfasts, tête-à-tête lunches, afternoon tea or group dinners. This may have something to do with London’s recently acquired reputation as a global culinary destination, but we believe that it reflects the importance of personal relationships for the job of the chair and the British tradition of fostering them through a shared meal. While the COVID-19 lockdown made this practice impossible, as soon as restaurants, cafes and pubs reopened chairs resumed mixing business meetings with meals and drinks. In the UK context, effective chairs are important figures but they stay out of the public eye. The chair is responsible for and represents the board, while the CEO is responsible for and is the public face of the company. Chairs are accomplished professionals with strong views, but they lead without taking up much space and avoid the limelight. They lead board members and executives by engaging them in a collective effort; creating an environment for effective collaboration; and encouraging

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productive behaviour by providing feedback and opportunities for collective and individual learning and development. They do not give orders or issue directives; instead they steer or nudge followers by setting agendas, framing discussion items, soliciting opinions and seeking and providing feedback. They set clear expectations and establish rules, but the latter serve as guidelines rather than set-in-stone laws. Chairs provide exemplary leadership by consistently displaying the attitudes and behaviour they expect others to adopt. “Indirect” is probably the most accurate term to describe their leadership style. Yet when required—in times of crisis—they step forward, assume responsibility and demonstrate hands-on leadership. As one observerdirector recalled: When a competitor launched an unexpected hostile takeover bid, the chair of our board moved into the company offices for three weeks and worked with the CEO and other directors day and night to defend the company. His dedication energized everybody else and became one of the key success factors.

According to our respondents, understanding that such situations may occur and being mentally ready to take an active role is integral to the effective British chair’s mindset. While not seeking the limelight, they are passionate about the companies they chair and ready to go the extra mile to serve them. COVID-19 proved that effective chairs combine engagement and commitment with an ability to stick to their role and stay within the boundaries. This chapter describes effective board leaders, but our research also demonstrates that there are many chairs of British companies who do not fall into this category. They lead dysfunctional boards that provide management with poor oversight and guidance or have strained relationships with shareholders and other stakeholders. We have identified four factors that reduce the effectiveness of these board leaders, who in most cases have similar personal and professional backgrounds to those of high-performing chairs. The first factor is time devoted to the role. According to the observers, chairs who spend fewer than 30 full days a year doing their job during “normal times” or who cannot fully dedicate themselves to it during times of crisis just cannot get it right. Time commitment is one of the reasons why celebrity chairs (defined as people chairing more than three boards)

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are becoming extinct in the UK. The second factor is personal ego and the inability to manage it. As one director explained: Unfortunately, I was a member of several boards chaired by larger-thanlife characters. These leaders turned board meetings into a one-man vanity fair, alienated directors and undermined collective decision making. Some of them were very bright, but they presided over weak boards that were unable to collaborate effectively.

The third factor is the chair’s mental model about the board, its role and modus operandi. Our observers had participated in “managing” boards that dived deep into operational issues, “ceremonial” boards that were content to rubber-stamp management decisions, “confrontational” boards that were constantly undermining executives and other dysfunctional models, most of which stemmed from their chair’s misguided ideas about what a good board looks like. The last—but far from least—reason for inadequate board performance revealed by our research is the chair’s lack of the skills and competencies required to use the productive practices that we have described throughout this chapter. Corporate governance—where rapid change is not always welcome and tradition plays an important role—will continue to evolve in the UK. Looking ten years ahead, we expect to see the following trends with regard to board chairs • They will concentrate even more on the board and stay out of the limelight. • They will put in more hours and have fewer directorships, although there will be very few executive or full-time chairs. • The relationship with the CEO will remain a top priority. It will be more intense, and evolve towards partnership, mutual mentoring and collaborative work. • Board leaders will become somewhat younger. • Around 20% of chairs will be filled by women. • Most chairs will continue to come up through the CEO school, but more of them will have backgrounds in consulting, academia and technology.

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• They will lead indirectly: engaging, enabling and encouraging directors through nudging, creating an environment of mutual respect and trust, and “walking the talk”. • Risk management, employee health and safety, environmental issues, sustainability and social responsibility will take a more prominent place in board deliberations. • Boards will take chair succession more seriously. The UK code will formulate comprehensive guidelines, and incumbents will have more say in the process. • Technology will become what sharing a good meal is today: a stable platform for leadership. Many board and committee meetings will be held online, but face-to-face board sessions will survive. Chairs will use technology extensively to communicate with directors outside of the boardroom, but meetings in the pub will remain an important practice.

References Financial Reporting Council (2018). The UK Corporate Governance Code. Available from: https://www.frc.org.uk/getattachment/88bd8c45-50ea4841-95b0-d2f4f48069a2/2018-UK-Corporate-Governance-Code-FINAL. pdf [Accessed 1 December 2020]. Finkelstein, S. (1992). Power in Top Management Teams: Dimensions, Measurement, and Validation. Academy of Management Journal, 35(3), 505–538. Heidrick & Struggles (2014). Towards Dynamic Governance 2014: European Corporate Governance Report. Available from: http://www.heidrick.com/ Knowledge-Center/Publication/European-Corporate-Governance-Report2014-Towards-Dynamic-Governance [Accessed 1 December 2020]. Kakabadse, A. P., Kakabadse, N. K. and Knyght, R. (2010). The Chemistry Factor in the Chairman/CEO Relationship. European Management Journal, 28(4), pp. 285–296. Kakabadse, A., Kakabadse, N. and Myers, A. (2008). Chairman and the Board: A Study of the Role, Contribution and Performance of UK Board Directors. Cranfield School of Management and Manchester Square Partners. Kakabadse, A., Ward, K., Korac-Kakabadse, N. and Bowman, C. (2001). Role and Contribution of Non-Executive Directors. Corporate Governance: The International Journal of Business in Society, 1(1), pp. 4–8.

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Kakabadse, N., Knyght, R. and Kakabadse, A. (2013). High-Performing Chairmen: The Older the Better. In: A.Kakabadse and L. van den Berghe, ed., How to Make Boards Work. London: Palgrave, pp. 342–349. Lee-Davies, L., Kakabadse, N. K. and Kakabadse, A. (2007). Shared Leadership: Leading through Polylogue. Business Strategy Series, 8(4), pp. 246–253. McNulty, T., Pettigrew, A., Jobome, G. and Morris, C. (2011). The Role, Power and Influence of Company Chairs. Journal of Management and Governance, 15, pp. 91–121. Meyer, E. (2014). The Culture Map: Breaking Through the Invisible Boundaries of Global Business. New York: PublicAffairs. Office for National Statistics (2020). GDP First Quarterly Estimate, UK: April to June 2020. Available from: https://www.ons.gov.uk/economy/grossd omesticproductgdp/bulletins/gdpfirstquarterlyestimateuk/apriltojune2020 [Accessed 1 December 2020]. Office for National Statistics (2020). Public and Private Sector Employment. Available from: https://www.ons.gov.uk/employmentandlabourmarket/peo pleinwork/employmentandemployeetypes/datasets/publicandprivatesectorem ploymentemp02 [Accessed 1 December 2020]. Pettigrew, A. and McNulty, T. (1995). Power and Influence in and around the Boardroom. Human Relations, 48(8), pp. 845–873. Rhodes, C. and Ward M. (2020). Business Statistics. Briefing Paper, 06152. Available from: www.researchbriefings.files.parliament.uk/documents/SN0 6152/SN06152.pdf [Accessed 1 December 2020]. Roberts, J. (2002). Building the Complementary Board: The Work of the PLC Chairman. Long Range Planning, 35(5), pp. 493–520. Shekshnia, S. and Zagieva, V. (2016). Chair Survey 2015. Available from: https://www.insead.edu/sites/default/files/assets/dept/centres/ icgc/docs/chair-survey-2015.pdf [Accessed 1 December 2020]. Shekshnia, S. and Zagieva, V. (2017). Board Chairs’ Practices across Countries - Commonalities, Differences and Future Trends. Available from: https://www.insead.edu/sites/default/files/assets/dept/centres/ icgc/docs/board-chairs-practices-across-countries.pdf [Accessed 1 December 2020]. Spencer Stuart (2019). UK Board Index 2019. Available from: https://www.spe ncerstuart.com/-/media/2019/ukbi-2019/uk_board_index_2019_final_vers ion.pdf [Accessed 1 December 2020]. Stewart, R. (1991). Chairmen and Chief Executives: An Exploration of Their Relationship. Journal of Management Studies, 28(5), pp. 511–528. Udueni, H. (1999). Power Dimensions in the Board and Outside Director Independence: Evidence from Large Industrial UK Firms. Corporate Governance: An International Review, 7(1), pp. 62–72.

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UNDP (2019). Human Development Report 2019: Beyond Income, Beyond Averages, beyond Today. Available from http://hdr.undp.org/sites/default/ files/hdr2019.pdf [Accessed 1 December 2020]. Van der Elst, C.F. (2011). Revisiting Shareholder Activism at AGMs: Voting Determinants of Large and Small Shareholders. European Corporate Governance Institute (ECGI), Finance Working Paper, 311. Wertheimer, M. (2008). The Board Chair Handbook. Washington, DC: BoardSource. The World Bank (2020a). Services, Value Added. Industry, Value Added. Manufacturing, Value Added. Available from: https://data.worldbank.org/indica tor/NV.IND.MANF.ZS?locations=GB [Accessed 1 December 2020]. The World Bank (2020b). World Development Indicators. GDP per Capita, in International Dollars. Available from: https://data.worldbank.org/indicator/ ny.gdp.pcap.cd?most_recent_value_desc=true [Accessed 1 December 2020]. The World Bank (2020c). World Development Indicators. GDP Ranking, PPP based. Available from: https://datacatalog.worldbank.org/dataset/gdp-ran king-ppp-based [Accessed 1 December 2020]. The World Bank (2020d). World Development Indicators. GDP Ranking. Available from: https://datacatalog.worldbank.org/dataset/gdp-ranking [Accessed 1 December 2020].

CHAPTER 3

The Netherlands: Nudging Towards a Consensus Mik van den Noort

The Chair’s Work in Context The Kingdom of the Netherlands, often referred to as Holland, has been a constitutional monarchy since 1815. It has over 17 million inhabitants and a population density of 507 people per km2 .1 A fifth of its surface area is water and a large part of the country lies below sea level. It is a parliamentary democracy and a founding member of the European Union, NATO and the World Trade Organization.

1 Statistics Netherlands (CBS) (2019). Population: Key Figures. Available from:

https://opendata.cbs.nl/statline/#/CBS/en/dataset/03743eng/table?ts=160069645 9633 [Accessed 1 December 2020].

M. van den Noort (B) INSEAD, Fontainebleau, France e-mail: [email protected] Kets de Vries Institute, London, UK ESMT, Berlin, Germany © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_3

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Despite its small size, the Netherlands is the fifth largest economy in the Eurozone (with a GDP of US$ 909 billion in 2019),2 the sixteenth economy in the world by GDP per capita3 and in tenth place on the Human Development Index.4 The economy is made up of a highly developed agriculture sector, a sophisticated services sector and significant international trade. About 1.2 million businesses in the Netherlands employ more than 5.9 million people.5 Large organizations (of over 250 people) account for 1800 of these firms.6 Family-owned companies play an important role in the Dutch economy—there are approximately 277,000 of them, employing 2.1 million people and generating 27% of all enterprise turnover.7 A system of workers’ representation (ondernemingsraad or works council) is obligatory in any company with more than 50 employees. Public and private limited liability companies in the Netherlands can choose a two-tier corporate governance structure, with separate management and supervisory boards, or a single board composed of both non-executive and executive directors. The one-tier board structure—traditionally viewed as an Anglo-Saxon phenomenon—was formally introduced by Dutch law on 1 January 2013, along with certain mandatory rules. However, a very small number of Dutch companies had a one-tier structure before 2013, based on specific clauses in their articles.

2 The World Bank (2020). World Development Indicators. GDP Ranking. Available from: https://datacatalog.worldbank.org/dataset/gdp-ranking [Accessed 1 December 2020]. 3 The World Bank (2020). World Development Indicators. GDP per Capita, in International Dollars. Available from: https://data.worldbank.org/indicator/NY.GDP.PCAP.PP. CD?year_high_desc=true [Accessed 1 December 2020]. 4 UNDP (2019). Human Development Report 2019: Beyond Income, beyond Averages, beyond Today. Available from: http://hdr.undp.org/sites/default/files/hdr2019.pdf [Accessed 1 December 2020]. 5 European

Commission (2019). SBA Fact Sheet. Netherlands. Available from: https://ec.europa.eu/docsroom/documents/38662/attachments/21/translations/en/ renditions/native [Accessed 1 December 2020]. 6 Ibid. 7 Statistics Netherlands (CBS) (2017). Family Business in the Netherlands. Available from: http://www.europeanfamilybusinesses.eu/uploads/Modules/Publications/net herlands-fam-bus.pdf [Accessed 1 December 2020].

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The Dutch Corporate Governance Code was established in 2003 by the Tabaksblat Commission, and it was revised in 2008 by the Commission Frijns. The Code was further revised by the Van Manen Committee in 2016, and the current version entered into force on 1 January 2017. Based on “comply or explain” principles, companies have to report on observance of the Code in their annual reports. Board structures in the Netherlands are complex and highly regulated, although the Code lists no specific responsibilities for the chair. Directors are both individually and collectively liable if the board acts in an improper or illegal manner. The composition of a supervisory board is required to be such that all members can be critical and can act independently of one another, of the management board and any personal interests. The two pillars on which good corporate governance is founded and which traditionally form the basis of the Code are: • good entrepreneurship, which implies integrity and transparency on the part of the management board and • effective supervision of the management board’s actions, which demands expertise on the part of the supervisory board. These factors are regarded as essential for stakeholder confidence in both executive and non-executive directors.8 Larger companies—defined as any entity with more than e16 million in charter capital, at least 100 employees and a works council—must adhere to the structuurregeling (structure regime). This gives the works council strong rights of recommendation in the appointment of onethird of supervisory board members. Furthermore, for Dutch companies with a majority of employees in the Netherlands, the supervisory board appoints and dismisses senior managers, and approves major management decisions. While this significant—if indirect—representation of employees at the board level may explain why there are relatively few large companies in the Netherlands, the system makes for a highly skilled, highly motivated workforce that is largely aligned with company goals and targets. The Dutch productivity rate is surpassed only by the Japanese and the Swiss. 8 Corporate Governance Code Monitoring Committee (2016). The Revised Dutch Corporate Governance Code. Available from: https://www.mccg.nl/?page=4738 [Accessed 1 December 2020].

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Existing Research A study of the impact of the introduction of the Dutch Corporate Governance Code on the role of the board chair reveals that chairs have become increasingly involved in both their control and service duties. While the demographics (e.g. age, tenure, gender and nationality) of chairs have changed, chairs are also spending considerably more time on boards and committees, have reduced the number of board interlocks and have become more active in the wider discussion of corporate governance.9 Data on corporate governance at the top 100 listed companies in the Netherlands between 1997 and 2005 show that the emphasis has shifted from external service to internal service, that is, the task of providing advice and counselling to executive directors is growing in importance. This shift in responsibilities also affects the process for selecting nonexecutive directors—instead of selecting non-executives mainly on the basis of their external board networks, other qualifications may be more important.10 Information asymmetries and dysfunctional working relationships between non-executive and executive directors, as well as the difficulty in scrutinizing the performance of executive directors, are among the greatest challenges indicated by non-executive directors on Dutch supervisory boards.11

The Netherlands Culture Map The Dutch supposedly practise “applications-first” reasoning (deriving rules from real-world observations) as opposed to “principles-first” reasoning (deriving conclusions from general principles). However, Dutch

9 Bezemer, P.J., Peij, S.C., Maassen, G.F. and van Halder, H. (2012). The Changing Role of the Supervisory Board Chairman: The Case of the Netherlands (1997–2007). Journal of Management & Governance, 16(1), pp. 37–55. 10 Bezemer, P.J., Maassen, G.F., Van den Bosch, F.A. and Volberda, H.W. (2007). Investigating the Development of the Internal and External Service Tasks of NonExecutive Directors: The Case of the Netherlands (1997–2005). Corporate Governance: An International Review, 15(6), pp. 1119–1129. 11 Peij, S.C., Bezemer, P.J. and Maassen, G.F. (2012). The Effectiveness of Supervisory Boards: An Exploratory Study of Challenges in Dutch Boardrooms. International Journal of Business Governance and Ethics, 7(3), pp. 191–208.

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directors and other respondents in our research seem to place great value on the chair setting formal rules and keeping meeting schedules on time. The Dutch tend to be highly consensual, which means that chairs prefer to ensure unanimous decisions. One way of achieving this is to consult every board member during pre-meetings (in person or by phone). However, the Netherlands is also known for its “low-context” style of communication: precise, simple, clear and direct. In Dutch culture, messages are expressed and understood at face value, and open confrontation does not negatively impact relationships. On the basis of this assessment, we hypothesized that during meetings Dutch chairs would not hesitate to confront directors openly if a positive effect on the team was expected. Yet most chairs admitted that they would prefer to have a critical conversation with a board member outside the boardroom. In the Netherlands’ task-based culture, chairs and those who work with them value a strong focus on taking actionable decisions. It is comparatively easy to replace underperforming executives and directors, based on the practicality of the situation. However, Dutch boards are rigid in other respects: chairs stick to scheduled timings, plan board meetings years in advance and have a strict agenda, all of which is highly appreciated by those around them (see Fig. 3.1, and also Appendix A).

Data The INSEAD Global Chairs Research Project 201612 was the original source of data for this chapter. Within its framework, we interviewed five experienced Dutch chairs, one woman and four men. Together they have chaired the boards of 18 organizations, including a listed multinational consumer goods company, a listed airline, an international business school, a provincial water company, a national federation of employers, a transport holding, a national safety academy, a confectionary company and a regional waste transport organization. Our first group of interviewees chaired the boards of seven companies, varying in revenues between e60 million and over e1 billion—and all with two-tier governance structures. One chair is a high-ranking 12 Shekshnia, S. and Zagieva, V. (2017). Board Chairs’ Practices across Countries— Commonalities, Differences and Future Trends. Available from: https://www.insead. edu/sites/default/files/assets/dept/centres/icgc/docs/board-chairs-practices-across-cou ntries.pdf [Accessed 1 December 2020].

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Fig. 3.1 The Netherlands Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs])

government official. One is the owner of a holding company with three subsidiaries in retail and property. One combines membership of a holding board with chairing a subsidiary and the CEO position of another subsidiary. Another combines his role as chair with the post of CEO in a different and entirely unrelated company. The most senior of them recently has retired from most of his board positions and now chairs one family board only. For this book, we interviewed a further four chairs, all female, to look into possible differences of approach by gender. These women chair, among others, a listed specialized food group, an education conglomerate, a family-owned building materials company and a health research organization, all with two-tier governing structures. All the newly interviewed chairs combine their chair role with non-executive directorships in other organizations. On average, respondents have served in their current chair positions for four years, the maximum being ten years and the minimum one year. The boards they chair consist of three to five directors and they meet four to twelve times per year.

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In general, there appears to be a difference between family-owned and non-family owned companies in terms of the time served by the chair. In non-family businesses, two terms of four years are considered “long enough”, whereas in family businesses it takes more time to build knowledge about family relationships and sensitivities, and to gain respect. Here, a tenure of between 8 and 12 years is considered the norm. In addition to the chairs, we interviewed three CEOs, three experienced independent directors and three representatives of shareholders, in order to gain a 360-degree perspective on the work of a chair in the Netherlands (together, we will refer to them as observers). The CEOs (three men) had 14 years of combined chief executive experience at public, private and semi-governmental companies. The directors (one woman and two men) had worked with 11 chairs over the course of their careers. The shareholders (three men) represented an investment fund, a family holding and a venture capital company, all having worked with a number of chairs.

Priorities for Dutch Chairs Most chairs interviewed stated that “taking the organization to the next level ” was their top priority. This may be a reflection of the Dutch entrepreneurial spirit and the level of the chairs’ involvement in the success of the companies. From the interviews, it appears that all the chairs have close working relationships with executives, in terms of setting the strategy, determining the organization/structure of the company, achieving the right composition of the board and fostering links with shareholders and board members. Nurturing the relationship with shareholders (with regular personal contact) and collaboration among board members was seen as an absolutely indispensable task for chairs. In dealing with shareholders, all respondents said that they strived for a balance between involvement, fairness and independence. All sought to be seen as proactive in their contacts with shareholders, as well as receptive, nonpartisan and always looking out for the interests of the organization. The less strict governance rules for the family-owned companies covered by the survey allowed for even more frequent interaction between the chair and shareholders, which is considered by all parties as “essential”.

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One independent chair of a family company considers one of his top tasks to be mentoring the next generation of owners—with their full support. He is currently working with five relatively young family members, keeping them informed about the business and grooming them for the future: “I have given the family a long-term commitment to take the company to the next level.” Another says: “My most important task is to assure that board members and the executive team (most of them are family) get along harmoniously”. The female chairs appear to take a special interest (compared to their male counterparts) in the well-being of people in their organizations. However, this may have something to do with the recent developments around COVID-19. Interestingly, all of the female chairs talked about “a new definition of growth and success”: growth does not necessarily mean “bigger or more”, but it does mean “more sustainable”. Relationships with Shareholders Dialogue between the board and investors is an established practice in many countries, including the Netherlands. It is legal and legitimate, in both the one-tier and the two-tier systems, but it has three main drawbacks: the possibility of insider trading and market abuse; the creation of company secrets, for example, about developments that may make investors unnecessarily nervous and the difficulty of treating all shareholders equally. While investor relations are primarily the responsibility of the CEO, the chair of the supervisory board is also expected to be available—within reason—to discuss board-related issues with investors. In the Netherlands, this dialogue is not restricted to the overall chair of the board, but extends to committee chairs, senior independent directors and sometimes all directors. The observer-shareholders in our survey unanimously agreed that effective chairs put the interests of the company first. For the observershareholder of a venture capital company, this is all the more important because different shareholders may have different interests and/or hidden agendas. In practice, Dutch chairs balance the various interests of each type of shareholder—and make it apparent that this is what they are doing. They also create a general culture and specific opportunities for every board member/shareholder to voice an opinion. It is also important, according to the observers, that the chair is actively involved in discussions about how and where to raise new funds for the

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company. One notable practice in the Netherlands is that the chair not only steers this process but is also actively involved in shaping the content of the discussion, while remaining neutral. Most important in the eyes of one family shareholder interviewed is that the chair shows an ability to weigh the different (and sometimes competing) interests of the company and the family. This means having a relatively long time horizon: the chair needs to anticipate themes that may play out in the next 15 years and schedule these on the board agenda. The chair in a family-owned company also needs to show that he/she has an eye for both rational (company) matters and emotional (family) matters, that are sometimes “undiscussed”—all the more so when a family is large and globally dispersed. Similarly, one Dutch investor in a non-family company compared the chair’s role to that of a “diplomat”: being able to navigate the maze of different shareholders’ interests and reach (or sometimes “force”) a decision. In short, the effective chair is neutral and stands above the different parties. Relationships with the CEO and Management Investing in the relationship with the CEO is important for all chairs, and those of the Netherlands is no exception. Their interaction with the CEO is frequent: all the chairs we surveyed have an open-agenda meeting or a phone conversation every two to three weeks. One calls himself “a sparring partner” for the CEO: they meet every four weeks and talk about current business issues. Another has weekly Skype meetings with the CEO. All said that mentoring should come naturally rather than being forced, and thus it could never become an official duty for the Dutch chair. One respondent summed up the situation in the Netherlands: For me it is important to have regular conversations with the CEO, who can then ventilate his topics or his concerns. I can then see whether the relationship between the CEO and his team in the organization is healthy… I have also made it a habit to talk to each of the executive team members once annually in a one-on-one conversation.

All the chairs we spoke to said that developing company strategy is the CEO’s business: the board should simply “endorse it”. However, they were also willing to help by listening and challenging assumptions.

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When necessary, they connected the CEO with experts and, in some cases, shared their own personal experiences. In the eyes of one observer-CEO, one of the most important qualities of the chair is: “asking inspiring questions that help me sharpen, deepen and broaden my thoughts about the company today and about its future”. All the observer-CEOs in the study appreciated informal meetings over coffee with the chair. Some also asked for informal feedback. The relationship can in most cases be characterized as a “learning relationship” the chair can be the coach, sparring partner and sounding board for the CEO, but there are clear boundaries between this role and the more formal function of being the CEO’s boss. All the observer-CEOs we interviewed believed that it was important not to limit their relationships with the chair to “business issues” only. One gave the example that he had forgotten to invite the board on a whole-company outing to the beach. He informed the board on the morning of the event, apologizing for this late invitation. It was a sunny day and the chair turned up with his wife, both on bicycles, to join the party. In general, Dutch CEOs seem to appreciate the involvement of chairs and the genuine interest that they show in the company, as well as the specific knowledge and experience that they bring to the table. One CEO was particularly grateful for the fact that the chair has an extensive business network and actively connects him to members who might be of business value. Another said that he regularly invited his chair to talk to the members of the management team because “it strengthens the connection between the chair and the company and gives additional information on both sides ”. Ensuring Good Relationships Between Board Members “The role of a chair is to be a chair”, were the opening words of one interviewee, followed by: It is a disaster to have a weak chairperson. It is hopeless when discussion remains vague – which can happen when there is lack of meeting technique or lack of courage. The chair’s task is to prepare and “conclude” and come to decisions. This means making a clear meeting schedule, having all relevant papers ready in time, distinguishing between subjects that need discussion and

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subjects that need a decision, and sticking to the agreed time/duration of the meetings.

The observers unanimously said that the chair’s ability to prepare and plan a meeting, to lead the discussion about “touchy” subjects, and to connect, listen and create space for a meaningful dialogue, are essential for a well-functioning board. These are also essential elements of Dutch culture. Our chairs considered the quality of their fellow board members to be high, although in some cases it had taken time and effort to reach this level. One had been given the specific task of “shaking up” an oldfashioned board and was working on replacing a certain member in a dignified way, giving him “limited time to speak” at board meetings yet handling the situation respectfully. In dealing with members who are “special cases”, Dutch chairs appear to act tactfully but firmly, “challenging” them until the end of their term and setting clear boundaries during meetings to preserve the quality of discussions. One respondent, who is a former chair of a multinational listed company, explained: “My board members were extremely busy people. As chair I felt I had to ensure that coming to the Netherlands was seamless for them: it made it more attractive to come to our board meetings ”. One of the observer-directors stated that for him it was important for the chair to have his or her own “peer network” in order to exchange knowledge and experience regularly, but also to address personal doubts about his or her own mental agility and judgement. He believed that having a sounding board outside the boardroom had a positive influence on the dynamics inside the boardroom. Making Good Collective Decisions Our respondents use similar strategies or tools to be effective in the premeeting, meeting and post-meeting phases of chairing a board. Pre-meeting All the chairs we interviewed invested time and energy at the pre-meeting stage to ensure that directors were motivated and well prepared. Some had informal telephone contact with their directors before each board meeting; others started the board meeting with 30 minutes of informal discussion. As one respondent put it: “I want to know what’s on their

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minds and what their current concerns are. It is a way for all of us to clear our hearts and minds before the official meeting starts, without the executives present ”. All the chairs emphasize the importance of exchanging information with their fellow board members before the board meeting, for the benefit of the dialogue in the boardroom. Preparatory phone calls can last one hour per member when complex or difficult decisions need to be taken. As one says: “It is important that the board comes to the table in unison. We need a good dialogue; we do not fight in the boardroom or stick to our individual opinions ”. Another says: “Opinions may differ, but showing dysfunctional behaviour during the meeting is not the done thing: we need to show a consistent image towards the executive board members ”. She added: “Sometimes we need a short talk afterwards in order to smooth things over”. Chairs also reach out to board members before the meeting in order to “re-engage them” and help them concentrate on the upcoming board meeting. Pre-board lunches are used to review the agenda and ensure that everyone is on the same page. Most favour lunch with non-executive members only; others extend it to executives. The quality of materials is seen as critical for effective board work in the Netherlands. Our chairs strive for limited volume, clarity of information and sufficient time to study materials. Some of them define the format; some co-define it with the CEO. All of the chairs we interviewed check the materials before they are sent to other board members. To improve directors’ knowledge of the company and its business, some chairs encourage and facilitate company visits. These can include meetings with employees and customers. Leading the Meeting “Some subjects need only the stroke of a hammer, others need longer discussion”, in the words of one chair—who added that items on the agenda should be “relevant to our task” and “ripe for decision”. All of the respondents said they partnered with their respective CEOs to set the agenda. In some cases, they invited other directors to review the agenda and pitch ideas. There is a general agreement in the Netherlands that for the board discussion to be fruitful, it has to involve all board members. The chair’s task is to create an atmosphere for productive exchanges. As one put it:

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The fine art of the role is to be the performance director (regisseur). I need to think very clearly about who talks first and who talks last about the specific topics. Who is irritated by whom or what? Who is brooding about what? I need to be very alert in recognizing body language.

Commonly used strategies to achieve a productive dialogue include equal treatment, discussion facilitation and self-restraint. All the chairs in our study allocate the same amount of airtime to each board member. The typical Dutch cultural element of reaching consensus (“polderen”) is the norm. One chair commented: “Sometimes it is better to postpone a decision when things are too complex; a bit more reflection on the topic often helps ”. To engage the more “silent” board members, Dutch chairs solicit their opinions before the meeting and present them on their behalf, acknowledging the source. Asking each director to state his or her opinion is another way to ensure diverse opinions in the dialogue. When conflict or disagreement threatens to emerge, chairs consider it their responsibility to take avoiding action: “The board is there to take decisions, not to dwell for a long time on possible disagreement. That’s not what we are here for”. Or from the perspective of one observer-director: “It usually helps, when there are conflicts between directors, that the chair talks with the ones involved before or after the board meeting, painting the bigger picture. Usually conflicts don’t last long after being addressed”. Withholding their own opinions is another way chairs promote trust and make room for all participants’ points of view. All the chairs surveyed said that they “speak the very last”. One says: “My task, but also my pleasure, is to distil from numerous statements and opinions one clear line, in which everyone recognizes him/herself ”. Post-meeting All chairs conduct some sort of evaluation at the end of each board meeting (in the absence of the executive board), believing that it reinforces mutual respect, builds trust and helps members to learn and improve. Among the questions they ask directors are: “What did you notice? What will you take home to reflect about?” One respondent makes a point of informing the CEO (in general or specific terms) about what has been said during this evaluation: “The

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evaluation never takes longer than 30 minutes . Time boundaries are important here, because I don’t want the CEO to think that we are discussing ‘important’ issues in his absence”. Work with the whole board is complemented by one-to-one chair– director interactions. One chair invites every board member for lunch once a year. Another has Skype conversations every six weeks. As one respondent points out: “They should feel that you are available and you care about their contribution”. None of the chairs considers informational asymmetry with the CEO and management to be a significant challenge. The working relationship with the CEO is open and effective. One described how “quite important in my relationship with the CEO, who is also a majority shareholder, is to help him keep his two roles separate. This leads to heated discussions sometimes ”. Other methods include “asking the CEO to write a monthly one-pager for me”, “meetings with the CEO’s direct reports ” and “company conferences ” to improve directors’ feel for what is going on in the company. The time commitment demanded of board members was a non-issue for the chairs in our study: a specific number of days is a “part of the deal”. One said: “I promote a healthy work-life balance with my fellow board members but also with the CEO and his team. Some need to be pushed away on vacation and sometimes I have to push them to look broader than just the organization”. If board members have a tendency to assume that the chair “will take care of everything”, this attitude is discussed in the annual evaluation. Board Evaluations Conducting board evaluations is officially part of the rules and regulations. The Dutch Code recommends the use of external specialists to conduct annual evaluations, but as one respondent noted: “I prefer to do the evaluation myself because I think it makes us stronger both professionally and in our interactions as board. Besides, I enjoy getting a lot of additional information, with is valuable input for my role”. This chair uses his own format with the opening question, “How do you consider that we have worked as a board in the past year: what went well and what did not go so well?” and lets each member speak his/her mind. The next questions are: “What could I do more of or do better next year in my role as chair?” and “What do you want to do more of or do better next year?”

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One chair chooses a very different way of dealing with the annual evaluation: “I leave the room and let the vice-chair lead the evaluation. I like it this way, but I know that some of my colleagues don’t do it this way”. Chair succession is a critical issue in the family-owned companies chaired by our respondents. A lot of time, money and effort is spent on grooming the next incumbent for the task, including sending possible successors on national or international courses on governance. Only one of the five chairs interviewed for this project had recently been actively involved in finding a successor for his position. Another, who is an experienced independent chair, has never participated in her own succession: “I do not want to rule over my grave”. The procedure for chair succession in the venture capital company included in our study forms part of the written shareholders’ agreement: shareholders have nomination rights for any new chair.

What Else Do Chairs Do? At times of crisis or other unusual events, the intensity of Dutch chairs’ involvement and interaction with the board increases. As one of them says: “It helps enormously to fit in 15-minute phone updates as often as possible. It contributes to trust and commitment among the board members ”. Building relationships with external stakeholders, such as clients, suppliers or government, is not seen as the responsibility of the chair, although some exceptions to this rule might be agreed with the CEO. For example, the chair of the hospital in our study is specifically tasked with interacting with the media on a regular basis: “The chair is the public spokesperson of the organization and needs to be capable of reacting publicly in a responsible way”. Similarly, the former chair of a multinational public company was invited by the majority shareholder to deliver an official speech after the Christmas dinner for the top 150 executives of the company: “It felt a bit like stepping out of my role, but I also felt honoured and we ended up having a great evening ”. How Do Chairs Learn? National directors’ associations have long provided specialized education for boards in the Netherlands. Degree-level education, whether at Dutch universities or international business schools, is the norm as well as

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“obligatory” corporate governance education, specialized in certain areas (healthcare, charities etc.). The general opinion of the chairs we interviewed is that the standard education, apart from in governance subjects, is not particularly innovative nor up-to-date. So how do chairs learn when they are in post and how do they encourage their fellow board members to continue to learn and develop in their roles? All the chairs in our sample report spending time on their professional development: they read a lot and attend seminars and masterclasses on different topics (from industry-specific learning to innovation and leadership) at least once a year. “I feel a great need to meet other people, to refresh my mind, to witness innovations and to discuss new developments”, said one. “I go for new content but also for the fun of meeting new people, also internationally”, said another. “It is my task to stimulate an atmosphere of learning in our board”, one chair remarked, while many others reported combining board meetings with learning on a relevant topic. Outside speakers may be invited or a board member asked to share experiences on topics such as innovation, compliance, product development or sustainability. As one chair observed, “I do not interfere with the ‘how’ of the learning of my board members, but I notice when there are gaps and address it when necessary”. Chairs tend to consult a variety of people when they need a sparring partner or advice: mostly professional friends or colleagues. Some consult their spouse first. Discretion is key here: “It is important to have a network around me of people I trust that help me challenge my own assumptions”. These conversations also help chairs to feed their curiosity: “How would you deal with a problem like this?” or even “How have you dealt with this problem?” Sometimes there is no need to seek out a seasoned colleague. “The experiences in my other board roles are the greatest source of inspiration for me”, shares one of the chairs. All of the female chairs in our sample say they are on the lookout for “counter-thinkers ” or that they “organize contradiction” to keep them grounded. Most chairs, male or female, act as mentors for new or inexperienced non-executive directors: “Once you’re in the network this happens almost automatically”. Diversity in the Boardroom Considerable efforts have been made to achieve gender diversity in the Netherlands and the effects are beginning to be seen in the boardroom.

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Since 2013, there has been a statutory requirement for at least 30% of directors to be women. Of the 94 listed Dutch companies 51 now adhere to this requirement.13 The 43 listed companies who do not comply will need to appoint 54 women in total in the near future.14 The percentage of female non-executive directors on Dutch boards has gone up from 27 to 30% in the past year alone.15 The percentage of newly appointed non-executive female directors grew from 37.5% in 2019 to 42% in 2020.16 Female non-executive board members originate relatively more often from abroad than their male colleagues: 52% of female directors are non-nationals compared to 39% of male directors.17 However, the fact remains that only 5% of chairs of Dutch listed companies are female.18 “No window dressing ”: when new board members are sought, chairs in the Netherlands look for what the new person brings to the table, irrespective of gender, style, nationality, age or personality. They are pragmatic about diversity and see it largely in terms of diversity of mind. “I challenge myself to be aware of my own social background and the blind spots that go with that”, said one chair. Another commented: I realize that the new so-called “diverse” board member can have a difficult start in an existing board. I see it as my responsibility to make sure that all board members support the newly appointed person and the different mindset this person brings to the table.

The general opinion is that different backgrounds, norms, points of view and styles take board discussions to a higher level.

13 Lückerath, M. (2020). The Dutch Female Board Index. Available from: https://

www.tias.edu/docs/default-source/kennisartikelen/femaleboardindex2020.pdf?sfvrsn=d1a cf6dd_2 [Accessed 1 December 2020]. 14 Ibid. 15 Ibid. 16 Ibid. 17 Ibid. 18 Shekshnia, S., Zimina, V. and Zagieva, V. (2020). Putting More Women at the Helm of Corporate Boards. Available from: https://knowledge.insead.edu/leadership-organisat ions/putting-more-women-at-the-helm-of-corporate-boards-13476 [Accessed 1 December 2020].

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All chairs we interviewed saw the need for diversity on the board, in terms of both gender and knowledge/experience. One commented: It is vital for me as chair to be able to have and to use all available experience and professionalism that we need in our board, not just for the quality of our decision making, but also out of respect for the qualities, capabilities and experience of my fellow board members.

None of the chairs or observers interviewed for this chapter objected to “older” chairs (70+), “as long as they have a sound mind”. Nor were there any objections to “younger” chairs (50–), “as long as they have enough time available for the position”. According to Spencer Stuart the average starting age of chairs in leading Dutch companies increased from 57 years in 1990 to 61.5 in 2018.19 The so-called celebrity chair is a rare phenomenon in the Netherlands. However, some chairs are former politicians or public figures and maintain their old networks. As one interviewee explained: “It is professionalism, expertise and network that count, not the fact that somebody is wellknown”. We therefore predict that the main career path to the chair in the Netherlands will continue to go via general management. The Impact of Technology, Digitalization, and Cybersecurity There are believers in technology and in all it involves, especially artificial intelligence, and there are those who are afraid of it. In any organization, both groups need to be addressed—and this starts with the board. Chairs and board members have to acquaint themselves with the implications of new technological developments for the company. One of the chairs in our sample confessed, however: Beware: [technology] is material for the younger generation. No matter how much you read or learn about it, when you reach a certain age you will never get into it fully. You need to be able to ask the right questions at the right time to the right people.

19 Spencer Stuart (2018). The Chairman of the Supervisory Board in the Netherlands. Available from: https://www.spencerstuart.com/-/media/2018/october/netherlandschai rman_sept2018.pdf [Accessed 1 December 2020].

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When chairs are asked about the impact of technology, digitalization and cybersecurity on their work, the answers are diverse. It is “on the agenda” of all interviewed chairs and directors, in the form of both brief updates and so-called “deep-dives”. For some boards and their executives, it is top of mind (especially in banking, media, and energy) and for others it is driven by the situation. Yet all agree that it is growing in importance and urgency, if only because directors are both individually and collectively liable if the board acts in an improper manner. For the chair, this means continuing to ask and discuss the relevant questions in board meetings and in meetings with executives. One chair mentioned having organized with his CEO a technology/cyber game, in order to create more awareness of the subject. The experience of another chair is that the subject had to be “pushed and pulled” by the board in the direction of the company management. In this particular case, the role of the chair was definitely to raise the executives’ sights above their operational responsibilities in order to create awareness of digital “threats”.

Trends and Predictions Chairs were already wrestling with the enormity of the challenges of climate change and sustainability. Now they have to redefine them in the context of the pandemic. All the chairs in our sample consider these three topics both personally and professionally difficult because, as one said: “The issues are so much bigger than we can tackle in our board roles. We cannot deal with this through big ideas, we can only apply a step-by-step approach”. Climate change was until recently a “sexy” subject, but during the pandemic it has receded into the background. Today, few companies seem to want to put it at the top of their priority list today, given the difficult economic circumstances they foresee in the near future. However, as one interviewee commented, “As a board we have the responsibility to convince the executive team of the long term necessity to be more sustainable for the next generation”. Only one of the companies involved in our research includes climate and sustainability in its official purpose. In any case, corporate purpose often reflects society’s fashions. The company in question reported that their purpose had served as an important selection criterion for new— especially young—hires.

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COVID-19 arrived unexpectedly and most companies were unprepared for the implications. However, our chairs reported no fundamental change in their work. Most important was the concern about health. The biggest change was working completely digitally with board members and executive teams. This meant it was more difficult to get “a real feel ” for what was happening in the organization. All chairs have intensified their contact with the CEO during the pandemic. Unprecedented dilemmas had to be dealt with: extra personnel for specific tasks; raw materials in short supply and at higher prices; extra expenses for cleaning; furloughing of staff, etc. Additional investments were also needed— including enabling the board to work from home. Dealing with the fear and anguish of board members in high-risk groups was another part of the work. However, most important of all for the chairs in our sample was supporting and challenging the executive team with respect to their decisions and contextual measures.

Summary Our most striking finding in the Netherlands is the near-unanimous emphasis placed by the chairs we surveyed on “bringing the organization to the next level ”. In other words, Dutch chairs clearly have an appetite for entrepreneurship—and even feel a duty to be entrepreneurial. As the number of smaller companies in the Netherlands is growing, it is likely that chairs will become even more entrepreneurial in future, sharing the dynamic spirit of executives and challenging their assumptions about business growth, as well as connecting their CEOs with experts throughout the world. The use of humour that we noted among Dutch chairs is connected to the individual rather than to the role—some use it, others do not— but all share the conviction that “doing what is necessary” to keep a positive atmosphere during board meetings goes with the job. The comparison with a theatre director is apt. Chairs choreograph moves in the boardroom by choosing who will speak first and last. Reading the body language of the directors and figuring out who is brooding about what to say or who is irritated by what is also clearly an important part of the role. From our research, it appears that female chairs are more inclined to seek expert advice externally, whether from friends or professionals. They all organize “counter-thinkers” or some form of “contradiction” in

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order to keep themselves grounded. Although they find sparring partners among their fellow board members, they report that it feels easier to go outside and to have their assumptions challenged in the most discreet possible way. One practice appears to be particularly characteristic of the Netherlands: ensuring consensus (polderen). In this country where consensus and equality are the norm, the chair allows each board member the same amount of airtime and ensures that the discussion takes as long as is needed for a joint decision (or compromise) to be reached. This practice is engrained in the Dutch boardroom, just as it is in the Dutch way of life.

References Bezemer, P.J., Maassen, G.F., Van den Bosch, F.A. and Volberda, H.W. (2007). Investigating the Development of the Internal and External Service Tasks of Non-Executive Directors: The Case of the Netherlands (1997–2005). Corporate Governance: An International Review, 15(6), pp. 1119–1129. Bezemer, P.J., Peij, S.C., Maassen, G.F. and van Halder, H. (2012). The Changing Role of the Supervisory Board Chairman: The Case of the Netherlands (1997–2007). Journal of Management & Governance, 16(1), pp. 37–55. Corporate Governance Code Monitoring Committee (2016). The Revised Dutch Corporate Governance Code. Available from: https://www.mccg.nl/?page= 3779 [Accessed 1 December 2020]. European Commission (2019). SBA Fact Sheet. Netherlands. Available from: https://ec.europa.eu/docsroom/documents/38662/attachments/21/transl ations/en/renditions/native [Accessed 1 December 2020]. Lückerath, M. (2020). The Dutch Female Board Index. Available from: https:// www.tias.edu/docs/default-source/kennisartikelen/femaleboardindex2020. pdf?sfvrsn=d1acf6dd_2 [Accessed 1 December 2020]. Meyer, E. (2014). The Culture Map: Breaking Through the Invisible Boundaries of Global Business. New York: PublicAffairs. Peij, S.C., Bezemer, P.J. and Maassen, G.F. (2012). The Effectiveness of Supervisory Boards: An Exploratory Study of Challenges in Dutch Boardrooms. International Journal of Business Governance and Ethics, 7(3), pp. 191–208. Shekshnia, S. and Zagieva, V. (2017). Board Chairs’ Practices across Countries— Commonalities, Differences and Future Trends. Available from: https:// www.insead.edu/sites/default/files/assets/dept/centres/icgc/docs/boardchairs-practices-across-countries.pdf [Accessed 1 December 2020].

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Shekshnia, S., Zimina, V. and Zagieva, V. (2020). Putting More Women at the Helm of Corporate Boards. Available from: https://knowledge.insead.edu/ leadership-organisations/putting-more-women-at-the-helm-of-corporate-boa rds-13476 [Accessed 1 December 2020]. Spencer Stuart (2018). The Chairman of the Supervisory Board in the Netherlands. Available from: https://www.spencerstuart.com/-/media/2018/oct ober/netherlandschairman_sept2018.pdf [Accessed 1 December 2020]. Statistics Netherlands (CBS) (2017). Family Business in the Netherlands. Available from: http://www.europeanfamilybusinesses.eu/uploads/Modules/Pub lications/netherlands-fam-bus.pdf [Accessed 1 December 2020]. Statistics Netherlands (CBS) (2019). Population: Key Figures. Available from: https://opendata.cbs.nl/statline/#/CBS/en/dataset/03743eng/ table?ts=1600696459633 [Accessed 1 December 2020]. The World Bank (2020a). World Development Indicators. GDP Ranking. Available from: https://datacatalog.worldbank.org/dataset/gdp-ranking [Accessed 1 December 2020]. The World Bank (2020b). World Development Indicators. GDP per Capita, in International Dollars. Available from: https://data.worldbank.org/indicator/ NY.GDP.PCAP.PP.CD?year_high_desc=true [Accessed 1 December 2020]. UNDP (2019). Human Development Report 2019: Beyond Income, beyond Averages, beyond Today. Available from: http://hdr.undp.org/sites/default/ files/hdr2019.pdf [Accessed 1 December 2020].

CHAPTER 4

Switzerland: Diplomacy and Diversity Rolf Frey

The Chair’s Work in Context Switzerland began as a loose association of cantons, which became a federal state with its own constitution in 1848. The Swiss confederation has four official languages (German, French, Italian and Romansh) and a system of direct democracy. Swiss citizens elect representatives at the levels of confederation, canton and commune. In 2019 GDP was US$ 703 billion and population 8.5 million1,2 with per capita GDP of Int$ 70,989,3 the sixth highest in the world. Switzerland has a highly developed economy but no significant natural resources. The agricultural sector 1 The World Bank (2020). World Development Indicators. GDP Ranking. Available from: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD [Accessed 1 December 2020]. 2 The World Bank (2020). Population. Available from: https://data.worldbank.org/ind icator/SP.POP.TOTL [Accessed 1 December 2020]. 3 The World Bank (2020). World Development Indicators. GDP per capita, in international dollars. Available from: http://databank.worldbank.org/data/reports.aspx?source= 2&series=NY.GDP.PCAP.PP.CD [Accessed 1 December 2020].

R. Frey (B) Dominé & Partners, Zurich, Switzerland e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_4

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accounts for a mere 0.7% of GDP, industry for 26% and services for almost three quarters (71%).4 Switzerland is ranked second in the world on the Human Development Index.5 Although a member of the European Free Trade Association, Switzerland is not part of the European Union. In recent decades the country has become an attractive domicile for international businesses thanks to its politically stable environment, a favourable macroeconomic context, a highly skilled workforce, easy access to financial markets, low corporate taxes, modern infrastructure and a business-friendly regulatory environment. Switzerland has approximately 590,000 companies.6 Despite an impressive number of prominent global corporations such as UBS, Nestlé, Novartis, ABB and Swatch Group, 99.8% of the total is made up of companies with fewer than 250 employees.7 These SMEs are the backbone of the economy, employing over two-thirds of the workforce8 and accounting for 60% of GDP.9 Exports constitute 66% of GDP.10 Key markets are neighbours, Germany, Italy and France, as well as the UK and the US. In 2020 Switzerland topped the Global Innovation Index— an annual research report published by Cornell University, INSEAD and the World Intellectual Property Organization (WIPO).11 The principal rules of corporate governance in Switzerland are enshrined in company law and provisions are set out in the Swiss Code 4 The World Bank (2020). Services, Value Added. Industry, Value Added. Agriculture, Value Added. Available from: https://data.worldbank.org/indicator/NV.IND.TOTL.ZS [Accessed 1 December 2020]. 5 UNDP (2019). Human Development Report 2019. Available from: http://hdr.undp. org/sites/default/files/hdr2019.pdf [Accessed 1 December 2020]. 6 FSO (2020). Statistical Data on Switzerland 2020. Available from: https://www. bfs.admin.ch/bfs/en/home/statistics/catalogues-databases/publications/overviews/statis tical-yearbook-switzerland.html [Accessed 1 December 2020]. 7 Ibid. 8 Ibid. 9 Ibid. 10 The World Bank (2020). Exports of Goods and Services (in % of GDP). Available from: https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS [Accessed 1 December 2020]. 11 Cornell University, INSEAD and WIPO (2020). Global Innovation Index 2020: Who Will Finance Innovation? Available from: https://www.globalinnovationindex.org/Home [Accessed 1 December 2020].

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of Obligations.12 As in the US (following the Enron scandal), corporate catastrophes in Switzerland—such as the liquidity problems of ABB and the collapse of SAirGroup (parent of former Swissair) in 2002—prompted the Swiss government to review and adapt the legal framework to meet international standards. In addition, two major codes have entered into force: • A directive on Corporate Governance, released by the Swiss Exchange in 2002 and updated in 2018 (binding)13 • The Swiss Code of Best Practice for Corporate Governance (SCBP), published by the Swiss Business Federation in 2002 (nonbinding).14 Switzerland has a one-tier board system. The shareholders elect members of the board, its chair and members of the committees annually. According to the Swiss Code of Obligations, the board of directors has the non-transferable and inalienable duties of overall management of the company through applying the company’s organizational and financial controls, and appointing, dismissing and supervising executives. The SCBP describes best practice and makes recommendations that go above and beyond what is required by law. Since its inception it has had a strong impact on corporate governance in Switzerland. Applying the principle of “comply or explain” it has been effective in encouraging boards to regulate themselves. According to the SCBP, the board of directors should: • Determine strategic goals, general ways and means to achieve them, and the persons responsible for conducting the company’s business; • Shape the company’s corporate governance and put it into practice; 12 The Federal Assembly of the Swiss Confederation (1907). Swiss Civil Code. Available from: https://www.admin.ch/opc/en/classified-compilation/19070042/index.html [Accessed 1 December 2020]. 13 SWX Swiss Exchange (2018). Directive on Information relating to Corporate Governance. Available from: https://www.six-exchange-regulation.com/dam/downloads/regula tion/admission-manual/directives/06_16-DCG_en.pdf [Accessed 1 December 2020]. 14 Economiesuisse (2002). Swiss Code of Best Practice for Corporate Governance. Available from: https://www.economiesuisse.ch/sites/default/files/publications/econom iesuisse_swisscode_e_web_2.pdf [Accessed 1 December 2020].

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• Ensure in its planning the fundamental harmonization of strategy, risks and finances; • Be guided by the goal of sustainable corporate development. Although corporate governance law in Switzerland is in many ways similar to that in other European countries, boards of directors operate there in a specific context of high public engagement and scrutiny. In 2013 a majority of Swiss voters accepted the “Minder Initiative”, aimed at preventing excessive executive remuneration at listed companies. A year later the Federal Council brought into force the “Ordinance Against Excessive Remuneration at Listed Stock Corporations”, which requires that boards of public companies seek shareholders’ approval for the top executives’ compensation through a binding vote at the annual general assembly. The boards have to ensure that the remuneration of senior executives provides optimal incentives for them and is in tune with the interests of shareholders. In a country with four official languages, board diversity is another theme that attracts the attention of both the public and the regulators. On the one hand, boards of Swiss companies are among the most internationally diverse in Europe—and this diversity is increasing. At Swiss Market Index (SMI) companies (the top 20 Swiss companies in terms of market capitalization) the percentage of foreigners on boards has increased from 10% 25 years ago to 54% in 2019. On the other hand, only 26% of SMI board seats were held by women and only one SMI board chaired by a woman. Swiss boards are among the most professional in Europe and have a very high proportion of independent directors: 88% for SMI companies in 2019. Swiss law does not require a separation of the functions of the chair and CEO (except in banks). However, in such cases the Code recommends that the board appoint a senior independent director. In practice almost all large companies have separate chair and CEO (only one company on SMI list has a combined appointment).15

15 Ibid.

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The Swiss Code defines the chair’s responsibilities as: • To ensure execution of shareholders’ rights • To organize and conduct effective annual shareholders’ meetings • To prepare and conduct board meetings (“ensure that procedures relating to preparatory work, deliberation, passing resolutions and implementation of decisions are carried out properly”)16 • To provide appropriate information to board members. The Code also explicitly stipulates that the chair is entrusted with running the board of directors “in the company’s interests”.

Switzerland Culture Map Before looking into the specific practices of chairs of Swiss companies, it is relevant to define Swiss culture (see Fig. 4.1.) Describing Swiss culture in a uniform way would not do justice to the cultural diversity of a country

Fig. 4.1 Switzerland Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs])

16 Ibid.

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with four linguistic regions: German, French, Italian and to a lesser extent Romansh. The three key Swiss regions each border and share a language with large countries possessing rich cultures: Germany and Austria to the north and east, France to the west and Italy to the south. The people of each Swiss region are influenced by the culture of the neighbours they share a language with, from the books they read at school to the media they consume as adults. At the same time there are some values which transcend linguistic and regional differences, and that have become associated with Switzerland. Such values include respect for cultural diversity, a consensus-oriented approach to governing, pragmatism, quality and punctuality.17 These common values have been engrained not only through shared experience, but also through the education system, military service and regular language-learning exchanges between people of different regions. What does this imply for the work of a chair of a Swiss company board? We would hypothesize that the timeliness, quality and reliability associated with the craftsmanship of Swiss watch making, would also be expected from and by the chairs. We would also expect them to lead in a consensus-seeking, non-hierarchical way. Where neighbouring countries generally put “principles first”, Swiss pragmatism strikes a balance between honouring principles and recognizing “application needs”. On this basis, chairs will constantly keep their eye on the outcomes and will steer their boards to making actionable decisions. In addition, they will value diversity and will be proficient in managing boards comprising people with different backgrounds (see also Appendix 1).

Existing Research While several empirical studies have been conducted on corporate governance in Switzerland, only a few focus specifically on the role of the chair.

17 Oertig-Davidson, M. (2011). Beyond Chocolate: Understanding Swiss Culture. Basel: Bergli Books; Hofstede Insights (2020). Country Comparison: Switzerland. Available from: https://www.hofstede-insights.com/country-comparison/switzerland/ [Accessed 1 December 2020].

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One study measures the impact of the age of board chairs on company performance.18 The authors analyse survey results from over 1,500 chairs of private Swiss companies. They show a negative correlation between the age of a board chair and company performance after the former exceeds 50 years. These results are specific to the chairs of private companies: in listed Swiss firms, the age of the board chair and profitability appear unconnected. The study claims that this difference between the chairs of listed and unlisted Swiss firms is likely due to weaker corporate governance standards in unlisted firms. This study is consistent with other research showing that board chairs are “among the most prominent players in a corporation”. Another study suggests that there is a direct correlation between a chair not renewing his or her mandate and the transition of the CEO to the chair role.19 In a research paper20 for which the chairs of international Swiss companies were interviewed, the direct impact of the chair on the culture of the board, and ultimately the company culture, is highlighted. The chairs interviewed as part of the research shared the view that they have a considerable influence on board culture. Open communication, a critical yet constructive discussion culture, and an inclusive decision-making process are critical to ensure active and engaged contributions from all members of the board. Through their participation in board meetings, members of the executive committee are also influenced by the board culture. This has a cascading effect on their management and the company culture at large.

18 Wälchli, U. and Zeller, J. (2013). Old Captains at the Helm: Chairman Age and Firm Performance. Journal of Banking and Finance, 37, pp. 1612–1628. 19 Wälchli, U. (2008). Corporate Governance von Schweizer Verwaltungsräten. Available from; http://biblio.unibe.ch/download/eldiss/08waelchli_u.pdf [Accessed 1 December 2020]. 20 Lorenz Koller, B.M. (2010). The Role of the Chairperson of the Board of International Swiss Companies Listed on the Swiss Stock Exchange in Consideration of Board Systems. Available from: https://www1.unisg.ch/www/edis.nsf/SysLkpByIdentif ier/3862/$FILE/dis3862.pdf [Accessed 1 December 2020].

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Data The INSEAD Global Chair Survey 2015 identified the main challenges for the chairs of international companies. This project formed the first stage of our research. During the second stage of our research (2017–18) we interviewed nine chairs of companies headquartered in Switzerland. Of these organizations, four are part of the SMI, three are part of the Swiss Performance Index (SPI), one is listed abroad, one is state-owned and one is familyowned. In four of the listed companies, significant stakes are still held by the founding families with various degrees of voting power. The sectors of the ten companies include financial services, pharmaceuticals, consumer goods, manufacturing, retail and transportation. All but two are significantly involved in international activities, and the majority do most of their business outside Switzerland. The ages of the chairs interviewed range from 56 to 72. Nationalities include Swiss (seven), Austrian (one), German (one) and British (one), and their educational backgrounds include a mix of economics, business administration and engineering degrees. Only one is a woman. All of the chairs held CEO positions prior to joining boards and they currently hold an average of 3.8 board mandates. The time dedicated to the chair’s role ranges from 30 to 40 per cent to full time. In order to get a broader view we also interviewed three CEOs, three experienced directors and three shareholders. The shareholders (one woman, two men) represented a controlling family, an investment fund and a government-linked company. All non-chair interviewees have served on various boards and worked with several chairs. During the third stage of our research (May–September 2020) we interviewed five board chairs (all male respondents) from a variety of industries: financial services, packaging, real estate, technologies and chemicals.

Challenges and Practices Relationships with Shareholders Although our chair-respondents repeated that they owed their duty to the company rather than to shareholders, they devote considerable time and attention to their relationships with the latter. One chair said that he ultimately views the relationship between the board and large shareholders

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as collaborative: “Don’t look at them as enemies; they are your owners and they are your partners ”. When the company they chair has a controlling or anchor shareholder, respondents invested a lot of time in meeting its key representatives— often founders or family members. As one chair put it, “What you absolutely have to do is communicate. This is so important ”. Regular meetings ensure that the chair and the influential shareholders stay aligned in terms of company strategy and connected at a personal level. The chairs arrange meetings mindfully and proactively, and acknowledge that they are appreciated by the shareholders, since they give them a sense of control over the strategic direction and ultimately the future of the company. When a large stake is held by institutional investors, some chairs nurture personal relationships and organize annual roadshows to meet with their representatives and engage them in discussion—often about the governance of the company. While institutional investors do not receive any substantial information outside the formal notifications sent to all shareholders, they do have the opportunity to engage directly with key company representatives. In the case of a state-owned company, the range of stakeholders increases—from political to union representatives—as does the complexity of stakeholder management. One chair of the state-owned company we spoke to takes a proactive communication approach by organizing regular formal and informal meetings. Contrary to their relationships with majority shareholders, respondents seldom had personal connections with minority shareholders beyond the annual shareholder meeting. While they took the concerns of minority shareholders seriously and provided investors and the press with written updates, communication with shareholders was handled by the investor relations team or at times the CFO. For the shareholder-respondent representing a controlling interest in a family business, the long-term view of the chair was of utmost importance. At the same time, he believes that an effective chair meets with shareholders’ representatives on a regular basis to keep them informed about key developments. “The inclusion of an anchor shareholder allows us to focus on long-term value creation rather than react to short-term financial market pressure”, shared one of board members. The same longterm view was also a priority for the representative of the shareholder of a government-controlled financial institution with a public-service mandate.

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Recruiting Board Members Contrary to many other European countries, board chairs in Switzerland are quite active in recruiting new board members. Our respondents emphasized the importance of vetting directors before putting them forward for election to ensure effective functioning of the board. They invest a lot of time in assessing personality, character, communication skills and cultural fit of future directors, all of which helps to avoid problems later on. Collaboration is one of the core national values in Switzerland and it translates directly into chair practices, starting with the selection and induction of new board members. Several chair-respondents mentioned collaboration and openness as key values they expected to see in directors. “Know-it-all” or “know-better” types do not get to join boards. One chair said that an absolute “no go” for him was someone with an overinflated ego. While they sought members who are knowledgeable and experienced, they also wanted directors who would constructively contribute to the work of the board and “play as a team”. In some instances, “courting” a future director took up to three years, during which time the chair assessed the fit with the company and the board. The values of potential directors are scrutinized to ensure alignment with those of the company. Respondents often mentioned integrity as a key attribute. One said, “We need board members that are team players ”, while acknowledging that individual voices had to be heard. He conceded that handling inquisitive and critical board members could be challenging, but still wanted board members to be engaged and speak their mind: “It just needs to happen within certain rules of conduct ”. Facilitating Effective Board Discussions All of the chairs in our sample ensure that board members receive material in a timely manner before meetings. They expect board members to come prepared, having already formed a point of view, and ready to ask questions or raise concerns. Chair-respondents see their role as effective management of the meeting, balancing the tension between sticking to the agenda and keeping within time limits, and giving everyone a chance to speak. Framing the agenda items and staying on the topic was essential, yet, as one put it, “One should not be a slave to the agenda”.

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The respondents stressed the need to stay humble and refrain at times from intervening, while also making sure all voices are heard: “I listen. I also decide when it is time to decide, but everyone can express himself without fear”. Most share their own views last. Asking questions in a Socratic way, even when one knows the answer, is a good way to solicit other points of view. As one of the directors put it: “I expect the chair to make sure that the opinions of all board members are heard before he/she comes to a conclusion or the board votes on a topic”. Although consensus-orientation is strong in Swiss boardrooms, voting is not completely absent; some chairs use it as a last resort to make a decision. The board members interviewed all expect the chair to ensure that relevant challenges are discussed by the board. In the words of one director: “For me it is the chair’s responsibility to make sure that the right topics are discussed in the board meetings ”. They see the chair as responsible for setting the regular board agenda and for putting an emphasis on addressing the long-term strategy of the company. They also find it important that the chair help the board reach a consensus in cases of dispute. Two board members believe that chairs increase board effectiveness by assigning different board members “special missions”, i.e. projects outside of the regular board committee responsibilities. Chair-respondents indicated that they rarely had to deal with uncooperative or dissident directors. In such cases, they arranged one-on-one meetings to address the issue head-on or even asked nonconformist directors to step down from the board. Board evaluation is not mandatory in Switzerland, but most chairrespondents consider it an effective practice to improve a board’s cohesiveness and productivity, highlight competency gaps, and identify directors with the potential to become a committee and eventually board chairs. Evaluation generally takes place once a year. Some chairs use external consultants; some prefer to conduct the process privately. Non-chair-respondents emphasized that the ability to conduct a board evaluation is indispensable for chairs and the effective ones make sure every director is engaged and feels free to speak his or her mind. Beyond board meetings, some board members join field or company visits, which, depending on the location, can be a two-to-three-day trip. These visits are unique opportunities for board members to spend quality time together and get to know each other better, which fosters a collaborative spirit.

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Insignificant Time Commitment from Board Members Lack of time commitment was not generally identified as a concern by any of our Swiss respondents. In one instance, where a committee chair was clearly struggling to invest the time necessary to perform the additional duties, the respondent recommended changes in the committee’s composition. One mentioned that in a previous role he had asked someone who was not pulling his weight to leave the board (and affirmed that he would do so again if faced with a similar situation). Another evoked the “one chance and you’re out ” rule, which he had enforced in the past by asking a board member to step down. Diversity in Board Members’ Backgrounds Besides the skills and experience that bring complementarity into the board, gender diversity and—particularly for companies operating internationally—cultural diversity are actively sought. The chair of an SME mentioned that his board members actively try to recruit women, but had so far been unsuccessful because the women approached already had other offers. Clearly, although the pool of experienced female directors in Switzerland is increasing, it is still small compared to that of men. Hence the competition for talent is intense. Several chairs of multinational companies see diversity primarily through the lens of global operations. In such cases, board composition ideally takes account of the ethnic diversity of the company. At the same time, for companies with a strong Swiss culture, ensuring that the chair and some members of the board are Swiss nationals is seen as critical. One chair mentioned that diversity is part of an employer’s branding. Informational Asymmetry with the CEO and Management There is informational asymmetry between the chair and the CEO, given that the latter is closer to day-to-day operations. Furthermore, an almost full-time chair inevitably has more information than other directors, whose participation is limited to attendance at board or committee meetings. One respondent said: “When you just come in six times a year, the knowledge you have is limited compared to the chairman”. In both instances, there is a need for trust and for regular updates. In addition to regular written bulletins from the CEO or the board briefing—sometimes

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as long as 25 pages—a pre-board-meeting dinner offers a way to mitigate any potential disconnect. This explains why some chairs have moved away from PowerPoint presentations and like to articulate their points of view more personally, leaving less room for interpretation (see also the next section). Relationships with the CEO and Management Several chairs mentioned mutual respect between the chair and the CEO as a sine qua non of effective leadership. One respondent said that board and management needed to be viewed as “one team”: executives and nonexecutives have their own roles, but “the aim of what we are doing has to be the same”. All chair-respondents invested a significant amount of time supporting their CEOs, for whom they served as mentors, supporters or sparring partners. All had been in the role of CEO, mostly in other companies, and thus knew how lonely it can feel at the top. One chair of a large company insisted that in order to be a truly effective chair you need to know what it is to be in the CEO seat but no longer want to sit there. One director mentioned that he expects the chair to be able to develop a challenging yet constructive relationship with the CEO and foster an open dialogue within the board. Two chairs had held the CEO post in the company that they were currently chairing. They mentioned that they had to adjust to their new role, particularly the respondent who had formerly combined both positions (CEO and chair). In this dual role he had to balance a tendency to make decisions with the facilitating and consultative approach required of the chair—not an easy transition, although he felt it was clearly the right way to go. Another went as far as referring to the “unit” formed with his CEO—which he wants people to see—and was confident that this proximity would not blur his judgement. The pair undertake many international trips together in order to meet staff, potential hires and clients jointly. One chair who is based in a different country from the CEO, calls the CEO almost every Sunday to touch base. Trust between the chair and the CEO is put to the test in tough times and crises. One respondent’s number one rule is “no surprises”. He has made a pact with the CEO that any troubling development within the company will be reported to him at once; success stories can wait. Another chair said simply, “I care for him as a CEO but also as a person, and I believe it is mutual ”. When asked about their relationships with others

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in the management team, some said they made a point of meeting with every key executive on a one-to-one basis from time to time. Others did not, preferring to avoid what could be seen as interference in the CEO’s area of responsibility. On the part of the CEOs interviewed, mutual trust with the chair is important and the foundation of successful cooperation. They expect the chair to be a sparring partner from whom they can get feedback on their ideas. As one of the CEOs put it: “The relationship with the chair has to be a true partnership in the best interest of the company: supporting, inspiring, controlling ”. For CEOs it is also important to have a competent board, which can help him or her, and according to our respondents, it is the chair’s responsibility—and not that of the nomination committee—to ensure that the board is professional, complete and comprised of members with complementary skills and backgrounds. Relationships with External Stakeholders Most Swiss chairs try to stay away from engaging with external stakeholders beyond the shareholders. However, in situations of crisis or if the CEO is not available, they have more exposure. In some instances, they do this on purpose to deflect attention from the CEO. One chair is the “face of the company” in its dealings with NGOs, governmental agencies and the public on the specific topic of the environment and climate change. However, he insisted that it was important that the chair not step on the CEO’s toes; there needs to be a clear separation of duties. Another was more inwardly focused, preferring “to be seen more in the office than in the newspaper”. The board members interviewed also expect the chair to build good relationships with the various key stakeholders (shareholders, politicians, regulators, etc.). Chair Succession In Switzerland, the chair, board members and committee chairs are elected directly by the shareholders at the annual meeting. In theory the nomination committee is responsible for succession planning for the post of chair. In practice the approach varies depending on the incumbent’s personality, the shareholding structure and other factors. Some of our respondents reported that they have both emergency and long-term succession plans. In an emergency the vice-chair or a senior independent

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director takes over until a permanent solution is found. For a long-term solution, some chairs work closely with their nomination committees and even engage external consultants, while others stay away from the process. Onboarding is an important part of chair succession in Switzerland. It usually takes several months and the incumbent is very much involved. The induction may include one-to-ones with the outgoing chair, directors and key executives; company and customer visits; and even coaching sessions with professional providers. Learning Effective chairs do not lock themselves in boardrooms—they proactively seek advice, knowledge and expertise by talking with internal and external stakeholders and reading internal documents that are not included in board books, as well as studying trade media, analyst reports and daily papers. Respondents consider their personal networks (with other board members, executives and academics) as one of the key instruments for obtaining new knowledge. All chairs stressed the important role of peers as a means to get neutral feedback or advice from colleagues in similar situations. External networks can also compensate for the lack of diversity in a boardroom. Effective chairs also foster a learning culture within the board, encouraging exchanges between directors, organizing working sessions with executive committees and arranging strategic off-site meetings. In addition, Swiss chairs encourage board members to leverage their own networks, for example, asking them to gather best practices from the market. Managing COVID-19 The involvement of the Swiss boards, according to our respondents, has been intense throughout the pandemic. In particular, boards played a more active role as the sparring partner of the management. Some became closely involved with daily business, according to one chair, “risks mixing up operational and strategic issues ”, according to one of the chairs. In this situation, he added, it is the chairs that need to maintain the focus on governance. One of the respondents stated that the primary goals of a chair during the crisis were to build trust and to show a maximum of flexibility in

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managing the situation. Other respondents confirmed the importance of adaptability/flexibility/resilience for a board chair. Most of the chairs in our sample tried to balance short-term agenda items (such as people and client safety) and long-term consequences on the business model. Availability became a particularly important factor in defining chair effectiveness. As one respondent shared: For me as a board member it became clear how important it was not to have a super-busy chair. In one board I am a member of the chair is also a partner in a private equity firm, so he was torn by different responsibilities. In the other board, our chair is independent and not chairing any other board, so he had the time and ability to engage and support the management team.

Conversely, time pressure became an enabler as well as a constraint. One interviewee reflected: “I have learnt that, if needed and one is left with no choice, major changes can be implemented within a very short period of time”.

Summary When asked how they would describe the essence of their role, chairrespondents used such terms as “first among equals ”, “shepherd”, “conductor”, “trusted advisor”, “link between the board and the CEO”, “servant leader” and “an owner responsible for the well-being of the company”. The discourse they use in describing their work and the practices they espouse emphasizes the enabling aspect of their role. Chairs in Switzerland are very diligent with regard to compliance and such technical aspects of board work as frequency and length of meetings, or timely provision of board materials and their quality. They also pay a lot of attention to board composition, actively selecting and preparing new board members. At the same time, personality and previous experience leave their mark on the style of board leaders in Switzerland. Some are more directive than others in managing a board; some focus more on business strategy and others on relationships with the CEO. We found some divergence in our respondents’ views on the need for chairs to have industry expertise. Some felt that it was indispensable, especially in highly regulated sectors such as finance, where there was a risk of an expert CEO having too strong an influence on the chair and, by extension, the board. However, some of

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our interviewees were not sector experts and functioned in a very effective manner, by ensuring that specialist knowledge was properly represented on the board. In the next decade we predict that the number of CEO-chairs in Switzerland will decrease, but they will not disappear all together. Most chairs will preside over only one board, committing many hours to it. We also foresee that the diversity in chairs’ backgrounds will increase in terms of gender, age, nationality and professional qualifications. We believe there will be a significantly higher number of female chairs, as currently more than 30 per cent of newly appointed directors in Switzerland are women. Foreigners will continue to represent a significant proportion of chairs in the country, but Swiss nationals will remain a majority. There will be younger chairs, but the average age will not decrease significantly. The “profession” will continue to require maturity and experience. In addition, digital and communication technologies will make their presence felt on the boards of Swiss companies, enabling directors to stay connected and reducing information gaps. Chairs will move away from paper to digital board books, while committee meetings will be held via Zoom, Skype and similar technologies. As a result, boards will spend less time discussing historical numbers and more on matters of substance. We expect that in the next decade board chairs in Switzerland will focus more on the “soft” aspects of their work—board dynamics, quality of discussions and interactions outside the boardroom. Regular board evaluations will become standard practice, not only for listed but also for private companies, and discussions about improving board effectiveness will become routine for directors. Further specific predictions include the following. Board chairs will continue to interact proactively with shareholders, perhaps paying more attention to equal treatment and other regulatory aspects. Shareholder activism will be on the rise. Delisting will become an increasingly prevalent option for corporate boards. More generally, corporate governance regulations are likely to tighten, which will require more of the chair’s attention. However, true to its own traditions, Switzerland will remain a country with an emphasis on soft rather than hard regulation.

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References Cornell University, INSEAD and WIPO (2020). Global Innovation Index 2020: Who Will Finance Innovation? Available from: https://www.globalinnovatio nindex.org/Home [Accessed 1 December 2020]. Economiesuisse (2002). Swiss Code of Best Practice for Corporate Governance. Available from: https://www.economiesuisse.ch/sites/default/files/publicati ons/economiesuisse_swisscode_e_web_2.pdf [Accessed 1 December 2020]. FSO (2020). Statistical Data on Switzerland 2020. Available from: https:// www.bfs.admin.ch/bfs/en/home/statistics/catalogues-databases/publicati ons/overviews/statistical-yearbook-switzerland.html [Accessed 1 December 2020]. Hofstede Insights (2020). Country Comparison: Switzerland. Available from: https://www.hofstede-insights.com/country-comparison/switzerland/ [Accessed 1 December 2020]. Lorenz Koller, B.M. (2010). The Role of the Chairperson of the Board of International Swiss Companies Listed on the Swiss Stock Exchange in Consideration of Board Systems. Available from: https://www1.unisg.ch/www/edis. nsf/SysLkpByIdentifier/3862/$FILE/dis3862.pdf [Accessed 1 December 2020]. Meyer, E. (2014). The Culture Map: Breaking Through the Invisible Boundaries of Global Business. New York, NY: PublicAffairs. Oertig-Davidson, M. (2011). Beyond Chocolate: Understanding Swiss Culture. Basel: Bergli Books. SWX Swiss Exchange (2018). Directive on Information relating to Corporate Govrnance. Available from: https://www.six-exchange-reulation.com/dam/ downloads/regulation/admission-manual/directives/06_16-DCG_en.pdf [Accessed 1 December 2020]. The Federal Assembly of the Swiss Confederation (1907). Swiss Civil Code. Available from: https://www.admin.ch/opc/en/classified-compilation/190 70042/index.html [Accessed 1 December 2020]. The World Bank (2020a). Exports of Goods and Services (in % of GDP). Available from: https://data.worldbank.org/indicator/NE.EXP.GNF S.ZS [Accessed 1 December 2020]. The World Bank (2020b). Population. Available from: https://data.worldbank. org/indicator/SP.POP.TOTL [Accessed 1 December 2020]. The World Bank (2020c). Services, Value Added. Industry, Value Added. Agriculture, Value Added. Available from: https://data.worldbank.org/indicator/ NV.IND.TOTL.ZS [Accessed 1 December 2020]. The World Bank (2020d). World Development Indicators. GDP per capita, in international dollars. Available from: http://databank.worldbank.org/data/ reports.aspx?source=2&series=NY.GDP.PCAP.PP.CD [Accessed 1 December 2020].

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The World Bank (2020e). World Development Indicators. GDP Ranking. Available from: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD [Accessed 1 December 2020]. UNDP (2020). Human Development Report 2019. Available from: http://hdr. undp.org/sites/default/files/hdr2019.pdf [Accessed 1 December 2020]. Wälchli, U. (2008). Corporate Governance von Schweizer Verwaltungsräten. Available from: http://biblio.unibe.ch/download/eldiss/08waelchli_u.pdf [Accessed 1 December 2020]. Wälchli, U. and Zeller, J. (2013). Old Captains at the Helm: Chairman Age and Firm Performance. Journal of Banking and Finance, 37, pp. 1612–1628.

CHAPTER 5

Denmark: Attentive Master of the Boardroom Steen Buchreitz Jensen and Stanislav Shekshnia

The Chair’s Work in Context Denmark is one of the world’s oldest monarchies, with a history stretching back to the Viking Age (eighth–eleventh century). The country has a population of 5.6 million people. It is classified as a high-income economy, with GDP of US$ 348 billion1 and per capita GDP of US$ 59,822.2 The Constitution of 1849 is the foundation of the current political system. Denmark has a number of political parties, none of which commands a majority in parliament. Since 1909 the

1 The World Bank (2020). World Development Indicators. GDP Ranking. Available from: https://datacatalog.worldbank.org/dataset/gdp-ranking [Accessed 1 December 2020]. 2 The World Bank (2020). World Development Indicators. GDP per Capita, in International Dollars. Available from: https://data.worldbank.org/indicator/NY.GDP.PCAP.CD? locations=DK [Accessed 1 December 2020].

S. B. Jensen (B) Scandinavian Executive Institute, Kolding, Denmark e-mail: [email protected] S. Shekshnia INSEAD, Fontainebleau, France © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_5

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country has been ruled by coalition governments, making collaboration and consensus-seeking a hallmark of the political landscape. Denmark is often cited as one of the best countries to live in. It ranked top of the “World Happiness Report” in 2013 and 2016, based on variables such as per capita GDP, social support, healthy life expectancy, freedom to make life choices, generosity, freedom from corruption, positive and negative affects (emotions).3 Denmark was placed fourth in World Bank’s annual “Ease of Doing Business” ranking.4 The most common forms of enterprise in Denmark are: • Public companies (aktieselskaber or A/S) • Private limited liability companies (anpartsselskaber or ApS) Foundations (fonde) • Agricultural co-operatives (andelsselskaber or Amba) • Partnerships (interessentskaber). The vast majority of Danish companies are limited liability companies (around 200,000), although some, including several listed companies, such as Novo Nordisk and Carlsberg, are ultimately owned or controlled by foundations. Denmark has one of the highest levels of ownership concentration in Europe—62% of 50 largest public companies have a significant shareholder and most smaller Danish enterprises are familyowned or controlled.5 The high ownership concentration translates into specific governance regulations ensuring high level of owners’ control and impacts boards’ and chairs’ practices. Both public companies (most of them are not listed, but chose that form of organization, roughly 42,000 in Denmark) and limited liabilities companies are regulated by the Companies Act (Selskabsloven) of 2009, which lays down the fundamental principles, most of them in

3 The United Nations (2020). The World Happiness Report. Available from: https:// worldhappiness.report/ [Accessed 1 December 2020]. 4 The World Bank (2020). Doing Business 2020. Available from: http://documents1. worldbank.org/curated/en/688761571934946384/pdf/Doing-Business-2020-Compar ing-Business-Regulation-in-190-Economies.pdf [Accessed 1 December 2020]. 5 Hansen, J.L and Lønfeldt, C. (2014). Corporate Governance in Denmark. In: P. Lekvall, ed., The Nordic Corporate Governance Model. Stockholm: SNS Förlag, pp. 115– 167.

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line with OECD guidelines on corporate governance, e.g., equal treatment of all shareholders, protection of minority shareholders’ rights, protection of creditors, election of governing bodies, transparency and disclosure. These also specify decision-making mechanisms and reporting requirements. The Danish Business Authority (Erhvervsstyrelsen) oversees compliance with the Act, and any changes in articles of association, composition of the board or management must be registered with it. The first Corporate Governance Code based on “explain or comply” principle was adopted in 2005, adherence to it is monitored by a private Danish Corporate Governance Committee (DCGC).6 In addition to the Companies Act, listed companies are subject to the Capital Markets Act (as of 1 January 2017) and to EU regulations concerning disclosure requirements and market abuse. They are also subject to the Recommendations for Corporate Governance issued by the Danish Committee on Corporate Governance7 on a “comply or explain” basis. The Recommendations, which are not legally binding, cover: • Communication and interaction with investors and other stakeholders • Tasks and responsibilities of the board of directors • Composition and organization of the board of directors • Remuneration of management • Financial reporting, risk management and audit. The so-called “Nordic model”, whereby shareholders have significant powers and exercise them via an annual or extraordinary general meeting and statutory auditors reporting to them is the dominant governance structure for Danish corporations. In theory General meeting can decide on practically any issues and intervene into the management of the company. In practice they limit themselves to board appointment, dividends’ distribution and major transactions.8 Extraordinary general meetings can be called by the board, an auditor or at the request of a

6 Ibid. 7 Committee on Corporate Governance (2013). Recommendations on Corporate Governance. Available from: https://corporategovernance.dk/sites/default/files/recommendati ons-ebs-12401-rapport-selskabsledelse-uk-5k-nov-2014.pdf. [Accessed 1 December 2020]. 8 Ibid.

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shareholder representing at least 5% of the share capital. Public companies must have a board of directors separate from executive management, whereas private companies can opt to have a board or not depending on the legal structure they have chosen. The dominant legal structure of established limited liability companies is “aktieselskaber” (A/S), which requires a board. While in theory double-mandates are allowed in practice only non-executive directors sit on the board while the CEO is invited to attend board meetings on a permanent basis except for some items. In Denmark there is clear subordination and division of authority between governing bodies. Shareholders elect the board of directors (tilsynsråd) and statutory auditors for one year and set their compensation. Both the board and the auditors report to the General shareholders meeting and could be dismissed by it at any time. The board of directors plays the roles similar to that in other European countries—appointment of management, approval of strategy and major transactions, risk management, communication of major events to stakeholders, etc. Executive management—either CEO or a management board (direktion) report to the board and could be dismissed by it at any time.9 The important distinguishing feature of the Nordic model is employee representation on the board. In Denmark employees have the right to elect their representatives as fully fledged board members with the same rights and responsibilities as directors elected by shareholders, provided the company has employed at least 35 people for the last 3 years. The number of employee representatives equals half the number of other members. Danish boards are usually small in size (5.3 for listed companies in 2014),10 but among the most open and diverse in Europe, especially at large companies. At the top 25 public companies in the country independent directors represent 54% and foreign directors—42%.11 Around 29% of directors are women, and there is only one chairwoman. On average a chair is 63 years old and has been chairing a board for 4.1 years.12

9 Ibid. 10 Ibid. 11 Spencer Stuart (2019). Nordic Board Index 2019. Available from: https://www.spe ncerstuart.com/research-and-insight/nordic-board-index [Accessed 1 December 2020]. 12 Ibid.

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The Companies Act specifies that the chair organizes the board meetings, is not allowed to have occupied an executive position and may have a decisive vote.13 The Code recommends that the chair maintains good relationships with shareholders, manages the board and improves its effectiveness through self-evaluations and continuous improvement.14

Denmark Culture Map According to The Culture Map by INSEAD professor, Erin Meyer, Denmark is a “low-context”, “consensual”, “applications-first”, “taskbased” culture with a “linear-time” scheduling style (see Appendix 1 for a full explanation). For boards of directors, this implies consensus-based decision making, candid informal communication between directors, pragmatic discussions and respect for deadlines. The low power distance and consensual element of the culture makes Danish leaders democratic enablers. They not only permit but encourage followers to speak up, thus creating considerable freedom for new ideas to flow across an organization, regardless of the status of the person who made the initial suggestion.15 Every idea—even if it was a leader’s—can be challenged. Leaders are not afraid of seeking inputs from employees and admitting mistakes. Danish leadership style is often described as network-based, empowering and motivating.16 Teams are perceived as an instrument to facilitate effective leadership.17 Harmonious interpersonal relations are highly valued, so leaders invest their time and efforts in maintaining a healthy atmosphere at their companies. Organizational structures tend to be flat with few hierarchical levels. Denmark is one of the most egalitarian countries in terms of gender in Europe (see Fig. 5.1). 13 The Danish Companies Act (2010). Available from: https://danishbusinessauthority. dk/sites/default/files/danish_companies_act.pdf [Accessed 1 December 2020]. 14 Hansen, J.L and Lønfeldt, C. (2014). Corporate Governance in Denmark. In: P. Lekvall, ed., The Nordic Corporate Governance Model. Stockholm: SNS Förlag, p. 152. 15 Simons, T., Pelled, L. H. and Smith, K. A. (1999). Making Use of Difference: Diversity, Debate, and Decision Comprehensiveness in Top Management Teams. Academy of Management Journal, 42(6), pp. 662–673. 16 Schramm-Nielsen, J., Lawrence, P. and Sivesind, K.H. (2004). Management in Scandinavia: Culture, Context and Change. Cheltenham: Edward Elgar. 17 Brodbeck, F.C., Frese, M. and el. (1998). Leader Perceptions in Europe: A 21 Nations Study Based on the GLOBE Project. Paper presented at the 14th EGOS colloquium. Maastricht, The Netherland.

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Fig. 5.1 Denmark Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs])

Danish business culture and governance practices have been strongly influenced by a powerful cooperative movement and the “folk” high school system designed and actively promoted by the nineteenth-century philosopher and educator Nikolaj Grundtvig, who advocated experiencebased education, and emphasized equality and collaboration.18 Similar values guided the pioneers of the cooperative movement, many of whom had graduated from Folk schools. By the late nineteenth century the cooperative became the dominant ownership structure in such key industries in Denmark as agriculture and retail. Cooperatives are governed according to the “one member, one vote” principle under which every member has the same say in the decision-making process, no matter what his or her stake.

18 See Danish folk high schools website: http://www.danishfolkhighschools.com [Accessed 1 December 2020].

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Existing Research and Hypotheses The existing research demonstrates that chairs in Denmark, like those in other Nordic countries, generally try to lead their boards towards consensus and rarely resort to voting. The chair organizes a discussion, helps each director to come up with a position and, if consensus cannot be reached, postpones the decision. Chairs of Danish companies usually pay particular attention to leading the induction process for new board members and actively represent the company in the external world.19 Some studies have tried to establish correlations between a chair’s characteristics and such independent variables as board composition, CEO turnover and company performance. Surprisingly the size of the chair’s board network seems to have no impact on the diversity of their board, although it is widely assumed that networks play a major role in the recruitment of directors.20 The researchers who reached these conclusions assume that the power of the so-called “old-boy” network is being eroded, “which in turn will manifest itself in a growing inclination on the part of the board to emphasize truth and frankness in serving their shareholders ”. As in other countries, Danish companies where the chair of the board is an insider have a higher CEO turnover than companies with an external chair.21 Another study of Nordic countries found a negative correlation between the number of boards the chair sits on and the company’s financial performance.22 On the basis of existing literature on Danish culture, the Danish leadership tradition and board chairs’ work in the Danish context, we have 19 Christensen, S. and Westenholz, A. (1999). Boards of Directors as Strategists in an Enacted World—The Danish Case. Journal of Management and Governance, 3(3), pp. 261–286. 20 Randøy, T., Thomsen, S. and Oxelheim, L. (2006). A Nordic Perspective on Corporate Board Diversity. Available from: http://www.nordicinnovation.org/Global/_ Publications/Reports/2006/The%20performance%20effects%20of%20board%20diversity% 20in%20Nordic%20Firms.pdf [Accessed 1 December 2020]. 21 Lausten, M. (2002). CEO Turnover, Firm Performance and Corporate Governance: Empirical Evidence on Danish Firms. International Journal of Industrial Organization, 20(3), pp. 391–414. 22 Randøy, T., Thomsen, S. and Oxelheim, L. (2006). A Nordic Perspective on Corporate Board Diversity. Available from: http://www.nordicinnovation.org/Global/_ Publications/Reports/2006/The%20performance%20effects%20of%20board%20diversity% 20in%20Nordic%20Firms.pdf [Accessed 1 December 2020].

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formulated a number of hypotheses about chairs’ strategies vis-à-vis their main stakeholders and major challenges. Chairs and boards. In the Danish context board leaders operate as facilitators, striving for harmony and consensus, ready to sacrifice efficiency for relationships, yet never forgetting about effectiveness. Chairs and shareholders. Board chairs listen actively to shareholders’ concerns and regularly update the latter on company developments. The communication with shareholders is candid and often informal. Chairs and management. Chairs establish partnering relationships with the CEOs of their companies. The dialogue is regular, cordial, twoway and often informal, yet the chairs never forget that they are speaking with the CEOs on behalf of their boards. Chair succession. Incumbent chairs do not participate in the selection of their successors, leaving this business to nomination committees and shareholders, yet they readily transfer their know-how to the successors once the latter have been identified. We started our research journey with these hypotheses in mind and, as always, the reality turned out to be far more complex and nuanced. In reality, many chair practices are ambivalent, e.g. they may combine powerful leadership with strong group orientation or a focus on results with consensual decision making. We discovered that a tension between two elements of Danish culture—strong group orientation (the informal practice of Jantoloven 23 which makes people put the interests of the group above their own and strive for group cohesiveness) and strong freedom orientation—had a profound impact on many aspects of chairs’ work and manifested itself in a number of distinctive practices. Unsurprisingly, while interviewing our respondents we heard constant references to “alignment”.

Data For this project, we interviewed nine board chairs, one woman and eight men, aged 50–70. Eight of them currently chair boards of limited liability companies, five of them publicly listed, while one heads a private foundation. Each has a minimum of 10 years experience serving on professional

23 Jakobsen, M. (2018). Janteloven/Jantelagen (Scandinavia). In: A. Ledeneva, ed., The Global Encyclopedia of Informality. London: UCL Press, pp. 254–259.

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boards, as well as several years’ experience as a chair. Of the nine chairs, eight have many years of experience as CEOs of large Danish companies. In addition, we interviewed four CEOs, two independent directors and four shareholders. The CEOs were between 50 and 60 years old. Two of them were also major shareholders or represented the interests of major shareholders. Two others were professional executives who did not own any of the company’s stock. The two independent directors each had more than 10 years of experience as board members and had previously held CEO as well as chair positions. Among the four shareholders, three were related to the founders, and still represented family interests. One headed a private equity fund. During the third stage of our research (May–September 2020) we interviewed three board chairs (one woman and two men), four nonexecutive directors (two women and two men), three owners (all men) and four CEOs (one woman and three men).

The Work of a Chair: The Incumbent’s View In their opinion two roles are essential: the link and the enabler. First, a good chair joins the dots between the board, the shareholders, the management and other important stakeholders. He or she actively listens and makes relevant information available to this entire network and its individual members. Creating the network and keeping it alive is perceived as the key function of a board leader. During the COVID-19 pandemic this role became critical in helping companies to withstand the crisis. The second crucial role is to enable the board to perform as a group of professionals and make quality decisions. This is also what the corporate governance regulations prescribe, yet our respondents felt strongly and passionately about the enabling aspect in a way that went beyond compliance. As one of them said: “I strive for a situation where the chair is a tool —to get the best out of the board”. Both the result—good and timely decisions—and the process—fair and collective work—are important and neither is dispensable. This view resonates with the “integrating, developing and supervising directors” role identified by Stewart.24 Non-chair respondents generally agreed with this view of the chair’s roles. As one of 24 Stewart, R. (1991). Chairman and Chief Executive: An Exploration of their Relationship. Journal of Management Study, 28 (5), pp. 511–527; Garratt, B. (1999). Developing

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them put it: “A good chair helps me focus my energy on that board in a way where I can best contribute”. As for the question of how the role of chair should be executed, our answer is: “as a master who listens ”. We have borrowed this metaphor from one of the participants, who described his relationships with shareholders in the following way: “I actively interact with you—listen, inform, ask—but I am the master in the boardroom”. Other respondents stressed the importance of fairness and respect for being an effective board leader in Denmark. As one of the directors put it: “If there is mutual respect in the boardroom you don’t need to spend much energy on issues related to this, and can focus the energy in other directions which create more value”. We will present the main findings of our research, based on the three main challenges chairs face: • Relationships with shareholders • Leading the board • Relationships with the CEO and management. We will also touch on the issue of succession. Relationships with Shareholders Denmark represents a somewhat unique context for examining chairshareholder relationships. On the one hand, the country has one of the highest proportions of privately or family-owned/controlled companies in Europe. As one of the respondents said: “In Denmark you find a real person behind every company’s façade, no matter what its shareholders’ ledger says ”. This implies that in most cases chairs have to work with “active shareholders” (see Chapter 1), who are passionate about the company, possess knowledge about it, actively seek information and may have their own strong views on its development. One respondent-owner explained it this way: I am trying to be an active owner – engaged, but not interfering, supporting management and board and challenging them at the same time for the Effective Directors and Building Effective Boards. Long Range Planning, 32 (1), pp. 28– 35; Roberts, J. (2002). Building the Complementary Board. The Work of the PLC Chairman. Long Range Planning, 35(5), pp. 493–520.

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benefit of the company. I deliberately don’t have an office in the company, but I visit it frequently and I am on the phone with the chair and the CEO on a weekly basis.

On the other hand, Danish business culture (pragmatic, informal, straight-talking), the corporate governance guidelines and the high importance of autonomy for incumbent board leaders make the country’s chairs “proactive” rather than “compliant” (see Chapter 1). They actively engage with shareholders, often beyond formal requirements, care about the long-term success of the business and prioritize performance over compliance. Yet they are very sensitive about their authority over the board and are ready to fight off shareholders’ attempts to challenge it. As one of them put it: “If the owner makes a suggestion which contradicts the overall direction we have agreed on I have no problem telling him: ‘That is a good idea, but we won’t implement it.’ I expect them to respect my decision”. These features create a somewhat unique dynamic in chair-shareholder relationships, which we call engaging-asserting. Board leaders proactively seek shareholders’ views, help them to form opinions, present these opinions to the board, consult them on important matters, and inform them about board agendas, decisions and the rationale behind them. At the same time chairs assert their board’s independence and their own authority in running their boards the way they see fit—as the earlier quote about being “a master in the boardroom” suggests. The relationship is by no means fixed. At times it moves towards more engagement and then fluctuates towards assertiveness. One of the chair-respondents compared it to a ship always adjusting its course in the ocean to make the journey as efficient and safe as possible. Before we present specific practices supporting the engaging-asserting model (see Table 3) we would like to make two caveats. First, chairs of Danish companies do care about “passive shareholders” (see Chapter 1), mostly financial individual and institutional investors, and make sure the latter get from the company what the corporate governance regulations prescribe. Yet most chairs are less preoccupied with passive investors than their colleagues in the UK or the Netherlands, largely leaving this task to the CEO and management. The governance framework encourages them to do so, it allows them to “relate confidential information to dominant

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shareholders where this is necessary for them in their role as the ultimate decision makers in respect of the company’s governance”.25 Second, the relationships between chairs and shareholders at some family companies go beyond the engaging-asserting dynamic. The chairs may take on some additional roles without formalizing them or receiving any extra compensation. For example, they may assess the leadership potential of younger generation family members and mentor them, or they may provide strategic and investment advice. The respondents felt it was a part of building mutual trust and constructive relationships with the key shareholder of the company: “In family-owned companies I am involved in some projects that would normally be handled by management. In addition to the board’s formal duties, these owners see the board as a resource for inspiration, learning and development ” (Table 5.1). Enquiring about shareholders’ interests, needs and values: and sharing their own. Many respondents emphasized the importance of investing time and emotional capital in understanding shareholders as human beings, rather than just business people and building relationships with them, especially at an early stage. This is achieved through personal meetings without a formal agenda, where the chair takes a lead in questioning shareholders, but also proactively shares what is important for him or her. The goal is not to build friendship but to create mutual awareness as a foundation for constructive cooperation in the future. As one chair put it: Alignment with a controlling owner is one of my main priorities. I invest a lot of time before entering a new board in order to make sure that I understand and support the owners’ priorities. If the owner is not a board member I continue this dialogue by aligning major decisions before board meetings.

Seeking shareholders’ expectations with regard to the company. According to our respondents—both chairs and shareholders—this practice is essential for effective relationships. All the chairs we interviewed reported spending significant time before and immediately after taking the job on conversations with shareholders to understand their expectations as investors, owners, founders or relatives of the founders, etc. Some board 25 Hansen, J.L and Lønfeldt, C. (2014). Corporate Governance in Denmark. In: P. Lekvall, ed., The Nordic Corporate Governance Model. Stockholm: SNS Förlag, p. 145.

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Table 5.1 Chairs’ practices for interacting with active shareholders Engaging practices

Asserting practices

Inquiring about shareholders’ interests, needs and values Sharing personal world-view, interests and values Seeking shareholders’ expectations with regard to the company Sharing board materials with shareholders and discussing them before the meeting Seeking shareholders’ inputs on specific issues Preparing summaries of board meetings for shareholders Conducting follow-up meetings with shareholders after board sessions Initiating regular meetings or phone calls with shareholders Organizing informal meetings between shareholders

Articulating personal expectations and setting boundaries between the board and the shareholders Articulating rules of engagement to shareholders Writing down rules of engagement and sharing them with shareholders Nudging shareholders to get to know corporate governance regulations through reading or attending specialized courses Putting the board’s weight into the game Preventing shareholders from reaching out to management and directors without the chair’s participation Breaking board meetings to have separate conversations with director-shareholders Rallying the board against intrusive shareholders Threatening to resign Resigning

Calling and chairing formal shareholders’ meetings Using shareholders’ networks for recruitment, information gathering or lobbying

leaders achieved this through a series of informal meetings, while three respondents reported a more structured approach. The latter had interviewed shareholders, asking them a set of questions, writing down the answers and returning the information to them in the form of a memo. The process is repeated on an annual basis. One of the chairs has developed a questionnaire around key strategic dilemmas to make shareholders’ expectations more explicit. He calls it a “matrix of expectations” and uses it in annual structured interviews with his three shareholders to gauge and map their expectations. The chair then summarizes the results and presents them back to the owners and the board. The set of questions has evolved year on year to reflect the changing business context. According to the chair, the approach has helped the shareholders to formulate their positions and the board to understand the constraints on its work. As he stated, it has been “an eye-opener for the shareholders ”, who insisted they were completely

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aligned before they went through the exercise, only to discover significant disagreements. The matrix of expectations asks the shareholders to position themselves on “dimensions”, including the following: • • • • • • •

Selling the business now versus 50 years from now Profits versus growth Dividends versus acquisitions Conservation versus evolution versus revolution Growth strategy: organic versus acquisitions Focus: low-hanging fruit versus long-term development Ownership pride versus professional rationalism.

Putting the board’s weight into the game. The following quote from one of the respondents requires no further explanation: Who am I to deal with a significant shareholder on equal terms? A parttime board chair getting the equivalent of US$100,000 a year. Not serious. But when the whole board speaks to them, they listen. So I always remind shareholders that I am an interface between them and the board. I never speak my mind; it’s the collective voice of the board of directors they are hearing. Threatening to resign and resigning. Chair-respondents considered resignation or the threat of resignation a legitimate way to assert their authority. As one put it: “I tell my shareholders: I listen to you, yet I have my own way; if you don’t respect it, I will resign”. Some chairs take it even further. They suggest that in cases of disagreement shareholders fire the whole board and elect a new one. Although such situations are rare, some respondents reported going through them and even eventually stepping down. Leading the Board We found that, to a large extent, the practices of Danish chairs stem from their view of their role as that of an enabler and connector, who actively engages all board members and at the same time asserts authority over them. Chair-respondents did not consider a board of directors a cohesive team but saw it as a group of professionals capable of collaborating to make collective decisions. The underlying assumption is that such people

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respect each other as professionals, rather than developing mutual trust through teambuilding activities organized by their leader. The chairs recognized and valued the diversity of directors’ agendas and opinions, and worked proactively to bring them to the table as a rich foundation for decision making. One of the respondents shared her story of chairing the board of a large family fund. The board consisted of family and non-family members with very different backgrounds. She defined her main task as aligning directors’ interests and began by proactively seeking to understand—and then integrate—individual directors’ expectations into the board’s agenda. She would call all the directors before board meetings to find out if they wanted to add any items to the agenda or had any particular concerns about the proposed resolutions. She also phoned all of them after meetings to find out if they felt their concerns had been adequately addressed. As the chair, she wanted not only to avoid problems but also to create a reflective and learning environment for the board. We found that, unlike their counterparts in some other European countries such as Germany or Russia, board leaders in Denmark could be quite idealistic, often using concepts like “purpose” and “values” to manage their boards. One respondent would have his directors, many of them international high-profile professionals, meet with company employees who had done something extraordinary, listen to their stories and talk about company values the day before the actual board meeting. He felt it “would remind the board about the importance of our work, and therefore they were more focused and motivated to contribute”. Another chair believed that explicitly articulated values help boards, especially large ones, to align and that the board leader should make sure the values are articulated and adhered to. Some respondents said that their boards developed sets of corporate values which had been cascaded down through the organization, while others lifted the existing corporate values to the board level. We will describe some specific practices chairs in Denmark use to manage their boards by looking at pre-meeting, in-meeting and postmeeting activities, as well as some specific aspects of their work, such as managing a difficult board member and working with employee-elected directors.

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Pre-Meeting Before every board meeting an effective Danish chair reaches out to key stakeholders—shareholders, board members, key executives—to discover their expectations, positions and concerns. This allows them to engage directors and to avoid surprises in the boardroom—something many respondents felt strongly about. Non-chair respondents particularly appreciated this practice regardless of the form it took—a phone call, a meeting or an e-mail. During the pandemic when face-to-face meetings became impossible and the frequency of board meetings increased the chairs continued to reach out to directors via phone or videoconferencing. All respondents reported spending significant time preparing for each board meeting. They felt the quality of materials played an important role in ensuring their boards’ effectiveness. Most chairs had intense discussions with their CEOs during the preparation phase. Others believed that management should have more autonomy to express their position. This duality also applied to management presentations: one respondent checked all presentations before they went to the board members; the others trusted management to prepare materials. The former did a lot of homework to avoid surprises; the latter believed that spontaneity would improve the final decision. Danish chairs shorten board meeting agendas by dealing with technical and less important issues offline and delegating work to board committees. Committees serve as task forces for looking more deeply into important issues, conducting analytical work and preparing recommendations for the board. Their small size allows for in-depth discussions and quality decisions. As one of the respondents put it: “At the end of the day, facts should create the foundation for effective board decisions. The committees help to create this foundation”. The timing for sending materials varied from one to two weeks before the meeting, the shared philosophy being “neither too late, nor too early”, since board members have multiple commitments and a limited attention span. Some chairs defined the format and content of the board materials down to the last detail. Many included a summary of the last meeting’s materials in the board book, as well as additional materials that had arisen since the previous meeting. Digital platforms to handle the exchange of all board information are becoming more common in Denmark. All respondents—chairs, board members and executives—appreciated this trend. However, several of them mentioned that it is important to keep the platform as simple as

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possible. One director noted: “The structure of the online platform should be simple. We should not spend our time handling the platform but should focus on essential board issues. Sometimes using a cloud filesharing service with good security like Google Drive or Dropbox may be the most effective way”. Some chairs in Denmark are personally involved in integrating new directors by setting expectations, answering questions, making introductions to key stakeholders, and conducting mentoring and coaching sessions, while others leave such activities to the management and the corporate secretary. In-Meeting Danish chairs vary in the way they deal with management’s participation in board meetings. Half of the respondents invite only the CEOs; others call in the CEOs and their direct reports from time to time. Interestingly, this variation does not depend on the size or complexity of the business. In most cases, executives participate in discussions of only some items. The most common practice for our respondents was to update directors on recent events and on interactions with management since the previous meeting. Most chairs conduct in-camera sessions (without executives present) at the beginning or the end of the board meeting. Executive-respondents believed that the board uses this time to evaluate the management. However, several chairs pointed to another purpose— to discuss disagreements without executives present and to demonstrate unity to them, which seems very important for Danish chairs. Some chairs pointed out that there is a big difference if these in-camera sessions are held before or after the board meeting. Before the meeting, the chair sets the scene and ensures that directors have aligned expectation about the agenda, timing, etc. After the meeting, sessions often become a review of follow-up actions. Danish chairs strive to enable collaboration between directors and refrain from domineering and taking too much space in the boardroom. They pay special attention to fairness and equality among all board members, encourage productive discussion and minimize passive listening time. We discovered a number of practices designed to support highly collaborative meetings. Establishing rules for board discussions and ensuring adherence to them is one of them. Indeed, one chair had drawn up a list of guidelines, as follows.

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Guidance for Chairing Board Meetings • • • • • • • • •

Provide enough time for preparation, discussion and decision making Prioritize important topics in advance Ambiance is important, encourage everyone to contribute Avoid dominance or partiality Treat all directors equally Acknowledge the specific knowledge of each member Acknowledge the specific knowledge of each member Never forget silent directors Plan in great detail.

Managing time allocation is another key practice that supports collaboration. It combines such specific strategies as forbidding or limiting management presentations during board meetings, placing agenda items that require significant time and mental effort earlier and before lunch, and allocating equal time for comments to each board member. One chair shared that he limits his meetings to three or a maximum of four hours. This puts productive pressure on the board and on executives to be prepared and to work hard. Guiding the flow of discussion in real time is a significant challenge. Respondents reported responding with such practices as giving the floor to the most knowledgeable director first, to set the tone; going round the table asking every member to state their opinion either at the beginning or at the end of the discussion; openly encouraging directors to speak, while reminding them of the need for brevity and specificity; calling on a specific director to contribute; and cutting directors short when they take too much airtime or make irrelevant comments. Chairs in Denmark pay special attention to the equal allocation of airtime and participation by every director. One chair-respondent shared that he personally coached employee representatives to help them gain the confidence to speak up in meetings. For him “a meeting where everyone contributes is a much better meeting ”. Conflict management is always part of a chair’s job. As discussions in Denmark tend to be frank, directors are not afraid to state their positions openly and to challenge the opinions of others. Chairs encourage debates yet keep them under control. As one respondent put it: “I am not afraid of disagreement. You need a good deal of it for a healthy board. But I don’t

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allow aggression or disrespect in the boardroom”. In Denmark, chairs deal with a conflict directly in the boardroom and often get the whole board involved. One common practice is to give each of the conflicting parties on the floor so that they can formulate their position, and then to involve the whole board in resolving the conflict. This practice reflects the cultural norms of open disagreement and direct negative feedback. Non-chair respondents in particular believe that the ability to handle disagreements in the boardroom is very important for effective chairing. If a disagreement is the result of limited data about an issue, the chair will postpone the discussion to a later meeting and organize a committee to provide solid data for the discussion. Action-oriented minutes are an important outcome of a good board meeting, and Danish chairs pay special attention to preparing and distributing them. The level of detail varies from one board to another, but in all cases they are more than dry resolutions and cover expressed views and positions. According to one chair: “Such a style prevents the board from forgetting, ignoring or resurfacing key positions of the board members ”. When COVID-19 pandemic made face-to-face board meetings impossible boards in Denmark swiftly moved online and adjusted their routines. According to our respondents, they quickly recognized that online meetings have their own specifics and made them shorter, more intense and more regulated than traditional board sessions. During the pandemic, the chairs made employees’ health and company’s survival standing items on the board agenda. Some of the board leaders reported organizing board meetings in parks and gardens to ensure directors’ safety. Post-Meeting Between meetings, Danish chairs try to create and maintain a single information space for all directors. One chair said that, whenever he gets a question from one board member, he sends it with his answer to the entire board. Some board leaders create chats for all directors, some write short updating memos, and others have the CEO send monthly updates to directors. During the pandemic the importance of such space increased dramatically and its maintenance became one of the top priorities for chairs. Many respondents hold one-to-one discussions with directors immediately or sometimes after the board meeting as a way to preserve the freshness of impressions and reinforce their engagement. One phones

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each board member after the meeting and asks them how he performed, if anything went wrong and what could be improved next time. Board evaluation is a common practice in Denmark and chairs use it as a method to build a shared understanding of what the board does well, where the gaps are and how they can be plugged. Some boards use external consultants, while others do it internally. The size and the complexity of the business is not a determining factor here—the choice is driven by the chair’s preferences. One respondent described a very sophisticated evaluation process in cooperation with an external consultant. It involves 360-degree and individual interviews with board members and executives, plus consultants attending board meetings as observers. The assessment covers such areas as: Core foundations • • • •

Business challenges and priorities Clarity and alignment of roles and responsibilities Board composition and capabilities Board information and understanding

Operational feedback • • • • • • • •

Board processes (rhythm, style, etc.) Board time allocation and focus Committee effectiveness Supporting business processes Behavioural enablers Chairman’s role and relationships NED/Executive relationships Nature of Board dynamics Individual contributions.

The chair orchestrates this work, listens to the initial findings and facilitates the discussion of the consultants’ report at the next board meeting. In particular, the respondent makes sure that the board agrees on specific actions to improve its effectiveness and follows up on their implementation. Chairs who do not use professional consultants for board evaluation emphasize the importance of dialogue and group discussions. As one of

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them said: “Board evaluation is not a test. It is a tool which should stimulate dialogue and reflection. This requires careful design of the survey depending on the board’s composition and current challenges ”. Another respondent said that he was not interested in the individual competencies of directors, but in the collective ability of the board. Each year the board defines an evolving set of collective competencies, and at the end of the year every director evaluates the board along these dimensions. Then the whole board discusses the outcomes of the evaluation and plans specific actions to improve its own effectiveness. Whether they use external consultants or not, all chair-respondents believe in board evaluation as a tool that creates value, rather than a formal procedure. As one of them put it: “The evaluation allows us to have a dialogue about issues that do not surface in the daily board work”. In Denmark, shareholders do not participate in the board evaluation process (unless they happen to be board members), but some chairs reported sharing the evaluation results with important shareholders to keep them in the loop on such important issues as board performance and composition. A number of chair-respondents were active in shaping the composition of their boards. As one said: “If involving directors is too difficult because the board is too large, its size should be reduced. Effective boards are relatively small ”. This respondent described a critical situation where he had chaired a very large board. After a few meetings he realized that it was extremely hard to make any decision. The chair approached the shareholders and they agreed to halve the board’s size. As a result, the speed of decision making and quality of collaboration with management increased. Other respondents reported asking shareholders to remove underperforming directors from their boards, as described in the next section. Managing Difficult Board Members Chairs in Denmark value all directors and try to enable them to make a productive contribution. At the same time they believe, as one respondent put it: “The board needs to signal unity towards management. If we cannot, we need to address it ”. Danish board leaders recognize that there are different types of nonconforming directors and their noncooperative actions maybe driven by different motives, some of them unconscious. The first strategy is therefore to analyze and understand what is behind the deviant behaviour. As

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one respondent put it: “When you deal with a quiet director you should ask yourself: does the person keep silent, because she agrees with our decisions, or because she disagrees? If the latter, we cannot move on—it will backfire in the future”. Most respondents reported organizing personal meetings with non-conforming directors to acknowledge their importance to the board, listen to their concerns, ask clarifying questions and share a personal view on the problem. Often such exploratory conversations help “difficult” board members to see the situation in a different light and to alter their behaviour. The second strategy is to proactively transform the problematic behaviour, which may take the form of mentoring sessions, one-to-one conversations to set expectations and rules of engagement before the board meeting, feedback after the board meeting, follow-up phone calls or emails with specific requests. Chairs use 360-degree board evaluation as an additional instrument to create awareness of deviant behaviour and to change it. In the spirit of open disagreement and direct negative feedback, chairs in Denmark do not hesitate to confront deviant directors’ behaviour in the boardroom if off-line interventions have not brought about the desired change. The respondents spoke about: repeating board rules before the meeting—and during the meeting, if the non-conforming behaviour recurs; “cold calling” silent directors and cutting short talkative ones; reminding egotistic members of the collective nature of the board’s work; and not giving the floor to non-conforming directors for some time—or even the whole meeting. Some mentioned humour as a way to get a message across. Others involved the whole board in discussing deviant behaviour to strengthen the message. If nothing works Danish board leaders resort to the radical strategy of removal. Sometimes the chair suggests that a deviant director resigns; sometimes the matter is escalated to the shareholders, who elect a new board. But such cases are very rare. One chair says: “I lay out the conditions under which I expect a person to function on this board, and I end by asking them: ‘Do you want to stay on the board under these conditions?’ If they don’t want to comply I always get them to resign”. Unlike their counterparts in the Netherlands, Russia or Turkey, chairs in Denmark have a strong preference for resolving problems with difficult board members themselves or at the board level, rather than involving external help from shareholders, consultants or professional coaches.

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Independent directors and CEOs also expect the chair to address the deviant behaviour of a board member personally, preferably outside the boardroom. Working with Employee Representatives on the Board Although employees have the right to board representation in relatively small companies (35 employees or more) they do not always get organized to elect their representatives, so even some larger companies do not have employees on their boards of directors. When employee representatives are part of the board, the tradition of collaboration helps to make their participation productive. In Denmark, which has been governed by coalition governments for more than a century, most laws are negotiated by political parties with fundamentally different beliefs and agendas. Similarly, negotiations between unions and employers’ organizations are usually are quite constructive. Danish people have not only the mindset but the skills for collaboration. Board leaders build on this when they integrate employee representatives. Often they start by making sure the board does not become a place for employer–employee negotiations and then gradually involve employee representatives in decision-making. As one of them said to us: I used to accept them [employee representatives] but not really include them in our work. One day we were in a critical situation and an employee representative spoke up and prevented us from taking a disastrous decision. I realized that they have valuable knowledge about things on the ground – knowledge which we should be much more exposed to on the board. After that I started to invest time in them. I want to know them and understand how they can contribute, and what motivates them.

Some respondents reported that they provided personal mentoring for employee representatives to make them more comfortable in the boardroom. One experienced chair summarized his approach to working with employee representatives in five bullet points: • They bring deep insights of the organization to the board • They complement non-executive directors • They need to feel they are fully-fledged board members

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• They need to receive a solid induction training and to be supported throughout their journey • They have to work in board committees. Relationships with the CEO and Management All the chairs interviewed work closely with the CEOs of their companies, an interaction that is often complex and follows no strict rules. The two predominant types of the interaction are collaboration and mentoring (see Chapter 1). As our interviews in Denmark demonstrate, both chairs and CEOs believe in intense collaboration based on a shared understanding of what is good for the company, mutual respect, transparency and predictability, and active information exchange. This approach resonates with Higgs’ idea of a chair as a “trusted partner of the CEO”.26 The common practices of collaboration are joint development of board agendas and annual board plans, reviews of board materials before they go to the directors, customer visits and business trips. Some respondents mentioned that the chair and CEO may make some decisions between themselves and only inform other directors about them later. One chair explains: “First you need to agree with the board that you work with the CEO in this way. I log all these decisions and inform them monthly or in the material for the next board meeting ”. Some chair-respondents emphasized the importance of understanding the CEO as a human being, rather than just a professional, and of investing time in doing so: “You need to know more details about the world of the CEO’s everyday life, but you don’t have to be an (industry) expert ”. CEO-respondents shared that effective chairs respect their autonomy and professionalism, listen well and help when asked to. Danish shareholders want board leaders to work closely with CEOs, but do not interfere with these relationships. They also appreciate having direct contact—without the mediation of the chair—with the CEO. According to Chapter 1, mentoring “occurs when a senior professional (the chair) interacts with a junior partner (the CEO). The main goal is for the former to provide the latter with the knowledge, experience and 26 Higgs, D. (2003). Review of the Role and Effectiveness of Non-Executive Directors. Available from: http://www.ecgi.org/codes/documents/higgs.pdf [Accessed 1 December 2020].

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resources to perform the CEO’s functions”. As one respondent put it: “It is your job to guide the CEO to be good at receiving and processing the response from the board, no matter if it is positive or negative”. In Denmark chair-CEO mentoring is highly informal. Respondents spoke about faceto-face meetings without a formal agenda, both planned and impromptu phone calls, exchange of messages, meals together, and introductions to the chair’s social and professional networks. The content of the mentoring varies greatly and reflects the personalities, backgrounds and experiences of the people involved. The most popular themes are general management acumen, strategy and people management. One chair mentioned that he always enters a relationship with a CEO on the assumption that he/she is the best CEO for the company and asks himself: “How can I help this CEO to succeed?” This means that what works with one CEO does not necessarily work with another. This board leader believes that a chair has to protect a CEO from excessive criticism by directors during tough times. During the pandemic, chairs of Danish boards supplemented collaboration and mentoring with emotional support of their CEOs. They took time to listen and advise, demonstrated empathy and made themselves available to chief executives round the clock. In Denmark, board chairs recognize the challenge of information asymmetry between the board and management and try to deal with it in a pragmatic way. They serve as a link between non-executive and executive directors, namely the CEO. One respondent shared his practice of “the chair’s minutes ”, whereby he starts every meeting by summarizing the important issues he might have raised with the CEO since the last meeting. Other respondents prepare write-ups of their discussions with the chief executive or ask the CEO to write short updates for the whole board. Chairs encourage other directors to reach out to the company and its executives. In fact, this is a distinctive feature of board-chair-CEO-management dynamics in Denmark. Unlike chairs in some other countries, board leaders follow Higgs’ advice and do not try to monopolize the role of interacting with the CEO.27 Both CEO- and shareholder-respondents recognized this as a positive element. As one owner put it:

27 Ibid.

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We want a flat organizational structure where the decisions can be made by the relevant people when it is necessary. The structure should not limit the quality of the work between our people. Therefore we need to have the same dynamics between board, owner and management. However, this requires mutual trust to work.

Chair Succession There was consensus among all respondents that chair succession was the business of the shareholders. Danish chairs do not nominate or prepare their successors, leaving it entirely to the owners. As one put it: “If the owner is not fully satisfied with the work of the chair, he will look for a new one”. At the same time, resignation—in cases of serious disagreement with the shareholders, the board or even the CEO—is a tool Danish chairs are prepared to use. If they feel they have exhausted all possible ways of achieving alignment, they step down. The approach to chair succession varies across ownership structures. In equity funds with active ownership, formal evaluation takes place on a regular basis and both sides can make a decision to end the relationship. In private companies, evaluation happens more informally, usually every two to three years. Owner-respondents reported that the chair is a very important figure for them. They pay attention to his or her performance and think about the future, although nobody reported having formalized succession planning.

Summary While many practices identified by our research are similar to those in other European countries, some aspects of the chair’s work have national roots and are specific to Denmark. We found that the values defined for Danish people by the nineteenth-century philosopher Nikolaj Grundtvig—a spirit of freedom, disciplined curiosity and equality—had an impact on the ways chairs think about and execute their job. The research confirmed our initial hypothesis about chairs being proactive in understanding shareholders’ concerns and bringing them to the board, as well as feeding information back to the owners. However, our interviews revealed an additional important element in Danish chairshareholder dynamics: asserting the board and the chair’s independence.

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In Denmark, acritical condition for being an effective chair is to feel in control of the board—and board leaders stand up for this right. We hypothesized that, in the Danish context, board leaders operate as facilitators, striving for harmony and consensus and effectiveness at the same time. They are informal, candid and accessible. The research added more colour to that picture. Creating transparency, putting all the facts on the table and shedding light on all matters are important to Danish board leaders. Negative feedback is provided honestly and frankly. Board leaders encourage everyone to speak their minds with vigour and determination, are not afraid of conflicting views, and deal with disagreements in a proactive way. Danish chairs run meetings in an interactive and lively manner. Procedural fairness is important for them, but formalities are of little value. They allow directors to formulate their opinions in multiple ways but do not shy away from taking an active part in the discussion They make sure that every director feels his/her opinion has been heard and counts. Above all, they are pragmatic and driven by a desire for effectiveness: the board has to make decisions. Chairs in Denmark care about the collective capability of the board and strive to improve it through regular evaluations, providing coaching and mentoring to directors, and even replacing board members. Surprisingly this proactivity does not extend to their own succession, which they leave to shareholders. Danish board leaders partner with their CEOs for the benefit of the company and mentor them, mostly informally. These are relations between professionals of equal status, although chairs never forget that they represent the board and encourage other directors to engage with executives. In the next decade, we foresee the following trends in Denmark. • There will be more female board leaders, but their number will not exceed a quarter of all incumbents. • The number of chairs under the age of 50 will increase. • There will be more non-Danish chairs of Danish companies than today, but the majority of board leaders will remain Danes. • Diversity will increase noticeably. We will see more chairs without CEO experience, though this will remain the main career path for future board leaders.

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• The complexity of the chair’s work will increase and will require more time and knowledge. Few people will chair more than two boards. • Technology will become an integral part of the chair’s work. Many meetings will move online and paper will disappear from the boardroom.

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Roberts, J. (2002). Building the Complementary Board. The Work of the PLC Chairman. Long Range Planning, 35(5), pp. 493–520. Schramm-Nielsen, J., Lawrence, P. and Sivesind, K.H. (2004). Management in Scandinavia: Culture, Context and Change. Cheltenham: Edward Elgar. Simons, T., Pelled, L.H. and Smith, K. A. (1999). Making Use of Difference: Diversity, Debate, and Decision Comprehensiveness in Top Management Teams. Academy of Management Journal, 42(6), pp. 662–673. Spencer Stuart (2019). Nordic Board Index 2019. Available from: https:// www.spencerstuart.com/research-and-insight/nordic-board-index [Accessed 1 December 2020]. Stewart, R. (1991). Chairman and Chief Executive: An Exploration of their Relationship. Journal of Management Study, 28(5), pp. 511–527. The Danish Companies Act (2010). Available from: https://danishbusinessauth ority.dk/sites/default/files/danish_companies_act.pdf [Accessed 1 December 2020]. The United Nations (2020). The World Happiness Report. Available from: https://worldhappiness.report/ [Accessed 1 December 2020]. The World Bank (2020a). Doing Business 2020. Available from: http://docume nts1.worldbank.org/curated/en/688761571934946384/pdf/Doing-Bus iness-2020-Comparing-Business-Regulation-in-190-Economies.pdf [Accessed 1 December 2020]. The World Bank (2020b). World Development Indicators. GDP per Capita, in International Dollars. Available from: https://data.worldbank.org/indicator/ NY.GDP.PCAP.CD?locations=DK [Accessed 1 December 2020]. The World Bank (2020c). World Development Indicators. GDP Ranking. Available from: https://datacatalog.worldbank.org/dataset/gdp-ranking [Accessed 1 December 2020].

CHAPTER 6

Sweden: Proactive Chairs Engaging Stakeholders Liselotte Engstam

The Chair’s Work in Context Sweden is sometimes referred to as the world’s bumblebee nation, as it seems to defy the economic laws of gravity.1 Sweden combines high wages, strong unions and generous welfare with high productivity, top locations for business and top positions in innovation and sustainability rankings. Sweden has only 10.3 million inhabitants and is sparsely populated.2 Some 63% of the surface area is forest3 and 88.2% of the population lives 1 Crouch, D. (2018). Bumblebee Nation: The Hidden Story of the New Swedish Model. Stockholm: Karl-Adam Bonniers Stiftelse. 2 The World Bank (2019). Population, Total. Available from: https://data.worldbank. org/indicator/SP.POP.TOTL?locations=SE [Accessed 1 December 2020]. 3 Sweden Sverige (2020). Quick Facts about Sweden. Available from: https://sweden. se/quick-facts/ [Accessed 1 December 2020].

L. Engstam (B) Digoshen, Stocksund, Sweden INSEAD, Fontainebleau, France © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_6

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in urban areas.4 It is a prosperous country with, in 2019, a total GDP of US$530.8 billion5 and GDP per capita of US$55,840.6 The country is a constitutional monarchy. Political power lies with parliament and the government. Sweden taxes individuals substantially for redistribution in the form of welfare and social infrastructure, such as education, healthcare, childcare and adult social care. Business is taxed less heavily. In fact, Sweden has one of the most favourable corporate taxation regimes in the world.7 Sweden has a strong focus on lifelong learning. After ten years of compulsory education, around one-third of school leavers continue to university or college. In addition, more than 15% of Swedish adults participate in education, and 70% of enterprises offer formal training.8 Sweden is known for its innovation culture and startup capacity.9 Stockholm produces more unicorn companies (private companies valued above US$1 billion) per capita than anywhere else in the world, except Silicon Valley, and has been dubbed “The Unicorn Factory” in a study by the Wharton School.10

4 Worldometer (2020). Sweden Demographics. Available from: https://www.worldomet

ers.info/demographics/sweden-demographics/#pop [Accessed 1 December 2020]. 5 The World Bank (2020). World Development Indicators. GDP Ranking. Available from: https://datacatalog.worldbank.org/dataset/gdp-ranking [Accessed 1 December 2020]. 6 Sweden Sverige (2020). The Swedish Economy. Available from: https://sweden.se/ quickfact/economy/ [Accessed 1 December 2020]. 7 Bunn, D. and Asen, E. (2019). International Tax Competitiveness Index 2019. Available from: https://taxfoundation.org/publications/international-tax-competitivenessindex/ [Accessed 1 December 2020]. 8 Eurostat (2019). Eurostat Regional Yearbook 2019 Edition. Available from: https://

ec.europa.eu/eurostat/web/products-statistical-books/-/KS-HA-19-001 December 2020].

[Accessed

1

9 Ibid. 10 Wharton Knowledge (2015). How Stockholm Became a “Unicorn Factory”. Available from: https://knowledge.wharton.upenn.edu/article/how-stockholm-became-a-uni corn-factory/ [Accessed 1 December 2020].

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Digitalization is well advanced in Sweden. More than 90% of the population use Internet daily, more than 75% interact with public authorities digitally, and more than 70% participate in social media.11 Early in the COVID-19 pandemic, Sweden took a slightly different route compared to other European countries and never imposed a legally binding lockdown. At the same time, the Swedish health authorities recommended working from home and social distancing, and set rules for the number of participants at gatherings. As Sweden is a high-trust culture and a highly digitalized nation, many businesses quickly switched to operating with employees working from home. The economy shrank by 8.6%—slightly less than the EU average of 11.9%. As Sweden is highly dependent on exports, the lower demand from abroad compounded the negative economic effect.12 Companies in Sweden have a long history of being active in sustainability and are frequently considered pioneers. In the RobecoSam Country sustainability ranking,13 as well as the SDG Country Index,14 Sweden comes out as number one in the world. Sweden had 1.14 million enterprises in 2018, mostly small private companies.15 At the same time, the country is home to such well-known

11 Eurostat (2019). Eurostat Regional Yearbook 2019 Edition. Available from: https:// ec.europa.eu/eurostat/web/products-statistical-books/-/KS-HA-19-001 [Accessed 1 December 2020]. 12 BBC News (2020). Coronavirus Sweden Economy Less Hit. Available from: https://www.bbc.com/news/business-53664354#:~:text=Sweden%2C%20which%20avoi ded%20a%20lockdown,nations%20which%20took%20stricter%20measures [Accessed 1 December 2020]. 13 Solability (2020). The Global Sustainable Competitiveness Index. Available from: http://solability.com/the-global-sustainable-competitiveness-index/the-index#:~:text= The%20Sustainable%20Competitiveness%20Index%202020&text=Scandinavia%20keeps% 20topping%3A%20Sweden%20is,countries%2C%20including%20the%20Baltic%20states [Accessed 1 December 2020]. 14 Sachs, J., Schmidt-Traub, G., Kroll, C., Lafortune, G., Fuller, G. and Woelm, F. (2020). The Sustainable Development Goals and COVID-19. Sustainable Development Report 2020. Cambridge: Cambridge University Press. Available from: https://s3.amazonaws.com/sustainabledevelopment.report/2020/2020_sust ainable_development_report.pdf [Accessed 1 December 2020]. 15 Øresundsinstituttets (2015). Global Companies with Offices in the Nordic Region: A Study of Global and Regional Headquarters. Available from: https://www.investstockh olm.com/globalassets/documents/report---global-companies-with-offices-in-the-nordicregion.pdf [Accessed 1 December 2020].

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multinationals as Ericsson, Volvo, Atlas Copco, H&M and IKEA. The primary stock market for larger corporations is Nasdaq Stockholm, which in 2018 had 296 domestic listed companies and a market capitalization of US$758 billion. With secondary stock exchanges, the number of companies increases to 782, although market capitalization only grows to US$777 billion.16 Ownership is relatively concentrated in Sweden. The vast majority of large public companies are controlled by family groups such as the Wallenbergs (ABB, Atlas Copco, Electrolux, Ericsson, Investor, SEB, SKF), the Lundbergs (Sandvik, SCA, Handelsbanken, Skanska, SSAB, Swedbank, Volvo) and others. Often this is achieved through dual-class share structures17,18 and via foundations. In Sweden, approximately 47% of listed companies have dual-class shares, controlling about 70% of the market capitalization. The number is high compared to many other jurisdictions, as 78% of large-cap companies in Sweden have at least one shareholder controlling more than 20% of the votes (versus only 31% of large-cap companies in the UK).19 Sweden has a flourishing private equity (PE) industry. Over the last decade, more than 1000 Swedish companies received PE funding of e15 billion, which matches the total IPO capital in Sweden for the same period.20

16 OECD (2019). Corporate Governance Factbook 2019. Available from: https://www.

oecd.org/corporate/corporate-governance-factbook.htm [Accessed 1 December]. 17 Committee on Capital Market Regulation (2020). The Rise of Dual Class Shares: Regulations and Implications. Available from: https://www.capmktsreg.org/wp-content/ uploads/2020/04/The-Rise-of-Dual-Class-Shares-04.08.20-1.pdf [Accessed 1 December 2020]. 18 Kim, J., Matos, P. and Xu, T. (2018). Multi-Class Shares Around the World: The Role of Institutional Investors. Working Paper. Available from: http://web.nbs.ntu.edu. sg/general/NTUFinanceConference2019/downloadpapers/paperfolder/FC2019D1_Mul tiClassShares.pdf [Accessed 1 December 2020]. 19 Scog, R. and Sjöman, E. (2014). Corporate Governance in Sweden. In: P. Lekvall, ed., The Nordic Corporate Governance Model. Stockholm: SNS Förlag, pp. 347–378. 20 Næss-Schmidt, S., Heebøll, C. and Karlsson, H. (2017). Swedish Private Equity Market: A Footprint Analysis. Available from: https://www.svca.se/wp-content/uploads/ 2017/07/The-Swedish-Private-Equity-Market-A-footprint-analysis-Copenhagen-Econom ics-SVCA-July-2017.pdf [Accessed 1 December 2020].

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In Sweden, the state owns stock in 46 companies. Two are listed, and the companies’ total value is US$72 billion (640 billion SEK).21 Corporate governance in Sweden shares some important characteristics with other Nordic countries. Some researchers call this the “Nordic model”. The model combines: empowered shareholders, strong protection for minority shareholders, clear separation between boards and management, board independence from management and shareholders, independence of auditors, nomination committees dominated by shareholders, employee participation in boards and a high level of transparency. Swedish corporate governance is sometimes described as a third alternative to the unitary-board system and the dual-board system. This is because most boards are either fully non-executive or have only one executive member: the CEO. As a result Swedish boards are arguably closer to the business than supervisory boards under the two-tier structure and more independent than one-tier boards that have extensive management participation.22 Governance of Swedish companies is guided by laws, stock exchange requirements, self-regulation and unwritten practices and traditions. The cornerstones of this system are the Swedish Companies Act, the Swedish Corporate Governance Code and the formal listing requirements applicable at respective stock exchanges. The Swedish Company Act regulates which corporate bodies a company is required to have, the tasks of these bodies, and the roles and responsibilities within each body. The Act requires a company to have three decision-making bodies, in a hierarchical relationship: the Shareholders’ Meeting, the Board of Directors and the Chief Executive Officer. Additionally, the Shareholders’ Meeting has to appoint a body responsible for examining the company accounts, accounting practices and management practices of the board and management, the Auditor.

21 Näringsdepartementet (2020). Verksamhetsberättelse För Bolag Med Statligt Ägande 2019. Available from: https://www.regeringen.se/49f6d4/contentassets/50846bc5f 57f4189b0b67aaf49728355/verksamhetsberattelse-for-bolag-med-statligt-agande-2019webb.pdf [Accessed 1 December 2020]. 22 Scog, R. and Sjöman, E. (2014). Corporate Governance in Sweden. In: P. Lekvall, ed., The Nordic Corporate Governance Model. Stockholm: SNS Förlag, pp. 347–378.

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The Swedish Corporate Governance Code23 complements the Act by setting higher requirements in some areas. It allows for deviations from these requirements, provided the result is better corporate governance (so-called “comply or explain” rules). The latest revision of the Code was released on 1 January 2020.24,25 Governance in private equity (PE) relies more on active ownership than in the case of other kinds of external investors.26 In Sweden PE companies use a mixture of unaffiliated external directors and experts on the board. They separate the CEO and chair roles and often require the board and management to invest in the company. They have a clear value-creation agenda and adapt strategy, management and board composition according to changing conditions. For privately held companies, an agreement called “Ägardirektiv” (directly translated as “owner directive”) plays an essential role in guiding the chair, the board and the company, based on the shareholders’ medium- to long-term interests. Owner directives are also used for many of state-and municipality-owned companies. Sometimes the owner directive is approved by the annual shareholders’ meeting and becomes a legally binding agreement.27,28 A study of the 25 largest Swedish companies in 2019 identified that the average board had 10.1 members, of whom 1.6 were employee representatives. Some 56% of the boards included the CEO as the only

23 Swedish Corporate Governance Board (2020). The Swedish Corporate Governance Code. Available from: http://www.bolagsstyrning.se/UserFiles/Koden/The_Swedish_C orporate_Governance_Code_1_January_2020.pdf [Accessed 1 December 2020]. 24 Swedish Corporate Governance Board (2020). Annual Report 2020. Available from: http://www.bolagsstyrning.se/userfiles/archive/3930/kodkoll_arsrapport-2020_eng.pdf [Accessed 1 December 2020]. 25 Swedish Corporate Governance Board (2020). The Swedish Corporate Governance Code. Available from: http://www.bolagsstyrning.se/UserFiles/Koden/The_Swedish_C orporate_Governance_Code_1_January_2020.pdf [Accessed 1 December 2020]. 26 Næss-Schmidt, S., Heebøll, C. and Karlsson, H. (2017). Swedish Private Equity Market: A Footprint Analysis. Available from: https://www.svca.se/wp-content/uploads/ 2017/07/The-Swedish-Private-Equity-Market-A-footprint-analysis-Copenhagen-Econom ics-SVCA-July-2017.pdf [Accessed 1 December 2020]. 27 Liljeqvist, L. and Rundström V. (2018). Hantering Av Övergången Från Ägarledning till Ägarstyrning. Available from: https://gupea.ub.gu.se/bitstream/2077/57455/ 1/gupea_2077_57455_1.pdf [Accessed 1 December 2020]. 28 Brandinger, R. (2011). Det Nya Styrelsearbetet. Stockholm: Liber.

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executive member and none had appointed the CEO to the chair. In the boards covered by the study 68% of directors were independent, but if employee representatives were not counted the number decreased to 57%. Female directors occupied 40% of the seats and 33% of new directors were women. Non-nationals held 28% of the board mandates with America, the UK, Ireland and Benelux the most represented countries. The average age of a board member was 58.5 years and the average tenure was 6.4 years, rising to 63.9 and 7.1 respectively for the chair. On average, board members were also directors of 2.5 other listed companies, rising to 4.8 for non-executives.29 The average number of board meetings per year in Sweden is 9.1. Boards have on average 2.4 committees, 96% have audit committees, 88% have remuneration committees, only 4% have nomination committees (as they are usually shareholder committees instead) and 36% have other committees.30

Research Hypotheses, Methodology and Data There is relatively little research on board chairs in Sweden. One of the few research reports dedicated to chairs in Sweden highlights the importance of such situational factors as ownership structure and business context for understanding the role of a board chair. The authors found that chairs at private companies are more engaged with shareholders and are more flexible in organizing their board’s work. The study also confirmed the significance of the chair’s role in guiding the board, the company and the CEO towards adapting to the fast-changing environment and other ongoing evolutions.31 Another study found a positive correlation between the firm’s value and the breadth and length of chair’s experience.32 A broader Nordic

29 Spencer Stuart (2019). Nordic Board Index 2019. Available from: https://www.spe ncerstuart.com/research-and-insight/nordic-board-index [Accessed 1 December 2020]. 30 Ibid. 31 Meineke, A.C. and Banerjee, A. (2018). The Chairperson of the Board: An Exploratory Study in Swedish Enterprises. Available from: http://hj.diva-portal.org/ smash/get/diva2:1214325/FULLTEXT01.pdf [Accessed 1 December 2020]. 32 PWC (2017). VD Och Sammansättning. Available from: https://mb.cision.com/Pub lic/365/2217147/a965fb4292f0d761.pdf [Accessed 1 December 2020].

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Fig. 6.1 Sweden Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs])

board study found that chair succession is strongly correlated with such strategic shifts as financial distress or ownership changes.33 We also used the Swedish culture map, developed by INSEAD professor Erin Meyer, to analyse and contrast the cultural context for Swedish chairs.34 This is a field-tested framework that outlines cultural similarities and differences. As can be seen from Fig. 6.1, Sweden is a strongly egalitarian and consensus-oriented culture, which has a substantial impact on how chairs operate.

33 Fæste, L., Gjerstad, K., Nordahl, T. and et al. (2016). How Nordic Boards Create Exceptional Value. Available from: https://www.bcg.com/ru-ru/publications/2016/ strategy-value-creation-strategy-how-nordic-boards-create-exceptional-value [Accessed 1 December 2020]. 34 Meyer, E. (2014). The Culture Map: Breaking Through the Invisible Boundaries of Global Business. New York: PublicAffairs.

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On the basis of other findings presented in the first edition of this book, we also formulated the following research hypotheses. 1. The chair works for the company and the shareholders. 2. The chair interacts with shareholders and other stakeholders. 3. The chair acts as an enabler of the board, and as a link between the board, management and shareholders. 4. The chair enables the board by clarifying its role and focus and by facilitating its work. 5. The chair builds long-term trust-based relationships with allimportant stakeholders, not only shareholders. 6. Chairs engage owners in corporate renewal and long-term institution building. 7. The chair partners with and mentors the CEO and the board. 8. An effective chair has a record of proven business achievements and has earned CEO’s and shareholders’ trust. 9. By the end of the next decade board chairs will be more entrepreneurial and tech-savvy and will make sustainability their top priority. 10. There will be more diversity among Swedish board leaders, but men with a CEO background will remain in the majority. To test the hypotheses, we conducted deep-dive interviews with fifteen chairs, four independent directors, four owners and investors, three CEOs and four employee representatives on boards. The interviews were conducted between May 2019 and July 2020. We reconfirmed our findings with three of the chairs again from July to September 2020. The chairs interviewed have their mandate at listed, private, private-equityowned and state-owned organizations, some of which have controlling shareholders. Six of these interviewees were female and nine were male— all aged 58–69. Between them, they hold more than 80 board mandates across industries including retail, manufacturing, technology, care, infrastructure and financial services.

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In addition, we ran five board workshops between April 2019 and June 2020.35 We have drawn insights from these events, as well as from related surveys. We are also fortunate to be able to draw from the research for two projects, “Boards and Corporate Renewal”36 and “Boards impacted by AI”.37 These involved more than a hundred deep-dive interviews, a dozen or so workshops and several surveys. Furthermore, the author of this chapter is engaged in the “Chairman Programme”38 for the Swedish Academy of Board Directors39 and thus has access to data and insights gleaned from more than 75 chairs over the last two years. We used an AI tool to analyse the transcripts of interviews with chairs, to identify the most frequently used vocabulary (see Fig. 6.2). Unsurprisingly, the three most frequently used words are, “board”, “company” and “people”. However, the fourth word “questions” may suggest a particularly important tool for board leaders in Sweden.

The Roles of a Board Chair in Sweden According to the Swedish Corporate Governance Code,40 “The chair of a Swedish company has a particular responsibility to ensure that the work of the board is well organized and conducted efficiently”. The code outlines 35 Engstam, L. (2019). The Board’s Role in Strategy, Governing Ecosystems, and Artificial Intelligence. Available from: https://digoshen.com/the-boards-role-in-strategy-gov erning-ecosystems-and-artificial-intelligence/ [Accessed 1 December 2020]. 36 Engstam,

L., Magnussom, M., Van der Heyden, L. and Karlsson, M. (2019). Innovation and Corporate Renewal also Disrupt Boards. Available from: https://www.insead.edu/sites/default/files/assets/dept/centres/icgc/docs/innova tion-and-corporate-renewal-article.pdf [Accessed 1 December 2020]. 37 Torre, F., Teigland, R. and Engstam, L. (2019). AI Leadership and the Future of Corporate Governance: Changing Demands for Board Competence. In: A. Larsson, ed., The Digital Transformation of Labor. New York: Routledge, pp. 116–146. 38 StyrelseAcademien (2020). Master Fokus i Styrelsearbetet Högre Ordförandeutbildning – Klassrum. Available from: https://www.styrelseakademien.se/styrelseutbildningar/ master-fokus-fordjupning/ordforandeutbildning/ [Accessed 1 December 2020]. 39 Swedish Academy of Board Directors. Available from: https://www.styrelsea kademien.se/styrelseakademien-sverige-om-oss/Styrelseakademien-in-english/ [Accessed 1 December 2020]. 40 Swedish Corporate Governance Board (2020). The Swedish Corporate Governance Code. Available from: http://www.bolagsstyrning.se/UserFiles/Koden/The_Swedish_C orporate_Governance_Code_1_January_2020.pdf [Accessed 1 December 2020].

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Fig. 6.2 “Word Cloud” created from interview transcripts

in detail what a chair has to do: create the best conditions for the board; organize induction programmes for new members; ensure that the board updates its knowledge of the company; make sure the board receives sufficient information; follow up on board decisions; organize annual board evaluations; maintain contacts with shareholders and communicate their views to the board; and, in collaboration with the CEO, prepare board agendas. We found that in Sweden, board chairs play multiple roles that often go beyond formal requirements. We also found that a chair’s work is

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highly contextual and strongly influenced by such factors as the shareholder structure (public versus private, type and number of owners) and lifecycle of the company. As one respondent put it: I think that every board’s work is very different. It’s different depending on the size of the company, whether it’s listed or private, where the company is in terms of maturity, what industry and geographical scope the company is working with, and then the background of the CEO, both with the company and in the industry.

At the same time, there are some important commonalities that stem from formal regulations and cultural traditions. Our respondents claimed that they work for both shareholders and the company. The organization’s long-term value creation and sustainable development are the top two priorities for board leaders in Sweden. Chairs nominated by PE shareholders focus jointly with owners on medium-term value creation. Similarly, broader stakeholders are also on the radar screens of board leaders. Several respondents mentioned that they need to ensure that the company delivers value to its customers. As one chair commented: “Besides our board, owners, CEO and management, I spend time with our employee representatives and with our customers to get a better feeling for the requirements placed on our company”. Another priority for any board chair in Sweden is to ensure a clear division of responsibility between the management and the board—and to focus the latter on essential issues that change over time as both the company and the environment evolve rapidly. Effective chairs strike the right balance between the strategic and controlling roles of the board, making sure that both value creation and value protection are emphasized. “I spend a lot of time finding ways through separate business reporting, pushing more to committee work to ensure we can spend time on the strategic and value creation topics for the company”, one chair commented. In private companies board chairs often take on additional roles, such as facilitating interaction with the owners, developing the next generation or directly participating in succession planning. “Sometimes, the owner needs a discussion partner to reflect on ways to move forward in his succession planning , and I will share my experiences with him”, one chair told us. The role of a board chair in PE-owned companies is quite specific. Rather than being an independent leader of the board of directors, the

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chair has significant financial incentives, works for the investors and uses the position as another platform to achieve the PE firm’s goals. Under the so-called “troika governance” model, the chair is a member of an informal team that also comprises the CEO and an investment manager from the PE company. The troika meets frequently and discusses important issues, which may not be transmitted to the board if they are of a highly operational nature. Chair–Shareholder Relationships In Sweden board chairs see it as one of their top priorities to understand shareholders’ expectations and needs—and to feed these back to their boards. They want shareholders to be informed about, interested in and engaged with the company. Chairs usually focus more on the major, often controlling, shareholders—and leave the broader market relationship to CEOs. The closer interactions are partly facilitated through meetings of the shareholder-dominant nomination committees, of which Swedish Chairs are usually members. In these meetings, chairs explore major shareholders’ wishes and share their perspectives on and vision for the company. They also discuss their views of the work of the board, as well as the future competencies required to best support the company. Compared to their counterparts in many other European countries, Swedish chairs develop close relations with shareholders. One chair of a listed company described it this way: “Compared with the AngloSaxon environment, the difference between management and board is much clearer. In my opinion, the distance between the owner and the board has grown smaller”. Chairs who work particularly closely with strong, active owners mention several benefits, notably in terms of the support they receive for industry analysis and competitor monitoring. Investors’ expertise in these areas can be a significant advantage for chairs. Regardless of expertise, however, briefing and discussion sessions with active owners provide further valuable opportunities for chairs and shareholders to meet and exchange views. In Sweden nomination committees are composed mainly of major shareholders and their representatives, with the chair as the only member from the board. The mission of the nomination committee is to ensure that the board has adequate skills and knowledge to fulfil its duties. One input for this work is the annual board evaluation; another is the regular

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participation of the chair. The nomination committee reviews the composition of the board, organizes searches for new directors, recommends candidates for election to the board and advises on their remuneration. Most such committees collaborate closely with chairs in these tasks. One chair we interviewed observed: “As a chair, I am part of the nomination committee, I share with them the vision I have for the board and board members, and we discuss it and make decisions ”. In companies with more distributed ownership, some chairs may join earnings calls to gain better insight into the shareholders’ wishes. One such chair told us: “I get valuable insights not only from how the CEO talks about our development and issues but also from the questions put forward by the analysts.” In private—especially smaller—companies, chairs represent the board in relationships with shareholders and proactively help shareholders to become more effective owners and to have better interactions with the company. As we have already seen, the “Ägardirektiv” (ownership directive) is an important opportunity in this respect. Some respondents were quite categorical about having one: “I will not take on the role of a chair for a private company if there is no written ownership directive. In my experience, it facilitates the work for me to be an effective chair and means I do not have to engage in unproductive disputes between owners ”. At PE-owned companies, the interaction between chairs and shareholders is very intense, whether the former represent the latter or are independent. In addition to direct and active participation in the board, PE investors conduct regular meetings with board chairs and do not hesitate to call or e-mail. They also help the chairs of their companies to learn and develop. One investor explained: We organize a chair circle with our company chairs yearly. They discuss their challenges, what they need, and present good stories for each other to learn from. And we usually inspire them with topical presentations from external thought leaders – latterly it has been a lot about digital opportunities.

Many respondents appreciated the active collaboration with PE owners as a way to move the company forward. As one chair put it: “I like to work with private equity owners. They are ambitious and take risks to help the company create more value. It can be very tough to convince shareholders of a listed company to do that ”.

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Leading the Board Many respondents emphasized that chairing a board meeting is only the tip of the iceberg in the work of a chair in Sweden. Most of the work is done outside of the boardroom. Chairs work with shareholders, management and other stakeholders to create a productive environment for the board and to collect the information required by directors to make effective decisions. They also engage with board members to clarify the board’s purpose, focus their attention on key issues, provide information and give and receive feedback. Without this work, board meetings would not be effective. Outside of the Boardroom Many respondents underlined that board effectiveness begins with board composition. This is why chairs work so closely with nomination committees to ensure that their boards have adequate collective competency. Nevertheless, the onboarding of new members is also critical for board cohesiveness and effectiveness. Approaches to induction vary from informal introductory meetings with the chair and CEO to formal programmes with different business units and customers. “I would urge them to get to know the business properly and to establish a relationship with the CEO”, one chair stated. Several chairs mentioned that digital technology, such as board portals, supported and improved the onboarding process by giving new members easy access to people and documents. Some chairs believe that, after onboarding is complete, directors are responsible for their own learning and development, while others consider it their responsibility to provide the board with developmental opportunities. One respondent regularly takes the board and senior management to a customized programme at an international educational institution. Another chair once flew the entire board to Silicon Valley to learn about new business models and technology trends. Most chairs use “strategy days” to bring in external and future-focused perspectives from industry analysts, auditors, banks, partners and customers. Our chair-respondents consider board committees an important tool to increase board effectiveness. In Sweden, committees prepare information for the board rather than making decisions on their own. Board chairs actively design the committees’ structure, shape their agendas in collaboration with their heads and often participate as full members. As one chair explained: “We have four subcommittees: Nomination, Audit,

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Remuneration and Sustainability. They meet four times per year, and I am part of two of them”. Some respondents mentioned that they created temporary committees to deal with specific issues, for example, M&A, digitalization, innovation, strategy, cybersecurity or sustainability. After the outbreak of COVID-19, many chairs created pandemic subcommittees or mixed board/management crisis groups. Chairs also shared that temporary committees are a way to ensure that the board both guides the management (while gaining more insight into the progress made) and act faster (than if they had waited for full board meetings). Here is just one example: We had to revisit the ownership options of the portfolio holdings we had at the company. To add more insight and speed up our decision making, we arranged a temporary sub-committee, with some board members and some from management, to prepare the work for the board.

In Sweden chairs usually plan board activity on an annual basis in close collaboration with their CEOs. The plan includes the number of meetings, dates, lengths and agendas, as well as committee meetings and other events. As one chair put it: “Our basic cycle is five meetings per year, as well as the statutory inaugural meeting. We may need more, for example, to discuss a significant investment or an acquisition. A meeting should be no longer than four to five hours ”. Our respondents considered choosing agenda items an essential element of their job. One chair shared: “My role is to bring the correct strategic issues to the table”. The essential items are cited as business strategy, digital transformation, sustainability, leadership and leadership succession. The COVID-19 pandemic added employees’ health and safety to the list. Most respondents review the agenda as a particular board meeting is approaching. In the interviews, chairs shared their continuous struggle to allocate enough time for discussing essential issues in the face of mounting compliance requirements: “Board work takes more time increasingly. I wish we had time for more real debate”. Many chairs have moved operational reporting to outside regular board meetings. As one respondent explained: “My job is to help to question and to clarify our strategic bets. That means we need to move many of the reporting sections out of the agenda and get time to debate the real issues ”. Some chairs organize monthly business-operations calls with

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senior managers, which allows directors to dive into operational data if they wish. Boards of Swedish companies pay significant attention to business strategy. However, chairs differ in the ways they organize strategic discussions. We identified at least three models of board-management interactions. The first is for the CEO and management to develop the strategy and present it to the board for approval. The chair facilitates the discussion. The second approach consists of a series of board meetings at which management presents elements of the strategy, as it is being developed, and the board debates it. The third model involves the board and management working together to develop a strategy. One of the respondents described how he organized a series of joint workshops to achieve this goal. Another chair invited high-potentials to participate in a board meeting where the business strategy was discussed. They presented their views on strategic dilemmas, which allowed the board to assess leadership talent in the company. Many respondents felt that at times of uncertainty their board needed to become more involved with strategy. As one chair put it: “Nowadays, uncertainty is increasing and the value of the board’s input is increasing, both in guiding and supervising ”. Innovation is another important issue for Swedish boards. One chair shared: We have to find better ways to integrate strategy and innovation and to ensure that the company keeps innovating in a continuous way. We asked management to present the company’s ongoing experiments to the board. That sent a signal that we encourage innovation and we don’t expect all of it to succeed.

Digitalization and digital transformation are other subjects that chairs regularly put in their boards’ agendas. As one of them explained: “We have digital development as a standing item on the board agenda, since we want to remain leaders in digital in our industry. Digital is a part of our core strategy”. COVID-19 made boards of Swedish companies even more attentive to digital matters. We also found that chairs are more ambitious about the digitalization of their companies than other board members.41

41 Torre, F., Teigland, R. and Engstam, L. AI Leadership and the Future of Corporate Governance—Changing Demands for Board Competence. In: A. Larsson, ed., The Digital Transformation of Labor. New York: Routledge, pp. 116–146.

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Chairs in Sweden are similarly active with respect to the sustainability of their companies. They have their boards regularly discuss it and its links with other key agenda items. As one chair-respondent put it: “We asked management to align all development and innovation efforts with our sustainability goals. It made good sense and became a better way for us to follow the progress of both”. Most chairs in our sample believe that addressing sustainability will help to create more shareholder value in the long term. Most chairs continue to work with the board outside of the boardroom, meeting or calling directors on a regular basis. The common themes of these conversations are board agendas, overall board effectiveness and the contributions of individual board members. Several chairs reported that they organized lunches or dinners before formal meetings to socialize and discuss issues informally. One chair explained how this saves time in formal meetings: “I cannot afford to get stuck on a certain issue but I do need to ensure board members have the facts they need to make decisions. Time is of the essence, and one of my responsibilities is to ensure that we make timely decisions ”. Employee representation at board level in Sweden is optional and in many cases employees decide against it. However, when employee representatives do join the board, chairs pay special attention to integrating them and helping them to contribute. One employee representative shared: “Our chairman has separate meetings with us employee representatives, trying to both understand our perspectives and also enquire how our voices could be better heard in the boardroom”. Strategies for engaging employee representatives include financial and business training, mentoring by the chair or other board members, separate pre-board meetings and even making advance seating arrangements to ensure that employee representatives talk to other directors at full board meetings. In the Boardroom Many respondents start board meetings with questions designed to get the conversation started and to engage directors. One chair asks every board member: “Have you seen any new trends you believe will impact our company?” Another has a slightly different twist: “What are you picking up from your other engagements that you believe is equally interesting for us?” Most chairs start the formal part of the board meeting with some housekeeping, for example: the appointment of a meeting chair and

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members to review the minutes; conclusions on the quorum; the previous meeting’s minutes; and the agenda for the day. One chair-respondent advised caution on enquiring whether any other topics should be added. Others recommended that complex topics, for which additional preparation might be needed, were best postponed to the next session or even a specially convened extra meeting. All the chairs in our sample required their CEOs to provide materials for board meetings well in advance (typically five to seven days beforehand), and most shared that they used some form of portal to make the material available to their boards. Some chairs mentioned that they guided their CEOs to ensure that it was clear what was expected from the board on each topic, particularly in cases where there was a dilemma. Some also made sure that all senior managers gave presentations in the boardroom at least once a year. “That gives the board an opportunity not only to evaluate the rest of the management but also to note the collaboration between the CEO and the rest of the management ”, one chair commented. Swedish chairs work hard on inclusiveness and Swedish boards are among the most gender-diverse in the world. They also invite employee representatives and management presenters into the boardroom and frequently seek other ways to interact with the broader staff and management, which means that the board is exposed to a diverse variety of viewpoints. As the pressure on boards increases, directors need to become more knowledgeable and dynamic. In an ever more uncertain world, the chair’s ability to draw on the full range of abilities around the table is essential for maintaining a balance between the board’s oversight and value-creation functions. Most chairs mentioned that they worked continuously to foster trust and inclusiveness in the boardroom. They emphasized: building on joint insights; encouraging creative proposals; being open to diverse perspectives; balancing inclusiveness with a questioning attitude; and ensuring presence and engagement in the boardroom. Some chairs relied on modelling the required behaviour themselves, while others encouraged it through questioning and collaboration. The dimensions of board leadership required for team building have also been identified by Huse and

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Gabrielsson,42 and are closely aligned with the traditional consensus-style approach that many Swedish chairs adopt. Most chairs focus on getting the critical topics onto their agendas and ensuring that all voices in the boardroom are heard. One chair mentioned, “Not all of our board members agree with each other or management. That is so valuable and makes the discussions so good. We really debate strategic issues ”. All the chairs in our sample mentioned that they often found it difficult to ensure that an appropriate amount of time was spent on essential topics and important decisions. One chair shared: “When we cannot get to a conclusion, I sometimes schedule a call some days later and ask all board members to reflect more on the topic until then. It almost always helps when people get some more time to reflect individually on the topic”. Most chairs mentioned that they had board members who talked too much or talked too little, which the chairs worked on handling inside the boardroom by carefully distributing airtime and, if required, outside the board room with individual coaching. Few chair-respondents mentioned conflicts in the boardroom. Should issues arise that do not fit into an amicable discussion, they are usually addressed outside the board meeting at the instigation of either the chair or individual board members. A novel habit of Swedish Chairs is to invite customers into the boardroom. One chair shared: “It’s a great way for us to get a better understanding of the market, but also of opportunities we otherwise might miss ”. Although Sweden had the least strict response to COVID-19 of all European countries, many chairs moved board meetings online during the pandemic. The transition was swift and presented board leaders with both opportunities and challenges. Some respondents said that it took them some time to realize that online meetings required special rules and a different type of facilitation. In general, chairs in Sweden keep online meetings short, limit individual directors’ interventions and insist on thorough preparation. Discussions of some topics, such as strategy, are spread over a few days or weeks. New board rules have emerged, such as keeping video cameras on throughout the meeting, banning phones and 42 Huse, M. and Gabrielsson, J. (2012). Board Leadership and Value Creation: An Extended Team Production Approach. In: T. Clarke and D. Branson, ed., The SAGE Handbook of Corporate Governance. London: SAGE, pp. 233–252.

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limiting time for management presentations and directors’ contributions. One chair uses digital polls to facilitate discussions in both digital and face-to-face meetings. Another sends directors to digital breakout rooms to improve the effectiveness of their discussions. An important aspect of any board’s effectiveness is the way it follows up on its decisions. Chairs therefore pay special attention to board minutes, some respondents even involving all directors in verifying them, and the implementation of board decisions. Many chairs discuss progress at every board meeting, while others follow up on the execution of board decisions with senior managers. To improve the board’s effectiveness, many chairs organize reflection sessions at the end of board meetings, some with the CEO present and some without. One chair described her approach: “I always reserve time without management at the end of the meeting. We discuss whether we debated the right issues, whether we added value, whether the meeting was well prepared and what we would like to see more of ”. Chair–CEO Relationships Situational factors, such as type of ownership or company lifecycle, significantly impact the content and format of chair–CEO interaction in Sweden. However, we identified several common factors. First, chairs and CEOs work together on planning and preparing board meetings. Some board leaders delegate more to CEOs. Others prefer to have a higher level of control, but the essence of the interaction is collaboration for the benefit of the company and the board. As one chair put it: “I have a discussion with the CEO to prepare each board meeting. We agree on the strategic issues to be discussed and make sure the meeting is well prepared”. Information exchange is the second important aspect of chair–CEO interaction. The chief executive informs the chair about current developments, important events to anticipate, challenges and opportunities. The chair then passes some of that information on to the board members. Conversely, the board leader informs the CEO about the content and outcomes of non-executive board sessions and other board matters. “As a follow up to the non-executive time at the board meeting, I always share and discuss the outcomes with the CEO within one week”, one chair told us. CEOs also seek chairs’ views or advice on the strategic and operational issues they face. In addition, they canvas their perspectives on potential

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market and macroeconomic trends, key talent and other issues. Some respondents reported helping their CEOs to assess external candidates or to engage with potential clients. As one chair shared: “I interview final candidates for the key positions to provide a second opinion and ensure the quality of the process ”. CEO-respondents emphasized that they value the advisory role that the chairs of their boards play. “It’s lonely for a CEO. I value my chair’s advice, as he has often been through similar issues, and it’s good to be two to reflect on some of the more critical topics ”, said one. The chairs we interviewed reported different levels of involvement in managing CEO performance. Some make sure that the whole board sets goals for the CEO and evaluates subsequent performance. Others act on behalf of the board to establish targets, evaluate results and provide feedback. The prevailing philosophy among our respondents was that the chair should give full support to the incumbent CEO, even if the board leader disagrees with some of the chief executive’s decisions or actions. However, when the chair and board lose confidence, the board should immediately organize a discussion about the CEO’s future. Dismissing the CEO is a collective decision of the board, but the chair—as the board member with the highest involvement with the company—triggers the discussion. As one chair explained: “The hard part is when the CEO is no longer performing. I have never regretted acting too quickly in this situation. You can’t give a CEO half -hearted support – if the CEO isn’t doing a good job, you have to make a change”. Most chairs in our survey carried out CEO evaluations at the same time as board evaluations. Several chairs mentioned that they also required an external assessment of the top leadership team. They felt that it both helped the CEO to develop the team and provided a neutral basis for evaluating potential candidates for CEO succession. We also heard that it was useful for the Chair and the board to understand the development needs of the entire senior management team. The majority of our chair-respondents had been handling CEO successions on behalf of their companies. They reported that it was always hard work and created some instability within the organization. They found it best if an internal candidate was available, and the steps towards the transition could be laid out without stress. However, many chairs had had to work with temporary CEOs, while engaging with search companies to find new candidates, which proved to be more challenging.

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Finally, many chairs provide their CEOs with some sort of mentoring. Some respondents conduct ad hoc mentoring sessions, while others have more structured programmes with agreed objectives and deadlines. One chair had expanded the mentoring programme to all members of the executive team with the help of other directors: “Most of my board members coach someone from the management team as a way to expedite insights both ways, and they all seem to appreciate it ”. Another respondent seconded this view: “I try to make the CEO comfortable with and see the benefit of members of our board coaching the management team. But I also remind our board members that it’s a delicate line and that we are there to support the CEO as much as we can”. Most interaction between chairs and CEOs in Sweden is informal and unstructured. Some chair-respondents have pre-scheduled weekly or fortnightly meetings, which may last anywhere from 15 minutes to a few hours. Most leaders meet or speak on the phone or by Zoom or Teams as the need arises. Usually, the CEO is the initiator. As one chair put it: “For me, it is essential to be available. The CEO can call me at any time. However, I do not chase the CEO. Usually the CEO contacts me”. Other forms of collaboration are shared meals, drinks, business trips, calls with investors or customer visits. In the words of one chair: “When we go to different countries or locations, I suggest to the CEO that we visit customers together”. Two factors seem to be critical for effective chair–CEO relationships in the Swedish context: clear division of roles and mutual trust. As one chair put it: “I think it is important that both the CEO and the chair understand each other’s roles and that the roles are clear”. Another respondent shared his understanding of the distinction: “It’s important that the chair doesn’t become operational but lets the CEO manage the operations ”. Since most chairs have been CEOs in their previous lives, drawing a straight dividing line is not an obvious exercise. Self-discipline and restraint is required from the chair. Trust develops over time through shared experience. However, many respondents emphasized the positive role played by the chair’s previous leadership experience in gaining the CEO’s trust. Chair Succession Nomination committees are formally in charge of board-chair succession in Sweden. This formal requirement matches current practice for most public companies, especially those with widely held ownership. However,

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in many holding groups and PE-owned companies and some privately held firms shareholders take the lead in the process, assisted by the incumbent chairs. Shareholders of some industrial groups take a long-term approach to succession planning for their chairs. They often place the CEOs of their operating companies on the boards of other organizations so that they can gain board experience. When these executives retire, they may be elected board chairs at different companies from the same holding. Such an approach creates a long bench of experienced, tested and trusted candidates for chair positions. Private equity investors pay special attention to recruiting chairs for their companies. They look for leaders with a proven track record in business turnaround, a strong orientation towards value creation and compatibility with the CEO. PE shareholders actively use both executive search companies and their networks to prospect for candidates. They may not involve the incumbent chairs in the process. As one chair put it: “It is a privilege of strong owners to recruit their teams. I might not like it, but I do understand it ”. In contrast, chairs at private companies often get very involved in planning their succession, proposing candidates to the nomination committees and owners, and preparing their successors once they have been identified.

Board Chairs in Sweden: Today and Tomorrow Board chairs are essential players in Sweden’s corporate governance system. In spite of their non-executive status, they work hard to fulfil several critical roles. One chair explained: My time commitment is substantial. We have approximately ten board meetings for a full board of approximately six hours. In addition, we have shorter phone calls of approximately an hour on topics such as acquisitions, financing, etc. I regularly meet with the CEO in person every other week and on the phone the other weeks, and I meet with operational people in the company. We also do study visits once or twice a year, and our strategy retreat usually lasts two days. And in addition, I meet with the board members separately and spend extra time in onboarding new ones.

The workload is substantial and will most likely increase in the years to come as constant change and mounting regulation create new challenges,

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as also found by Banerjee et al.43 As one chair put it: “I think I spend much more time today on chairing the board than the average chair did ten years ago. I also feel that the board and the CEO have a much greater workload these days. But in my view, that also makes the roles more interesting ”. The COVID-19 crisis increased chairs’ workload further and the extra hours are likely to continue for the foreseeable future. Some respondents who chaired boards of public companies in Sweden commented that their compensation did not match their input or level of risk taking. According to the 2019 Spencer Stuart Board Index, the average annual remuneration for a chair of a public company in Sweden was e216,565 Euros, compared to e1,316,374 in Switzerland (the highest chair remuneration in Europe).44 The chairs we interviewed expressed particular dissatisfaction with the combination of exposure to an unfavourable regulatory environment and weakening support from broader shareholder groups in Sweden. One told us: I think the effort and risk of chairing listed companies have increased substantially over the last years. The regulators and media are finding all types of smaller issues that you have to respond to. And none of them considers all the work behind the development part of the board job, only the supervising part. I am increasing my focus to work more with private equity investors, who better understand and appreciate that balance.

Several other respondents believed that private equity investors offered more attractive deals, with opportunities to invest and participate in value appreciation. Regardless of the form of ownership, our research found that in the Swedish context, a combination of experience, mental models, personal attributes and professional competencies distinguishes great chairs from less effective board leaders. Two elements of experience seem to be critical—diverse leadership background and rich board experience. Effective board leaders have been through many leadership positions and have worked in different

43 Banerjee, A., Nordquist, M. and Hellerstedt, K. (2020). Board Leadership and the Chairperson of the Board: A Review and Suggestions for Future Research. Academy of Management Annual Meeting Proceedings, 2019(1):17161. 44 Spencer Stuart (2019). Nordic Board Index 2019. Available from: https://www.spe ncerstuart.com/research-and-insight/nordic-board-index [Accessed 1 December 2020].

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companies and industries. As one respondent put it: “You need practical experience of many leadership situations to be a chairman, and you will only get that by spending many years in leadership positions yourself ”. Some studies have similarly shown that board leaders with diverse backgrounds build more dynamic boards than their colleagues with oneindustry experience.45 A strong leadership background also gives a chair more authority. As one interviewee remarked: “The CEO knows that I have experienced similar issues, often in more complex settings, and therefore is keener to listen to me”. Exposure to boards at companies with different ownership structures also helps to hone chairing skills. One chair explained it this way: My work as chair of this listed company benefits from my experience of being also engaged in some startup boards. It gives me a great opportunity to evaluate how quickly some business opportunities will grow, how hard it is for startups to work with large companies if there is no focused effort. It also gives me insights into new ways of working that I can discuss with CEOs. I have even brought in startups into the boardroom to both learn from the area and discuss disruption.

Effective chairs are ambitious, forward-looking and energizing. They combine a focus on the board’s purpose with attention to every item on the board’s agenda. One recent study found that chairs are more ambitious than the rest of their boards with regard to their companies’ development, including in such important areas as innovation and digitalization.46 That creates positive tension, which moves the board forward. Good chairs challenge and provoke their boards in non-threatening ways in order to unlock intellectual energy and stimulate productive debates. Chairs are good listeners and they create a fair and safe environment, where all directors can speak up and all voices are heard.

45 Hamidi, D. (2018). Building Dynamic Capabilities—Chair’s Leadership, Knowledge and Experience in SME. In: U. Hytti, ed., The Dynamics of Entrepreneurial Contexts — Frontiers in European Entrepreneurship Research. Cheltenham: Edward Elgar, pp. 120– 141. 46 Torre, F., Teigland, R. and Engstam, L. (2019). AI Leadership and the Future of Corporate Governance—Changing Demands for Board Competence. In: A. Larsson, ed., The Digital Transformation of Labor. New York: Routledge, pp. 116–146.

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It is hard to make any predictions in the very uncertain world we live in. However, we would like to offer some ideas for how the work of a board chair in Sweden will evolve in the next decade. Our first idea is demographic. Although Sweden has the highest ratio of female chairs in Europe, it is still pretty low today—just 16% at public companies. Firms with state ownership have a clear gender-balance strategy at the chair level and are doing much better—54% of board chairs are women. We believe that in ten years’ time at least 30% of board leaders will be female. Our second thought is geographic. Sweden is a net exporter of chairs to other countries, and this trend will continue, as many companies will want to learn from the Swedish governance tradition. In general, the work of both boards and chairs in Sweden will become more complex, more dynamic and more digitalized. Chairs will strengthen their digital expertise and that of their boards. As one chair asked: “How can we guide the CEO and the company if we don’t understand enough of the opportunities and implications of technology”. Board leaders will work with more sophisticated tools and will bring in external expertise more often. Some respondents mentioned advisory boards, non-voting experts and consultants as tools to deepen the board’s knowledge. Others spoke about the specialization of board members. One chair reflected: “Maybe we need to have one part of the board focused on the strategic development of the company, and another part focused on the control and compliance of current operations ”. Techniques such as scenario planning, data analytics and AI-based business modelling will become part of routine board discussions and chairs will have to develop sufficient mastery of them to be able to facilitate the debate. In the next decade, Swedish boards of directors will become more accountable not only to shareholders but also to other stakeholders. Chairs will have to make sure that this new accountability is reflected in their boards’ purposes, agendas and working routines. Sustainability, employees’ health and safety and business resilience and adaptability will become key issues on board agendas.

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We will leave the final summing up to one of our interviewees: The board work of tomorrow is going to be more complex, more dynamic and probably more interesting. We should be able to get technology to help us deal with more of the control questions and work more ourselves on strategic choices. The question is: will investors and regulators realize how delicate and hard the job is – and support and remunerate chairs accordingly?

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CHAPTER 7

Norway: Guardians of Trust Steen Buchreitz Jensen

The Chair’s Work in Context The Kingdom of Norway is a parliamentary monarchy with developed democratic institutions, including numerous political parties. With a population of 5.3 million and a total area of 385,207 square kilometres, the population density is only 14 people per km2 . Norway is one of the richest countries in Europe with GDP US$403.3 billion and GDP per capita US$75,419 (2019).1 Agriculture represents 2.3% of GDP, industry 33.7% and services 64%.2

1 The World Bank (2020). World Development Indicators. GDP per Sapita, in International Dollars. Available from: https://data.worldbank.org/indicator/NY.GDP.MKTP. CD?locations=NO [Accessed 1 December 2020]. 2 The World Bank (2019). Agriculture, Forestry, and Fishing, Value Added (% of GDP). Available from: https://data.worldbank.org/indicator/NV.AGR.TOTL.ZS?locations=NO [Accessed 1 December 2020]; The World Bank (2019). Industry (Including Construction), Value Added (% of GDP). Available from: https://data.worldbank.org/indicator/ NV.IND.TOTL.ZS?locations=NO [Accessed 1 December 2020]; The World Bank (2019). Services, Value Added (% of GDP). Available from: https://data.worldbank.org/indica tor/NV.SRV.TOTL.ZS?locations=NO [Accessed 1 December 2020].

S. B. Jensen (B) Scandinavian Executive Institute, Kolding, Denmark © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_7

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Norway’s path to independence passed through a number of stages. In 1814, after 400 years of Danish rule, it created a constitution that established one of the most democratic political structures in Europe, including a parliamentary system, the abolition of any further hereditary titles and expanded voting rights. From 1814 Norway was ruled by the Swedish crown, before becoming fully independent in 1905. With independence and a democratically based constitution, it was believed that Norway should be an open society, one in which all citizens should participate in decision-making. A strong sense of equality dominates social policy in Norway. National health and welfare systems provide all Norwegians with free medical care and generous retirement benefits. Norwegians have one of the longest projected life expectancies in the world. Norway has more than 590,000 enterprises, most of which are limited liability companies.3 There are 189 public companies in Norway listed on two exchanges: the Oslo Stock Exchange and Oslo Axess.4 The Norwegian state has important stakes in: the public companies of key sectors, such as oil (Equinor), hydroelectric energy (Statkraft) and aluminum (Norsk Hydro); the largest Norwegian bank (DNB); and telecommunications operator (Telenor). Altogether, the state owns 73 companies and 30% of the value of the Oslo Stock Exchange, while foreign companies own 39% of the stock market.5 According to Knudsen and Norvik: The main purpose of the Government’s ownership in listed companies is to maximize the value of its shares and to contribute to the sound and profitable development of the companies. In addition, the Government may also want to maintain the companies’ head office in Norway as a motive for the ownership.6

3 Statistics Norway (2020). 590,810 Companies in Norway. Available from:

https://www.ssb.no/virksomheter-foretak-og-regnskap/artikler-og-publikasjoner/590810-virksomheter-i-norge [Accessed 1 December 2020]. 4 The World Bank (2019). Listed Domestic Companies (Total). Available from: https://data.worldbank.org/indicator/CM.MKT.LDOM.NO?locations=NO [Accessed 1 December 2020]. 5 Oslo Stock Exchange (Oslo Børs) (2020). Monthly Statistics September 2020. Available from: https://www.oslobors.no/Oslo-Boers/Statistikk/Maanedsstatistikk [Accessed 1 December 2020]. 6 Knudsen, G. and Norvik, H. (2014). Corporate Governance in Norway. In: P. Lekvall, ed., The Nordic Corporate Governance Model. Stockholm: SNS Förlag, pp. 202–246.

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Norwegian public companies are governed by the Public Companies Act and the Norwegian Code of Practice for Corporate Governance (the NSCG).7 The Code was developed by a committee composed of representatives of national organizations such as the Institute of Public Accountants, the Institutional Investor Forum, Finance Norway and the Norwegian Society of Financial Analysts. The Public Companies Act states that the principal task of the board of directors is to ensure value creation for the shareholders.8 In addition, the board should consider the interests of other stakeholders—employees, customers, creditors, society and the environment. The Code recommends that the board should define social corporate responsibility goals.9 The Government Pension Fund Global (also known as the Norwegian Oil Fund) owns around 1.5% of the global stock market and has a market value of 10,300 billion NOK or 1150 billion USD. It does not invest in Norway but has a strong impact on corporate governance in the country. The Ministry of Finance oversees the Fund’s activities and issues guidelines which indirectly influence governance standards and practices at state-owned and public companies in Norway. Both the Ministry of Finance and the Ministry of Trade, Industry and Fisheries, which are responsible for state-owned companies, set high standards of corporate governance and invest in developing board members and chairs. Their work helps to spread high levels of professionalism and awareness to the chairs and directors of private companies.10 In Norway both public and private companies can choose between two-tier and one-tier governance systems. In practice the majority opt for the one-tier model. The General Shareholders Meeting is the highest authority, which can theoretically decide on any corporate matter and even reverse the decisions of other corporate structures—including the board of directors or the CEO. In practice, the general meeting elects

7 Norwegian Corporate Governance Board (2007). Norwegian Code of Practice for Corporate Governance. Available from: https://nues.no/eierstyring-og-selskapsledelseengelsk/#:~:text=The%20objective%20of%20this%20Code,than%20is%20required%20by% 20legislation [Accessed 1 December 2020]. 8 The Comapnies Act (2006). Chapter 46. Available from: https://niemands.ru/assets/ files/ukcompaniesact.pdf [Accessed 1 December 2020]. 9 Ibid. 10 Norges Bank (2020). Oil Fund Market Value. Available from: https://www.nbim. no/en/the-fund/market-value/ [Accessed 1 December 2020].

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the board of directors and the nomination committee, approves annual reports and makes decisions about: dividends, increasing/decreasing the company’s capital and mergers and acquisitions.11 Shareholders owning no less than 5% of company capital may require that an extraordinary shareholders’ meeting be held to discuss one or more specific matters. The most notable feature of the Norwegian governance model is the role and the status of the nomination committee, which is elected by shareholders and consists of members who are independent from the board and the management. It represents shareholders’ interests, nominates candidates for election to the board and makes recommendations about their remuneration. The Code suggests that directors be elected for two years, but in practice, a one-year term has become standard for public and large private companies in Norway. General shareholders’ meetings may also replace board members at any time without cause. Thus, shareholders have complete control over the composition of the board. Boards in Norway are exclusively non-executive and consist of three types of directors: affiliated with shareholders or the company; independent; and employee representatives. Employees may choose to elect up to 30% of board members. The Code recommends that the majority of board members should be independent of the company and significant shareholders and suggests that all directors, whether independent or affiliated, have to act in the interests of the company and all shareholders rather than of a particular shareholder. The current legislation mandates that each gender has to occupy at least 40% of board seats at joint stock companies (Allmennaksjeselskab). In 2019 women occupied 43.3% of directors’ positions at public companies in Norway.12

11 Knudsen, G. and Norvik, H. (2014). Corporate Governance in Norway. In: P. Lekvall, ed., The Nordic Corporate Governance Model. Stockholm: SNS Förlag, pp. 202–246. 12 Spencer Stuart (2019). Nordic Board Index. Available from: https://www.spe ncerstuart.com/-/media/2020/february/nordicbi_2019_web.pdf [Accessed 1 December 2020].

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The average size of a board of a public company in Norway was 8.6 members in 2019. Boards of private companies tend to be smaller.13 The average number of meetings in 2019 was 11.1 for public companies.14 Board chairs in Norway are elected either by a general shareholders’ meeting or by the board. By law the chair has to organize the work of the general meetings, conduct board meetings and ensure that the board deals with important and relevant issues. The legislation also insists that the chair should never act independently of the board.

Research Hypotheses There is a lot of gender-related research on Norwegian boards. In general, it indicates that gender quotas have had a positive impact on the number of female board chairs.15 The existence of a “critical mass” of at least three female directors increases the likelihood of women being appointed as chairs.16 The gender of the chair has also been found to influence female directors’ contributions to board decision-making processes (if both the CEO and the chair are male, women directors are less likely to contribute to board decisions).17 Another piece of research shows that the level of organizational innovation is higher if both the CEO and the chair are women.18 There are some articles that focus on how chairs’ attributes affect board dynamics and firm performance, for example, the ability of a chair to actively use directors’ relevant knowledge to unleash a board’s

13 Ibid. 14 Ibid. 15 Wang, M. and Kelan, E. (2013). The Gender Quota and Female Leadership: Effects of the Norwegian Gender Quota on Board Chairs and CEOs. Journal of Business Ethics, 117, pp. 449–466. 16 Ibid. 17 Nielsen, S. and Huse, M. (2010). The Sontribution of Women on Boards of Directors: Going beyond the Surface. Corporate Governance: An International Review, 18(2), pp.136–148. 18 Torchia, M., Calabro, A. and Huse, M. (2011). Women Directors on Corporate Boards: From Tokenism to Critical Mass. Journal of Business Ethics, 102, pp. 299–317.

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Fig. 7.1 Norway Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs])

value-creating potential.19 Recent findings from a sample of 410 Norwegian firms reveal that the chair’s human capital is positively related to the board’s ability to identify opportunities and threats and to adapt to them.20 To explore the relevant aspects of Norwegian culture, we have used the framework developed by INSEAD professor, Erin Meyer (see Fig. 7.1 and Appendix A for a full explanation).

19 Gabrielsson J., Huse, M. and Minichilli A. (2007). Understanding the Leadership Role of the Board Chairperson through a Team Production Approach. International Journal of Leadership Studies, 3(1), pp. 21–39. 20 Åberg, C. and Shen, W. (2020). Can Board Leadership Contribute to Board Dynamic Managerial Capabilities? An Empirical Exploration among Norwegian Firms. Journal of Management and Governance, 24, pp. 169–197.

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Based on the existing literature and the early research conducted in other European countries, we developed a number of hypotheses about the work and attributes of Norwegian board chairs. • Chairs consider value creation an important objective of their boards and one of their own top priorities. • Board leaders see themselves as enablers of collaboration among board members. • Chairs strive for consensus, give their boards time and space to discuss and debate, and avoid influencing the discussions with their opinions. • Board leaders are engaged with shareholders and nomination committees, listen to their concerns, update them on board news and make suggestions regarding board composition. • Chairs actively collaborate with the CEOs of their companies. The dialogue between the two is frequent, open, respectful and often informal. The chairs always remember that they are speaking with the CEOs on behalf of their boards. • Board leaders make special efforts to integrate employee representatives into their boards and to make them fully fledged, contributing members. • Incumbent chairs do not participate in the selection of their successors, leaving this task to nomination committees and shareholders instead. To test the hypotheses and to gather additional insights into the work of a board chair in Norway, we conducted semi-structured interviews with 11 chairs. Six were chairs of state-owned as well as privately owned companies; the rest led the boards of privately owned companies only. We also talked to four CEOs, most of whom had experience of working with several chairs and different ownership structures, and three owners or representatives of owners. All interviews were conducted between January 2019 and May 2020.

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The Role of a Chair in Norway Norwegian capitalism is driven by both value creation and solidarity. This duality is discernable in the way chairs of Norwegian companies work. Our respondents consider long-term value creation a top priority not only for the CEOs and senior executives appointed by their boards but also for the boards themselves. As one chair put it: The board has to make sure that all activities the company undertakes lead to long-term value creation for the owners’. Chairs gather these expectations and bring them to the board’s agenda. They work closely with shareholders and nomination committees but defend the independence of their boards both from shareholders and management.

In leading their boards Norwegian chairs see themselves as enablers of collective work rather than authority figures. Many respondents described themselves as “first among equals ”. They work hard on building and maintaining trust, unity and mutual support among board members. As one chair remarked, “If you have trust in the boardroom you can build trust between board and management. This is the best way to ensure that critical issues surface and are addressed in the best way possible”. In the sections that follow we will look in detail at major aspects of a board chair’s work in Norway. Relationship with Shareholders The Norwegian government is arguably the most engaged and professional shareholder among all European states. It claims that it participates in governance in order to promote long-term value creation by ensuring appropriate composition of boards of directors, creating effective governance guidelines and clear owners’ goals, ensuring that companies have suitable strategies, deploy their capital in an efficient way, conduct their operations in a sustainable and socially responsible way and are transparent to the shareholders and the public. The Ministry of Trade, Industry and Fisheries, which is responsible for overseeing the Norwegian state’s holdings, publishes governance guidelines. Its officers participate in shareholders’ meetings, which elect boards of directors and nomination committees, and interact directly with the management of individual companies with respect to owners’ expectations, financial results, social

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corporate responsibility and sustainable development. The term “owners dialogue” is often used in Norway to describe these interactions. Usually, both the board chair and the CEO participate in this dialogue, which covers the following aspects: • Goals—financial and non-financial targets, metrics and control mechanisms. • Value creation—business strategy, annual plans to implement strategy, control mechanisms. • Resources—financial capital, production assets, human capital, leadership capital. • Innovation—strategy, practices, metrics. • Diversity—strategy to improve gender balance. • Board of directors—understanding and taking into account the owners’ expectations, following up on strategy, understanding technology and its impact on the company, aligning owners’ and management’s interests, incentivizing compensation for executives. With regard to boards’ composition and remuneration, the Norwegian state relies on nomination committees, the institution which, as we have seen, is a particular feature of the country’s corporate governance system. For all public and most large private companies in Norway, nomination committees serve as the major representatives of owners in their relationships with the board of directors and its chair. The Norwegian Corporate Governance Board (NUES) suggests that the nomination committee should be elected by the General Assembly, it should be independent of the board of directors and management, and no more than one member of the nomination committee should be a member of the board of directors (although recently some shareholders have elected board chairs to nomination committees).21 The committee should act in the interests of all shareholders and should collaborate with shareholders, the board of directors and management to ensure the election of qualified people to the board. As a result, in recent years, a new profession has emerged: member of a nomination committee.

21 Wikborg Rein (2019). Verdensrekord i oppkjøpsmelding. Available from: https:// www.wr.no/aktuelt/news/verdensrekord-i-oppkjopsmelding/ [Accessed 1 December 2020].

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In practice, nomination committees are active throughout the year and board chairs are their principal points of contact. One respondent reported that he participates in 12 nomination committee meetings a year. The committee seeks to understand the owners’ expectations and the business strategy and to decide what is the best board composition for the next year and the years to come. Sometimes chairs proactively reach out to nomination committees to share their concerns and ideas, but usually, it is a well-organized dialogue that takes place during the committee meetings. According to our respondents such discussions help them to have a richer picture of owners’ expectations and convey them to their boards. As one chair put it, “I always try to understand how the owners see the challenges ahead in the short as well as in the long term”. Another chair uses meetings with the nomination committee to clarify his own mandate. There are some specifics in how nomination committees operate at private companies, where significant owners are often more involved than their state counterparts. The owners actively interact with the committee, mostly informally, and often discuss issues beyond board composition and compensation. In some cases, they may become members of the committee. In one family-owned business, the committee is composed of the eldest female representatives of different branches of the family. According to one of them, such a system creates continuity and allows future members to prepare for the job. At private companies with multiple owners, board chairs focus on understanding their expectations, communicating them to the board and taking them into account while making decisions. The practices revealed in our conversations vary from informal ad hoc conversations to quarterly formal meetings between the chair and all shareholders. The respondent who uses the latter approach emphasized that the shareholders must understand that the board remains independent in its decision-making. Another chair advocates an approach that may raise some eyebrows in the United Kingdom or the Netherlands: to put all shareholders (in this particular case two) on the board. According to him: “It is better to have conflict out in the open than behind closed doors ”. At companies with proactive investors, such as venture capitalists and private equity firms, chairs interact with their representatives both inside and outside the boardroom, since these owners systematically put their officers on the boards of companies in which they invest. Inside the

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boardroom chairs often focus on maintaining the spirit of collective work in the presence of powerful director-investors. In the words of one interviewee: “My role in these cases is to mediate. Often they [director-investors] have a lot to contribute, but too much input can harm not help in some cases. It is important that they know their role and respect other board members ”. Chairs are adamant about protecting equality and fairness on their boards. One told us: “My role is to dose the input, to mediate and prioritize which views and opinions should influence management. If a director-investor does not respect it, I am ready to resign”. Enabling the Board Both the Act and the Code emphasize the role of the chair as a coordinator and enabler of an effective board’s work. Our respondents also emphasized this enabling element of their leadership and shared their practices before, during and after the board meeting. Before the Meeting In Norway, chairs collaborate with their CEOs in setting agendas for their boards, yet they keep the final word for themselves. Many respondents develop annual plans (the “annual wheel ”) but are flexible about adjusting them when an issue requiring the board’s attention emerges. As one of them put it: “I decide with the CEO’s input which items to include in the next agenda, which can wait till the next board meeting, or if we need an extra virtual meeting to discuss some issues ”. Since long-term value creation is a high priority for chairs of Norwegian boards, they allocate significant time to discussing business strategy. Some respondents make it a standing item on every board agenda; others dedicate several board meetings a year exclusively to that subject. One respondent conducts four strategic board meetings a year. The first approves an annual strategic blueprint, the second reviews progress, the third looks at achievements and learning, and the fourth is dedicated to adjusting the strategy. In his view, the board should positively influence the value-creation process by understanding customers’ expectations and accommodating them in the strategy, ensuring an appropriate level of agility in the company and overseeing talent development. The COVID-19 pandemic has added several new items to board leaders’ agendas: first the safety of employees and customers; second cash management; and third the future of the business. Some boards have also

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launched community initiatives, for example, to help local educational institutions attended by their employees’ children. Chairs plan not only the agenda items but also the length of the board meeting, its flow and its format. COVID-19 has merely accelerated the recent trend in Norway for virtual board meetings. One respondent has been conducting one-hour board meetings by Skype every month to discuss financial results. According to him, it frees up time to discuss more complex issues at face-to-face sessions. We came across two distinctive practices that Norwegian chairs use to prepare board meetings. While working closely with CEOs on deciding what to put on the next meeting’s agenda, chairs avoid content-rich discussions. As one of them remarked: “I want the discussion and the decision making to take place in the boardroom. I don’t want to develop a personal position on the issue before we meet as the board – let alone agree the decision with the CEO and then ask the board to approve it ”. The second practice stems from a belief in a fair process and consensusbased decision-making. It is not unusual for chairs to spread a discussion of one agenda item over a few board meetings or to plan a discussion for one meeting and the decision-making for the next. One respondent shared that his board had discussed an important investment project for six meetings in a row before making a decision. For the chair, the priority was reaching a unanimous agreement. Chairs in Norway are well aware of the information gap between the board and the management and try to reduce it by ensuring timely delivery of high-quality materials to directors. All respondents have moved to 100% paperless boards but have personal preferences as to how the materials should be organized. One chair asks her CEO to write two pages of plain text rather than put together a long PowerPoint presentation. In her words: “writing in prose requires the CEO to take a position”. Another chair guides the CEO’s preparation for the board meeting by discussing what to present and how to present it to the board. During the Meeting Effective chairs in Norway are aware that their boards need time, first to understand the issue and the relevant information, then to discuss it and look at alternative options, and finally to make a decision. Moreover, they know the Norwegian practice of “omkamp” (rematch), when sometimes—even after a supposedly unanimous decision—some of members of a group will raise the issue again, possibly disguised as a different

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problem. Thus the first rule for conducting board discussions in Norway is no rush. Effective chairs allocate to important items as much time as is required and always make sure that every director supports a proposal before it becomes a decision. As one respondent put it: “When we have to make an important decision, I prefer to spend plenty of time, across several meetings , to discuss it. I don’t want the temptation to make a quick decision to affect the board”. The practice of spreading the decision-making process over a few meetings supports the “no rush” rule. As one respondent explained, when directors make themselves familiar with the issue at the first meeting and make the decision at the next they have time to reflect upon it, to gather additional data, to ask new questions and to arrive at a better decision. The second rule also partially reflects the consensus-driven culture of Norwegian boards. One respondent formulated it as “no separate discussions ”. According to this chair, all board members have to be part of every important discussion. He discourages preliminary conversations between directors because it may lead to taking them positions too early without seeing the whole picture. Most respondents support this approach. The third rule—everybody should be involved—builds on the same philosophy. According to one respondent, a chair cannot believe that the whole board supports a decision unless all directors have spoken on the issue. When board members say they agree and have not supported their position with an argument, they cannot agree. Another chair believes that “it is better to say, ‘I don’t think we know enough,’ than to be silent ”. Board leaders make conscious efforts to enable every director to participate in a discussion. One respondent starts by asking directors with deep knowledge of the subject matter to speak first in order to set the scene. Other respondents believe that it is not so important who speaks the first, as long as everybody contributes. But all agree that the chair should speak last, which we consider rule number four. Effective chairs in Norway are acutely aware of the risks of groupthink and anchoring, hence the fifth rule: put different perspectives on the table. The techniques may vary from assigning the role of devil’s advocate to one board member to asking management always to present at least three alternative decisions. The goal is to ensure that a high-quality decision is made. As one chair put it: “Complex matters require diverse perspectives, time for reflection and openness to alternatives. If the decision process does not allow for all of that the quality of decisions will not be as good as the matter deserves ”.

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Most respondents emphasized the importance of unambiguous comprehensive board resolutions. As one said: “If you cannot articulate the resolution perhaps you have not made the right decision yet ”. Thus, the final rule for conducting effective board meetings is: formulate clear-cut actionable decisions and make sure that every director understands them the same way. Most respondents conclude their board meetings by repeating the decisions the board has made and articulating the issues the board has decided to address at the next meeting. One chair shared his own practices for conducting effective board meetings, which largely reflect the rules we have formulated above: • I review the items the board needs to discuss, evaluate their importance for the company and allocate discussion time in accordance with this importance. • I make sure we identify and discuss viable alternatives before moving to the decision making. • I encourage directors to present different perspectives and I do not close the discussion until it happens. • I avoid voting. Many respondents reported that they organized express board evaluations at the end of each board meeting. Usually, they take place without executives present and take the form of free-flowing discussions around the following questions: • • • •

Did we make good decisions today? Did we spend time well? Did we prioritize the right issues? Were the cases well prepared and presented?

Almost all chairs complement this discussion with a meeting with the CEO to discuss the last board session and provide feedback. In Norway, formal board evaluations are also common practice. Usually, the board chair chooses the process and involves the nomination committee, once the results are obtained. At some companies nomination committees organize the evaluation. External consultants provide a new perspective when chairs hire them to conduct board evaluations. However, most chairs expressed the view

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that the board should “own the evaluation”. As one of the respondents put it: “I like the use of external resources for the evaluation, but the final summary and conclusions should be made at the board level ”. After the Board Meeting Our respondents were somewhat ambivalent about interacting with their board members outside of the boardroom. On the one hand, all of them felt it was important to recognize each director’s contribution and to hear their feedback. On the other hand, while some chairs reach out to individual board members via phone, video or personal meetings, conversations between meetings are often conducted with the whole board present. As one interviewee put it: “The collegiality is the most important thing for me. I don’t want any separate conversations with my board”. Another respondent felt that the annual board evaluation was an adequate method of providing feedback to all board members. One chair even believes that directors are mature professionals who know what they are doing and do not need any personalized feedback. When one-to-one meetings do occur, board leaders solicit directors’ feedback about the last meeting, express their gratitude for the director’s contribution and discuss the role of the board, the role of each director and mutual expectations. Chairs rarely provide direct developmental feedback to their board members; rather, they have an open conversation with a colleague. Nor do they discuss specific items the board is working on, since they strongly believe that such discussions should be conducted with everyone present. Most one-to-one meetings used to take place at the company premises, but COVID-19 has moved them online. In Norway—unlike in other European countries—chairs rarely use a shared meal as a way to conduct a feedback session with a director. Some respondents reported that they organized Christmas brunches for their boards to recognize directors’ contributions and to build trust and camaraderie. Onboarding programmes for new board members are common in Norway. Most often, nomination committees—in collaboration with management rather than board chairs—design and organize them. Effective chairs sit down with novice directors to explain them how the board works and interacts with other parts of the governance system. In Norway directors actively participate in developmental programmes organized by the state and other institutions. However, boards rarely have formalized development plans. Some respondents shared that from time to time they invite external experts to talk to the board about

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specific issues, such as digital transformation, sustainability and COVID19-related risks. All the chairs we interviewed continuously learn about their companies—their business, cultures and people—by speaking with the CEOs and other executives. They then share this knowledge with their boards, mostly in a non-structured way. Managing Difficult Board Members Trust is a high priority for Norwegian boards and their chairs, which is reflected in how they deal with “difficult” board members. Our respondents identified three categories of problem directors: • People who are not qualified, mostly because they lack a strategic mindset. • People who talk too much. • People who say very little. Usually, the chair starts by having a one-to-one conversation with a difficult board member, articulates the challenge and tries to engage the director in a positive transformation. They agree on a specific action plan which may include some training or coaching and a time frame. If the required behaviour change does not happen within the agreed period the chair brings the matter to the attention of the nomination committee. Our respondents shared some personal experiences of managing difficult board members. In one case a director passionately argued against a major decision that all the other board members supported. The chair, who strongly believed in consensus-based decision-making, postponed the discussion until the next meeting and asked the dissident director to analyse additional data with the help of management and prepare a proposal for the next meeting. The board member did the homework, gained new insights and recommended the decision which he previously opposed. Chair–CEO Relations Interviewing chairs of Norwegian boards for this chapter we often heard from them that they were “not the CEO’s boss ”. This position reflects both the mature understanding of the respective roles of the board and its

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chair that all our respondents share and the Norwegian tradition of partnering rather than commanding–obeying relationships. One interviewee expressed it this way: “As the chair I represent the board in my relationship with the CEO. Therefore, I can advise and support the CEO, but decisions must be made by him alone or by the board”. The relationships between chairs and CEOs vary depending on such situational factors as the life cycle and size of the company; the size and composition of the boards; and the competencies and personalities of the two leaders. However, in these relationships, the chairs always try to act as representatives of their boards rather than independent players. As one of them explained: “We never make decisions with the CEO; rather, we discuss how to present an important issue to the board. I help him to frame the issue and prepare a presentation, but important discussions take place in the boardroom”. Chairs in Norway see a number of objectives in their relations with their CEOs: to help them create value; to exchange information and pass the most important details on to the board; to plan and prepare board meetings; to understand the company’s leadership-talent pool and to prepare CEO successions. Our respondents underlined that these objectives could only be achieved if the parties trusted each other, so chairs make time and efforts to build trust with their CEOs. They mentioned such practices as always being available, spending time together and never trying to give orders to or make decisions for their CEOs. Helping CEOs and their teams to create value is by far the most important aspect of chair–CEO and board–CEO relationships in Norway. As one chair put it: “You can create value with an incompetent board as long as you have a capable executive team. On the other hand, a very experienced and skilled board gets nowhere with an incompetent executive team”. The way chairs and boards help their CEOs varies. In smaller and younger companies, chairs meet with the CEOs frequently, ask many questions, and share personal experiences and knowledge. Exchanges are very informal and may take place at the company premises or over the phone. Since the beginning of the COVID-19 pandemic many conversations have moved online. However, respondents emphasized the importance of face-to-face meetings for building trust and discussing complex issues. As one of them said: “Virtual meetings are fine for specific tasks, but to maintain a close confidential relationship you also need to meet face to face”.

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In large and more mature companies with sophisticated governance systems, chairs act more as enablers of board–CEO collaboration rather than mentors and advisors. Usually, the two leaders get together some time before a board meeting to discuss its agenda, priorities, materials and other issues the CEO feels are important. The chair reacts to what the CEO proposes rather than driving the meeting and its agenda. As one respondent explained: “In two to three hours we cover the next board meeting and the CEO’s other priorities. I think about ‘how could I make the board helpful?’ rather than ‘what advice could I give now?’ ” In Norway chairs rarely interact on a continuous basis with other senior executives in order to maintain clear boundaries and reinforce the CEO’s authority. However, one chair described the practice of having annual one-to-one meetings with all members of the executive team. Through these meetings, the board leader learns about the business, sees different perspectives and assesses the potential of the key executives, which helps in CEO succession planning. During the COVID-19 pandemic board chairs in Norway became more involved with both CEOs and management. Meetings have become more frequent and the agenda more operational. Some respondents reported that they had created and chaired COVID-19 committees comprising some board members and senior executives. Technology According to our respondents, COVID-19 and the mobility restrictions imposed by it have accelerated a pre-existing trend: the digitalization of board work. One respondent’s boards have been using both face-to-face and virtual meetings for a couple of years now. He prefers to discuss complex issues that require creative discussions in person and to deal with more technical matters at virtual meetings. Indeed, many boards are combining virtual and physical meetings. In general, the issues solved best at virtual meetings are the less intricate topics. More complex issues requiring different perspectives would be addressed at face-to-face meetings. Technology is an important issue for many boards. Most chairs discuss the overall board composition with the nomination committee and usually technological knowledge is critical, but it is not the only skill required. Technological insights can always be gained by bringing in external

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experts to support the management and the board. One chair highlighted that new technology usually involves all parts of an organization and its stakeholders, and therefore understanding the systemic structure of a business is much more important. Other chairs are more focused on risks that are linked to technology. Compliance risks are especially in focus. In general, however, broad business acumen and the ability to work collectively with mutual trust are the capabilities most prized by our respondents. One chair specifically pointed out: Technology is not in itself a board issue. Instead, it is important that the board has a clear picture of how the board is experimenting and developing the organization in order to create an innovative culture that is closely linked to the strategic ambitions. Technology is not the fundamental challenge.

Chair Succession Norwegian nomination committees are responsible for organizing chair succession, so incumbents do not directly participate in the process. However, when solicited, they willingly share their ideas about both general profiles and specific candidates. Some of our respondents explained that they work with their nomination committees to help them to understand the context, the goals and the capabilities of the board so that they can make good personnel decisions, including the nomination of the next chair. As one chair put it: If the nomination committee does not understand the strategic ambition of the company, they might misunderstand some of the actions taken by board and management. If we disagree on the strategic ambition, I might not be the right chair, and that is ok, but it is the owners’ decision, not mine.

What Makes a Chair Effective in Norway? For our respondents, an effective chair enables the board to help the management to create value and to meet other expectations of the owners. This dedication to long-term value creation and alignment with the owners’ interests is a particular characteristic of the board leaders we interviewed in Norway. They consider trust, teamwork, consensus, independence and constant dialogue with stakeholders as the principal building blocks of good boards. The role of a good chair is to ensure that

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all these components are in place. To do that board leaders need to have the right attitudes, personal attributes and professional competencies. First and foremost, chairs see their role as connecting different elements of the governance system and enabling them to work together rather than being an independent player. In Norway, a good chair listens on behalf of the board and brings the information back to the board, learns on behalf of the board and shares the knowledge with the board, speaks on behalf of the board and only communicates to external parties what the board has agreed on. He or she is part of the board and sees himself or herself as a facilitator of consensus-based decision-making by the board. Our respondents believe that good chairs are modest, hard-working and dedicated individuals. They sincerely care about the company, its shareholders and its board, invest time in their roles and make themselves available. They have a long-term view and they are patient. They are good learners and they share knowledge about the company with other board members on a continuous basis. Effective board chairs possess such professional competencies as a strategic mindset and general business acumen. They listen well, they speak in a way other people can easily understand, they frame powerful discussion questions and they facilitate productive discussions. They do not necessarily have profound industry expertise, but they know the company and its key people well. Chairs in Norway keep a relatively low profile, especially at large public companies. They rarely have personal offices at the company’s headquarters and they almost never make public appearances or speak to the media. They let CEOs shine and are content to concentrate on the internal workings of the governance system.

How Will the Chair’s Work Evolve? Looking ahead to the next decade, our respondents see a number of ways in which the work of a chair in Norway will evolve, although most of them agree that the changes will be gradual rather than revolutionary. Increased commitment. Mounting regulatory complexity, rising expectations of shareholders, nomination committees and other stakeholders, increasing uncertainty and volatility of the business environment will put more pressure on board leaders, who will dedicate more time and energy to their jobs. Chairs will spend more time on understanding regulations

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and compliance requirements for their boards. They will also dive deeper into their companies and will invest more time in understanding the expectations of various stakeholders. Few individuals will chair more than two boards, but board chairs will preserve their non-executive status. Mastering technology. The COVID-19 pandemic forced boards and their leaders to embrace technology in order to keep working. This trend will continue. Online board meetings will become the norm, although they will not completely replace face-to-face sessions. Board leaders will choose between different formats based on such factors as urgency, complexity and originality of agenda items. They will develop skills in planning and conducting online meetings and will make them more effective and enjoyable. Chairs will use technology to reduce the information gap between the management and the board and will facilitate directors’ access to company data. Technological savvy will become one of the core competencies of board chairs. Moving beyond profit. In the coming years, chairs of Norwegian companies will broaden their boards’ agendas. While the strong focus on long-term value creation will remain, such items as employees’ health and well-being, sustainability, non-business risks, diversity and corporate social responsibility will become standing items on boards’ agendas. As one participant put it: “People will punish you for not being sustainable long before the planet punishes you”. Diversity. Not only will diversity become one of the key issues for boards of directors in Norway, but board leaders themselves will also become more diverse. There will be more female chairs and in the next five years they will represent up to 30% of all incumbents. The number of chairs under the age of 50 and chairs without CEO experience will increase, although they will remain in the minority. COVID-19 will slow the influx of non-Norwegian chairs, but the trend will resume after the pandemic.

References Oslo Stock Exchange (Oslo Børs) (2020). Monthly Statistics September 2020. Available from: https://www.oslobors.no/Oslo-Boers/Statistikk/Maanedsst atistikk [Accessed 1 December 2020]. Spencer Stuart (2019). Nordic Board Index 2019. Available from: https:// www.spencerstuart.com/-/media/2020/february/nordicbi_2019_web.pdf [Accessed 1 December 2020].

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Statistics Norway (2020). 590,810 Companies in Norway. Available from: https://www.ssb.no/virksomheter-foretak-og-regnskap/artikler-og-publikasj oner/590-810-virksomheter-i-norge [Accessed 1 December 2020]. Torchia, M., Calabro, A. and Huse, M. (2011). Women Directors on Corporate Boards: From Tokenism to Critical Mass. Journal of Business Ethics, 102, pp. 299–317. Wang, M. and Kelan, E. (2013). The Gender Quota and Female Leadership: Effects of the Norwegian Gender Quota on Board Chairs and CEOs. Journal of Business Ethics, 117, pp. 449–466. Wikborg Rein (2019). Verdensrekord i Oppkjøpsmelding. Available from: https://www.wr.no/aktuelt/news/verdensrekord-i-oppkjopsmelding/ [Accessed 1 December 2020]. The World Bank (2019). Agriculture, Forestry, and Fishing, Value Added (% of GDP). Available from: https://data.worldbank.org/indicator/NV.AGR. TOTL.ZS?locations=NO [Accessed 1 December 2020]. The World Bank (2019). Industry (Including Construction), Value Added (% of GDP). Available from: https://data.worldbank.org/indicator/NV.IND. TOTL.ZS?locations=NO [Accessed 1 December 2020]. The World Bank (2019). Services, Value Added (% of GDP). Available from: https://data.worldbank.org/indicator/NV.SRV.TOTL.ZS?locati ons=NO [Accessed 1 December 2020]. The World Bank (2020). World Development Indicators. GDP per Capita, in International Dollars. Available from: https://data.worldbank.org/indicator/ NY.GDP.MKTP.CD?locations=NO [Accessed 1 December 2020]. The World Bank (2020). Listed Domestic Companies (Total). Available from: https://data.worldbank.org/indicator/CM.MKT.LDOM.NO?loc ations=NO [Accessed 1 December 2020].

CHAPTER 8

Finland: Powerful Downplay Stanislav Shekshnia

The Chair’s Work in Context The Republic of Finland is the eighth-largest country in Europe with a population of only 5.45 million people. With a GDP of US$ 268.7 billion1 and per capita GDP of Int$ 51,328 (2019) Finland is one of the richest countries in Europe.2 The Finnish state taxes its subjects heavily and invests significantly in social infrastructure and services, most of which 1 The World Bank (2020). World Development Indicators. GDP Ranking. Available from: https://datacatalog.worldbank.org/dataset/gdp-ranking [Accessed 1 December 2020]. 2 The World Bank (2020). World Development Indicators. GDP per Capita, in International Dollars. Available from: https://data.worldbank.org/indicator/ny.gdp.pcap.cd? most_recent_value_desc=true [Accessed 1 December 2020].

This paper would not have been possible without the generous intellectual and organizational support of Peter Ahlström, Managing Director at A. Ahlström Kiinteistöt Oy. I am very gateful to him. The Finnish state taxes its subjects heavily and invests significantly in social infrastructure and services, most of which are free. S. Shekshnia (B) INSEAD, Fontainebleau, France © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_8

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are free. The country frequently tops global and European rankings of the states with the best healthcare, education and quality of life. According to the Fragile States Index,3 it was the most stable country in the world between 2011 and 2019. It was also ranked first in the World Happiness Report in 2019 and 2020.4 Finland has been a parliamentary republic with a multiparty system and coalition governments as the norm for the last 100 years. In 1907 Finland became the first country in Europe to make all adult men and women eligible to vote and to stand for election to parliament. Women represented one-tenth of the first Finnish parliament.5 Finland is often referred to as an economy of private small-and medium-sized companies. There are more than 600,000 enterprises in the country, the most popular form being a limited liability company (osakeyhtiö ). The Finnish stock market is relatively small with fewer than 150 companies trading on the Nasdaq Helsinki (formerly known as the Helsinki Stock Exchange) and another hundred Finnish companies are listed abroad. The ownership is highly concentrated in Finland, although the number of listed companies with a controlling owner has decreased over the last 30 years to around 15%.6 Major institutional investors are pension funds, insurance companies and investment funds. The state is a significant owner in Finnish-listed companies. However, its share has been decreasing since the beginning of the twenty-first century and in 2019 represented less than 20% of total stock-market capitalization. In contrast, individual share ownership is steadily increasing but still accounts for less than state ownership (around 17% of the total market). Foreign investors control 45% of the Finnish stock market. However, most of them do not actively participate in governance.7 Many public and 3 The Fund for Peace (2020). The Fragile State Index Annual Report. Available from: https://fundforpeace.org/wp-content/uploads/2020/05/fsi2020-report.pdf [Accessed 1 December 2020]. 4 The United Nations (2020). The World Happiness Report. Available from: https:// worldhappiness.report/ [Accessed 1 December 2020]. 5 Markkola, P. (2019). Finland: Carving an Identity from Struggle. In: P. Furtado, ed.,

Histories of Nations. London: Thames and Hudson, p. 241. 6 Jakobsson, U. and Korkeamäki, T. (2015). Ownership and Sorporate Governance in Finland: A Review of Development Trends. Nordic Journal of Business, 64, pp. 232–248. 7 Ikäheimo, S. and Leino, M. (2017). Corporate Governance in Finland: Current State of Art, Challenges and Opportunities. In A. Kostyuk, ed., Corporate Governance: New Challenges and Opportunities, pp. 218–235.

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almost all private companies in Finland have significant numbers of shareholders who play an important role in governance through shareholders’ meetings, nomination of directors and direct participation in boards.8 A number of laws define the framework for the governance of public and private companies in Finland: • • • •

The The The The

Companies Act9 Securities Markets Act10 Auditing Act11 Accounting Act.12

The most recent version of the Finnish corporate governance code came into force in 2015.13 The code is aligned with OECD principles of corporate governance and operates on the basis of “comply or explain”. In addition, the Finnish Chamber of Commerce has published “The Agenda for Improving Corporate Governance of Unlisted Companies”, which outlines a voluntary progressive governance framework for private companies.14

8 Airaksinen, M. and Berglund, T. (2014). Corporate Governance in Finland. In P. Lekval, ed., The Nordic Corporate Governance Model. Stockholm: SNS Förlag, pp. 168– 200. 9 Ministry of Justice (2006). Limited Liability Companies Act. Available from: https:// www.finlex.fi/en/laki/kaannokset/2006/en20060624.pdf [Accessed 1 December 2020]. 10 Finland Parliament (2012). Securities Markets Act. Available from: https://www.

finlex.fi/en/laki/kaannokset/2012/en20120746_20130258.pdf [Accessed 1 December 2020]. 11 Ministry of Economic Affairs and Employment (2015). Auditing Act—Finland. Avail-

able from: https://www.finlex.fi/en/laki/kaannokset/2015/en20151141.pdf [Accessed 1 December 2020]. 12 Ministry of Economic Affairs and Employment (1997). Accounting Act— Finland. Available from: https://www.finlex.fi/en/laki/kaannokset/1997/en19971336. pdf [Accessed 1 December 2020]. 13 Securities Market Association (2020). Finnish Corporate Governance Code 2020. Available from: https://cgfinland.fi/en/corporate-governance-code/ [Accessed 1 December 2020]. 14 Finland Chamber of Commerce (2018). The Agenda for Improving Corporate Governance of Unlisted Companies. Available from: https://kauppakamari.fi/wp-con tent/uploads/2018/08/agenda-for-improving-the-corporate-governance-of-unlisted-com panies.pdf [Accessed 1 December 2020].

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As in other Nordic countries, the corporate governance framework in Finland provides shareholders with significant powers. The articles of association of a limited liability company can, within certain legal limits, be freely negotiated between the shareholders. The general shareholders’ meeting—the highest governing body—decides on: the remuneration of the board of directors; amendments to the article of association; the distribution of dividends; the appointment and dismissal of board members and auditors; who reports to the shareholders’ general meeting; and other matters. Investors with a shareholding of at least 10% can call an extraordinary shareholders’ meeting and select items for the agenda. The last edition of the Finnish corporate governance code suggested the creation of independent “nomination boards”, made up of shareholders, to nominate candidates for election to the board. Many public and private companies have adopted this format.15 Even when the nomination committee is a part of the board of directors, it traditionally consults significant shareholders before putting forward candidates. Recently at some Finnish companies shareholders’ meetings have begun to elect board chairs directly, rather than leaving it to the board. Both the law and the code emphasize the importance of protecting the rights of minority shareholders. The Finnish governance framework makes provision for election of both a supervisory board and a board of directors. However, the vast majority of companies in Finland opt for a one-tier board system. According to the Finnish code, directors are elected for one year which makes it easier for the shareholders to renew the board. Directors can be dismissed before their terms expire by the corporate body that appointed them, usually the general meeting. The code states that the majority of directors should be independent of the company and at least two of them should be independent of significant shareholders (those holding more than 10% of the shares). Boards in Finland are compact—on average 8.2 members in 2019.16 There is a strong correlation between the size of the firm and that of the board, yet even large companies rarely have a board

15 Ibid. 16 Spencer Stuart (2019). Nordic Board Index. Available from: https://www.spe ncerstuart.com/-/media/2020/february/nordicbi_2019_web.pdf [Accessed 1 December 2020].

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of more than 10 members.17 Finland has one of the highest percentages of independent directors in Europe, both at listed and non-listed companies. Female directors occupied 34% of board seats in public companies in 2019 and there is no single public company in Finland without a woman on the board.18 As in other European countries, the board appoints and discharges the CEO, sets executive compensation, approves strategy and makes decisions on key investments and M&As, etc. Boards may form committees that have no legal status or decision-making power. Typically, boards in Finland have three committees: nomination, audit and remuneration. In recent years, the boards of most Finnish companies have become 100% non-executive: CEOs and other senior executives no longer get board seats. In Finland there is no mandatory employee participation in governance. However, companies with more than 150 workers may agree with their employees on some form of board representation. In practice many larger companies have employee representatives on their boards, sometimes with full voting rights, sometimes as observers. Regardless of employee representation on the board, Finnish companies have a legal obligation to consult staff on various matters, especially in relation to major strategic and structural changes. The new version of the corporate governance code requires listed companies to establish the principles of board diversity, including objectives for gender representation. The Companies Act specifies that the chair of the board has to improve the board’s effectiveness, maintain a good relationship with shareholders, facilitate board discussions, ensure that board decisions support the company mission and assist the CEO and senior executives in their work. The chair has a casting vote in the case where is no majority among

17 Ferreira, D. and Kirchmaier, T. (2013). Corporate Boards in Europe: Size, Independence and Diversity. In: M. Belcredi and G. Ferrarini, Boards and Shareholders in European Listed Companies: Facts, Context and Post-Crises Reforms. Cambridge: Cambridge University, p. 200. 18 Spencer Stuart (2019). Nordic Board Index. Available from: https://www.spe ncerstuart.com/-/media/2020/february/nordicbi_2019_web.pdf [Accessed 1 December 2020].

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directors. The roles of the chair and the CEO cannot be combined in Finland. In 2019 all boards of listed companies in Finland were chaired by men—with an average age of 61.5 years.19

Research Hypotheses and Methodology There is very little research devoted to the board chairs of Finnish companies. Airaksinen and Berglund argue that a chair in Finland “has a central role on the board… often acts as the managing director’s superior and usually is the first contact on the board for the managing director.”20 Huhtala and Iiro Jussila found that chairs of supervisory boards in Finnish cooperatives have a strong influence on the election of independent directors—which is the main function of such supervisory boards—both through formal position-based authority and informal power.21 In order to formulate some working hypotheses, we had to rely upon our previous research on other Nordic and European countries and the broader literature on leadership and culture in Finland. For a picture of the Finnish national culture we used the “map” developed by INSEAD professor, Erin Meyer (see Fig. 8.1 and Appendix A). Based on these two sources, we developed a set of hypotheses about the chairs of Finnish boards: • Chairs work for a company rather than for any specific stakeholder. • Chairs play two critical roles: the link between the board, the shareholders and management; and the enabler of the board. • Chairs enable their boards by facilitating their work, striving for harmony and consensus, yet not forgetting effectiveness. • Chairs listen proactively to shareholders’ concerns and regularly update the latter on company developments. The communication with shareholders is candid and often informal.

19 Ibid. 20 Airaksinen, M. and Berglund, T. (2014). Corporate Governance in Finland. In: P. Lekval, ed., The Nordic Corporate Governance Model. Stockholm: SNS Förlag, pp. 168– 200. 21 Huhtala, K. and Jussila, I. (2019). Supervisory Board in the Governance of Cooperatives: Disclosing Power Elements in the Selection of Directors. International Journal of Economics and Management Engineering, 13(5), p. 665.

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Fig. 8.1 Finland Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs])

• Chairs establish partnering relationships with the CEOs. The dialogue is regular, cordial, two-way and often informal, yet chairs never forget that they are speaking with the CEOs on behalf of their boards. • Effective chairs distinguish themselves by general business acumen and systemic thinking rather than deep industry knowledge. • In the next decade, there will be more diversity of gender and background among chairs, but men in their late 50s and 60s with CEO experience will remain a significant majority. For the research project we conducted semi-structured interviews with nine experienced board chairs, three women and six men, aged between 52 and 73. Together they have chaired 27 boards of listed and private companies in such industries as manufacturing, real estate development, finance, retail, pulp and paper and consulting. The interviews lasted from 40 to 80 minutes. To complement the views of board leaders we interviewed three experienced CEOs, each of whom had worked at least with

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two chairs, three shareholders and three experienced board members, each of whom had worked at least with three chairs. After collecting primary data we conducted second interviews with three chairs to verify some initial findings. All interviews were conducted in English and took place in September 2019–May 2020. The research confirmed some of the initial hypotheses, yet we were more than once surprised at our findings, which are presented in the next paragraphs.

The Roles of a Board Chair in Finland The first surprise was that all but one chair stated that they worked for the shareholders, not the company, the board or other stakeholders. Here are two typical answers: “I work for the owners of the company” (the chair of one private and one public company) and “[I work for] the owners, physical persons – my relatives ” (the chair of a family holding and private companies). Even the respondent who claimed that he and his board worked for the company rather than the shareholders admitted that his position was unorthodox in Finland. As we expected, the shareholders we interviewed supported the view that effective chairs and boards should work for shareholders. Two directors seconded this opinion while the third spoke about “working for the company’s stakeholders ”. Two CEOs felt that a chair should work for the company and the other that a chair should work for shareholders. We believe that this attitude—“I work for the shareholders ”—reflects the reality of Finnish capitalism and the system of corporate governance that supports it. Almost every business in Finland has one or more significant shareholders, while companies with highly diluted ownership are virtually non-existent. The governance system provides significant shareholders with substantial powers: to nominate and elect directors and—in a growing number of cases—chairs; to delegate authority to the board—and revoke it; and to hold extraordinary meetings and decide on their agenda. At the same time other stakeholders—customers, vendors, employees, communities, even financial investors—are not really involved with the board and the chair. As a result, board leaders see significant shareholders—in most cases physical persons, in some cases powerful institutions—as their masters. We will elaborate on how the shareholder–chair relationship develops in the next section of the chapter.

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Our research confirmed the second hypothesis, namely that chairs of Finnish companies, like their counterparts everywhere else in Europe, take on the role of connecting the three major agents of the governance system—shareholders, board and management. As one respondent put it: “a chair is a middleman between management and shareholders ”. At the same time some ways in which board leaders interact with their shareholders and management have a distinctly Finnish character. Board chairs in Finland facilitate the work of the board as the highest decision-making body in the organization. One respondent called the chair “the conductor of the board”. This is not unique, but we found some specifics that distinguish their practices from those in other countries. We will describe them in the following sections. In contrast to some other European countries, board chairs in Finland rarely take on additional roles such as: representing a company in relationships with customers, vendors or regulators; participating in important negotiations; or regularly speaking to the media. We identified two potential explanations for this fact. First, corporate governance standards in Finland set a clear borderline between the board and the management— and Finns are generally disciplined about following rules. Second, there are no executive chairs in Finland: most chairs hold board or executive positions at other companies and have limited time for undertaking auxiliary tasks. Chair–Shareholder Relationships Relationships with shareholders sit high on the agenda of Finnish chairs, who invest a significant amount of their time in understanding shareholders’ expectations, informing them about the company and its business, and maintaining good working relationships. As one chair-respondent put it: “I spend at least 30 percent of my time working with shareholders – meeting them, writing to them, preparing stuff for them”. Such attention is understandable given the prevalent view among chairs that they work for shareholders. However, not all shareholders are the same. As one chair explained to us:

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There are two types of shareholders – owners and investors. Owners hold a significant chunk of stock, they care about the company, they have a longterm view, they will not sell even at a very attractive price. Investors follow a simple logic – buy low, sell high. I work intensely with the owners and I leave the investors to the CEO and management.

The interaction with shareholders has a number of goals and takes a number of forms. The legal framework in Finland assigns an important role in corporate governance to significant shareholders and chairs have to inform them, listen to their concerns, follow up on their requests, e.g. to comply. At the same time most important shareholders are quite proactive vis-à-vis the boards of their companies: “my shareholders reach out to me on a regular basis”; “shareholders are quite proactive themselves”; “owners do not wait to be invited, they come to me when they want”. All our respondents reported going beyond compliance in their interaction with shareholders. As one of them put it: “I am proactive and get a lot of positive feedback about proactivity (from them)”. In Finland board chairs engage in many of the chair–shareholder relationship archetypes described in Chapter 1. They inform shareholders about the company, its business and its board. They seek shareholders’ expectations and inputs. They engage shareholders in strategic discussions. They help shareholders to bridge their differences and to find common ground. At the same time we did not find traces of power-heavy forms such as imposing, accommodating or ignoring. Actual meetings with shareholders are regular and often informal. One chair described his approach: We have quarterly scheduled meetings where all three important shareholders are present. We don’t have a formal agenda nor do we keep minutes . Usually I present my summary and formulate questions I would like to discuss with them. Then they ask their questions and we have a free-flowing discussion. Normally we are done in three hours. From time to time I have very informal conversations with each of the shareholders, sometimes on the phone.

Another chair organizes a comprehensive meeting with each of the important shareholders “to inquire about shareholders’ interests, needs and values, and to share my own”. A third board leader, in addition to interacting regularly with important shareholders, invites them to meet all board members once a year for a free exchange of views.

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In Finland, where more and more nomination committees are elected by shareholders, the meetings of such committees have become an important venue for chair–shareholder interactions. As one chair put it: “I am not a member of a nomination committee, but I get invited and I use this opportunity to discuss with shareholders important issues beyond board membership”. A shareholder-respondent seconded this view: “The nomination committee is very important, as it is the place where we interact with the chair”. Unlike in some other European countries, chairs in Finland do not need to exert the board’s authority in their relationships with important shareholders. As one seasoned chair explained: “I never had a problem of insufficient authority while dealing with owners. Perhaps because we are a low-power-distance culture, they always took me seriously and listened to what I had to say”. One major shareholder mirrored the sentiment: “When I interact with chairs I consider it to be a dialogue of equals: they have their role, I have mine, but we need each other and therefore have to respect each other”. Chairs are also happy to feed the information from the shareholders back to their boards: “I make sure the board (and management) are aware of shareholders’ concerns”. The shareholders appreciate the chairs’ attention, as one fund manager explained: We have environmental KPIs at our fund and we shared with the board chair our interest in seeing them at the company in which we own 15 percent. We were pleased to see that the board introduced them next year.

Unlike their colleagues in some other European countries, Finnish board leaders are not worried about shareholders interfering in the work of the board: They want the best for the company, and we should be grateful for their inputs. At the same time, we (the board) are independent from each single shareholder and do what is in the best interests for all of them. I am not afraid to listen to my shareholders.

Intensive interaction with shareholders provides chairs of Finnish companies with valuable information, which they use to improve the quality of decision-making at their boards. As one chair put it: “Shareholders expectations are important inputs into our discussions; without them we would

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have been half -blinded”. Their special relationships with important shareholders strengthen chairs’ authority vis-à-vis other board members, who do not enjoy this privilege. As one director-respondent observed: “The chair plays an important role in keeping the board connected to shareholders. It makes them indispensable”. Leading the Board In this section we will describe how chairs of Finnish boards play three critical roles of engaging, enabling and encouraging their boards and their members, focusing on the strategies and practices that are specific to this country.22 Unlike their counterparts from other European countries, chairs in Finland are quite active in managing their boards’ composition. One-year directors’ terms and a high level of shareholder involvement make this easier. As one chair put it: It is my top priority to have the right people on the board. I make sure we agree with the nomination committee on the profiles that we need and bring them in. I don’t have a formal say, but they [the nomination committee] listen to me as an expert and a key stakeholder.

We found that formal induction programmes for new board members are not very common in Finland. Usually the newly elected directors meet with the chair, the CEO and the corporate secretary, and receive some financial and operational data as a welcome package. Not all board leaders in Finland have regular interactions with the members of their boards outside board or committee meetings. According to one director: “I worked with two effective chairs who never reached out to me, although they were always available if I needed them.” One chair shared her approach: “I call a director when I have a specific question to discuss; they are busy people who don’t need chit-chats”. Another chair has a different strategy: “I make a point of meeting every board member once a year with an open agenda. They tell me what they have in mind and I listen”.

22 Shekshnia, S. (2019). Leading a Board: Chairs’ Practices Across Europe. London: Palgrave Macmillan, pp. 12–13.

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All chair-respondents except one pay special attention to preparing board meetings: setting their agendas; ensuring the quality and the timely distribution of materials; and planning the timeline of the meeting. This work is always done in collaboration with the CEO and the general counsel/corporate secretary, sometimes with the participation of the CFO. The level of the chair’s engagement varies. Some board leaders ask the management to prepare the “annual board cycle” (calendar) and then approve it (“The MD prepares the agenda then we discuss it: a collaborative effort. No other directors are involved” ); others give guidelines to the management; and a third category works with the CEO to make the plan together (“I sit down with CEO before each meeting to design the agenda. No discussion of the agenda with directors” ). The board book is generally sent out between five and seven days before the meeting. Formalized requirements for board materials are rare. One chair explained: “I ask the CEO to use common sense in preparing material for the board; most of the time it works”. Some chairs reported that at the beginning of their tenure they inspected the materials before sending them to directors. As they gained confidence that the CEO understood their expectations, they discontinued the practice. One chair said that he never prepared for a specific board meeting, because he knew his companies and boards inside out and was always prepared to run a board meeting. For him the technical preparation was the task of the CEO and the corporate secretary. Chairs in Finland see themselves as facilitators of collective boardroom discussions that lead to effective consensus-based decision-making. The metaphor of the “conductor of the board” and kept recurring in our conversations, and we identified several ways in which chairs enable their boards to be effective and unified decision-making bodies. Chairs of Finnish boards rarely establish formal “board rules”. As one of them put it: “I don’t need to write down any rules: board members are experienced professionals and understand what is expected from them”. At the same time, we identified a number of facilitation strategies used by board leaders in Finland. Bringing directors into the game. One respondent opens every meeting by reminding the board about the last one: “I always review the minutes point by point to remind people of the last discussion. Some people find it boring; I find it important”. Another chair always starts by reviewing the agenda of the current meeting and commenting on each item. The third approach is to ask board members “How do you feel at

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the moment?” and “What would you like to share with the board?” When board meetings moved 100% online during the COVID-19 pandemic, board leaders paid even more attention to engaging each director at the start of the session. Ensuring adequate level of understanding in the boardroom. One chair-respondent explained: “People have quite different levels of understanding and knowledge. I have to make sure we have clear information and understand each other”. Another chair agreed: “Part of my role is learning about the company and returning this learning into the boardroom. I can’t expect other directors to be as involved as I am, so I need to ensure this knowledge is available to them”. Digital board and company platforms make access to information easier, although the level of digital sophistication of the boards we had studied varied from entry to advanced levels. Providing time and creating a safe space for collective discussions (within limits). Many respondents emphasized the importance of not rushing the conversation in the boardroom and letting the discussion flow. As one of them put it: “I give my board the time they want to take. I never shut down a director”. Chairs tend not to influence board discussions with their personal views, especially at the early stages. One chair-respondent said: “I usually let others speak – only then may I state my own view”. Boards in Finland almost never use voting as a decisionmaking mechanism, as chairs consider it breaks the trust and unity of the board. As one of the respondents said: “I never allow voting: we will discuss for as long as we need to reach a consensus”. At the same time board leaders are conscious of efficiency: “When I feel we start going in circles, I may say, ‘Let us move on; we have covered this issue’”. Another chair halfjokingly said: “We don’t really have an efficiency problem. We are a small country, where everyone knows everyone else, so we understand each other very quickly, sometimes without saying a word”. Encouraging discussions, managing disagreements and not tolerating conflict. All our respondents agreed that one of the key roles of a board leader is to structure and facilitate a collective discussion. They compared a chair with not only an “orchestral conductor” but also a “group facilitator” and “coach”. Effective chairs provide board members with a description of the context, frame discussion questions, state facts and alternatives, and allow the directors to express their views. When disagreements emerge, board leaders deal with them on the spot, often by engaging other directors. Our respondents emphasized fairness as the key

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element of effective management of disagreements—everybody should be given a chance to speak and everybody should listen to and respect the opinions of others, no matter how different they may be. Setting disagreements aside to deal with them after the board meeting is not acceptable for chairs of Finnish boards. At the same time, they are not ready to tolerate open conflict in the boardroom or directors who are disrespectful or aggressive towards each other. According to our respondents such cases are extremely rare in Finland and chairs deal with them by firmly asking misbehaving directors to stop or leave the room. As one very experienced chair put it: “Only once have I had to send a director out. The person apologized to the whole board the next day and continued on the board. It was more than 10 years ago, but I still remember it”. Engaging management. Our respondents believe in clear separation between the roles of the board and the management and support the model of non-executive boards that is predominant in Finland. At the same time they think that senior executives’ presence and active participation in board discussions contribute significantly to the effectiveness of the board’s decision-making. In most of the companies we studied the CEOs are always present at the board meetings. Some boards also invite the CFOs to all meetings and other executives are asked to participate in discussions on selected topics. One chair invites the whole management team to attend a board meeting twice a year. Some respondents reported bringing some middle managers and high potentials to the board meeting to get to know them and to draw on their specific expertise. One chairrespondent explained what management’s presence gives to the board of directors: First, it builds trust – we show that we have nothing to hide from them and there is no hidden agenda. Second, it gives us access to the information we need in real time. Third, they bring a different perspective, which enriches our debate. Finally, it gives us a chance to get to know them better and to see what kind of support they need from us.

Technology. Some chair-respondents consider digital technology to be both an enabling and an engaging tool. All respondents agree that technology makes them and their boards more productive. In our preCOVID-19 interviews the focus was on its role of providing efficient access to information, including operational and financial data and board books. All respondents had made their boards 100% paperless and had

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moved some of their meetings online prior to the pandemic. After the crisis struck and all board work shifted online, the chairs began to recognize other advantages of digital technology. As one chair put it: “To my surprise I realized that directors are more involved during online meetings than face-to-face ones, provided you keep the meeting short”. At the same time boards do not always use the full potential of technology. One chair shared her assessment: “I wish we had a special app for our board with real-time information about competition and customers, demand and supply, industry models, etc. It’s all possible now”. Reflecting and learning . The Finnish corporate governance code prescribes that all boards of directors undergo an annual evaluation with or without the participation of external professional consultants. The board chairs from our sample (with one exception) follow this recommendation thoroughly—they organize and actively participate in large-scale board evaluations and conduct mini reflection sessions at the end of each board meeting. Here are some examples of the former: We organize an annual board evaluation using a standard online questionnaire that all directors fill in. The chair of the nomination committee speaks to all directors individually and presents the results to the board. We discuss them and agree on the improvement plan. Once a year we conduct a 360 survey, which every director and ExCom member fills in, then discuss the results and create an action plan. Every three to five years we use an external consultant to conduct personal interviews and give us an independent evaluation.

Many respondents emphasized the effectiveness of express evaluations after each board meeting. As one of them put it: “These short sessions give specific and structured feedback and we act on it next time we meet. If we waited for a year or two, we would forget what happened at this specific meeting”. Tandem Governance: The Chair–CEO Collaboration We use the term tandem governance to emphasize the critical importance of the chair–CEO relationship in the Finish context and its dynamic collaborative nature. “This is the single most important relationship in any company”, said one shareholder whose family holding controls several industrial companies.

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Indeed, the second surprise of our research was that chairs of Finnish companies represent themselves rather than the board in their relationships with CEOs. As one of the respondents put it: “I consider myself a senior partner of the CEO.” Another chair outlined two critical roles of a board leader: “Sending messages from the board to the CEO and being their sparring partner”. One director-respondent went even further: “Some chairs are convinced that CEOs report to them and act accordingly. Fortunately, our culture is non-hierarchical and working relationships are constructive most of the time, no natter who is the boss”. Our respondents evoked several reasons for chairs acting on their own rather than representing the board in relationships with the CEOs. The first is that corporate governance is still developing in Finland. Until recently boards were mainly ceremonial and directors were not very engaged, while the chair was present and active. One chair-respondent summed up the situation: I just had a two-hour meeting with the CEO. There is no way all board members could have been part of this discussion or I could brief them on it. Some stuff remains between the CEO and me, but I inform the board about what is truly essential. This time I don’t have anything to share with them.

The second reason is that, historically, in most family companies the chair of the board was the most senior person in the family and carried that weight into relationships with the CEO—setting a pattern that non-family companies reproduced. As one very experienced chair explained: I learned to be a chair by looking at what other chairs did. As CEO I have worked with five chairs. They all represented significant shareholders, knew the business inside out and had a certain weight in the boardroom. Perhaps subconsciously I am imitating them, although I am an independent chair.

The third reason is that Finland has the highest power distance of all Nordic countries. Some chairs act with more authority than is prescribed by the governance code, which makes it clear that the CEO reports to the board not to its chair. As one respondent put it: Many people think of Finland as a low-power-distance culture, but till very recently our companies had been run in a pretty autocratic way. The boss had unchallenged power and some chairs still follow this model.

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Relationships between board chairs and CEOs in Finland are intense, professional and constantly evolving. Many chair-respondents had noticed that both the content and the form of their interactions with chief executives were developing over time. Incumbent chairs often serve as mentors to newly appointed CEOs, while incumbent CEOs concentrate on earning the trust of newly appointed chairs and accelerating their learning curve about the business. Gradually the relationships evolve towards partnership, in which some chairs insist on a senior role while others emphasize “a dialogue of equals, who have their specific roles in the company”. According to our respondents the separation of roles does not represent a challenge and follows a similar pattern in most companies. The chair leads the directors, manages relationships with significant shareholders (“owners”) and serves as a sounding board and mentor to the CEO. The latter runs the business, manages relationships with external stakeholders, including financial investors and provides technical support to the board and the chair. The areas of collaboration between the chair and the CEO include planning, preparation and reflection on board meetings (see above), important business projects, and decisions the CEO needs to make about investments, partnerships, people, products and communication with key stakeholders. Respondents described these interactions as “a sounding board”, “thinking together”, “the CEO seeking my opinion” or “sharing my thoughts on the subject”. Virtually all respondents emphasized information sharing as critical for productive chair–CEO and board–CEO relationships. As one of them put it: “I keep telling my CEOs, ‘If you want the board to understand and support you, you have to supply it with information all the time. Do not wait for the board meeting’”. Most of the dialogues between the chair and the CEO are informal and not very structured. One chair described his interactions: “We meet in the office, in a quiet room, one on one. It’s the most effective and efficient way. Sometimes we meet in a less formal way – for dinner or a round of golf”. Another related: We always have a meeting before the board session and after it. Other than that, we talk for about half an hour once a week. We may sit down for a coffee or a quick lunch, but mostly we speak on the phone. I ask questions, they ask questions. Very informal.

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Chair Succession In Finland chairs do not have a formal role in their own succession process, which is run by nomination committees or directly by shareholders. Our chair-respondents fell into two groups: those who feel succession is not their business at all and those who believe they should work with the nomination committee to ensure that the board has an effective new leader. According to a representative of the first group: “Succession planning is not a part of my job description; why should I go against a system that works ?” A chair from the second group put it this way: “Of course it matters to me who will succeed me. I will do my best to ensure the nomination committee makes the right choice”. In practical terms chairs share with the nomination committee their views on their successor’s profile, the potential of incumbent board members and, in some cases, names of external candidates. The committee usually does the rest—hires a search firm if required, interviews candidates and makes a final recommendation. In recent years some companies have begun to elect a board chair directly at shareholders’ meetings. Significant shareholders are actively involved in chair succession in Finland and in many cases drive it. One owner of a holding company explained how board chairs were selected for his subsidiaries: We hire them from the market. We mandate four years of mutual commitment. We look for people with both board and executive experience, but not necessarily former CEOs. They don’t need to be industry experts, but to understand what it means to be a chair and to lead a board. Human skills are essential. We never make them executive chairs; it’s a two-days-a-week job. They don’t have an office at the company, just an access to a desk.

What Makes a Chair Effective? Our respondents are not preoccupied with qualitative metrics of their effectiveness. As one of them said: “How do I measure my success? I don’t, I can feel it.” Another echoed: “My work is too complex to reduce to a few KPIs. After each board meeting, I ask for qualitative feedback from directors, then discuss it with the CEO and reach my own conclusions”. Shareholders and members of nomination committees support this approach: “We don’t establish targets or KPIs for chairs of our companies. We set mutual expectations and periodically we review progress and challenges”.

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There were some commonalities and some nuances between our respondents with regard to what personal attributes and professional competencies make an effective board chair. They all agreed that social intelligence, the ability “to deal with different people in an effective and efficient manner”, is critical. Social intelligence and experience in leading different groups of people allows effective chairs to be “supportive and demanding at the same time” and “influence without domineering”. Good chairs listen to and hear what is said—and even not said—in the boardroom; they frame discussions and questions; and they articulate board decisions. To lead the board, they need to “have a strategic mind”, “understand the workings of the business” and “appreciate how the CEO thinks”. For our respondents, CEO experience is a serious advantage for a board chair, although not a must. At the same time industry experience is not an important factor—and for some respondents it is even inhibiting. As one of them put it: “I will never chair a board in my industry. I know too many details and get too excited to organize the process”. Many respondents emphasized coaching and mentoring competency as a vital component of a chair’s effectiveness. As one of them put it: “A good chair is a good coach more than anything else”. Another important skill is to be able to make board members laugh. As one respondent explained: “A board meeting without a laugh is very sad”. Another chair believes in humour because “when people are relaxed, they share their opinions”. Many respondents also emphasized humility as an imperative for a good chair: “If you like the sound of your own voice too much you are in the wrong place”. Last but not least, the pandemic highlighted another competency of an effective chair: mastering virtual meetings and the supporting technology. As one director put it: Online board meetings have become the new normal. They will not disappear with the virus. Running them is a special skill. Initially we tried to replicate in Zoom what we did in the boardroom, and it was tiring and ineffective. But our chair learned quickly. Now we have shorter meetings without management presentations . We have dynamic discussions and make good decisions.

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Board Chairs in Finland: Today and Tomorrow The board chair in Finland is an important actor of the governance ecosystem—not merely the most senior director responsible for the board’s effectiveness. Chairs not only represent their boards in relationships with owners and CEOs but also build and maintain their own ties with these key stakeholders. More than once our respondents evoked the metaphor of a “solid bridge”, connecting all parts of the system. When we asked our respondents about the future of chairs’ work in Finland, before the outbreak of the pandemic, the central themes were: an increasing tech-savviness of boards and their leaders; internationalization of chairs and directors; and diversity of gender and background. When the crisis struck, one of the respondents proclaimed: “The future has arrived with COVID-19”. We will conclude by summarizing how the work and the personality of board chairs is expected to evolve in Finland over the next five years—with the caveat that we know things may change dramatically in a matter of months. Technology. Finland is one of the most technologically advanced countries in Europe—some respondents told us that, even prior to COVID-19, they conducted one-third of their board meetings online. But even in Finland those cases were exceptions and boardrooms remained islands of low-tech. The pandemic has changed the situation for ever. In the years to come, most board work will be assisted by digital technology and board chairs will need to orchestrate that process. In addition to learning how to run face-to-face board meetings, they will have to master virtual sessions and help other directors to develop this skill. We expect most incumbent chairs to rise to this challenge, but there will be some casualties. Diversity. More women will become board chairs in Finland, yet in five years’ time they will not represent more than 20% of the total. The low number of female CEOs will remain the major bottleneck in the governance system, as the majority of chairs will continue to take this route. There will be more younger chairs (under 60) and more senior chairs (over 70), while the median age will remain above 60. More foreigners will chair boards of Finnish companies, although COVID-19 may slow down this process for a while. Work of the chair. Technology will become an important enabler for chairs of Finnish boards. It will liberate some of their time from routine operations and will allow them to concentrate on what is really significant: improving the effectiveness of the whole governance system;

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making boards more strategic, both in what they work on and how they think; sustainable development; and risk management. Board leaders will become more engaging and less authoritative, and will operate as the moderators and spokespersons of their boards rather than semiindependent players. As one respondent put it: The next generation of chairs will fully embrace the model of the board as a collective decision-making body actively interacting with its key stakeholders – owners, the CEO, executives – and will dedicate themselves to making it work.

Competencies and attributes. Our respondents emphasized the importance of chairs’ independence. As one of them said: The experience of other European countries shows that, in order for the board to be effective, its chair has to be independent from the shareholders, individual directors and management. It’s not a question of formal independence, but rather of an independent mindset.

Another characteristic that will distinguish the effective chairs of the future is open-mindedness and mental adaptability. As one directorrespondent explained: The world is becoming less and less predictable and, in order to stay abreast of the changes, people who lead boards and companies need to adjust their mental models constantly. You cannot rely on what worked yesterday to be successful today.

Unsurprisingly, tech-savviness—the ability to comprehend digital technologies and their impact on the business—is the third competency of a board chair of the near future to be emphasized by our respondents. In the prophetic words of one interviewee, “Digital technology today is like finance 20 years ago – if you don’t understand it, you simply don’t have the credibility to run a board”.

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References Airaksinen, M. and Berglund, T. (2014). Corporate Governance in Finland. In P. Lekval, ed., The Nordic Corporate Governance Model. Stockholm: SNS Förlag, pp. 168–200. Ferreira, D. and Kirchmaier, T. (2013). Corporate Bards in Europe: Size, Independence and Diversity. In: M. Belcredi and G. Ferrarini, Boards and Shareholders in European Listed Companies: Facts, Context and Post-Crises Reforms. Cambridge: Cambridge University, pp. 191–224. Finland Chamber of Commerce (2018). The Agenda for Improving Corporate Governance of Unlisted Companies. Available from: https://kauppakamari. fi/wp-content/uploads/2018/08/agenda-for-improving-the-corporate-gov ernance-of-unlisted-companies.pdf [Accessed 1 December 2020]. Finland Parliament (2012). Securities Markets Act. Available from: https://www. finlex.fi/en/laki/kaannokset/2012/en20120746_20130258.pdf [Accessed 1 December 2020]. The Fund for Peace (2020). The Fragile State Index Annual Report. Available from: https://fundforpeace.org/wp-content/uploads/2020/05/fsi2020-rep ort.pdf [Accessed 1 December 2020]. Huhtala, K. and Jussila, I. (2019). Supervisory Board in the Governance of Cooperatives: Disclosing Power Elements in the Selection of Directors. International Journal of Economics and Management Engineering, 13(5), pp. 660–668. Ikäheimo, S. and Leino, M. (2017). Corporate Governance in Finland: Current State of Art, Challenges and Opportunities. In: A. Kostyuk, ed., Corporate Governance: New Challenges and Opportunities, pp. 218–235. Jakobsson, U. and Korkeamäki, T. (2015). Ownership and Corporate Governance in Finland: A Review of Development Trends. Nordic Journal of Business, 64, pp. 232–248. Markkola, P. (2019). Finland: Carving an Identity from Struggle. In: P. Furtado, ed., Histories of Nations. London: Thames and Hudson, pp. 240–247. Meyer, E. (2014). The Culture Map: Breaking Through the Invisible Boundaries of Global Business. New York: PublicAffairs. Ministry of Economic Affairs and Employment (1997). Accounting Act— Finland. Available from: https://www.finlex.fi/en/laki/kaannokset/1997/ en19971336.pdf [Accessed 1 December 2020]. Ministry of Economic Affairs and Employment (2015). Auditing Act— Finland. Available from: https://www.finlex.fi/en/laki/kaannokset/2015/ en20151141.pdf [Accessed 1 December 2020]. Ministry of Justice (2006). Limited Liability Companies Act. Available from: https://www.finlex.fi/en/laki/kaannokset/2006/en20060624.pdf [Accessed 1 December 2020].

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Securities Market Association (2020). Finnish Corporate Governance Code 2020. Available from: https://cgfinland.fi/en/corporate-governance-code/ [Accessed 1 December 2020]. Spencer Stuart (2019). Nordic Board Index. Available from: https://www.spe ncerstuart.com/-/media/2020/february/nordicbi_2019_web.pdf [Accessed 1 December 2020]. The United Nations (2020). The World Happiness Report. Available from: https://worldhappiness.report/ [Accessed 1 December 2020]. The World Bank (2020). World Development Indicators. GDP per capita, in International Dollars. Available from: https://data.worldbank.org/indicator/ ny.gdp.pcap.cd?most_recent_value_desc=true [Accessed 1 December 2020]. The World Bank (2020). World Development Indicators. GDP Ranking. Available from: https://datacatalog.worldbank.org/dataset/gdp-ranking [Accessed 1 December 2020]. The World Bank (2020). The Human Capital Index 2020 Update: Human Capital in the Time of COVID-19. Available from: https://openknowledge. worldbank.org/handle/10986/34432 [Accessed 1 December 2020].

CHAPTER 9

Smooth Operator: The Chair as the Drive Belt of the German Governance System Elena Denisova-Schmidt and Peter Firnhaber

The Chair’s Work in Context The Federal Republic of Germany (Bundesrepublik Deutschland) is a federal parliamentary republic. It consists of 16 states (Länder), each with some degree of autonomy, and has a total population of more than 83 million.1 In late 2019, its GDP was US$ 3.95 trillion,2 the largest 1 Statistisches Bundesamt (2020). Bevölkerung in Deutschland im Jahr 2019 auf 83,2 Millionen Gestiegen. Available from: https://www.destatis.de/DE/Themen/GesellschaftUmwelt/Bevoelkerung/Bevoelkerungsstand/_inhalt.html [Accessed 1 December 2020]. 2 The World Bank (2020). World Development Indicators. GDP Ranking. Available from https://databank.worldbank.org/views/reports/reportwidget.aspx?Report_Name= CountryProfile&Id=b450fd57&tbar=y&dd=y&inf=n&zm=n&country=DEU [Accessed 1 December 2020].

E. Denisova-Schmidt University of St. Gallen, St. Gallen, Switzerland e-mail: [email protected] P. Firnhaber (B) INSEAD, Fontainebleau, France e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_9

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in Europe and fourth largest in the world, and its per capita GDP was US$ 46,259.3 The automotive industry, energy, industrial production, pharmaceutical and medical technology, media and telecommunications, transportation, logistics, retail and healthcare are the economy’s main driving forces. In 2018, the labour force numbered about 45 million people working in 3.5 million enterprises, 82% of which were partnerships and public utilities, while only 18% were corporate entities.4 Germany is ranked fourth in the world on the Human Development Index.5 The consequences of the ongoing COVID-19 pandemic are difficult to access at the time of writing this chapter, but the government’s measures have so far been exemplary in terms of promoting public health and supporting business. These include the well-organized first lockdown, the efficient leadership of chancellor Angela Merkel and the short-term work benefit (Kurzarbeit ), to name just the major initiatives. The management of the second wave and the situation of the global market will be crucial for the recovery of the German economy.6 Germany has a system of corporate governance that is distinctive both in spirit and in form—often referred to as “stakeholder” capitalism. Under this model the company is governed for the long-term interests of all stakeholders, not only shareowners. Profits and value creation are not the ultimate measures of success in corporate Germany. This underlying philosophy translates into such characteristics as a twotier board system with a non-executive supervisory board (Aufsichtsrat ) 3 The World Bank (2020). World Development Indicators. GDP per Capita, in International Dollars. Available from https://data.worldbank.org/indicator/NY.GDP.PCAP.CD [Accessed 1 December 2020]. 4 PricewaterhouseCoopers (2018). Doing Business in Germany. Available from: https://www.pwc.de/de/internationale-maerkte/doing-business-in-germany-guide-2018. pdf [Accessed 1 December 2020]. 5 UNDP (2020). Human Development Indices and Indicators. 2020 Statistical Update. Available from: http://hdr.undp.org/en/countries/profiles/DEU [Accessed 1 December 2020]. 6 Deutschlandfunk (2020). Interview with Marcel Fratzscher. DIW-Chef Plädiert für Kurzen, Konsequenten Lockdown. Available from: https://www.deutschlandfunk. de/corona-massnahmen-diw-chef-plaediert-fuer-kurzen.694.de.html?dram:article_id= 486482 [Accessed 1 December 2020]; Sachverständigenrat zur Begutachtungder gesamtwirtschaftlichen Entwicklung (2020). Corona-Krise Gemeinsam Bewältigen, Resilienz Und Wachstum Stärken. Available from: https://www.sachverstaendigenratwirtschaft.de/fileadmin/dateiablage/gutachten/jg202021/JG202021_Gesamtausgabe.pdf [Accessed 1 December 2020].

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and collective executive body or management board (Vorstand) and codetermination or employees’ representation on a workers’ supervisory board (Mitbestimmung ). There are two types of companies in Germany: public limited companies (Aktiengesellschaften, AG), which are comparable with public limited companies (PLCs) in the UK and private limited companies (Gesellschaften mit beschränkter Haftung, GmbH ), which might be considered the equivalent of the limited liability company (Ltd) in the UK. There are some differences in terms of corporate governance between the two. Every AG, for example, is obliged to elect a supervisory board (Aufsichtsrat ), while a GmbH must do so only if the number of employees in Germany exceeds 500. The supervisory board is responsible for nominating key executives, establishing their compensation, approving business strategy and overseeing management. An AG must also have a management board (Vorstand), where all decisions are made collectively, while a GmbH may be managed by a single managing director (Geschäftsführer) acting alone. The management board is responsible for strategy development and implementation. Both types of companies are obliged to have an employee representative (Betriebsrat ) on their supervisory boards if the workforce numbers more than 2000. In addition to the relevant legal framework—the Stock Corporate Act (Aktiengesetz, AktG), Laws on Co-Determination, EU directives (Societas Europaea SE) and the Equality Act—the work of both management and supervisory boards of publicly listed companies have to comply with the German Corporate Governance Code (Deutscher Corporate Governance Kodex). The Code “presents essential statutory regulations for the management and supervision of German listed companies and contains, in the form of recommendations and suggestions, internationally and nationally acknowledged standards for good and responsible corporate governance”.7 The document is written and periodically revised by the Commission (Regierungskommission), “as a rule, […] annually in light of national and international developments and is adapted if necessary”.8

7 Regierungskommission (2017). German Corporate Governance Code. Available from: https://www.dcgk.de/en/code.html [Accessed 1 December 2020]. 8 Ibid.

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The Code describes the obligations of both management and supervisory boards “to ensure the continued existence of the company and its sustainable value creation in line with the principles of the social market economy”, as well as the chair’s roles and responsibilities, which include: • Coordinating the supervisory board’s activities; • Making oneself available to investors and others over supervisoryboard-related issues; • Staying in regular contact with the management board, in particular the chair of the management board, in order to discuss with them issues of strategy, planning, business development, risk management and compliance of the company; • Informing the supervisory board about events at the company and calling extraordinary meetings if necessary; • Outlining to the shareholders’ general meeting the salient points of the executive remuneration system and informing subsequent general meetings about any amendments and chairing the meetings of the supervisory board so as to “safeguard the matters of the Supervisory Board externally”. The latest revisions of the Code (December 2019) describe more precisely such terms as diversity (“diversity is defined through age, gender, the educational or professional background, as well as internationality”)9 and highlights the importance of corporate social responsibility (among other matters). Moreover, “the Code is intended to make the often lessfamiliar German dual-board management system—according to which the management (Management Board) and supervision (Supervisory Board) of an entity are institutionally separate duties—more understandable to international investors, along with the co-determination of employees represented on the Supervisory Board”.10 German boards are quite large with about 16 members on average for Deutscher Actienindex (DAX, the German stock index) 30 companies. The proportion of independent directors has now reached 60% for the same sample. Women represent 32% of board members and 3.3% of chairs.

9 Ibid. 10 Ibid.

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The average age of German chairs is 67 (the highest in Europe)—the youngest being 49 and the oldest 83.11

Existing Research Corporate governance in Germany has been the subject of numerous studies. However, the role of the chair has been examined only to a limited extent. The supervisory-board chair is expected to maintain constant communication between supervisory and management boards in order to keep the exchange of information flowing within the company. Schilling claims that the specifics of a supervisory-board chair’s work in Germany are largely defined by the co-determination principle, which allows employees to elect representatives to the supervisory board. Co-determination often works as an excuse to keep supervisory-board members out of important issues that cannot be discussed in the presence of employee representatives. Thus, the chair has to play the role of a behind-the-scenes éminence grise, discussing and fixing important issues so that there are no surprises during board meetings. As a result, the chair’s workload can be three to five times higher than that of the other board members.12 Another characteristic of corporate governance in Germany is the widespread practice of “executive continuity”, whereby a retiring CEO assumes the role of the supervisory-board chair. Bresser and Thiele have shown that there is a correlation between executive continuity and the dismissal of CEOs for poor performance. However, executive continuity does not influence the ability of their successors to improve business performance during the two-year post-dismissal period.13 Many recent studies have covered the challenges of diversity in German boards.14

11 Ibid. 12 Schilling, F. (2001). Mitbestimmung und Corporate Governance. Available from: https://www.board-consultants.eu/docs/schilling1-faz-mit-cg.pdf [Accessed 1 December 2020]. 13 Bresser, R. K. and Thiele, R. V. (2008). Ehemalige Vorstandsvorsitzende als Aufsichtsratschefs: Evidenz zu ihrer Effektivität im Falle des erzwungenen Führungswechsels. Journal of Business Economics, 78(2), pp. 175–203. 14 Fehre, K. and Spiegelhalder, R. (2017). Same, but Different: Eine Analyse des Humankapitals weiblicher und männlicher Aufsichtsräte in Deutschland. Schmalenbachs Zeitschrift für betriebswirtschaftliche Forschung, 69, pp. 311–343; Weckes,

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Germany Culture Map According to Erin Meyer’s research, German culture is low-context, task-based, confrontational and principles-first with a consensual decisionmaking style (see Fig. 9.1 and Appendix A for full explanation). The most distinctive characteristic of German culture is its linear-time orientation. We therefore would expect chairs in Germany to set detailed board agendas ahead of time and rarely make ad hoc changes. We also hypothesize that, while they may not shy away from candid conversations in and outside the boardroom, they will try to build consensus and avoid making unilateral decisions. Similarly, we envisage that chairs in Germany invest

Fig. 9.1 Germany Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs])

M. (2019). Strahlungsarmes “Quötchen”: Die Geschlechterverteilung in Aufsichtsrat und Vorstand 2019. Mitbestimmungsreport, 48. Available from: https://www. econstor.eu/handle/10419/194594 [Accessed 1 December 2020]; Holst, E. and Wrohlich, K. (2019). Frauenanteile in Aufsichtsrätengroßer Unternehmen in Deutschland auf gutem Weg: Vorstände bleiben Männerdomänen. DIW Wochenbericht, Deutsches Institut für Wirtschaftsforschung, 86(3), pp. 19–34; Denisova-Schmidt, E. and Nicolas-Kryzhko, L. (2020). Rabenmutter. In The Global Informality Project. Available from: https://www.in-formality.com/wiki/index.php?title=Rabenmutter_(West_Germ any,_Austria,_German-speaking_Switzerland) [Accessed 1 December 2020].

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time and effort in planning and preparing board meetings, including board materials, and pay special attention to the wording of board resolutions, as well as following up on their implementation. Finally, we expect German chairs to encourage a clear and precise manner of communication during meetings, without hesitating to express their own thoughts openly.

Data For the Global Chair Research Project, we conducted semi-structured interviews with 11 experienced and mostly professional chairs: 2 women and 9 men, aged from 59 to 75. All were highly educated—and five had Ph.Ds. Nine were native Germans, one came from Austria and one from the Netherlands. All had significant international experience. They chaired both listed DAX and unlisted companies, including some familycontrolled firms. They had held two to four chairs, in each case for an average of three to five years, and most were also independent directors on other boards. The boards they chaired comprised 6–12 members—half shareholders’ representatives, half employee representatives (Mitbestimmung )—with an employee representative usually holding the vice-chair position. All of the boards concerned had audit, nomination and remuneration (and sometimes additional) committees based on the Corporate Governance Code. To provide a 360-degree view of the chair’s work, we interviewed six board members, including one employee representative, five CEOs and two shareholders. The majority of them were over 50 years old and of German origin. Each of them had experience of serving on the boards of public, private and charitable organizations in various sectors. The 2015 INSEAD Global Chair Survey identified the following key challenges for the chairs of German companies (in descending order of importance): • Relationships with shareholders; • Managing non-conforming board members (special cases); • Relationships with the CEO and senior executives.

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During the third stage of our research (June–October 2020), we conducted nine interviews with a selection of the original interview partners to discuss the impact of COVID-19 on the work of board chairs in Germany.

Work of the Chair Through the Eyes of Respondents All respondents—both chairs and their colleagues—agree that the job of a chair of a supervisory board in Germany is very important and very challenging. As one director put it: In Germany chairs do not have much formal power [although, in contrast to other European countries they have a decisive vote (Doppelstimme) in cases of stalemate]. They have to align diverse actors – directors elected by shareholders, directors elected by employees, management board, shareholders, very often family members, governments at different levels, banks, etc. It’s a hell of a job.

The complexity of this job stems from: the two-tier board system; the requirement for co-determination (which leads to large and often split boards); Germany’s social market philosophy; and the attention traditionally paid to all of the company’s stakeholders. The underlying role of the chair is to keep this very complex governance system running smoothly and producing both economic results and stakeholder satisfaction. It is a tricky balancing act, which requires, according to our respondents, patience, tact and good questioning and listening skills on the one hand, and firmness, discipline and determination on the other. When asked “Who does the supervisory-board chair work for?” none of the respondents provided a one-word answer. They referred to multiple “masters”: the company, shareholders, employees and all stakeholders. Surprisingly, none of them mentioned the board itself. We believe that this reflects the predominant view among our respondents that the main role of the chair is to connect and align different stakeholders. This chapter will demonstrate that chairs of German companies use various strategies to get their jobs done. They invest time. They thoroughly prepare for board meetings, both by planning the discussion flow and by meeting with key players. They use committees to delve into important or complex issues and to prepare specific proposals. They

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interact with directors individually and in small groups, and chair separate informal meetings with groups of directors elected by shareholders or employees. They meet with shareholders in person and correspond with them in writing. They reach out to other stakeholders and participate in public forums and events. Unlike their counterparts in some other European countries, they often represent not only the board but also the company to the outside world. The directors interviewed for this research emphasized that effective chairs understand and manage the dynamics between the two boards of German companies and their external stakeholders. They also involve all directors in discussions and decision-making, see the big picture and focus on strategic issues. They demonstrate critical and complex thinking, listen well and have an eye for how people are engaged. Relationships with Shareholders Germany has one of the most developed stock markets in Europe and, at the same time, relatively high levels of ownership concentration.15 Many German public companies have significant shareholders, such as families, private equity investors, investment funds and local and regional governments, with different investment horizons and risk profiles, and often directly represented on the board. The shareholder map of Germany is one of the most heterogeneous in Europe, which adds extra complexity to the chairs’ work. All of our chair-respondents agreed that building and developing relationships with shareholders of all types was their top priority. The main challenge in this respect is to find a balance between complying with regulations and achieving productive shareholder engagement with the board and the company. The respondents emphasized the principle of equal treatment of all shareholders, especially in the case of publicly listed companies. At the same time, many of them spoke about the need to find a unique way to work with every shareholder. As one respondent put it: “I try to have one-on-one meetings with shareholders, where I deal with each of them differently, according to her or his background, experience, knowledge of the business, etc.” 15 Brendel, M., Schwetzler, B. and Strenger, C. (2017). Ownership Structure, Firm Value and Government Intervention: The Case of the German Tax Reduction Act. Available from: https://ssrn.com/abstract=2440706 [Accessed 1 December, 2020].

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Chairs of German companies interact with significant shareholders on a regular basis (many respondents mentioned “monthly encounters”) and when important board decisions need to be made. One respondent said that he always reaches out to the representatives of large shareholders before deciding on an acquisition or a big strategic move. Another respondent consults on M&As, large investments and key nominations. All respondents emphasized that such conversations do not undermine the independence of their boards; one chair explained that he “doesn’t take orders for the board from shareholders, but solicits their views ”. Often shareholders ask for a meeting and most chairs try to accommodate that request. Most meetings with shareholders are informal, off the record and without minutes. They rarely take place on the company’s premises. Chairs often see owners and their representatives over coffee, lunch or dinner. At some family-controlled companies, chairs of supervisory boards take on additional functions, such as advising on family succession, nextgeneration development and investment strategy. As one respondent put it: “It helps to solidify relationships, which helps the company in the long run, so it’s a part of my job”. Some respondents reported on their recent experience with activist shareholders. The consensus was that activists represent a real threat for the company and have to be dealt with carefully. In Germany, the chair of the supervisory board is responsible for coordinating communication with all shareholders, including activists—who generally correspond in writing and expect to be answered. The key issue, according to our respondents, is what information to release to them. One chair summed up the problem: “Whatever you say can be twisted, turned around and misinterpreted”. Perhaps for this reason, it is a common practice among chairs of German companies to engage a professional communications agency to assist them in dealing with activist shareholders. For non-chair-respondents, the effective management of shareholder relationships is a must for a good chair of a supervisory board. According to them it is usually achieved through personal contacts and the chair’s ability to engage and listen to people from diverse backgrounds—and then feed information back to the board. Effective board leaders allocate significant time to relationships with shareholders and show respect and attention, but protect the board’s independence. They recognize the threats posed by activist shareholders early, communicate them to the board and lead the company in organizing an effective defence.

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Relationships with External Stakeholders Several chair-respondents shared that developing good relations with such stakeholders as government bodies, customers, suppliers, industry associations and others was an important part of their work. The government—both on the regional (Landesebene) and on the federal (Bundesebene) levels—is a key economic agent in Germany, as an active regulator, mediator in employer–employee relationships and shareholder in many companies. Interaction with representatives of the government and other external stakeholders takes various forms. Some chairs visit contacts in their offices; some organize open events on their company premises and invite stakeholders; and others use external gatherings like industry conventions to meet with them. One respondent said that he regularly attended exhibitions and conventions in order to keep on top of what was going on in the industry. He did not, however, discuss any companyspecific issues with clients, suppliers or government officials. Rather, his objective was to check “the pulse of the times”. Leading the Board Supervisory boards in Germany are large and exclusively non-executive. They consist of two categories of directors—shareholder and employee representatives—and deal with high-level and compliance-driven issues. They meet rarely, usually four to five times a year. This combination of factors is not found anywhere else in Europe and leads to some unique strategies and practices on the part of Germany’s chairs. German board meetings are quite formal and chairs consider it one of their key tasks to ensure order and discipline and avoid any surprises. As one international director noted: “The board meetings I attend in Germany are by far more formal and disciplined than the ones I am part of in the Netherlands and the UK ”. For all respondents it was very important that meetings start and finish on time, that all items on the agenda get discussed and that all decisions are made. One chair expressed it as follows: “For every item put on the table we have to make a decision. It’s a failure to bring it back next time”. To make their large boards effective, chairs work actively inside and outside the boardroom, demonstrating 3E-leadership—engage, enable

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and encourage—with a strong German accent.16 As one directorrespondent put it: “An effective chair involves all players, makes sure they have access to all information, provides them with equal opportunities to speak in the boardroom and steers them to a decision”. Pre-meeting Supervisory-board chairs in Germany do not have direct influence over the nomination process for directors, but they try to ensure the quality of their boards by articulating their expectations of future board members and discussing these requirements with the stakeholders: shareholders, employees and nomination committees. As one chair explained: “The selection process is consensus driven”. Chair involvement can be formal— through written communication—or less formal—through personal meetings. Some chairs reported having full assessment interviews with candidates before their nomination. Since discipline is very important in the German context, chairs make sure that new directors have sufficient time to attend all board and committee meetings, and articulate severe consequences for nonattendance at an early stage. Some respondents reported formal rules that require directors to resign if they miss two board meetings in one year. In Germany, videoconferencing is still the exception: the majority of board meetings take place in a corporate boardroom. During the current COVID-19 crisis, however, boards have met only remotely. Chairs in Germany start planning board meetings well in advance. They are the sole masters of the agenda, although it is heavily influenced by the law and the Code and the corporate secretary has an input. A typical board agenda has four to five important items plus some technical questions. Four to six weeks before the board meeting, the chair meets with the CEO, sometimes together with the CFO and other members of the management board, to go through the agenda and discuss what documents need to be produced. The board book usually contains detailed presentations and proposed resolutions with a short rationale for each of them. The materials are extremely detailed. As one director-respondent remarked: “Five hundred-plus pages are the norm rather than the exception”. Some respondents defined an exact format for contributors, while others left it to the management, but all approved the board materials

16 See Chapter 1 for the description of 3E-leadership model.

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before sending them out, usually one week before the meeting. None of the respondents checked every single line of the board book but ensured that all agenda items were covered adequately. Most boards in our sample used digital platforms, but some chairs liked to have additional hard copies in the boardroom. Supervisory-board chairs use committees extensively, a practice that is largely driven by such country specifics as large boards, co-determination and the limited number of meetings a year. Committees play a major part in the analytical work and are expected to prepare draft decisions for the board. One chair described his way of organizing committee work as follows: “I articulate clearly what I need from them: description of the problem, specific recommendation for the board decision, supporting argument, data, criteria applied and methods used”. This chair and many of his colleagues personally participate in some committees, actively manage their membership through nomination and rotation and set up temporary board subcommittees to look at specific problems. As one respondent said: “I love to rotate committee members – it gives directors a 360-degree picture of the company”. None of the chair-respondents mentioned reaching out to each board member before the meeting as a standard practice. Perhaps the large size of many German boards makes this rather impractical. However, supervisory-board chairs often meet with the two groups of directors— shareholder and employee representatives—separately. As one respondent explained, such meetings allow them to discuss items on the next board meeting agenda “less formally, more frankly and without always looking at your watch”. Some respondents said they used such sessions to achieve alignment and agreement between the two groups on decisions to be formally approved at the board meeting. Chairs also interact with vicechairs, who are always employee representatives, to gauge the position of other employee representatives, to discuss potential disagreements and to find mutually acceptable solutions. Such meetings usually take place in cafes, pubs or over the phone. Board chairs in Germany pay a great deal of attention to planning board meetings. They allocate time for each item, splitting it between presentation, Q&A, discussion and decision-making. Board leaders carefully frame discussion questions, outline criteria for decision-making, think about the order in which directors should express their views, analyse what could potentially disrupt board discussions and prepare mitigation strategies. As one of them put it, “When you have only four hours,

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five important questions and twenty board members, you have to plan every detail and be prepared for every eventuality”. Another chair shared his practice of drafting the meeting plan on a piece of paper, outlining time allocation, exact wording of discussion questions and detailed decision criteria. Some chairs organize dinners for their directors on the eve of the board meeting to talk informally, to probe for potential disagreements, to get directors on the same wavelength and to put them at ease. One respondent said: “It is an opportunity to talk about our families, to have a glass of good wine, to become more social, to have some fun and to bond as a team”. In-meeting We did not discover a typical German way to start a board meeting. Some chairs open by sharing news from the company. Other chairs greet everyone and go straight to the agenda. One unexpected finding of our research is the attitude of German chairs to management presentations during board meetings. While their counterparts in other European countries try to minimize or even eliminate them, board leaders in Germany allocate significant time to them. As one of them explained: “You should assume that nobody read the board materials and provide them with all data necessary for decision making ”. Although other respondents were less radical in their assessment of directors’ preparedness (and one of them shared his practice of cold calling board members to identify the unprepared), they all attributed high importance to presentations and worked with the management to structure them to their tastes. Committee reports are also an important element of board meetings in Germany. Again chairs are involved in structuring and polishing them. As one respondent explained, he is interested to hear “not only a suggestion but a description of the problem, method and data—the way it was analyzed, how the decision was reached and the mechanics behind the recommendation”. During the meeting the chair functions as a facilitator and coordinator who encourages discussion, ensures more or less equal allocation of airtime and avoids imposing or even articulating a personal point of view. Both the chairs and the directors we interviewed described this as a very challenging task, because of the specifics of German supervisory boards. As one of them put it: “Some people might be well prepared, some people are not; some people are talkative, some not; some people know the company well,

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others do not ”. Time constraints make facilitation even more difficult, so effective chairs combine an engaging approach with discipline and reining in talkative or disruptive members (see below). In Germany, the chair of a supervisory board has a deciding vote in cases of stalemate. However, our respondents considered exercising this right a very ineffective practice, as it undermines the board’s unity in the long run. They preferred to extend or even postpone the discussion to reach a decision acceptable to all board members. Chairs are also very careful not to impose their opinions on other board members. One said that he prefers “not to state my views at all, but when I do it I always emphasize that this is just an opinion of one board member”. At the close of the board meeting some chairs give three to four minutes to every board member to state their key impressions of the meeting or something that might be on their minds as they are going home. In the words of one respondent: “It is very helpful – issues are mentioned that were not discussed because they were forgotten or very sensitive topics ”. In contrast to other European countries, there is almost no humour in German board meetings. Although one respondent mentioned that “humour does not contradict efficiency”, another, the chair of a listed company, explicitly forbade it. When asked about this, he responded that it reflects the way he prefers to work: “The board meets to conduct business ”. Only one chair from our sample (younger and more international) said that he explicitly introduces humour into his sessions to create a relaxed and constructive working atmosphere. Post-meeting Organizing a lunch for the whole board immediately after the board meeting is quite common in Germany. Many chairs use this opportunity to continue discussions informally, for example, to reflect on the meeting itself. One respondent extends the reflection to questions about the directors’ engagement with the board, the time commitment required, the effectiveness of communication between board meetings and the quality of materials. Board evaluation is a standard routine for German companies. Following the Code’s recommendation, most chairs organize selfevaluation once a year and use external help every three years. The self-evaluation is often organized in two stages: first all directors fill in

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a questionnaire and second aggregated data is presented to the board and discussed. Some chairs also conduct individual meetings with directors to provide personalized feedback and discuss improvements. Managing Difficult Board Members Our respondents classified as “difficult” several categories of board members: people who constantly try to impose their own very different opinions on the rest of the board; people who speak too much or too little; certain directors representing the founding family; and directors representing minority/activist shareholders. One respondent also remarked that “the most difficult are directors who do not have enough time”. We discovered some interesting strategies and practices for working with deviant board members. The first strategy is to formalize behavioural norms for directors. Some boards have a code of conduct (Verhaltenskodex) that describes the rules of engagement and in cases of deviation chairs refer to this document. Some chairs reported that they had established a “meeting code”, obliging each member of the supervisory board to voice her or his opinion and refrain from dominating the discussion. The second strategy is intervention outside the boardroom. This takes the form of a one-to-one meeting or even a phone call to provide feedback and ask for a change in boardroom behaviour. Usually conversations are polite but straightforward as suggested by the “culture map” earlier in this chapter. The third strategy is a direct confrontation in the boardroom. We collected some specific phrases that board chairs use to improve the performance of deviant directors. To silence domineering board members: • “Could you please allow others talk as well? You are dominating the discussion”. • “Could you please make some space for others?” • “You have made 20 comments, while others have made none”. To encourage more silent board members: • “Could you speak up a little bit more?”

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• “I would like to hear more from you, especially when it comes to your field of expertise”. • “I’d love to hear your voice; I’d love to hear your opinion” Interactions with Employee Representatives on the Supervisory Board The law on co-determination (Mitbestimmunsgesetz), giving employees at large German companies the right to elect up to half the members of a supervisory board, was adopted in 1976. Since then, according to our respondents, chairs have come a long way—from outright hostility towards directors representing employees, through the acceptance stage, to considering them as valuable members of the board. As one chairrespondent put it: “You need to understand where they are coming from, what they can and cannot bring to the table, and treat them fairly”. Fairness and non-partiality are the main expectations of directors representing employees on the boards of German companies. As one of them remarked to us: “The best chair treats all board members with respect. He ensures that all are given the same attention and remains neutral ”. According to this very experienced director, the main function of the chair of a supervisory board is “to align directors representing shareholders and employees behind the common strategy” and the main attributes of a good chair are “non-political, open, good communicator, strong personality and good industry knowledge”. He mentioned “domination, arrogance and non-inclusiveness ” as the three deadly sins of chairing a board. Chair-respondents said that they try to engage employee-directors, make them part of a collective process and help them to contribute—as they do with all board members. The tactics, however, may be different. One respondent said that he helps employee-directors to see the bigger picture, to understand how the business world operates and to recognize the expectations of other stakeholders. Another chair meets with them to talk about their roles and responsibilities as members of a supervisory board in informal and simple language. While interacting with employee representatives on the board, chairs may make some adjustments to their style in order to appear on a more equal footing: for example, wearing less-formal clothes, driving a different car or selecting a pub to have beer and sausages. As in some other countries discussed in this book, we found that a shared meal—with traditional German bread rolls (Brötchen) or seasonal foods like asparagus—helps facilitate collaboration.

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Relationships with the CEO and Management German companies are formally managed by a group of senior executives (Vorstand), where the CEO according to one chair-respondent is the “primus inter pares ”. This feature means that the supervisory-board chair interacts with all members of the management board, although our research found that their main contacts are the CEO and CFO. Other senior executives get involved with board committees and work with the chair occasionally rather than systematically. Chair-respondents reported that their interaction with the CEO is intense, complex, multi-faceted and multi-format. It is not uncommon for the chair of a German company to have an office on the company premises and it is often the venue for regular chair-CEO meetings. As one respondent explained: “I have an office where I meet with the CEO every two weeks for a couple of hours. The agenda is not formal. First we discuss his points, then I ask him my questions ”. Chairs and CEOs also meet for coffee or a meal, speak on the phone, correspond by e-mail and use messenger applications. Although the German model of corporate governance draws a clear line between the non-executive supervisory board and the executive management board, chairs and CEOs collaborate on a number of issues from preparing board meetings to working with external stakeholders and the mass media. One director-respondent even talked of “co-management ”, while a chair-respondent called himself “a business sparring-partner for the CEO”. At the same time, the chairs in our study considered challenging the CEO and other senior executives as one of their key roles: “As soon as you see them [the CEO and CFO] walking on water, take the water away”. “Challenging” takes place in the boardroom and one-to-one meetings. According to our respondents it has to be specific, supported with facts, non-emotional and non-aggressive but firm. Chairs give performance feedback to CEOs and sometimes to other members of the management board. We learnt about two principal formats: formal annual evaluation, which takes somewhere between one and three hours, and involves quantitative as well as qualitative metrics; and less-formal feedback sessions, which follow important events or are organized on the CEO’s request. Both types of feedback sessions usually take place behind closed doors, although in some cases chairs involve members of the compensation committee.

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Many chair-respondents told us that they mentor the CEO and, in some cases, other senior executives. Mostly this is a matter of informal, unstructured mentoring, which takes place during regular or specially organized meetings initiated by either party. Sometimes it is situational, for example, after a board meeting, presentation to investors or company conference. One chair-respondent said that at one company he participated in management meetings in order to observe the CEO and provide developmental advice. One of our unexpected findings was that in Germany some board chairs are involved with leadership development at their companies. Chair-respondents reported inviting high-potential managers to make presentations to the board and its committees, attending company events for “hi-pos” and speaking to groups of middle managers. One of them defined one of his personal tasks as “looking for internal high-potentials who could fill the pipeline for the management board”. CEO-respondents reported that effective chairs interact with them on a regular basis (“we meet face-to-face every three to four weeks, but we constantly communicate via secure messenger”), treat them as equal and are available and ready to help with advice or an introduction to an important person. All the CEOs we interviewed emphasized the importance of mutual trust and predictability as the foundations of effective chair–CEO collaboration. As one of them put it: “What I know he knows (was ich weiss, weiss er)”. Being a Chair—A Lifelong Learning Process Being a board chair means continuing to learn and inspiring other people around you to keep learning. “The learning is important, the chair has to have a deep knowledge of the company she steers ”, mentioned one respondent. The chair of one family-controlled company constantly interacts with other family firms based in Germany. This group holds regular meetings at one of the leading German business schools, covering family business and related topics and organized by a faculty member (Lehrstuhl ). Similarly, many companies in our sample organize seminars for their boards, support research on important topics or have other major collaborations with top business schools across Europe. One chair organizes two, two-hour meetings per year with the board’s executive team to discuss questions such as: “What makes you feel good?” “What do you worry about?” and “What makes you tired?” Another encourages every

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board member to attend at least two courses per year to build experience. The board members are free to choose for themselves what they want to focus on. One company offers a mentoring programme—with sessions run by ex-board members—that comprises six two-hour individual coaching sessions for new board members. Many boards involve external consultants or coaches. When in doubt or in trouble, chairs turn to various people for advice. Some have one or two board members with whom they feel comfortable discussing difficult issues. One family-controlled company has a confidential forum, consisting of a few young board members, who trust and respect each other. Its function is to offer advice—and sometimes references—and to ask questions about strategy. Depending on the issue, some board chairs might hold outside meetings with pollsters, accounting firms or lawyers. They might also organize small discussions on condition of confidentiality or following the Chatham House rules, under which “participants are free to use the information received, but neither the identity nor the affiliation of the speaker(s), nor that of any other participant, may be revealed”.17 One chair shared his experiences with us: If I become suspicious about something, I raise it with the firm in a separate meeting before escalating to the Vorstand [managmement board], as the relationship between the accounting firm and the Vorstand is important. If a board member presents and there is a lack of depth, I will not expose the person in public but will try to resolve the situation in a private meeting.

The COVID-19 Challenge The ongoing COVID-19 pandemic has had some impact on the work of boards in Germany. All of our respondents believe that almost nothing has changed in terms of the process, the length of meetings and the number of items discussed. However, “the meetings have become more structured and more efficient”, argued one chair. There are no longer any face-to-face meetings; communications take place instead via video and telephone (the choice of software is aligned with the company’s cybersecurity guidelines). Chairs agree that the current format is acceptable for routine meetings but less suitable for dealing with tricky situations, and 17 Chatham House. The Chatham House Rule. Available from: https://www.chatha mhouse.org/about-us/chatham-house-rule [Accessed 1 December 2020].

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stress the importance of seeing people and their reactions, as well as the lack of personal spontaneity. In mid-October 2020—before the second wave of the pandemic—one chair indicated that this content-driven work of board meetings is very tiring. Another chair explained: “Twelve months is enough. After that I would have to find new ways to connect”. One of the main takeaways from the pandemic is the level of trust among board members. Trust is a crucial precondition to continuing to make big decisions and maintaining business as usual. One of the chairs we interviewed had become a sparring partner for the Vorstand (management board). Together, they had established a common understanding of the crisis, its possible effects and how to counteract it. For another chair, the initial response of the Vorstand was to determine how much she wanted to be involved. Once it became clear that the management board could handle the crisis, the chair retreated to the normal advisory role. The pandemic accelerated the adoption of videoconferencing and other remote technologies that were already being implemented by many German boards. In the future, it is likely that some kind of hybrid format will become the norm. Virtual meetings will become common, but physical contact will still be very important. As one chair explained: “If this is the future for board meetings, the sequence needs to be increased and the process/content needs to be structured differently”. Another chair questioned the necessity of some procedures, such as holding the annual stakeholders meeting (Hauptversammlung ). The latest meeting had taken place virtually, without the usual intensive discussions, and had been very focused: A normal meeting has a different dynamic, where there are well-known escalation and de-escalation mechanisms. The 2020 meeting was not as dense as it normally is, but I did not feel the mood of the shareholders… Why do we have a meeting? Because of the law? Who are the main actors and beneficiaries? The small shareholders representing only 2%?

New Challenges Public interest and pressure on boards has become much more visible in the last few years. Consider the recent scandals at leading companies like Volkswagen, Daimler, Siemens and Wirecard—the consequences of which extend far beyond German borders. “How does this affect the role of

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the board?” was one of the questions we asked our respondents in 2020. Our interviewees believe that, through these high-level cases, awareness of risks and compliance has become more comprehensive and more professional. Ethical issues have gained more space and time on board agendas. Many companies have adapted their guidelines—and increased protection—for whistleblowers. “It is a necessary evil: a functioning culture and awareness of risk and compliance with rules are crucial for the future of any organization”, mentioned one chair. Another chair stressed, however, “Corporate governance rules do not necessarily help to avoid what happened in those firms; the focus must remain on company values and how they are being lived”. In his professional life, he follows his own value system of a “reputable businessperson” (Leitbild des ehrbaren Kaufmanns ). Another chair questioned the leadership culture of the disgraced companies, especially in the case of VW: “The CEO cannot walk on water; if he thinks he does, one has to drain the water, so that he walks on ground again”. He also highlighted the importance of being “grounded” (geerdet ). On the boards he chairs, he always defers to employee representatives on leadership culture and conducts employee surveys on a regular basis. This is, in fact, one of the KPIs of the Vorstand, and the board has a special committee (Ausschuss ) dealing exclusively with employee issues. Since 2019, triggered by the public movement against climate change initiated by Greta Thunberg, German board chairs have had to deal more intensively with the new ESG (environmental, social and governance) model of doing business. “It is running in parallel to the ‘old’ business model, but will become a very big topic soon”, said one respondent. He makes sure, for example, that ESG objectives are clearly formulated and that corresponding KPIs are set for the company. He constantly monitors whether strategies are well defined, whether research and development is going in the right direction and whether employees at all levels are following the new rules. As this chair argues, the crucial question still remains: “Is the company ready to sacrifice profit for ESG?” Another chair shared his “People – Planet – Progress ” model: “People – to better the lives of people; Planet – to keep the planet in mind in whatever they do; Progress – how to improve the other two elements (reducing the use of company cars, supporting bicycles instead, paying a bonus for not using a car, etc.)”. This chair feels he is responsible for acting as a role model or “guardrail” (Leitplanken).

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Chair Succession In Germany board chairs do not consider their succession a priority or even a task for themselves. The selection and nomination of candidates is carried out by nomination committees. As one chair-respondent commented: “I am not involved with my succession—it would be inappropriate for me to influence its [the committee’s] work”. Significant shareholders, on the other hand, are very much involved in selecting the next chair—and are often the de facto decision-makers. One family-business shareholder explained that his family was in charge of finding successors for their firm’s chairs. They involve an executive search company to codefine a profile and source candidates, keeping the incumbent chair out of the process entirely. In general, personal and professional networks are important avenues for finding future chairs—both significant shareholders and nomination committees actively use them. However, the situation with respect to chair succession may change in the near future. The most junior chair we interviewed expressed a very different attitude. He is already thinking about his successor and intends to be a part of the succession process. In 2020, we also noted the case of one family business that started the process much earlier than usual— five years before the position was actually vacant—and adapted the main criteria to include professional competences (international, governance, family business experience) and personality (open to change, diplomatic, moderator). Both genders were considered, as were various age groups: “Not only 60 + , but also 35 + ; seniority does not mean legitimacy, experience has no immediate value, which is difficult in family firms as there is a lot of loyalty and long-serving managers who feel entitled”.

Summary According to our research, a “typical” supervisory-board chair in Germany is male, German, aged 60 or above, well educated, has significant international experience and was previously a CEO. His work is complex and requires a significant time commitment. Most chairrespondents reported spending one to two weeks a month on their role. In Germany chairs are first and foremost enablers of a very complex system of corporate governance. Their skill and will make this sophisticated machinery run. Their function as “smooth operators” includes the

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roles that are traditional in other European countries, such as leading the board, maintaining relationships with shareholders and interacting with the CEO and management. However, this function also requires chairs in Germany to take on additional duties, such as representing the company to the outside world. Understanding and aligning the interests of diverse stakeholders is critical for the effectiveness of chairs in Germany. To achieve this, they need to demonstrate patience, empathy and great questioning and listening skills. They must be able to synthesize and articulate. To do all this under the significant time constraints of a part-time job they have to be highly disciplined and capable of instilling discipline on their boards. According to our respondents, there are three significant trends that will affect the work of chairs in Germany over the next decade: digitalization; increasing diversity; and mounting regulatory pressure. Digitalization will make all boards paperless and will reduce information asymmetry between supervisory and management boards by making data available to non-executive directors in real time. Videoconferencing will become a viable alternative to traditional board meetings and most committee meetings will be virtual. However, most chairs will preserve the traditional format of personal attendance in the boardroom. The number of female directors will increase, probably reaching 40% ten years from now and expanding the pool of potential female chairs significantly. As a result, there will also be more female chairs, especially in the second half of the next decade. However, the percentage of women chairing supervisory boards will not match the percentage of women directors any time soon. Age diversity will also increase: technology will catapult younger (under 50) people into chair positions, while increasing longevity will make people in their 80s perfectly fit for the job of chair. The chief executive position will remain the principal career path, but there will be more chairs with backgrounds in academia, consulting and government. Increasing regulatory pressure will make the chair’s job more demanding, more risky and perhaps less attractive. People will chair fewer boards simultaneously and their tenures will shorten.

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References Brendel, M., Schwetzler, B. and Strenger, C. (2017). Ownership Structure, Firm Value and Government Intervention: The Case of the German Tax Reduction Act. Available from: https://ssrn.com/abstract=2440706 [Accessed 1 December 2020]. Bresser, R.K. and Thiele, R.V. (2008). Ehemalige Vorstandsvorsitzende als Aufsichtsratschefs: Evidenz zu ihrer Effektivität im Falle des erzwungenen Führungswechsels. Journal of Business Economics, 78(2), pp. 175–203. Chatham House. The Chatham House Rule. Available from: https://www.cha thamhouse.org/about-us/chatham-house-rule [Accessed 1 December 2020]. Denisova-Schmidt, E. and Nicolas-Kryzhko, L. (2020). Rabenmutter. In: The Global Informality Project. Available from: https://www.in-formality.com/ wiki/index.php?title=Rabenmutter_(West_Germany,_Austria,_German-spe aking_Switzerland) [Accessed 1 December 2020]. Deutschlandfunk (2020). Interview with Marcel Fratzscher. DIW-Chef plädiert für kurzen, konsequenten Lockdown. Available from: https://www.deutschla ndfunk.de/corona-massnahmen-diw-chef-plaediert-fuer-kurzen.694.de.html? dram:article_id=486482 [Accessed 1 December 2020]. Fehre, K. and Spiegelhalder, R. (2017). Same, but Different: Eine Analyse des Humankapitals weiblicher und männlicher Aufsichtsräte in Deutschland. Schmalenbachs Zeitschrift für betriebswirtschaftliche Forschung, 69, pp. 311– 343. Holst, E. and Wrohlich, K. (2019). Frauenanteile in Aufsichtsrätengroßer Unternehmen in Deutschland auf gutem Weg: Vorstände bleiben Männerdomänen. DIW Wochenbericht, Deutsches Institut für Wirtschaftsforschung, 86(3), pp. 19–34. Meyer, E. (2014). The Culture Map: Breaking Through the Invisible Boundaries of Global Business. New York: PublicAffairs. PricewaterhouseCoopers (2018). Doing Business in Germany. Available from: https://www.pwc.de/de/internationale-maerkte/doing-business-in-ger many-guide-2018.pdf [Accessed 1 December 2020]. Regierungskommission (2017). German Corporate Governance Code. Available from: https://www.dcgk.de/en/code.html [Accessed 1 December 2020]. Sachverständigenrat zur Begutachtungder gesamtwirtschaftlichen Entwicklung (2020). Corona-Krise Gemeinsam Bewältigen, Resilienz Und Wachstum Stärken. Available from: https://www.sachverstaendigenrat-wirtschaft.de/ fileadmin/dateiablage/gutachten/jg202021/JG202021_Gesamtausgabe.pdf [Accessed 1 December 2020]. Schilling, F. (2001). Mitbestimmung und Corporate Governance. Available from: https://www.board-consultants.eu/docs/schilling1-faz-mit-cg.pdf [Accessed 1 December 2020].

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Statistisches Bundesamt (2020). Bevölkerung in Deutschland im Jahr 2019 auf 83,2 Millionen Gestiegen. Available from: https://www.destatis.de/DE/The men/Gesellschaft-Umwelt/Bevoelkerung/Bevoelkerungsstand/_inhalt.html [Accessed 1 December 2020]. UNDP (2020). Human Development Indices and Indicators. 2020 Statistical Update. Available from: http://hdr.undp.org/en/countries/profiles/DEU [Accessed 1 December 2020]. Weckes, M. (2019). Strahlungsarmes “Quötchen”: Die Geschlechterverteilung in Aufsichtsrat und Vorstand 2019. Mitbestimmungsreport, 48. Available from: https://www.econstor.eu/handle/10419/194594 [Accessed 1 December 2020]. The World Bank (2020a). World Development Indicators. GDP Ranking. Available from: https://databank.worldbank.org/views/reports/reportwid get.aspx?Report_Name=CountryProfile&Id=b450fd57&tbar=y&dd=y&inf= n&zm=n&country=DEU [Accessed 1 December 2020]. The World Bank (2020b). World Development Indicators. GDP per Capita, in International Dollars. Available from https://data.worldbank.org/indicator/ NY.GDP.PCAP.CD [Accessed 1 December 2020].

CHAPTER 10

Chairs in France: Conducting a Grand Orchestra Stanislav Shekshnia and Bertrand Richard

The Chair’s Work in Context The French Republic is the second-largest country in Europe with a population of 64.9 million people. With nominal GDP of US$ 2.7 trillion and per capita GDP of US$ 40.493 the country is the seventhlargest economy in the world.1 France is a services-based economy with a modern industrial sector and advanced agriculture. The French labour force is highly educated and is one of the most productive in Europe. French residents enjoy high-quality universal medical care, a high standard

1 The World Bank (2019). World Development Indicators. GDP Ranking. Available from: https://datacatalog.worldbank.org/dataset/gdp-ranking [Accessed 1 December 2020].

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of living and one of the highest life expectancies in Europe—82.5 years in 2019.2 France is a presidential republic with a two-chamber parliament. Since 1958, when the Fifth Republic was created, it has mainly had right-wing presidents, with the notable exceptions François Mitterrand (14 years), François Hollande (5 years), both socialists, and Emmanuel Macron, who in 2017 won the presidential election on a centre-left platform. The state plays an important role in the French economy by taxing both businesses and households comparatively heavily and spending more than 56 per cent of GDP.3 It also holds significant stakes in almost a hundred listed companies, including Renault, Airbus, EDF, Engie and Orange.4 There are more than 4 million enterprises registered in France and the French economy has multiple layers. At the top sit large public companies with a global presence, 30 of which make it into the list of the 500 largest companies in the world. The second layer consists of mid-sized organizations, mostly privately owned. The base of the pyramid consists of millions of small businesses covering the entire range of industries from construction to hospitality. The most popular form of business is the limited liability company (société a responsabilité limitée—SARL). Société anonyme (SA) is the French equivalent of the British PLC and American corporation. One of the oldest in Europe, the Paris stock exchange is now a part of NYSE Euronext Stock Exchange. There were 457 listed companies in France in 2018 (down from 1185 in 2000).5

2 The World Bank (2018). Life Expectancy at Birth, Total (Years)—France. Available from: https://dataworldbank.org/indicator/SP.DYN.LE00.IN?locations=FR [Accessed 1 December 2020]. 3 International Monetary Fund (2019). World Economic Outlook Database. Available from: https://www.imf.org/external/pubs/ft/weo/2019/02/weodata/index.aspx [Accessed 1 December 2020]. 4 OECD (2019). The French Government Shareholding Agency Report. Available from: https://www.econome.gouv.fr/files/files/directions_services/agence-participationsetat/Documents/Rapports-de-l-Etat-actionnaire/2017/REA_EN_72dpi.pdf [Accessed 1 December 2020]. 5 The Global Economy (2019). France: Listed Companies. Available from: https:// www.theglobaleconomy.com/France/Listed_companies/ [Accessed 1 December 2020].

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Corporate Governance in France---Framework for the Chair’s Work Public and private companies in France can choose between two governance structures: two-tier and one-tier. Under the two-tier system the shareholders’ general assembly elects a supervisory board (conseil de surveillance), which consists of non-executive members only. The supervisory board appoints an executive board (directoire), which consists of two to seven members, who are mandataires sociaux, i.e. corporate officers. The directoire collectively manages the company and is accountable for its results. The conseil de surveillance approves corporate strategy, oversees the work of executives and decides their remuneration. Under the one-tier system the assembly of shareholders elects one board of directors (conseil d’administration) with 3–18 members, who may include executive and non-executive members and are responsible for the management of the company. The conseil d’administration appoints corporate officers, including the CEO (directeur général ), and delegates to them the authority to run the business and represent the company. The board defines the scope of the firm’s activities, corporate strategy, annual and other targets, and remuneration of executives, as well as preparing an annual report and presenting it to the shareholders’ assembly. There are two variations within the one-tier system: so-called unified (unifié) and separated (dissocié). In the unified version the same person occupies both the positions of board chair and CEO with the title of PDG (président-directeur général ); in the separated version one person holds the position of chair of the board of directors (président du conseil ) and another has the CEO job (directeur général ). Only a small minority of French listed companies opts for the twotier governance system. For decades the dominant form was a one-tier system with an all-powerful PDG at the top.6 However, things have been changing in the 21th century. Four major trends define the rapidly evolving governance landscape in France: first a surge of female directors; second an increase in the proportion of independent directors; third a rise in the number of international directors; and fourth the separation of the CEO and chair positions. In 2020 women held 46% of board 6 Belot, F., Ginglinger, E., Slovin, M. and Sushka, M. (2014). Freedom of Choice between Unitary and Two-Tier Boards: An Empirical Analysis. Journal of Financial Economics, 112(3), p. 369.

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seats at SBF 120 companies; independent directors in France were in a majority (59%), non-French citizens occupied 29% of directors’ positions at French companies; and more than half of listed companies (52%) had separate chairs and CEOs.7 In this chapter we will concentrate on chairs of board of directors who are not CEOs, i.e. they hold the position of président du conseil d’administration, to follow the logic of this book. Boards of French companies are relatively large with an average of 12.4 members for a listed company in 2020.8 They meet eight to nine times a year.9 Boards in France actively use committees to support their work: on average a board of a listed company in France had 3.6 committees in 2020.10 The standard set of committees includes: audit (recently enhanced with risk oversight); remuneration; and nomination and governance. Some boards form strategy, environmental protection, sustainability, digital transformation and other committees. Board committees do not have decision-making power unless explicitly delegated by the board. Some boards include employee representatives as full members while others invite them as observers. However, their numbers do not exceed 10% of all directors.11

Role and Authority of a Board Chair: Regulatory Prescriptions The Code de Commerce (commercial code or company act) and two corporate governance codes—Code AFEP/MEDEF (for listed companies) and MiddleNext code (for SMEs)—attribute the following duties and powers to board chairs: • Organize and manage the work of the board of directors and report on it to the general assembly of shareholders • Ensure the effectiveness of all elements of the governance ecosystem • Ensure that directors are able to fulfil their mission 7 Spencer Stuart (2019). France Board Index. Available from: https://www.spencerst uart.com/research-and-insight/france-board-index [Accessed 1 December 2020]. 8 Ibid. 9 Ibid. 10 Ibid. 11 Ibid.

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• • • •

Ensure provision of information to directors Call board meetings and establish their agendas Ensure that the board conducts an annual evaluation of its work Ensure that the board and its nomination committee organize succession planning • Disclose when undertaking tasks not specified in the above documents. As in most other European countries the chair is responsible for the effectiveness of the board and its interaction with the key stakeholders, yet in the French context an important additional role emerges: to orchestrate the functioning of the whole governance system.12

French Culture and the Work of the Chair According to the “culture map” developed by INSEAD professor, Erin Meyer, France is a high-context, high-power-distance, highly contextualized confrontational culture with a “principles-first” mode of collaboration and persuasion (see Fig. 10.1 and Appendix A). In such a culture the title of Président is likely to give people occupying the chair special status and more power than other board members (mere administrateurs ), although the law and the code do not prescribe any such power, except in cases where a casting vote is required (high power distance and high context). To be effective in such a context, chairs in France would need to develop deep organizational knowledge and to understand the nuances of corporate life (highly contextual communication). They would also need to pay special attention to framing discussion questions and articulating assumptions and rules of engagement to make sure that the board is on the same page with regard to its working methodology (principles first). Board leaders are likely to be comfortable with allowing open debates and disagreements among directors in the boardroom, dealing with them decisively when required (confrontation and direct negative feedback). In addition, they should be comfortable conducting board evaluations and discussing their results openly (direct negative feedback). 12 Le Code de Commerce (2010). Available from: https://www.legifrance.gouv.fr/ codes/section_lc/LEGITEXT000005634379/LEGISCTA000006178760/#LEGIARTI0 00033614172 [Accessed 1 December 2020].

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Fig. 10.1 France Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs])

Existing Research The research on board chairs in France is still very limited, the key areas of investigation being: the relationship between different governance models and company performance; the factors defining the choice of the PDG or DG model; and the roles and personal attributes of board chairs. Hollandts, Borodak and Tichit used a sample of 272 listed companies during the period of 1997–2008 to find two factors that have a positive correlation with the separation of the CEO and chair roles—independence of the board and company performance—and two factors with a negative correlation—the degree of CEO entrenchment measured by length of service and the concentration of ownership. They also concluded that family companies have a strong preference for the separation of the CEO and chair positions.13

13 Hollandts, X., Borodak, D. and Tichit, A. (2015). Plus Autonome? L’évolution des Structures de Gouvernance des Sociétés Cotées Françaises (1997–2008). Management international, 19(3), p. 61.

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In 2018 the French Institute of Directors (IFA) published a short but insightful report, Board chair: on the bridge, prepared by a working group headed by Michel de Rosen, chair of Faurecia and Pharnext.14 The report argues that, although the existing governance framework grants only limited authority to the board chair, the latter often exercises a strong influence on the workings and the results of the company by: • Orchestrating the strategy development and approval process • Controlling the board’s agenda, the board materials and the discussions in the boardroom • Aligning the interests of the board, the management and the shareholders by overseeing the exchange of information • Ensuring adherence to the letter and the spirit of governing codes • Actively participating in crisis management.15 The report outlines a list of practices of effective board chairs, such as: defining the role and the authority of the chair in internal company procedures; distinguishing between information and decision-making items on the board agenda; systematically soliciting the opinions of every board member; closing discussions by making sure there is a common understanding of the decision; ensuring effective follow-up on board decisions; and informing the board about progress with respect to its decisions.16 Another IFA report examined the challenge of separating the roles of board chair and CEO in the French context. The paper advocated this as the way to improve governance effectiveness by adding clarity and increasing professionalism—provided such important conditions as the clear demarcation of the responsibilities and the complementarity of profiles are met. The authors identified a number of chair attributes that contribute to a successful separation of “P” and “DG” roles, such as

14 Institut Français des Administrateurs (IFA) (2018). President de Conseils: sur le Pont! Available from: https://www.ifa-asso.com/informer/centre-de-ressources/travauxde-l-ifa/le-role-du-president-de-conseil.html [Accessed 1 December 2020]. 15 Ibid. 16 Ibid.

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independent authority, mentoring and counselling capability, a strategic mindset and the ability to organize strategic processes and effective ego management.17

Methodology and Sample To develop insights into the mindsets and working practices of board chairs in France we conducted semi-structured interviews with 12 experienced chairs: 10 men and 2 women, aged from 53 to 78, who at the time of the encounters chaired a total of 15 boards of directors: 8 boards of publicly listed corporations and 7 privately held companies. In the past they have chaired a total of 32 boards. None of them held a significant stake in the companies they chaired or was engaged in any private business or full-time employment. In addition to the chairs, we interviewed nine professional CEOs, three experienced independent directors and three representatives of shareholders.

Role and Functions of a Board Chair: Tradition and Change There are at least four types of board chairs in France: business founders or members of a founding family who use the chair as a platform for their leadership; professional executives holding both chair and CEO roles (PDGs); full-time board chairs (présidents exécutifs ) and independent board chairs (présidents ). To make our study comparable with other European countries we will mostly concentrate on the last category which is rapidly becoming the largest. However, in order to understand the mindset and the working practices of independent board leaders we need to keep in mind the tradition of the combined chair-CEO role, which goes back nearly half a century. Until the beginning of the twenty-first century this was the only possible model for companies with a one-tier board structure, so the vast majority of French organizations were ruled

17 Institut Français des Administrateurs (IFA) (2019). Gouvernance Dissociée— Les Conditions du Succès—2019. Available from: https://www.ifa-asso.com/mediat heques/rapport-de-lifa-gouvernance-dissociee-les-conditions-du-succes-2019/ [Accessed 1 December 2020].

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by an all-powerful PDG who towered over the board and the management alike. When dissociation became possible some PDGs used it as a personal succession strategy and remained board chairs while passing the CEO job onto other people, yet their habits hardly changed overnight. As one respondent put it: “We have difficulties in splitting the roles because some chairmen retain their CEO behavior.” Public opinion is also slow to embrace the new reality of the separated roles, while both international and French newspapers tend to refer to board chairs of large companies as patrons (bosses), the informal title traditionally used to identify the most senior executive in the organization. The PDG tradition gives even the new generation of independent chairs a special position in the organization, making them “more equal than other directors” and making it difficult for them to avoid executive behaviour. At the same time, the majority of our respondents supported the separation of the roles and advocated for independent chairs. One exception was a chair who had experienced both PDG and président roles and preferred the former system: “I found the PDG system clearer and more efficient since it is quicker to take decisions.” The question “Who does the chair work for?” sparked a variety of opinions from our respondents. One group advocated a view that is gaining more and more support among both practitioners and academics, articulated by one chair as follows: “The chairman is not a representative of the shareholders, except if he is appointed and nominated by one of them. He works for the company and the board.” Other respondents, including board members, emphasized the chair’s duty to the board. As one chair put it: “The chairman works for the board, which appoints, assesses and fires him. He doesn’t specifically work for the shareholders.” Yet some experienced chairs insisted that the board leader owes his or her duty first and foremost to a diverse group of company stakeholders: “[The chair] works for the stakeholders and not only the shareholders, even if he has only a little contact with the former.” This view reflects a vision of the chair as an orchestrator of the whole governance system, which will be discussed later. Effective board chairs in France do not suffer from a simplistic “I work for the shareholders” attitude. They recognize the complex web of stakeholders and the need to understand and balance their interests in order to ensure the long-term sustainable development of the company, which in the end is the main role of the boards they chair. As one respondent explained: “Unlike the Anglo-Saxon context, in France we have never lived

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under ‘the shareholder primacy’ model. Corporate boards and their chairs have always paid attention to broader societal interests and expectations.” Thus in France there is a clear distinction between the interests of the company and the interest of the shareholders—and the role of the board is to protect the interests of the company. Our respondents identified three roles of board leaders that French chairs share with their colleagues from other European countries: leading the board (“making sure that the board performs its duties ”); interacting with the CEO and management (“having a smooth and transparent relationship with the CEO”); and representing the board in relationships with shareholders and stakeholders. A fourth role is specific to France: ensuring that the whole governance system works. We will discuss each of these four roles separately. In addition, some chairs may undertake auxiliary functions, such as: speaking on behalf of the company with shareholders; co-authoring messages to external stakeholders with the CEO; collaborating with regulators; and visiting company offices and plants to motivate employees and to demonstrate the board’s engagement. The Chair as the Orchestrator of the Governance System The first respondent interviewed for our research project was adamant: “The first role of the chair is to make sure that governance works well.” He went on to explain that by “governance” he meant well-functioning institutions: “board, AGM, board committees, CEO, executive committee” and “effective interaction between them”. Other respondents also expressed this systemic view of governance at the company level with the chair as a central connecting and adjusting element. Unlike in other European countries the French law specifies that the chair ‘ensures the proper functioning of the corporate bodies ’.18 In the words of one of the participants: ‘every orchestra needs a conductor’. From the interviews we distilled some elements of orchestrating work of a board chair. Ensuring the rules of the game are in place and updated when necessary. As one very experienced chair and CEO put it:

18 Le Code de Commerce (2010). Available from: https://www.legifrance.gouv.fr/ codes/section_lc/LEGITEXT000005634379/LEGISCTA000006178760/#LEGIARTI0 00033614172 [Accessed 1 December 2020].

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The division of roles depends on each specific situation and there should be flexibility. Even if the rules are agreed between the chairman, the CEO and the board, the chair should write them down in case of the need for arbitration. One way to define the respective roles is to start by risk mapping and decide who does what in the event of a crisis.

The chair then makes sure that the demarcation is in place and that all parties adhere to it. Linking the parties. As in other European countries, French chairs enable effective communication between the board, on the one hand, and the CEO, significant shareholders, financial investors and other stakeholders, on the other. They find time, space and formats for direct interactions to happen and/or serve as messengers between the different groups. One respondent explained: “The chair provides an interface or actually is an interface.” Guarantor of the system. One interviewee said that effective chairs “develop trusting relationships with both shareholders and management, while remaining independent ” and another called them “the warrants of continuity”. Many emphasized that chairs also protect the independence of their boards. They use their authority to ensure that the system works as it is supposed to. In return they are held “accountable on all governance matters ” as one respondent described it. If crisis strikes the governance system the chair “has to step up and take the lead”. Public face of the system. In France chairs have an external exposure that their colleagues in some other European countries do not have. They project the image of corporate governance to the outside world and in so doing assume an additional responsibility. Governance roadshows, media interviews, presentations at conferences, and participation in governance and investment associations are the most common ways to carry out this part of the job. At the same time effective chairs never try to replace CEOs as the public face of their companies. Leading a Board Effective chairs of French boards practise “3E” leadership: they engage, enable and encourage their board members to collaborate in order to make good decisions. In this section we describe some specific 3E practices of French board leaders.

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Engaging directors. In a high-context culture like France one needs to know people before one can lead them. Effective chairs invest time and effort in getting to know their board members and ensuring that the process is mutual. Onboarding sessions, informal meetings at company premises, site visits, informal one-to-one meetings for a coffee, drink or lunch, semi-official dinners for directors and their spouses… French chairs use a variety of methods to get to know their board members and to help them get to know each other. As one of them put it: “To know directors the chair should socialize with them. In my case, even my wife knows all of the directors and their partners.” Another chair commented: “I have one dinner per year with each board member and one per quarter with each committee chair.” Another popular engaging strategy is reaching out to directors before the board meeting for an informal discussion. As one chair explained: “I call board members to see what their expectations are. Nobody should be taken by surprise.” Enabling the board. Our respondents recognize that a major part of their work is to create favourable conditions for their boards to have productive discussions and make effective decisions. This work includes planning, supervision of the preparation and distribution of board materials, facilitation of discussions, time management in the boardroom, articulations of decisions and organization of the follow-up. Board chairs in France devote significant attention to the preparation and planning of board meetings and usually do so in collaboration with the CEO and the board secretary. Most of them establish an annual plan with the dates and major topics for each meeting. The dates are usually agreed by all board members rather than decided by the chair. Three to four weeks before a meeting the chair meets with the CEO and the board secretary, finalizes the agenda, and discusses the materials and the presenters. Some chairs meet with the CEO again a few days before the board meeting to coordinate and establish priorities. Many respondents emphasized the critical importance of informational input for effective board work and the role of a chair in providing it. They see an information gap between the management and the board as a real risk and use different practices to close it. Here are some examples: • There should be an executive summary for each item of the agenda. The chair has to make sure that the materials are comprehensive yet are easy for directors to digest.

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• Just a slide deck is not enough. There should be options and arguments pro and contra. • I make sure directors receive materials at least seven days before the meeting. • In my companies the CEO puts together a monthly letter for directors. It outlines major events. The committees perform analytical work for the board and chairs coordinate with their respective heads. One respondent commented: “The committees are a very useful tool to improve the quality of information the board receives.” However, when it comes to chairs’ direct participation in committees’ work, we came across two schools of thought. The first encourages such participation, but few respondents insisted on board chairs also chairing nomination and governance committees. The second subscribes to the view expressed by one respondent: “Chairs should not be working on committees but remain at board level. It takes too much time to work on all committees and it undermines the authority of committee chairs.” Many chairs reported that they plan the flow of the board meeting in advance, allocating time between presentations and discussions, deciding on who will speak first and choosing who will close the debate. We discovered a number of typical patterns: • Meetings that open with information presented by the CEO and/or committee chairs, followed by discussions of important topics and closed by in-camera sessions without executives present. • Meetings that start with an informal exchange between all board members and then move on to dealing with agenda items. • Meetings that open with an in-camera session. We could not find any factors—other than the chair’s personal preferences and the support of the board members—that would explain the choice of meeting model. French chairs play a critical role in organizing productive discussions in the boardroom. All our respondents saw themselves as facilitators of such discussions. Here are some typical comments:

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• The good chair should make sure that the board members contribute positively and converge to a consensus but only after a candid debate. A board that gets to consensus without debate doesn’t do its job properly. • Effective chairs should listen, ask questions, reframe the discussion question, make several iterations to ensure that everybody expresses themselves. • Good chairs keep order without killing spontaneity. They maintain a gentle atmosphere and make their colleagues feel free to speak up. • The chair should be a facilitator who only expresses personal views at the end in order to let everybody else freely express their views. Chairs of French boards feel strongly about building consensus and, at the same time, avoiding voting. They not only allow but actively stimulate candid debates, which is a characteristic of French culture.19 They use a variety of practices to achieve the double goal of consensus and debate, among them: “creating a seating plan and changing it for every board meeting ”; organizing “tours de table” in which every director is asked to express their opinion one after another; “asking less talkative directors to express themselves and containing more talkative types”; “always speaking the last”; and “wrapping up at the end to make sure that there is a clear view of what was decided and what is still pending”. With regard to “difficult board members”—directors who take up too much space in the boardroom or fail to cooperate—French board leaders follow two strategies that combine the power of leadership and institutions. The first strategy is to invite the person in question for a one-to-one meeting, explain the issue, try to understand what is causing the deviant behaviour and determine how the person might be helped. The second is to refer the matter to the nomination committee. As one respondent put it: “The chair’s input is very important, but the process should be led by the NomCo.” We noticed that French chairs have less patience for “difficult directors” than their colleagues from other European countries. Many respondents spoke about “exiting them from the board”. Employee representatives are no longer exceptions on the boards of French companies and our respondents were positive about their participation and contribution. Chairs follow two strategies to amplify the

19 Meyer, E. (2014). The Culture Map: Breaking Through the Invisible Boundaries of Global Business. New York: PublicAffairs.

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potential of employee representatives: engagement and enlightenment. As one respondent commented: “I have regular meetings with them to let them feel that they are full board members with all the rights and duties which the job entails.” Another has the same approach: “I meet with them before the board meeting to help them to see the big picture and prepare for the debate.” In collaboration with the nomination committee chairs often organize specific induction programmes for employee representatives to enlighten them about their role, rights and responsibilities. The COVID-19 pandemic led board leaders to move all board meetings online as a matter of urgency and to organize secure channels of communication for board members and executives. According to our respondents the experience was less painful that many of them expected. Most chairs of French boards increased the frequency of board meetings during the pandemic, especially at the beginning of the crisis. At the same time the length of board meetings decreased and the discussions became more intense and constructive. Our respondents were mostly positive about the online meeting experience, yet emphasized the importance of returning to face-to-face format for maintaining group dynamics and collective creativity. Encouraging individual and collective contribution and development. Board leaders in France use both formal and informal instruments to motivate and to educate their board members. Periodic board evaluations have become a standard practice. According to one respondent: “We use a mix of external board assessments every three years and internal ones in between.” Some chairs play the role of a key facilitator for internal evaluations, while many delegate this function to the chairs of nomination and governance committees. Informal ad hoc evaluations, for example at the end of a board meeting, are not very common in France. Many respondents considered in-camera sessions (when only non-executive directors are present) to be important forums for collective learning. Chairs of French companies also use informal meetings with directors, such as lunches or dinners, to provide feedback and encouragement. Executive sessions are increasingly chaired by the Senior Independent Director (when there is one), with or without the presence of the chairman. Many chairs organize site visits, meetings with executives and employees and thematic seminars to help board members to gain new knowledge. Board retreats work as venues for getting to know each other better, developing collaboration skills and building camaraderie.

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During the COVID-19 pandemic some chairs delayed formal board evaluation sessions, citing the importance of having all directors in one room for this exercise. The CEO’s Senior Sparring Partner The relationship with the CEO is one of the top three priorities for the French chairs in our sample. Some even considered it to be the number one. As one respondent put it: “The chair is a sparring partner of the CEO. The latter will test his ideas and share his doubts with the chair on strategy, governance, business and people. The chair should bring to the CEO maturity, distance and experience.” The role of senior partner to the CEO means that effective chairs in France use two main operating modes from the five identified by our early Europe-wide research—collaborating and mentoring. However, there are some French contextual nuances. Our respondents emphasized the dynamic nature of the chair–CEO tandem, which evolves with time and is greatly influenced by such factors as length of relationship, job seniority of both parties, the lifecycle stage of the company and its financial situation. One respondent explained: When I became a chair for the first time, I succeeded a PDG who retained the CEO’s job – a very experienced person. Initially I learned from him about the company and business and tried to prove my usefulness for the company and for him. Eventually we formed some sort of partnership. At another board we had a large shareholder and a new CEO. I had to use my seniority to protect the CEO against the intrusion of the shareholder.

Supporting, protecting the CEO and creating enough room for executive action are an important element of an effective chair’s work. As one chair put it: “I provide aircover, so the CEO can move the troops on the ground.” During the COVID-19 crisis many chairs made it a priority to protect CEOs and management teams from excessive requests for information from their boards. They also provided emotional support for their executive partners. The high status of chairs in France makes the provision of support and protection easier than in some other European countries. Other elements of chair-CEO collaboration include constant information exchange, planning and preparation of board meetings, development of important strategic ideas and communication with external stakeholders.

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Since chair–CEO relationships are not very formal, collaboration often overlaps with mentoring. According to our respondents chairs in France mentor CEOs to pick their fights, to allocate time effectively, to evaluate and manage key talent and even to sharpen specific skills. Experienced chairs pay special attention to discussing difficult matters with the CEOs. As one respondent put it: “I have regular meetings with the CEO to help him to articulate and share his doubts, to tell him when something is not right.” Another brings a different perspective: “As chair I have to be always aware of the CEO’s worries. I keep asking my CEOs [about their worries] even if everything goes well.” At the same these chairs do not play the amateur psychoanalyst and do not engage their counterparts in soul searching or discussions about the meaning of life: the relationship remains professional. Another important element of mentoring is sharing contacts with the CEO. One respondent summed this up: “Part of my job is to open doors for the CEO.” Most of the time, interactions between board chairs and CEOs are intense, unstructured, and informal. One respondent described it this way: “We don’t have formal meetings, but we have ‘an open line’ and speak several times per week. Eight times out of ten it is the CEO who calls.” Some chairs have recurring monthly or biweekly meetings with their CEOs, but even they admit that most interaction takes place outside of them. Phone calls, coffees, lunches and dinners are the most popular formats. The pandemic added Zoom and Teams to that list. One specific element of the chair–CEO relationship in France is the former’s interaction with other members of the senior executive team. Many respondents reported that they have regular contacts with other top managers. As one put it: “I have regular – although not frequent – meetings with members of the ExCo, with full transparency for the CEO.” Another chair attends some of the formal Executive Committee meetings to deepen his organizational knowledge and understand the team dynamics, but rarely speaks there. The CEOs we questioned did not mind this practice, provided the chair did not try to give orders to their subordinates or undermine the unity of command in other ways—and provided also that the CEO was kept informed. From our research we distilled four rules that make French chair-CEO relationships work well. We will illustrate each of them with a quote from a respondent:

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1. Mutual respect: “We operate under a key principle – no ego fights.” 2. Demarcation line: “To start a fruitful relationship the chairman and the CEO should have a shared view of their respective roles.” 3. No surprises: “We have an agreement to always share important information, no matter how unpleasant it may be” and “Transparency is the rule which should govern the relationship. The CEO should trust the chairman and give him access to his team because he knows that the chairman will act correctly.” 4. Availability: “I am available to take my CEO’s calls any time.” Representing the Board in Relationships with Shareholders and Other Stakeholders Ownership in France is quite concentrated. According to the OECD, in 2017 more than 40% of listed companies were controlled by a single shareholder who owned more than 50% of shares. At another 20% of listed companies the three largest shareholders controlled more than 50% of equity.20 The controlling owners were private companies (which owned 18% of the French stock market), families (11%) and the state (7%). Institutional investors controlled 25% and free float was at 35%. In France many families control public and private companies through a multilayered system of holding companies or preferred stock.21 In cases of high concentration of ownership many chairs have to deal with significant shareholders who may or may not have representatives on the board of directors. As in other European countries chairs use two strategies to cope with this challenge. The first is “equal treatment of all shareholders even at the cost of no treatment ” (“compliant chairs” as we called them in Chapter 1). As one respondent put it: “When I became a chairman, I stopped the practice of having pre-meetings with the dominant shareholder to keep all shareholders equal.” The second strategy gives special attention to 20 De La Cruz, A., Medina, A., and Tang Y. (2019). Owners of the World’s Listed Companies. OECD Capital Market Series. Available from: https://www.oecd.org/corpor ate/Owners-of-the-Worlds-Listed-Companies.pdf [Accessed 1 December 2020]. 21 Bonhoure, E. and Germain, L. (2017). Corporate Governance in France. In: A. Kostyuk, ed., Corporate Governance: New Challenges and Opportunities. Sumy, Ukraine: Virtus Interpress.

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significant shareholders: “I always have preliminary discussion with each [significant shareholder] before the board meeting to understand their positions.” Most chairs from companies with one large shareholder adopt the second strategy to avoid unpleasant surprises for both sides. Chairs who pursue the second strategy proactively meet with and make themselves available to significant shareholders, although most interactions happen informally. One chair shared his experience: “When I was elected, I went abroad and spent two weeks getting to know foreign shareholders.” However, such chairs stress that these exchanges are about “gathering inputs rather than taking orders ” and emphasize their desire to protect the independence of the board and its leader. Effective chairs work to ensure “alignment ”, a word we heard many times in our interviews—and if it is not achieved they “have to be ready to quit ” according to one respondent. In general board chairs leave the relationship with financial investors to the company’s management. However, a new practice has recently emerged: the governance “roadshow”. Under this format, the chair— sometimes together with a senior independent director—plays the central role in communicating to actual and potential shareholders: the state of corporate governance at the company; the organization’s ambitions in this area; and the composition of the board itself, as well as its agenda, plans, etc. As one respondent explained: “In our company the chairman runs the governance roadshow and the CEO the financial roadshow.” In so doing the board leader is performing in public the role of orchestrator of the governance ecosystem. As in other European countries the chair also conducts shareholder meetings. During the meeting the chair may use the CEO to answer specific business questions and the chair of the remuneration committee to present compensation reports but remains in control throughout. As we mentioned earlier French boards have never fully embraced the concept of “shareholders-only capitalism”. The government, the workforce and local communities have for a long time been important stakeholders for boards and their leaders—and remain important today. One major duty of the board and its leader is to maintain a sound balance between the interests of the company and the interests of its shareholders. During the COVID-19 crisis many boards made the decision to reduce or postpone dividend payments to ensure their companies’ solvency.

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Success and Succession Most of our respondents have quite complex “scorecards” for measuring their success. The picture of performance emerges from many different sources—formal evaluations, informal exchanges with directors and executives, analysts’ reports, media articles and, of course, personal reflection. The criteria for success reflect the personalities of the chairs concerned and the specifics of their context, but all the people we interviewed cited three universal factors: the board; the relationship with the CEO and senior executives; and the risk management and sustainability of the company. Chairs associate their own success with the effectiveness of their boards and their ability to resolve complex situations. Both the decisions that help the company to move forward and the process of making them are important. In terms of the process, our respondents emphasized professionalism, productive discussions, consensus-based decisionmaking, respecting the governance code and independence. One chair concluded: “The smooth functioning of the board gives me a real pleasure.” Another dimension of success is board unity. As one respondent observed, good chairs “keep their boards unified, especially when there is a crisis ”. The chair’s relationship with the CEO must result in: alignment with the board; operational and financial performance; continuous development of the incumbent CEO; collaboration on CEO succession planning; and satisfaction in the human aspects of the interactions. The quality and effectiveness of board–CEO interaction is a key indicator of success for a board chair. Effective chairs make both parties feel respected, listened to and fairly treated. In terms of risk management and sustainability, respondents care about such things as smooth leadership successions at different levels, “the ability to detect and eliminate potential problems ”, the lack of “governance incidents ”, and favourable coverage from the media and analysts. Some chairs add their own succession to this list. Many respondents consider periodic formal evaluation an important source of knowledge about their performance and a means for personal development. Most French listed companies evaluate the chair’s performance as a part of a broader board evaluation exercise, although some do it separately. Recently more and more boards have appointed a senior independent director or a lead director who provides the chair with feedback after the evaluation. As with evaluation of the board, two methods are the most common for evaluating chairs—an anonymous survey and

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personal interviews with board members conducted by an external consultant. Consultants focus on assessing the chair’s ability to run effective board meetings, provide adequate information for directors, interact with the CEO and demonstrate leadership when required. They usually collect opinions of all board members, as well as some executives, and provide anonymized feedback to the chair. One of unexpected findings of our 2015 survey of European board chairs was that they were attracted to their jobs as opportunities for personal learning and development.22 Chairs of French boards are no exception—they also appreciate the prospects for learning. According to our respondents, learning generally comes through doing —during board meetings, interactions with the CEO, informal discussions with board members and site visits. More structured events such as seminars and conferences also play their role, but even then a lot of learning takes place during the breaks and informal conversations with experts and other participants. Books, articles and Internet resources also help with “culture générale”, which is deemed more important for a chair than business-specific knowledge. We found four approaches to succession planning for board chairs in France: 1. The incumbent chair leads the process 2. A senior independent director leads the process 3. The nomination committee leads the process 4. Shareholders lead the process. The Code does not provide any guidelines, so in each case the actual model reflects the personalities and background of the key players, the ownership structure, company tradition, the nature of the succession (planned or unplanned departure) and other factors. One of our respondents shared his experience: “At one company which had no established practice I piloted my own succession as the chair; at another – old and established – the board led the process.” Whatever the model, most respondents felt they had to be involved both because they possess critical knowledge about the board and because 22 Shekshnia, S. and Zagieva V. (2016). Chair Survey 2015. Available from: https://www.insead.edu/sites/defaults/files/assets/dept/centres/icgc/docs/chairsurvey-2015.pdf.

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it will be an important part of their legacy. As one of them put it: “I feel it is my duty to have a successor and I work on it with the NomCo chair.” Another respondent was the exact opposite: “I am not involved in my succession, since it is the shareholders’ responsibility.” However, we found there are still many listed and private companies in France without any structured succession plans for their chairs. Our expert opinion is that the predominant model in future will involve the nomination committee—or a senior independent director in collaboration with the NomCo—in managing the chair’s succession. The succession planning will be linked with the board-evaluation process and the incumbent chairs will play an advisory role.

What Makes a Chair Effective? Most of our respondents are reflective types and have elaborate answers to this question. Since France is a country of philosophy and philosophers, we have synthesized them and our own observations into five ambivalent pairs where one side contradicts and at the same time supports its opposite. Commitment and distancing. The chair’s job is serious and requires significant intellectual, emotional and time inputs. It could not be done as a hobby. Yet it is not an executive position. The chair needs to look at the company from the outside and to leave room for the executives to run it. As one respondent put it: “One of the chairman’s qualities is not to work too much. He should know how to keep a distance from the day to day. He should have diverse activities to avoid overinvesting in his chairmanship.” Other respondents strongly opposed the model of a full-time “executive” chair and emphasized the need to have additional activities. According to one: “The chair should not work more than two to three days a week on that job.” Independence and patience. Distancing helps to maintain but does not assure another important characteristic of a good chair—independence of thought and action. As one respondent expressed it: “Major advice: stay relaxed and independent.” Others believe that chairs should protect their independence at all costs—even resigning if needs be. At the same time independent-minded individuals managing boards need to be extremely attentive to the independent thoughts of their members, encouraging and facilitating candid exchange in order to arrive at the best decision. They

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need to be able to wait patiently till consensus emerges from the discussion. As one respondent put it: “A good chair needs patience to get to consensus in the boardroom.” Another chair echoes: “Building consensus is the key role of a chair.” Authority and modesty. One respondent commented that a good chair “should have the stature to attract high profiles as board members and be a legitimate authority to the CEO” and others seconded this view. Good chairs have an authority that does not come from their title but from their knowledge, personalities, work histories, backgrounds and social networks. This gives them legitimacy in the eyes of the directors, executives and shareholders and the ability to win attention and respect. The way they conduct their jobs reinforces or diminishes their authority and therefore increases or decreases their effectiveness. Such authority allows chairs to help their boards to make tough decisions such as firing the CEO. But authority has to be complemented with modesty and effective ego containment, since an important aspect of every chair’s work is to enable others to shine—whether board members or executives. As one respondent observed: “Excessive ego is the major risk for a chairman.” Another suggested that chairs “should not be paid too much” to reinforce their modesty. Intellectual incisiveness and ability to listen. Chairs orchestrate complex intellectual work that involves dozens of smart people; they need to be intellectually bright to grasp this complexity and to enable effective decision-making. At the same time, their personal cognitive capabilities should not make them domineering voices in the boardroom and prevent them from capturing the ideas of other directors. Our respondents emphasized and reemphasized the critical importance for board leaders of deep listening and the discipline to withhold personal opinions until the very end of the discussion. As one of them put it: “The chair should speak last in order not to kill the debate.” Helicopter view and company knowledge. The role of head of a collective body that makes the most important decisions in the company demands of the chair a quality that one of the respondents called “hauteur de vue” or “helicopter view”. Others described it as “strategic mindset ” or “strategic capability”. This attribute enables the chair to set board agendas, to organize effective discussions, to sort out ideas and alternatives, to ask powerful questions and to avoid low-level discussions in the boardroom. However, chairs cannot be effective in the French context without understanding the business of the company, its key people and

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its culture. They need to land their helicopters on the ground from time to time and get to know the troops, the landscape and the weaponry without, according to one interviewee, “competing with the CEO in her/his understanding of the industry”. Our respondents generally believe that such company knowledge contributes to chairs’ authority, allowing them to “adequately participate in strategic debate” and helping the board to assess the fitness and performance of the management.

Future Evolution of the Chair’s Work in France Our respondents were unanimous in predicting that in the next decade the part played by the board of directors in setting the company’s course, defining its long-term mission and values, interacting with various stakeholders, and challenging and supporting management will increase. This will put an extra burden on board chairs and will require more commitment (though not necessarily in terms of time), more intellectual effort, better facilitation skills and good mental and physical health. The pandemic has only served to highlight the importance of the last item in this list. As one respondent put it: “In France the board will become more and more important and it will make chairs more visible and more accountable.” The board will also become more proactive and adaptable. In the words of one respondent: “A crisis like COVID-19 will make boards become more active and engaged.” The separation of “P” and “DG” will accelerate and by the end of the decade “PDG” will become the exception rather than the rule. Some respondents even believe that the combination of the chair and CEO jobs will be prohibited altogether by the Code—if not the law. Furthermore, departing CEOs will not be allowed to become board chairs at the same companies. Chairs will spend more time on two important issues—effective governance and global challenges. As orchestrators of the governance system they will work hard on integrating environmental and social issues into boards’ and CEOs’ agendas. They will make sure their companies understand global trends such as climate change, social movements, demand for social justice, corporate transparency and deurbanization—and reflect them in their missions, strategies and operations. Post-COVID-19, risk management will remain one of the top priorities for the years to come and chairs will organize the process of rethinking it and finding more agile ways to identify and mitigate risks. As one respondent put it: “Since

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coronavirus, the chairman should make sure that the board thinks about the unthinkable.” The board will continue to operate in a hybrid format, using both face-to-face and virtual meetings. The latter will lead to reduced travel time and increased interaction time. Since the pandemic most French chairs have become comfortable users of digital technology and they will keep strengthening their skills. However, traditional board meetings will continue to take place at most companies, as they allow members to create a shared identity and to tackle complex issues that require collective creativity. We predict that the surge of female directors in recent years will start to have a visible impact on the number of female chairs in two to three years’ time. By 2030 at least one-fifth of French boards will have a female leader. The percentage of foreign chairs will remain low. There will be more younger chairs, as French business leaders will develop a taste for non-executive careers and will start them in their late 40s or early 50s rather than their 60s.

References Belot, F., Ginglinger, E., Slovin, M. and Sushka, M. (2014). Freedom of Choice Between Unitary and Two-Tier Boards: An Empirical Analysis. Journal of Financial Economics, 112(3), p. 369. Bonhoure, E. and Germain, L. (2017). Corporate Governance in France. In: A. Kostyuk, ed., Corporate Governance: New Challenges and Opportunities. Sumy, Ukraine: Virtus Interpress. Bourjade, S., Germain L. and Lyon-Caen C. (2016). Conseils D’Administration: Indépendance, Collusion, et Conflits D’Intérêts. Revue Française d’Economie, 31(2), pp. 3–25. De La Cruz, A., Medina, A. and Tang Y. (2019). Owners of the World’s Listed Companies. OECD Capital Market Series. Available from: https://www. oecd.org/corporate/Owners-of-the-Worlds-Listed-Companies.pdf [Accessed 1 December 2020]. The Global Economy (2019). France: Listed Companies. Available from: https://www.theglobaleconomy.com/France/Listed_companies/ [Accessed 1 December 2020]. Hollandts, X., Borodak, D. and Tichit, A. (2015). Plus Autonome? L’évolution des Structures de Gouvernance des Sociétés Cotées Françaises (1997–2008). Management International, 19(3), pp. 44–64.

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Institut Français des Administrateurs (IFA) (2018). President de Conseils: sur le Pont! Available from: https://www.ifa-asso.com/informer/centre-deressources/travaux-de-l-ifa/le-role-du-president-de-conseil.html [Accessed 1 December 2020]. Institut Français des Administrateurs (IFA) (2019). Gouvernance Dissociée—Les Conditions du Succès—2019. Available from: https://www.ifa-asso.com/ mediatheques/rapport-de-lifa-gouvernance-dissociee-les-conditions-du-suc ces-2019/ [Accessed 1 December 2020]. International Monetary Fund (2019). World Economic Outlook Database. Available from: https://www.imf.org/external/pubs/ft/weo/2019/02/weo data/index.aspx [Accessed 1 December 2020]. Le Code de Commerce (2010). Available from: https://www.legifrance.gouv.fr/ codes/section_lc/LEGITEXT000005634379/LEGISCTA000006178760/# LEGIARTI000033614172 [Accessed 1 December 2020]. Meyer, E. (2014). The Culture Map: Breaking Through the Invisible Boundaries of Global Business. New York: PublicAffairs. OECD (2019). The French Government Shareholding Agency Report. Available from: https://www.econome.gouv.fr/files/files/directions_services/agenceparticipations-etat/Documents/Rapports-de-l-Etat-actionnaire/2017/REA_ EN_72dpi.pdf [Accessed 1 December 2020]. Shekshnia, S. and Zagieva, V. (2016). Chair Survey 2015. Available from: https://www.insead.edu/sites/defaults/files/assets/dept/centres/icgc/ docs/chair-survey-2015.pdf [Accessed 14 September 2020]. Spencer Stuart (2019). France Board Index. Available from: https://www.spence rstuart.com/research-and-insight/france-board-index [Accessed 1 December 2020]. The World Bank (2018). Life Expectancy at Birth, Total (Years)—France. Available from: https://dataworldbank.org/indicator/SP.DYN.LE00.IN?loc ations=FR [Accessed 1 December 2020]. The World Bank (2019). World Development Indicators. GDP Ranking. Available from: https://datacatalog.worldbank.org/dataset/gdp-ranking [Accessed 1 December 2020].

CHAPTER 11

Italy: Alignment for Effectiveness Anna Zanardi and Veronika Zagieva

The Chair’s Work in Context Italy is a parliamentary republic, a founding member of the European Union and defined as a developed market economy. In 2019, GDP was US$ 2 trillion,1 US$ 33,189 per capita.2 The service sector accounts for over 66% of GDP, industry around 21%, manufacturing 15% and agriculture just 1.9%.3 1 The World Bank (2019). World Development Indicators. GDP Ranking. Available from: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=IT [Accessed 1 December 2020]. 2 The World Bank (2019). World Development Indicators. GDP per Capita, PPP, in International Dollars. Available from: http://databank.worldbank.org/data/reports.aspx? source=2&series=NY.GDP.PCAP.PP.CD [Accessed 1 December 2020]. 3 The World Bank (2019). Services, Value Added. Industry, Value Added. Agriculture, Value Added. Available from: https://data.worldbank.org/indicator/NV.IND.TOTL.ZS [Accessed 1 December 2020].

A. Zanardi Independent board advisor, Zurich, Switzerland e-mail: [email protected] V. Zagieva (B) Ward Howell Talent Equity Institute, Moscow, Russia e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_11

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Italy has 3.8 million enterprises, which employ about 11.6 million people.4 Privately held companies account for the majority of active businesses; 99% of them are SMEs.5 Around 455 companies are listed on the Borsa Italiana (Italian stock exchange).6 The concentration of ownership is very high: around half of the largest listed companies are controlled by a shareholder with more than 50% equity.7 In 2019 the average percentage of government ownership of the largest public companies was around 20%.8 Over the last 30 years, attention to corporate governance has significantly increased among governments, shareholders and other stakeholders. The creation in 1985 of the Commissione Nazionale per le Societa’ e la Borsa (CONSOB), an independent authority responsible for regulating Italian financial markets, was an important step in this direction. It has a division dedicated to corporate governance, which monitors compliance by public companies against regulatory requirements and best practices. The Code of Corporate Governance has had seven revisions since its inception in 1999. The last, in January 2020, will apply from January 2021, nudging Italian listed companies to be more focused on long-term sustainability goals, shareholder engagement and gender diversity.9

4 European Commission (2019). SBA Fact Sheet. Italy. Available from: https://ec. europa.eu/growth/smes/sme-strategy/performance-review_en#annual-report [Accessed 1 December 2020]. 5 Ibid. 6 Borsa Italiana (2020). Monthly Update September 2020. Available from: https:// www.borsaitaliana.it/borsaitaliana/statistiche/sintesi-mensili/2020/sintesimensili202009. en_pdf.htm [Accessed 1 December 2020]. 7 De La Cruz, A., Medina, A. and Tang, Y. (2019). Owners of the World’s Listed Companies. OECD Capital Market Series. Available from: https://www.oecd.org/corpor ate/Owners-of-the-Worlds-Listed-Companies.pdf [Accessed 1 December 2020]. 8 CGLytics (2019). Revolution in Italian Companies Ownership Structure. Available from: https://learn.diligent.com/rs/946-AVX-095/images/Italian%20Ownership%20Stru cture%202019.pdf [Accessed 1 December 2020]. 9 Corporate Governance Committee (2020). Corporate Governance Code. Available from: https://www.borsaitaliana.it/comitato-corporate-governance/codice/2020eng. en.pdf [Accessed 1 December 2020].

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The previous version of the Code10 (July 2018) did not impose a mandatory structure for boards. In practice most Italian listed companies operate under a traditional governance system whereby the general shareholders’ assembly elects a board of directors and a board of statutory auditors. The board of directors is responsible for: approving strategic, operational and financial plans, and monitoring their respective implementation; defining the risk profile of the company; ensuring an adequate organizational, administrative and accounting structure; approving extraordinary financial operations; and adequate disclosure and control as required by law. It also makes key executive appointments. The Code prescribes that the board should make decisions with the objective of creating shareholder value over the medium to long term. The Code recommends that boards establish separate committees for remuneration, nomination and control and risk. In practice, nomination and remuneration responsibilities often come under the remit of one committee. In special circumstances, other committees are established to deal with specific tasks (such as self-tender offers, critical branding decisions and synergies after a merger or acquisition). Italian boards have 11.3 members on average.11 The number of independent directors on boards has increased steadily over the last two decades to an average of 6.1.12 Women represent 35.8% of board members.13 A new regulation, Law 160/2019, imposed a mandatory gender quota, increasing the number of members of the less-represented gender from one-third to at least two-fifths. The Code of Corporate Governance recommends the separation of the CEO and chair positions—as is the case at most publicly owned companies. In fact, the same person occupies both the chair and CEO roles at just 17% of the largest publicly traded Italian companies, while only 8% of chairs are independent.14 Italian chairs are among the highest paid

10 Corporate Governance Committee (2018). Corporate Governance Code. Available from: https://www.borsaitaliana.it/comitato-corporate-governance/codice/codice eng2018.en.pdf [Accessed 1 December 2020]. 11 Spencer Stuart (2019). Italy Board Index 2019. Available from: https://www.spence rstuart.com/research-and-insight/italy-board-index [Accessed 1 December 2020]. 12 Ibid. 13 Ibid. 14 Ibid.

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in Europe—in 2019 the average compensation for a chair of a public company was e911,000.15 Among the duties and responsibilities of the chair (Presidente) outlined in the Code are the following. • To create effective board dynamics by the timely provision of quality materials, setting productive agendas for board meetings, facilitating board discussions, and holding induction sessions to ensure directors update their skills and familiarity with the company. The induction of new directors is also advocated by the Corporate Governance Code of the Italian Stock Exchange to provide them with information on the company, its financials, management systems, risks, etc. • To ensure effective liaison between the board and management. Chairs are entrusted with organizing the board’s work, liaising with executive and non-executive directors and between the board and the management. They ensure that directors do not interfere with or influence management beyond the purview of the board. • To ensure effective communication between members of the board of directors and the board of statutory auditors, and to guarantee the latter with access to key information. • To conduct board evaluations. These are generally carried out once a year, either as a self-evaluation exercise by the board or with the help of external consultants.16

Existing Research One of the better-researched themes in Italian corporate governance is CEO–chair duality (that is, the same person holding both positions). Studies have revealed a strong negative correlation between CEO–chair duality and firm performance.17 Another observation is that the combination of the chair and CEO roles leads to an increase in the number and 15 Ibid. 16 Corporate Governance Committee (2018). Corporate Governance Code. Available from: https://www.borsaitaliana.it/comitato-corporate-governance/codice/codice eng2018.en.pdf [Accessed 1 December 2020]. 17 Ciampi, F. and Gordini, N. (2013). The Potential of Corporate Governance Variables for Small Enterprise Default Prediction Modeling. Statistical Evidence from Italian

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the influence of external directors.18 This is consistent with the results of empirical research showing that the number of external directors increases as the CEO’s influence increases, because they are required to counterbalance the power of the chair–CEO.19 In addition, the chair and CEO role tends to be performed by the same person in companies where there is less separation of ownership from control.20 In relation to the structure of Italian boards, it has been established that companies where a family is the largest shareholder and the chair comes from the controlling family tend to appoint more family representatives to board positions.21 However, there is no research specifically dealing with the working practices of Italian board leaders.

Italy Culture Map According to INSEAD professor and cross-cultural expert, Erin Meyer, Italy has a relationship-based, confrontational, top-down, flexible-time, principles-first and high-context culture (see Fig. 11.1 and Appendix 1 for full explanation). This description allows us to make a number of hypotheses about Italian chairs’ behaviour and habits. We can expect informal connections between directors to be strong, with chairs working intensely outside the boardroom and some decisions made informally (relationship-based culture). We also expect Italian chairs not to be afraid of debate and that they will perceive disagreement as an integral part of the decision-making process (confrontational). They will have no problem pushing their own point of view, especially on issues that are important to them (top-down, confrontational). In addition, we anticipate that agendas and timing will often change at the last minute (flexible-time). Furthermore, Italian chairs will lean towards inductive reasoning, starting by defining the general concept and approach to an issue before presenting their own assumptions, and only then moving on to examining the facts Manufacturing Firms. Preliminary Findings. Proceedings of the Cambridge Business and Economics Conference, pp. 1–19. 18 Belcredi, M. and Rigamonti, S. (2008). Ownership and Board Structure in Italy (1978–2003). Proceedings of the EFMA Annual Meeting, Athens, pp. 1–36. 19 Linck, J.S., Netter, J.M. and Yang, T. (2008). The Determinants of Board Structure. Journal of Financial Economics, 87(2), pp. 308–328. 20 Ibid. 21 Ibid.

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Fig. 11.1 Italy Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs])

and finding specific solutions (principles first). Finally, they may leave a lot to be read between the lines, rather than explaining everything in detail (high-context).

Data For the first part of our project we interviewed 15 chairs, one-third of them women. Eight interviewees chaired listed companies; seven presided over family businesses or mid-sized private companies. None of them combined the role with that of CEO. Three had a mandate with regard to institutional communications. None of those chairing a listed company were the founder or a major shareholder. Two of those chairing family-owned companies were shareholders. All were “professional” chairs, insofar as they had no other job. On average, they had held their positions for four years (shortest two years, longest ten years). Nine presided over two boards, two over four boards and four over a single board.

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Four of the 15 chairs defined the role of the board as “ceremonial”. The other 11 saw its function as “principally supervisory and highly strategic”. All of their boards had nominating remuneration and risk committees. To complement interviews with the chairs, we spoke to three directors, two CEOs and three shareholders’ representatives—one from a family, one from a private equity firm and one from an investment institution. In August–October 2020 we interviewed five additional respondents (four of whom were females): one chair and four directors. In addition to their board positions the four directors also hold CEO positions at other companies. The interviews revealed valuable insights into how the leaders of Italian boards operate. We will present our findings based on the major challenges identified in the INSEAD Global Chair Survey 2015.22 Relationships with Shareholders Chair-respondents considered establishing and maintaining good relationships with shareholders one of the most important aspects of their job. Non-chair-respondents seconded this view. Individual conversations, usually before board meetings, were the most common technique—and were especially important when deliberating on crucial decisions. For logistical reasons, these one-to-ones mainly took place by phone. While pre-board meetings were initiated equally by chairs and shareholders (or their representatives in the case of minority shareholders), the follow-up was mainly driven by the chair. In fact all but one of the chair-respondents made follow-up calls within a week to update shareholders on board decisions and listen to their reactions. “It’s very important to solicit follow-up without leaving too much time to distort memories ”, said one. Respondents felt that meeting in person with shareholders was important for maintaining good relationships, and held meetings at least every quarter on average. As one said:

22 Shekshnia, S. and Zagieva, V. (2016). Chair Survey 2015. Available from: https://www.insead.edu/sites/default/files/assets/dept/centres/icgc/docs/chairsurvey-2015.pdf [Accessed 1 December 2020].

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Face-to-face meetings are very much part of the Italian culture. We need to sit at the same table and look at each other to reinforce the trust and sense of sharing goals. Often, I organize a business lunch or dinner with a shareholder. I understand that it’s more than sharing updates – we need to share live moments to feel comfortable about discussing critical business issues.

Respondents also underlined the need to provide both majority and minority shareholders with the same information. From the shareholder’s perspective, there are a variety of definitions of an “effective chair”. For family shareholders, an effective chair guarantees harmony within the family while growing and diversifying the business for future generations. For private equity shareholders, an effective chair “ensures that all important matters get onto the board’s agenda” and “gets each director to contribute his/her best to the value of the company”. For institutional shareholders, the effective chair is a trusted guarantor of corporate governance. Many respondents underlined the legitimizing role of a board chair in the Italian context. As one CEO-respondent put it: “The chair is a guarantor of the company’s reputation”. This partly explains the fact that many Italian chairs are older, well known in the business community and generally well paid. Relationship with the CEO and Management Contrary to our culture-based hypothesis, relationships between Italian chairs and CEOs are not hierarchical, even though board leaders are, in most cases, older and more experienced than CEOs. None of the respondents from any category used words like “boss” or “commanding” to describe chair–CEO interactions. In nine cases, chair-respondents defined themselves as “coaches” to the CEO and two mentioned being “mentors”. The CEOs, for their part, talked about “partners” and “advisors”. One put it this way: “An effective chair is someone with experience, leadership and competence, who can be my sounding board and advisor”. Director-respondents emphasized the supporting aspect of the role, including one who described an effective experienced chair as “very involved in the company’s transformation as a support to CEO”. Chairs and CEOs of Italian companies interact in a variety of ways: meeting in person, communicating via email and speaking on the phone. These encounters are often informal, unstructured and initiated by both parties—who value their relationships and try to avoid surprises and

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misunderstandings. One respondent described the practice of setting mutual expectations, whereby an incoming chair sits down with the CEO and asks a straightforward question, “Where do you want me to contribute?”—so as not to be perceived as a threat. However, we did not come across certain practices that are common in other European countries, such as formal feedback sessions between the chair and CEO, the setting of objectives for the former by the latter, or periodical letters from the CEO to the chair. CEO-respondents described an effective chair as someone who understands and supports the chief executive’s agenda by aligning the board around it. One said that such chairs “listen, ask questions, get the message and translate it to the whole board in an effective manner”. They also support the CEO and the management by leading board meetings smoothly and efficiently, which allows for quick decisions and productive relationships with executives. One experienced CEO mentioned that good chairs help CEOs with external stakeholders, such as banks, customers and regulators, by putting their reputation and network behind the company’s interests. One director recalled a case when a board chair joined negotiations with the bank and “brought credibility” into the process. Shareholder-respondents also emphasized the collaborative aspect of chair–CEO relationships, but pointed to involvement with other senior executives, understanding of the business and challenging management as important practices of effective board leaders. One described an informal “management committee” set up by a chair—comprised of the chair, CEO, some board members and selected senior executives—as a venue to challenge management and have candid discussions. Leading the Board Board meetings at Italian companies are often formal—and even formalities, as many important decisions are taken outside the boardroom. Chairs, along with the CEO, play a critical role in securing this offline agreement through individual and small group discussions with directors. As one CEO observed: “We work together to convince directors to agree to a certain decision; our unity is critical for achieving it ”. Yet sometimes discussions become quite heated, and chairs need to control directors’ emotions and channel them into a productive direction.

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In our conversations with Italian chairs and directors, the concept of “alignment” emerged as a central theme for a board leader. As one respondent put it: Alignment is the most important dynamic a chair can put in motion when arriving in a board. Alignment means that, after having freely expressed our own ideas and dissent, we make an effort to be convergent on the final version of what we’ll present outside the board – without exception, so that people feel how strong we are, all together in the same boat.

We believe that the importance of alignment reflects some specific features of Italian boards and corporate governance. Not only are Italian boards of directors large (averaging 11.5 for public companies); they also have a high percentage of affiliated directors representing specific shareholders and interact with an independent board of statutory auditors, who participate in all board meetings. Thirteen out of fifteen chair-respondents felt their role was central to maintaining good relationships between board members, and that it was important to give equal attention to the different interests represented. These chairs worked hard on aligning their boards before, during and after board meetings. In facilitating boardroom discussion, chairs of Italian companies strive for equality and balance by calling on reticent directors to speak up and containing talkative types. One director described an effective chair who always combined a strategic focus with attention to the human dynamics in the boardroom, never failed to see the wood for the trees and, at times of difficulty, could bring the discussion back on track. He called this practice “content-based mediation”. Most respondents open board meetings by presenting the agenda and then move on to the first item without further delay. However, a few ask the CEO or corporate secretary to introduce the agenda. Usually meetings end with a quick recap from the chair and an invitation to continue the discussion informally over drinks or a light lunch. Half of the respondents dedicated 70% of board meeting time to presentations and the remaining 30% to discussion; the other half tried to reach a 50:50 balance. As one said: “The most difficult task is to explain effective rules for the executive presentations, so that the time is spent mainly on discussion, not on the narcissistic needs of the manager”. Some

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chairs established formal rules for management presentations, such as a maximum of three slides and ten minutes. For all respondents the preparation of board meetings required a substantial amount of time. It was considered best practice to send board material to directors six days prior to the meeting. However, only two respondents reported consistently following the rule—three days prior to the board meeting was more common. Many chair-respondents delegated the task of organizing the board materials to the board secretary. In their personal preparation for the board meeting, chairs of Italian companies focus mostly on familiarizing themselves with the materials and proposed resolutions, although some respondents reported that they think about how to frame discussion questions, how to allocate time and how to manage potential conflicts and disagreements. All board leaders interviewed had done some work on improving their chairing skills and understanding the human side of their boards. One of them said: “I’ve spent some time in the recent past getting to know myself better: my deep-rooted beliefs and also my reactions. It is time well spent to be more self -aware and available for the collective interest of the board”. Meals are important instruments of alignment for chairs of Italian companies. Pre-meeting dinners are quite common and usually well attended—by around 75% of board members on average, according to our respondents. In addition to dinners for the whole board, which usually take place before board meetings or the annual shareholders’ meeting, chairs organize meals for smaller groups of directors—and some find them more effective. One respondent alternates dinners with committee chairs and dinners with independent directors, gathering the whole board to eat together only once a year. The Code of Corporate Governance requires that the chair organizes an annual evaluation of the board and its committees. This is a new practice for most Italian boards—and chairs are learning alongside their boards. Three respondents carried out a board assessment every year, while the other twelve did so only once every two years. Twelve used external consultants, while three conducted an internal evaluation. Evaluations covered items such as: board size and composition; the professional competencies and experience of directors; and gender composition. Ten of the fifteen chairs interviewed had implemented a formal induction process for new members. The remaining five planned to implement one soon.

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Managing Difficult Board Members Chairs of Italian companies prefer to prevent misalignment or conflict among board members rather than manage it. As one director-respondent put it: “Effective chairs have the experience and personal charisma to avoid conflicts on the board”. Italian board leaders must be good at this, since only four of our respondents reported experiences of managing “difficult” board members! In these rare cases, the first step was to make the person aware of the deviant behaviour by having a one-to-one discussion after the incident. Then it was possible to have another conversation before the next board meeting to warn the director not to destroy group dynamics. In the boardroom chairs played a finely balanced game of allowing productive dissent and containing open confrontation. As one respondent put it: “You have to give enough space for expressing individual positions and also intervene with the right timing in order to avoid disruption. It’s not very easy to be unpleasant but sometimes it’s needed. You have to cut in gently but firmly”. One director-respondent mentioned that in the Italian context a chair can just say, “Let’s give another person time to speak”, if a director takes too long to express an opinion or loses track of the subject. Another practice is to involve other directors, to ask their advice and to make them allies in containing a deviant colleague in the boardroom. None of the respondents mentioned involving shareholders or firing as strategies for managing a “difficult” director. Relationships with External Stakeholders In Italy board chairs have a higher external visibility than in other European countries, such as Denmark, the Netherlands or Russia. In many cases they take on a significant part of the legitimization function that the board plays.23 This is another reason for the comparative seniority of people occupying the chair position in Italy and virtually fulltime status that many of them have. One director-respondent shared an illustrative story:

23 Johnson, J.L., Daily, C.M. and Ellstrand, A.E. (1996). Board of Directors: A Review and Research Agenda. Journal of Management, 22(3), pp. 409–438.

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In one company where I was on the board, the shareholders wanted to sell their stake and attracted a very seasoned chair to improve the company’s image and help in negotiations with potential buyers. The chairman was known as a very honest and reliable person, so the other side took it very positively. The company was successfully sold.

This view is second by a CEO-respondent: “A good chair is one who sends a convincing message to the external world: ‘this is an all right company, you should do business with us’ ”. All chair-respondents considered institutional and external communication to be important tasks and constantly worked to maintain a positive image of the company in the eyes of the wider business community, not only shareholders. Meetings with institutional stakeholders, such as regulators, banks and suppliers, were carefully planned in advance but often held in informal settings over lunch or dinner. One director-respondent mentioned that the chairs he worked with met suppliers, banks and clients on behalf of the company and “opened new doors for the CEO”. Interestingly, some chair-respondents met with business associates during the summer holidays and even took vacations with them. Professional and personal lives and networks often intertwine in Italy. A few respondents mentioned that, in times of crisis, the chair’s duties as representative of the company to the external world increased, as did the pressure to choose the right moment, means and words to communicate—while respecting the constraints of the law and the Code. This requires experience and training, but effective chairs, in the words of one director, “must take to it like a duck to water”. Chair Succession The Code recommends that boards of directors “evaluate the adoption of executive succession plans” but says nothing specific about chair succession. We also know that transparent and well-planned preparation of future leaders has never been a strength of Italian business culture; succession decisions have traditionally been made when a sense of urgency prevails. Unsurprisingly, succession is not a top priority for chairs of Italian companies. Nevertheless, our research revealed some positive dynamics. Five chair-respondents reported that they are working on—or have already prepared—their succession plans with the help of an external consulting

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company. Four, on the other hand, all from the banking and insurance sectors, had not concerned themselves with such matters. One director told us how the board nomination committee prepared a competenciesbased profile of the future chair to guide the chair-succession process. Diversity According to our research, Italy is one of the leading countries in terms of the proportion of female chairs, especially in state-owned companies and family-controlled businesses (where the chair is a female member of controlling family). Some respondents think that appointing more women to chair state-owned companies is a government trick to boost diversity statistics: “The government appoints women to purely ceremonial positions as chairs of state-owned companies, but you will never see a female CEO in any of them”, complained one female director and CEO. While Italy has a high proportion of female directors (nearly 37%)24 in the largest companies, our respondents claim that diversity is rarely a topic on the board agenda of smaller firms: “In entrepreneurial companies, board diversity is discussed once or twice a year just to make us feel that we’re cool and trendy. Big corporations are truly attentive to gender diversity, but in small companies it’s not real yet ”. Climate Change and Sustainability The majority of respondents see the topic of sustainability as rather advanced and abstract—not all the companies can afford “the luxury to discuss it ”. One of the CEO and board directors explained: “In a very competitive business environment companies try to survive. You have to have a highly successful business to put climate change and sustainability on the agenda”. Other respondents see a correlation between a chair’s age and willingness to discuss climate change and sustainability issues: “On my boards I see that younger chairs are more concerned with climate change and diversity, since they try to keep up with latest trends. For older chairs it’s not the goal. It’s easier to talk about corporate responsibility and charity – to do good while continuing business as usual ”. 24 Spencer Stuart (2019). Italy Board Index 2019. Available from: https://www.spence rstuart.com/research-and-insight/italy-board-index [Accessed 1 December 2020].

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Digitalization Digitalization is not an issue that Italian chairs are ready to delve into. Almost all of our respondents mentioned that their boards delegate the majority of decisions on digital matters to management. The approach varies from “just appoint a good Chief Information Officer who can lead the whole digital agenda” to “fitting digitalization into the company’s strategy as one important tool ”. Some directors acknowledge the important role of the chair in creating a sense of urgency for discussing digitalization, especially in industries where the topic is still quite new (like pharmaceuticals or energy). In contrast, other directors think that “if you start to think about digital now, it is already too late”. Cybersecurity is seldom discussed in Italian boardrooms. “We have never talked about cybersecurity in the six years I have been on the board. I hear about cybersecurity only when some other company hits the news with data breach. One day it could be our company”, said one director, thinking out loud. To summarize, like diversity and climate change, digitalization is rarely a priority for Italian boards. However, effective chairs manage to bring these topics into agenda, explaining why they matter and are worth discussing. As one interviewee shared: My prime role as the chair is to think about risks and opportunities that management do not see. Some chairs are sceptical about all these hot topics, but I do not see anything harmful in discussing something that may not yet be relevant for our business but definitely will be.

Covid-19 Italy was hit particularly hard—and early—by the pandemic. At first, the majority of boards focused on protecting the health of employees. Some created crisis committees, with directors and management included, to navigate through the many challenges. Some chairs led such committees, while others delegated this function to CEOs. At this stage, boards were meeting more often than usual. One of the directors even told us: “We met every day, sometimes even twice a day. And shareholders were present at one such meeting every week”. Once safety rules were developed, boards focused on building new processes: “The role of a chair at this stage was to understand how we think about ourselves in these circumstances – what we need to change,

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how to develop working processes, how to make sure that they will last till the pandemic is over”. Now, working relationships with the government became crucial. Politically connected chairs benefited from direct access to information about upcoming restrictions and orders. The third stage focused on financial survival: “The amount of time the board spent on cash management and relationships with banks was ten times greater than usual. Before the pandemic, the board rarely discussed cost-cutting in such detail ”. Chairs with strong networks were especially helpful at this point. They contacted the boards of other companies, as well as banks and regulators, to explore how other organizations were responding to the crisis and which options existed for securing external help. While the majority of boards report no problems in holding board meetings online, most of our respondents returned to physical meetings during the summer of 2020, when the pandemic started to ease. “We understood that boards are about physical contact. You can’t run the board through zoom”, shared one of the chairs. At the time of our survey in October 2020, most chairs and directors believed it was still too early to reflect on the impact of COVID-19 on board performance. Answering the question of what boards had learnt from pandemic, the majority of chairs used the word “agility”. “The uniqueness of the situation was that you can’t be prepared, you can’t think ahead. Mental agility became crucial ”, shared one of the chairs. Some respondents lamented that Italian culture is “driven by maintaining the status quo”, so there is huge resistance to internal and external change. How can one predict whether a chair has an agile mindset? One director provided some advice: “Look at changes in his or her background: whether she lived in different countries, worked in different companies. We need more diverse chairs with diverse experiences, who have a mindset of continuous growth and learning ”.

Summary In Italy the roles and practices of chairs are defined not only by law and a constantly evolving Code of self-discipline and cultural traditions, but also by such factors as company ownership, size, financial health and lifecycle. As one experienced director put it: “In a startup board all boundaries are blurred. The chair drives an agenda, but he is the equal to other directors. In a public-company board, the chair should have an authority and stand

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apart ”. The composition of the board and the personality of the chair also impact what chairs do and how they do it. As in other European countries, board chairs in Italy play three core roles: leading the board; interacting with shareholders; and maintaining relationships with the CEO and senior executives. In addition to these roles, they often represent the company in relationships with other external stakeholders and serve as “guarantors” of its reputation. Chairs in Italy represent a somewhat exclusive and predominantly male group of senior, well-connected and highly paid professionals. Most of them have been the CEOs in the past, although a significant number have backgrounds in academia and politics. Some have family links to the key shareholders of the companies whose boards they chair.25 Alignment is the word that best describes both the mindset and the key practices of board chairs in Italy. They integrate directors with different backgrounds and agendas into a cohesive working system that produces board decisions; they maintain productive relationships with the board of statutory auditors; they inform and engage shareholders; and they collaborate with and support the CEO. They prevent rather than stifle conflict, synthesizing and compromising rather than pushing for the “best option”. A lot of this work is accomplished outside the boardroom over coffee, lunches and dinners, or during joint trips, informal personal meetings and phone calls. Chairs balance a focus on performance with compliance, working with directors on strategy and value creation and aligning with the board of the statutory auditors on financial control. They actively contribute to a positive image of the company in the outside world and do not shy away from the media. In the next ten years, we predict that the following trends will have an impact on the work and personalities of board chairs in Italy: • There will be more diversity in terms of gender and age on boards of Italian companies and, as a result, among their chairs. Progress will be faster at director level and slower at chair level. Men will remain in the majority among Italian chairs and the average age will not change significantly.

25 Spencer Stuart (2019). Italy Board Index 2019. Available from: https://www.spence rstuart.com/research-and-insight/italy-board-index [Accessed 1 December 2020].

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• There will be a noticeable increase in the number of foreign nationals chairing boards of Italian companies, as well as in the number of chairs with substantial experience outside Italy. Yet the majority of chairs will remain Italian. • Digital technology will make its way not only into Italian companies, but also into their boardrooms. Chairs will become more technology-savvy and will move their boards onto digital platforms. • Companies, professional/industry organizations and governments will provide more formal induction and training programmes both for board members and for their chairs. The latter will take a more active personal role in developing directors and their own successors. • Chairs will become more involved in the nomination process of new directors. They will work closely with nomination committees both on defining profiles of future board members and on screening them. • The balance between decisions developed and made at formal board sessions and informal meetings between chairs and some board members will shift in favour of the former. However, coffees and dinners will continue to play an important part in the work of the board. • Board agendas will focus more on the environment, social responsibility and sustainability, driven by requirements from regulators and pressure from investors.

References Belcredi, M. and Rigamonti, S. (2008). Ownership and Board Structure in Italy (1978–2003). Proceedings of the EFMA Annual Meeting, Athens, pp. 1–36. Borsa Italiana (2020). Monthly Update September 2020. Available from: https://www.borsaitaliana.it/borsaitaliana/statistiche/sintesi-mensili/2020/ sintesimensili202009.en_pdf.htm [Accessed 1 December 2020]. CGLytics (2019). Revolution in Italian Companies Ownership Structure. Available from: https://learn.diligent.com/rs/946-AVX-095/images/Ita lian%20Ownership%20Structure%202019.pdf [Accessed 1 December 2020]. Ciampi, F. and Gordini, N. (2013). The Potential of Corporate Governance Variables for Small Enterprise Default Prediction Modeling. Statistical Evidence from Italian Manufacturing Firms. Preliminary Findings: Proceedings of the Cambridge Business and Economics Conference, pp. 1–19.

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Corporate Governance Committee (2018). Corporate Governance Code. Available from: https://www.borsaitaliana.it/comitato-corporate-governance/cod ice/codiceeng2018.en.pdf [Accessed 1 December 2020]. Corporate Governance Committee (2020). Corporate Governance Code. Available from: https://www.borsaitaliana.it/comitato-corporate-governance/cod ice/2020eng.en.pdf [Accessed 1 December 2020]. De La Cruz, A., Medina, A. and Tang, Y. (2019). Owners of the World’s Listed Companies. OECD Capital Market Series. Available from: https://www. oecd.org/corporate/Owners-of-the-Worlds-Listed-Companies.pdf [Accessed 1 December 2020]. European Commission (2019). SBA Fact Sheet. Italy. Available from: https:// ec.europa.eu/growth/smes/sme-strategy/performance-review_en#annualreport [Accessed 1 December 2020]. Johnson, J.L., Daily, C.M. and Ellstrand, A.E. (1996). Board of Directors: A Review and Research Agenda. Journal of Management, 22(3), pp. 409–438. Linck, J.S., Netter, J.M. and Yang, T. (2008). The Determinants of Board Structure. Journal of Financial Economics, 87(2), pp. 308–328. Spencer Stuart (2019). Italy Board Index 2019. Available from: https:// www.spencerstuart.com/research-and-insight/italy-board-index [Accessed 1 December 2020]. The World Bank (2019). World Development Indicators. GDP Ranking. Available from: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locati ons=IT [Accessed 1 December 2020]. The World Bank (2019). World Development Indicators. GDP per capita, PPP, in International Dollars. Available from: http://databank.worldbank.org/data/ reports.aspx?source=2&series=NY.GDP.PCAP.PP.CD [Accessed 1 December 2020]. The World Bank (2019). Services, Value Added. Industry, Value Added. Agriculture, Value Added. Available from: https://data.worldbank.org/indicator/ NV.IND.TOTL.ZS [Accessed 1 December 2020].

CHAPTER 12

Spain: From Honoured Authorities to Articulators of Expectations Carlos Losada and Yuliya Ponomareva

The Chair’s Work in Context Spain is considered a high-income economy ($29,613 per capita).1 With respect to most economic and social indicators Spain is comparable with other European or North America countries and has a relatively good level of competitiveness (23rd out of 141 countries globally).2 It has a strong infrastructure and a good macroeconomic framework (but currently has a high deficit and level of debt owing to the COVID-19 1 The World Bank (2019). World Development Indicators. GDP Ranking. Available from: https://data.worldbank.org/indicator/NY.GDP.PCAP.CD [Accessed 1 December 2020]. 2 The World Economic Forum (2019). Global Competitiveness Report 2019. Available from: https://es.weforum.org/reports/global-competitiveness-report-2019 [Accessed 1 December 2020].

C. Losada (B) ESADE, Barcelona, Spain e-mail: [email protected] Y. Ponomareva Universitat Autònoma de Barcelona, Bellaterra, Spain © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_12

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crisis). Its bottlenecks are the quality of public organizations, the quality of product and service markets and the labour market.3 As a civil-law country, Spain has a corporate governance system that is a unique combination of practices influenced by continental European and Anglo-Saxon models. Similar to other systems shaped by majority shareholders (“accionistas de referencia”) such as France and Germany, the Spanish corporate governance system has traditionally been dominated by three main groups of owners—families, banks and the state. In the last 20 years, a fourth group—institutional investors—has appeared on the scene and its role has increased dramatically. These four large groups exercise considerable—but not necessarily complete—control over Spanish companies.4 The dominance of these groups is also reflected and reinforced through: relatively weak protection of minority shareholders; a relatively small and not especially liquid financial market; and low levels of information transparency compared to other Western economies.5 Yet, in line with the “shareholder value” logic of the Anglo-Saxon system of corporate governance, shareholders of Spanish companies enjoy comparatively high levels of protection against managerial opportunism.6 What makes Spanish corporate governance idiosyncratic is that, while effective protection against managerial entrenchment exists, the lack of effective

3 Ibid. 4 The ownership structure of Spanish listed corporations is highly concentrated with the largest shareholder having an average 35% holdings, and three largest shareholders holding an average of 50% (Pascual-Fuster and Crespi-Cladera 2018). The majority shareholders typically fall into one of the three distinct categories: the state; institutional shareholders (mostly banks); and families. Several waves of privatization programmes from the late 1970s and 1990s has meant that Spanish corporate governance has transitioned from a “state-led” to “state-enhanced”. Strong links between corporate and political elites continue—as manifested through interlocking directorships and considerable stakes of state ownership in the largest listed corporations. 5 Aguilera, R. (2005). Corporate Governance and Employment Relations: Spain in the Context of Western Europe. In H. Gospel and A. Pendleton, ed., Corporate Governance and Labour Management. Oxford: Oxford University Press, pp. 197–225. 6 De Miguel, A., Pindado, J. and De La Torre, C. (2004). Ownership Structure and Firm Value: New Evidence from Spain. Strategic Management Journal, 25(12), pp. 1199– 1207.

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market and corporate control (as in a dual-tier board structure) creates a considerable risk of abuse of power by majority share owners.7 The dominance of majority shareholder groups in the ownership structure is also reflected in the structure and roles of corporate boards. Similar to most European countries, boards of directors in Spain are single tiered and mainly composed of three categories of directors—majority shareholders, independent directors and executives. However, there is evidence that independent directors do not exercise much power on the board, and so the control and monitoring of management is exercised by majority shareholders.8 Owing to the presence of strong owners who have both the capability and the motivation to engage in governance, boards have historically played a passive role in Spanish corporate governance.9 However, integration into the European Union and the inflow of foreign capital, have necessitated reforms in corporate governance oriented towards the shareholder-value model. The introduction of the Olivencia Code of Good Governance in 1998 provided the first framework for the role of boards in the corporate governance of Spanish firms. As the first policy statement regarding corporate governance practices in Spain, the Olivencia Report reinforced the responsibility of corporate directors. Closely aligned with the British Cadbury report (1992) and the French Viénot report (1995), the Olivencia report was designed for and applied to all listed corporations on a “comply or explain” basis. It provided best-practice recommendations that focused primarily on the structure, the composition and the role of boards of directors. The report urged listed companies to increase the independence of their boards and recommended: separating the CEO and board chair positions; increasing the number of non-executive board members; and establishing board committees chaired by independent directors. Subsequently, several

7 Baixauli-Soler, J.S. and Sanchez-Marin, G. (2015). Executive Compensation and Corporate Governance in Spanish Listed Firms: A Principal–Principal Perspective. Review of Managerial Science, 9(1), pp. 115–140. 8 Crespí-Cladera, R. and Pascual-Fuster, B. (2014). Does the Independence of Independent Directors Matter? Journal of Corporate Finance, 28, pp. 116–134. 9 Leech, D. and Manjón, M.C. (2002). Corporate Governance in Spain (with an Application of the Power Indices Approach). European Journal of Law and Economics, 13(2), pp. 157–173.

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legislative initiatives aimed at improving the system of corporate governance have been initiated, the latest being the Good Governance Code of Listed Companies in Spain adopted in 2015. The recommendations provided in this code are generally aligned with the main worldwide approach to board governance, in which boards are mandated with two main functions: monitoring managerial decisions; and providing resources, counsel and advice.10 In terms of structure and composition, Spanish boards have been shown to be comparatively large, and lacking in independence and diversity. The average size of boards in Spanish listed companies is 11 members. On average, 44% of all directors are independent (reflecting a 29% increase between 2008 and 2018). However, 19% of all companies (9% of IBEX 35) do not comply with the recommendations and have boards where fewer than 33% of directors are independent. CEO duality is permitted by the code, but a lead independent director must be appointed. Approximately half of IBEX 35 boards (48%) are chaired by the CEO, while 65% have an independent lead director. On average, executives comprise some 16% of directorships, and only 6% of all companies have no executives on their boards. Boards meet relatively frequently with 11 meetings on average during the year, indicating a shift from a traditionally passive role to a more active board profile. In Spain, the average age of a director is 60.4, and the majority of companies (79%) have no mandatory retirement age for directors.11 When it comes to the diversity of corporate boards in Spain, there is a considerable gap between the recommendations of the code and reality. Spain was the second country in the world (after Norway) to adopt a recommendation regarding gender quota on corporate boards and this led to a sharp increase in the number of women in leadership positions.12 However, the present regulation does not impose any sanctions on firms

10 OECD (2018). Board Evaluation: Overview of International Practices. Available from: https://www.oecd.org/daf/ca/Evaluating-Boards-of-Directors-2018.pdf [Accessed 1 December 2020]. 11 Spencer Stuart (2019). Spain Board Index 2019. Available from: https:// www.spencerstuart.com/-/media/2019/october/spain_board_index_2019.pdf. [Accessed 1 December 2020]. 12 Reguera-Alvarado, N., de Fuentes, P. and Laffarga, J. (2015). Does Board Gender Diversity Influence Financial Performance? Evidence from Spain. Journal of Business Ethics, 141(2), pp. 337–350.

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that do not comply with recommendations, and this has led to a failure to achieve the intended benchmark of a minimum 40% representation for each gender.13 Nonetheless, there has been a significant increase in the number of female directors as a proportion of all directorships—now 21% and up from 3.5% in 2006. In terms of cultural diversity, 21% of board members are non-nationals. Boards of directors in private firms are typically smaller in size and average six members, where approximately half are managers and two-thirds are members of controlling families.14

Spain Culture Map Describing Spanish culture in a uniform way would not do justice to the diversity of its business landscape. However, some characteristics are more prevalent in its economic reality than in other countries. According to INSEAD professor and cross-cultural expert, Erin Meyer, Spain’s culture is largely “principles-first” and “confrontational” with “direct negative feedback” (see Fig. 12.1). We would therefore expect chairs of Spanish boards to place an emphasis on board principles and rules. In theory, they should also tolerate confrontation and other forms of blunt communication. In other aspects, Spain is more moderate: a medium-high level of contextual communication; a mild preference for top-down decisionmaking and hierarchical leadership; a more “relationship-based” than “task-based” attitude to trust; and finally, a fairly flexible conception of time when scheduling (see also Appendix A). On this basis, we would expect connections between directors to be informal and robust, with chairs working outside as well as inside the boardroom and some decisions brokered informally before board meetings.

13 Duppati, G., Scrimgeour, F. and Suñe, A. (2018). Relevance of Corporate Boards in Driving Performance in the Period that Covers Financial Crisis. Corporate Governance, 19(2), pp. 321–338. 14 Sánchez-Ballesta, J. and García-Meca, E. (2005). Influence of the Firm on Financial Analyst Forecast Errors: A Meta-Analysis. Revista Espanola de Financiacion y Contabilidad, 34(127), pp. 831–842.

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Fig. 12.1 Spain Culture Map (Source Based on the work of INSEAD Professor Erin Meyer and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs])

Existing Research There has been comparatively little academic research examining the role of Spanish chairs and boards. Researchers find evidence for the importance of the monitoring function of the board and the salience of agency conflict on Spanish boards.15 This is echoed by the corporate governance code’s recommendations of board independence. On the other hand, the dominance of families, institutional investors/banks and other capital investors suggests that part of the monitoring function could be assumed by these types of owners.16 Their intimate knowledge of the firm and its context, as well as their strong ties with the management, may lessen the need for monitoring and silence the resource-provision function of the board.

15 Hernández, A., Camelo, C. and Valle, R. (2010). The Effects of Boards of Directors on R&D Investments: The Case of Spain. International Journal of Human Resources Development and Management, 10(2), pp. 152–165. 16 Saz-Carranza, A., Albareda, A. and Federo, R. (2020). Network Tasks and Accountability: A Configurational Analysis of EU Regulatory Networks. Public Administration, pp. 480–497.

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To our knowledge, no study has focused on the specific role of the board chair in Spain. Drawing on the existing literature, the paternalistic culture of the state and business elites is reflected in a general lack of power of independent directors and the high occurrence of chair–CEO duality—in contrast to the primus inter pares view of the role of the chair.17

Data For the Global Chairs Research Project, we conducted 19 semi-structured interviews of 10 board chairs (the vast majority of whom were nonexecutive) and 9 observers of the chairs’ work (namely, 2 directors, 3 CEOs and 4 shareholders). All the chairs in the sample were male and seven of them were older than 70. They all had prior experience as CEOs (8 in the same company) and as directors of other companies. They also had considerable experience as chairs (an average of 4 terms of office, although the number of terms ranged from 1 to 11). Their boards had an average of 9 directors (in a range of 5–12) and held meetings lasting from 2 to 9 hours between 4 and 18 times a year. The diversity of the boards involved was medium/low: only four had directors of nationalities other than Spanish and only one board had more than 33% female directors. The companies represented by our interviewees belong to various sectors: pharma; property; distribution; agro-farming; airlines; finance; haulage; cosmetics; and leisure and wellness. Most are global companies (some have agents in more than 100 countries and some have more assets abroad than in Spain). Just three operate only in Spain. Half are holdings of several companies and the other half are single companies. Six are listed (including three on global stock exchanges) and three are family firms: some have benchmark shareholders and others have very diluted equity. Turnover ranges from less than e1 billion to e25 billion, and the numbers of employees range from fewer than 100 to more than 60,000. To ensure the broadest possible perspective from our group of “observers”, the interviewees included two female directors (each with more than five years of board experience); four investors (all with more than ten years of experience in this capacity); and three CEOs (with prior 17 Kakabadse, A. and Kakabadse, N. (2007). The Return of the Chairman. Business Strategy Review, 18(4), pp. 62–65.

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experience in several similar posts). The interviewees belonged to a wide spectrum of sectors (ranging from finance and property to biomedicine and infrastructure). The investors included family groups, institutions with dozens of companies in their portfolios and individual entrepreneurs specialized in fields with close links to scientific research. The size of their investments varied widely too, ranging from a few millions to several billions. All the companies represented were international.

The Views of Chairs on Their Role and Involvement in the Firm When asked to whom they were “duty bound”, the answers from the chairs fell into three broad categories: • the business (the company) • the shareholders (the owners) • the family (where a controlling family dominated the board). Many chairs regard themselves as agents who harmonize and coordinate the wants and needs of the company and its shareholders—and avoid trade-offs that have an adverse impact on either party. When such events occur, the chairs have to deal with them effectively. One chair-respondent put it this way: I have to be a firefighter and a lecturer. As a firefighter, I have to talk to banks, governments, etc. and offer support for the management. As a lecturer, I have to have an open dialogue mainly with shareholders but also with regulators, governments and lobbies, etc.

In terms of what chairs do on the board, several observations recurred during our interviews. Some interviewees pinpointed that they must “sell” the company activity to the markets. Several emphasized their involvement in formulating strategy, as well as the importance of the board in recognizing upcoming challenges, identifying opportunities and threats and interpreting scenarios and social changes that could have an impact. Board chairs also appear to be aware of the need to manage board processes. They must enable the board to work, that is: ensure the right agenda; encourage discussions; and guarantee that directors are always prepared. Chairs, as leaders of their boards, are typically deeply involved

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in major decisions—such as the sale of companies or acquisitions and (re)investments. In everyday activities, they must coordinate the interests of the company, partners and directors. Indeed, in some cases significant time is required for managing the egos of partners and directors and safeguarding the CEO. In line with the foregoing, the chairs in our survey regard their contribution as positive (i.e. successful) when: the company “meets expectations ” or improves “by creating medium-term opportunities and improving the outlook”; “there is seamless coordination between service and financial results ”; the company “prevents unexpected events ”; “when [the company] is able to sustain the sought after culture and values ”; “when the board works well (directors feel involved and prepared for decision-taking, deal with essential and important issues, and have a positive outlook)”; and “when management feels it has guidance and supervision”. The time spent achieving this varies considerably among the chairs. One non-executive chair often dedicates one-third of his working hours to the board (across a spectrum ranging from 15 hours a month to full time). However, dedication should not be measured only by time commitments. As one chair said: “Being the chair takes up one-third of my time, but worries me all the time”. The Chair’s Relationship with Shareholders One of the traits that differentiate a chair from other directors is the time dedicated to the relationship with shareholders. In Spain, it is typically the chair of the board who handles the relationship between shareholders, managers and other important stakeholders. This task has become particularly important in the light of the increasing “shareholder activism” in Spain. The chairs who were interviewed regard this relationship as one of the activities requiring most time. “It is hugely important and cannot be delegated” as one concluded. The ownership structure of the firm and the power of each shareholder are extremely important. Although chairs generally strive to strike a good balance between encouraging contact with shareholders and not discriminating between them, major shareholders (especially those with veto powers or other significant influence) are given more time and attention by the chair than other shareholders. Proactive efforts are made to determine their opinions and viewpoints before decisions are made. At the

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same time, chairs must be extremely careful not to provide any information that might constitute preferential treatment. As one chair mentioned: “During meetings with the company’s main shareholders, I often have to remind them that I work for all the shareholders!” In the case of family groups, information for members of the owning family is regarded as crucial, regardless of the number of members. Likewise, in joint ventures, chairs take particular care to treat partners well. One of the interviewees, a board chair of a firm with a widely dispersed shareholding, said that he rarely visited “less than 40% of his shareholders ” in a year. In some cases, benchmark shareholders of great importance to the company are visited once every two months by the chair (and sometimes once a month by the CEO or CFO), while the “free float” is reached through analysts. On important occasions (major investments, change of CEO, etc.) chairs intensify such interactions. These relationships involve a very wide range of channels: the Internet; letters; press releases; long meetings; customized meetings for shareholders who attend board meetings; and often very informal channels such as phone calls or impromptu face-to-face encounters. The chair of a large family group shared his experience of managing communications with various groups of stockholders: The relationship with each group of shareholders was different. We have a syndicate agreement with several families, and they prefer one formal twohour meeting a month followed by lunch. This is important for me because I need to know the circumstances of each family. We have an annual calendar of meetings with institutional investors (three a year, mostly in London); and I keep in touch with small shareholders regularly by writing (letters, announcements on our website, etc.).

Sometimes, chairs adopt a proactive approach, but shareholders often take the initiative in organizing meetings and communicating their vision for and commitment to the company. The chairs we interviewed knew exactly what they wanted from such contact, i.e. to align the interests of the company and those of its shareholders through straightforward dialogue. Some described this alignment as the best way of creating value; others simply as a way of coordinating the interests of different stakeholders— whether shareholders, executives or both.

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What happens if this dialogue is not constant and fluid? In the words of one interviewee, “If shareholders do not get the information they think they should get, then it can be dramatic. I always try to avoid surprises ”. In addition, by investing in these relationships during the good times, chairs have the necessary support in the bad times. One respondent observed: During the current coronavirus crisis, the most important shareholders are concerned about people’s safety and are willing to reconsider dividend policies. At a time when shares have fallen by 70%, they have accepted a 20% increase in capital without preferential subscription. All this is the outcome of profound dialogue.

The chair may be viewed by minority shareholders with a mixture of respect and mistrust. As one of the “observers” in our sample remarked: “When a chair represents the most important owner, you cannot take for granted that he/she will always consider the minority shareholder interests ”. Such chairs are well aware of their power—which means that there is a risk of them becoming too dominant. It is thus crucial for minority shareholders, managers and other important stakeholders to ensure the chair’s support through dialogue, transparency, agreements, expectations and reporting back, etc. “I think that as the representative of an important – but minority – shareholder, I may expect the chair to talk to me about big decisions ”, said one of the big institutional investors interviewed. In addition to transparency, honesty is an important factor in the relationship between the chair and all stakeholders. This was defined by one interviewee as: “telling us the good news and the bad, not hiding what matters ”. Management of Board Meetings Before the Meeting Spanish chairs do a lot of groundwork before board meetings. This takes two forms: remote preparation (i.e. enabling the smooth running of the board in general and meetings in particular by helping directors to be prepared, developing criteria for taking decisions and avoiding excessive information asymmetries); and immediate preparation for each meeting (i.e. imagining the debate and planning the discussion; allocating time

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in a strict or loose manner; sometimes deciding on a special format; and always reading the important materials). Remote preparation. Dealing with information asymmetry is a significant issue. All chairs know that board members have varying degrees of knowledge about the company and its strategic context. The information held by executives, owner-directors and independent directors about the matters to be discussed and decided differs widely. Chairs must therefore reduce this imbalance in order to improve discussion and decision-making. Between board meetings, Spanish chairs make major efforts to provide directors with relevant information and enable them to understand the current scenario and the company’s likely future. This activity is not usually neutral. Many chairs seek to create preconditions for agreement and achieve consensus in keeping with their own criteria. One remarked: I tend to give a lot of information before and during the meeting, and particularly to independent directors. It must not be forgotten that they are increasingly affected by proxies that shape the shareholder vote. All directors are influenced by many stakeholders.

The aim is also to avoid surprises and, to paraphrase the words of several chairs, “manage the egos of certain directors”. Knowing when to address an issue is crucial. Some chairs, aware of the pace at which their directors take decisions, put an item forward at a board meeting in order to get things moving and then allow the decision to “mature”. They are skillful at judging when the time is right for directors to decide. Each issue may be dealt with in an ad hoc manner, but procedures also exist to prevent asymmetric information. “Every fifteen days we update the industry situation, particularly the competition”, said one chair. Another added: There is a lot of information and plenty of access to other information in the database I created when I was CEO. Computer systems are immensely powerful. I imposed this because of the massive obligation to be transparent in our sector.

In addition, almost all companies have an induction programme for new directors and refresher courses for all directors (new and old) to ensure that they are fully prepared for discussions and decision-making—and also to reduce information asymmetry that hampers good dialogue. Induction

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programmes are complemented by ad hoc training before or during the board meeting itself. Cyber security and threats of technological disruptions are some of the subjects that have been covered by such training. Almost all companies in our sample had a long retreat-type meeting with management teams at least once a year to examine strategy in-depth. In general, the chairs stressed the need for “directors to be ready” with an appropriate degree of urgency (“no more and no less ”) to ensure the productivity of their boards. Nevertheless, patience is also required. One chair remarked: “I have considerable previous experience and I know that a new director needs at least one year to really understand the company”. Immediate preparation. Although preparations for individual board meetings vary greatly from company to company, some features are quite common. All the chairs we interviewed set great store on drafting the agenda. For many this is a way of indicating the highest-level priorities. They may deliberately omit other issues so as to give them time to ripen. In most companies, the board secretary, the CEO and the chair take part in these preparations—except in extraordinary circumstances. Occasionally the deputy chair or CFO also takes part, but directors participate surprisingly little in drawing up meeting agendas. Chairs usually take the initiative regarding the items to be covered: “If I had to give a figure, I’d say I propose 50% although in fact, a lot is pretty much agreed beforehand with the CEO”. More than a half of the companies represented in our research have a board plan spanning one year or more. This is approved in advance by the board and forms the basis of individual agendas, usually with the addition of some core issues. Some chairs are great believers in adding an explanation for each item, such as why it is included, whether decisions are required and what discussions are supposed to achieve. They believe that this gives directors a better idea of what to expect and ensures that they are fully prepared for meetings. Board materials are usually provided by the management, but many chairs supervise and even modify them. The chairs want the information to be exhaustive but not excessive, complete but brief. As one of the most senior chairs stated: “Everything is well prepared. I would check each and every one of the presentations , and would usually reduce the number of slides ”. The materials are usually sent out a week or more in advance, and chairs may make last-minute additions. Information about confidential matters is not always supplied before the meeting. For an important item, ad hoc and in-depth handling may be required. To make this possible,

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a meeting is sometimes held with management the day before to discuss the matter in detail. Although rare, directors sometimes ask management for advice about complicated matters. All the chairs we interviewed felt it was important to organize these arrangements thoroughly and so avoid negative fallout. Additionally, if any directors are experts in the matter under consideration, the chair usually speaks to them first and may ask them for help. In addition to their general preparation, all the chairs interviewed said that they dealt personally and proactively with some or all directors, particularly in the case of potential conflicts or crucial matters requiring considerable discussion (finance, governance, reputation, etc.). More mundane technical, procedural, or simply less important matters are left to CEOs, with chairs sometimes taking a supervisory role. Very occasionally, CEOs are also entrusted with preparing essential matters for board meetings. The groundwork with directors involves all sorts of channels: phone calls; informal encounters at events attended by the chair and directors; lunch before the board meeting; etc. The chairs thus aim for decisions to be part-made before meetings to ensure (as they see it) positive discussion. As one interviewee put it: “I parboil important questions during phone calls to key directors. This means getting in touch with them wherever they are (which is often abroad). Other technical questions are dealt with by the CEO, but I deal with the more political issues ”. All this pre-meeting effort is designed to help each director form an opinion about the matters to be discussed—and, it must also be said, to respectfully ensure that each director toes the line on specific issues. During the Meeting The board meeting is the focal point where all the efforts made beforehand converge into a final outcome. The chairs play an important role in the process, as the board depends on contributions from each director. Most chairs start, in the words of one interviewee, “immediately, without beating about the bush, by approving the minutes ”. They sometimes outline the structure of the meeting and highlight the main items. Note that board committees sometimes meet the day before, usually during an informal social event (such as a dinner), to discuss the matters of the board meeting. CEOs do not usually attend such events.

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The chairs we spoke to view their role during the meeting differently depending on the circumstances, the agenda items and their own style. In normal circumstances, they are content to “direct the traffic” and only get deeply involved when the situation makes this necessary. Often, after a brief introduction to the meeting and the approval of the minutes, the CEO gives a report about the state of the company. What follows depends on the individual chair’s preferences: • Some prefer to move on to formal matters and procedures, and then focus on more strategic and complex matters. • Some prefer the meeting to have a strict timetable, with a specific time slot for each item (typically 30 or 45 minutes). • Other chairs make it very clear that directors must have “done their homework” beforehand, and rather than presentations, there may be just a recap of the most important matters. These chairs tend to keep presentations short when they are particularly interested in the discussion. • Others make it very clear in the agenda whether a matter features in the meeting for the sake of giving information or taking decisions (in such instances, proposed board resolutions may be included in the material sent out beforehand). Some questions are earmarked for resolution without discussion: “Capex investments are only discussed if they are not recurring matters, or if the amount is unusually large or if something critical is involved. Otherwise, they are approved automatically.” Although all our interviewees said that they try to encourage discussion because it is the most important element of meetings, presentations continue to take up a lot of time—sometimes up to 80% of the session. The explanation is usually that this is necessary to ensure that the issue and implications of the resulting decision are thoroughly understood. It is common practice for the chair to request or accept the attendance of executives and experts in addition to the CEO (who is always present, except for in-camera meetings). The management of discussion dynamics is a very delicate matter. Usually, chairs take the personalities of directors into account, encouraging the silent and reining in the prima donnas. Diversity is always regarded as positive, providing it is aligned with corporate interests as

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understood by the chair and most of the directors. All directors are usually asked to contribute, sometimes very directly or even incisively. As one very senior chair put it: During the entire board meeting, I had a specific habit of rationalising the time and information of each presentation to encourage discussion. I would control the agenda and time tightly. I wanted great punctuality at all times as scheduled and extremely strict time control. For me, body language was crucial. […] There was a bit of theatrics involved. […] My authority was important. Presentations were unlikely to exceed 20 minutes . Questions to directors were brief and to the point.

Sometimes chairs speak last to avoid the spotlight and wind up the matter properly. The questions I ask about each item are specific, but I encourage a lot of discussion. I allow open discussions until I see that nothing more can be gained. Discussions are fair, open and not repetitive. If there was no possibility of any agreement, I would end the discussion and postpone it. I would try to prevent competition for dominating and distorting the discussion. Remaining focused is essential for me.

Generally, chairs’ use of the right to speak seems to depend on whether they want an open discussion (in which case they tend to ask questions and speak last), or to focus on a solution (in which case they speak first to set the tone, anchor the debate or even establish a bias). The challenge for some chairs—especially those who have been senior managers in the same company—is to keep discussions at the governance level and avoid the tendency to “act like CEOs”. This is so important in some companies that the chairs consider it part of their job to “protect the CEO”. Keeping the discussion at the right level is an art—often the result of years of experience. Good chairs always raise the conversation above the operational, except when details and technicalities have significant implications. Power relationships affect the dynamics of meetings considerably. As one owner-chair said: Quite often I’m a ‘Queen Mother’. Being the owner, they respect me a lot. I let my children (they are directors) and everyone in attendance do a lot during board meetings. I don’t prepare matters as much as for other boards

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that I chair, and I’m just another shareholder. I often use board meetings to fine-tune my criteria about items before taking decisions.

Directors representing private equity firms are often personally educated by the chair so that they adapt quickly to the board culture and engage naturally in discussions. In most instances, decisions and settlements are not formally prepared in advance with a specific wording—apart from informal matters. Reaching a consensus is the widespread norm in virtually all the boards represented in our research. Everything has always been decided by consensus. There has never been a vote. If consensus is unlikely, the decision is postponed and I work on it with the directors at other times to reach a tentative, consensual, or near-consensual decision at the next board meeting.

One chair mentioned the difference between his experiences in Spain and in the UK: In Spain, decisions are not prepared beforehand. They are subjects for discussion and are more strategic. In London, it’s more of a box-ticking exercise, but in London we sometimes vote, and in Spain we never do. If there’s no agreement, I postpone the matter.

Unlike in other countries, managing “difficult” directors did not appear to be an important issue for Spanish chairs. The rare instances are handled by addressing the agenda items beforehand with the difficult directors, letting them express their opinion but strictly limiting their contribution. Alternatively, chairs will organize bilateral assessment conversations to ask them to behave differently or ask other directors to intercede on their behalf. Meetings in Spain end without much formality. After dealing with the last item, the meeting is simply adjourned. Many board meetings are followed by a meal or more general conversation. Topics of discussion are usually the general economic scenario, the impacts of recent political measures and so on—although opinions may also be expressed about matters covered during the board meeting. There are some exceptions to the rule of the speedy conclusion. A few, more methodical chairs end their meetings in a more organized fashion: “At the end of the meeting, we show the executives out and the other directors

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stay behind for about 30 minutes . This is a crucial moment for the board: we review how things have gone and we are usually quite blunt ”. Other chairs finish by clarifying: summing up what has been agreed and what is going to being done. Some also end by evaluating the general state of opinion. After the Meeting By the end of the meeting, most chairs in our sample have a short “to do” list. In the next few days, they usually give their directors and other people involved, particularly the CEO, useful information. On other occasions, the board meeting leads to bilateral meetings with certain directors. The “observers” in our sample reported the same post-meeting practices but added a few interesting comments. They believe that chairs should encourage more contact between directors “There should be more coffee breaks, more dinners and events where directors can get to know each other better”. Some interviewees even speculated that chairs might be worried about such relationships sapping their own power. There was also a demand for: more access to knowledge about the business; not isolating the board from the rest of the company; encouraging visits and inviting people to company events; and in general, greater opportunities for learning (e.g. two- or three-day sessions on a single subject in a remote location away from the office) (Table 12.1). Chairs and Board Committees Most chairs in Spain consider committees to be crucial for reducing information asymmetry and applying specialized expertise. The nomination and remuneration committee is particularly important because it usually appoints the executive directors and oversees the selection of the executive committee. In some cases, the chair either presides over the committee and monitors it very closely, or takes part and has a decisive say (usually in agreement with proprietary directors). Auditing committees are usually more independent: chairs rarely attend and generally show great respect. They tend to ask independent committees for clear, pertinent, concise information at the beginning of board meetings and usually spend no more than 10–15 minutes doing so, except when addressing issues that need special attention. They usually have private meetings with the committee chairs about important or controversial issues. On occasions, the chair even attends as a guest or observer.

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Table 12.1 Spanish chairs: strategies and practices Stage

Strategies

Practices

Before board meetings

REMOTE Reduce asymmetric information Manage expectations (avoid surprises) Manage “egos” Enable matters to ripen IMMEDIATE Prioritising and allow issues to ripen Provide necessary information to encourage quality discussions leading to good decisions

Induction programmes Ad hoc training Newsletters Ad hoc meetings Encourage certain experience

During board meetings

Focus attention on what matters

Increase the quality of discussions to ensure the best possible decision

Search for consensus

Agenda preparation Draft board plans Notes on agenda Materials sent out Possible prep sessions for board Consultations and direct access to management Calls and meetings with one or more directors Discuss the structure of board meeting and highlight the most important issues State participation times clearly Moderate discussions Presentation of matters by management Attendance of experts Ensure dynamic discussions Direct questions to directors Understanding and application of bias in decision-taking Moderate their contributions End discussion with closing comments Keep decision-taking focused by emphasising implications (Preparation prior to meeting) Seek common ground Postpone matter if consensus impossible

(continued)

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Table 12.1 (continued) Stage

After board meetings

Strategies

Practices

Dealing with difficult directors Discuss matters with difficult board members beforehand Allow them to comment but strictly limit their contributions Hold bilateral assessment conversations to ask them to act differently Ask other directors to help (intercede) Manage the departure of difficult board members Facilitate action being taken Summary of matters discussed Detail agreements to clarify what is to be done Clarify agreements reached Chair “to do” lists: provide useful information for directors and other people involved, particularly for CEO Bilateral meetings with some directors to pursue matters pending Learn “In-camera” meeting to evaluate the board meeting and how it went Evaluate the common state of mind

Chair–CEO Relationships Board chairs hold frequent and regular meetings with the CEOs of their companies (some respondents claimed to spend approximately two hours a week). The parties exchange information: chairs often send the questions they want to discuss in advance; CEOs seek advice and inputs from chairs; both share their opinions and concerns. Decisions are rarely made during such meetings. In this relationship, as one of the chairs put it: “A good relationship is essential, along with trust and transparency”. In addition to these planned sessions, they are often in contact in more informal

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ways (including telephone calls, email, face-to-face meetings)—three or four times a day in the case of some chairs. Both parties are aware of the difficulty of striking a balance between autonomy and supervision. On the one hand, the autonomy of management must be upheld—and in particular, the chair must not interfere with or overrule the CEO; on the other hand, to ensure good corporate governance, there must also be control and supervision—and in particular, information asymmetries must be avoided. One of the chairs interviewed used the English expression: “Nose in, fingers out. Try not to interfere, but be aware of every relevant thing ”. However, this attitude is not easy to achieve, as we have already seen. According to one non-chair director: “The chair has to understand that he is not the CEO, and he finds this difficult ”: previous experience in the management of the company makes it especially difficult to strike the balance between monitoring the firm’s activities, as chair, and leaving the CEO with sufficient authority and autonomy. Typically, the more “executive” the chair, the less power the board will have (unless there is a powerful lead director). To avoid interfering, some chairs who were former CEOs in the same company, move their office to other floor or building to respect the CEO’s domain. These chairs also define the scope of each job in a very precise way. Most CEOs in our sample have a positive relationship with their chair, particularly with respect to the chair’s role as a mentor, advisor and partner. However, they have also experienced “competition” with a chair in the past. Like many corporate governance issues, this is a question of managing opposite poles: a chair who is overly involved in everyday management undermines the CEO, while a chair who is excessively remote prevents any real corporate governance. In contrast to shareholder management, a chair’s contact with other executives is less frequent—maybe once every two months or so. Some chairs feel it is important for such contact to be transparent so as to avoid giving the impression of interference to the CEO. Sometimes communication starts informally (in corridors, or at a restaurant, etc.) and this encourages other types of contact. The chairs realize that they convey strong messages in all encounters: “I always try to be optimistic”. Some very veteran chairs glean a lot of useful information from informal contact, while others regard informal contact as a way of identifying talented people.

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Other Challenges and Practices Board Evaluation Boards approach assessment in different ways. In some cases, assessment may simply consist of an anonymous and very formal questionnaire about how the board operates (and which makes a little impact). Others involve consultants and the resulting impact may, according to the chairs we interviewed, be slightly greater. In family firms, assessments are very delicate because they could disrupt the board’s balance and smooth running. Nonetheless, evaluations are carried out and sometimes entail sophisticated purpose-built instruments that determine the director’s priorities, mindset and knowledge with a view to helping the board improve. Despite the variety of practices that came up during our study, the use of individual assessments is still rare. When implemented, these remain very formal and rarely go beneath the surface. Some chairs refrain from giving each director a personal assessment, fearing that this might create an atmosphere of constant evaluation and prevent a culture of openness and honesty. When conducting this type of assessment, chairs give directors a chance to speak their minds about what they think and how they could improve. Chairs are aware of the risk of generating false loyalties and flattery through assessments and the risk of using evaluation as a weapon for gaining power on the board. Chairs are mindful that leaving assessments entirely in the hands of a consultant could be very unrealistic because a consultant will want to make a good impression on the company and this could induce considerable bias. Most chairs emphasize that what matters is an in-depth meeting to highlight what should be avoided and what can be improved through good practices. Some have these conversations with the whole board and others with individual directors. The Chair’s Role in Board Member Nomination and Dismissal In contrast to other European countries, being a board member is not yet a profession in Spain, although there is a clear tendency in this direction. Board appointment procedures can be very informal or very sophisticated with mechanisms such as: succession plans; headhunters; appointment committees; detailed profiles of new directors (sometimes including maps of competences and a global vision of the board: what is lacking and what could be improved).

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The chairs consider managing the renewal of board members as an extremely important part of their role; they tend to be involved in both appointments and dismissals. Yet the process is complex and can lead to conflict. Representing majority shareholders puts them in a strong position when it comes to influencing changes in board personnel. Being independent makes it is more difficult because the chair is just one of many parties involved in selection. Even in the best organized, well-structured and formal instances, chairs try to make an impact by keeping control of the process—with, in some cases, owner-directors as key interlocutors. Some chairs indicate that board renewal takes much of their time. Others admit that trends such as digitalization and socio-environmental responsibility affect them to varying degrees when recruiting new directors. Most said it was good practice, in the words of one respondent for “all directors to know they have an exit date – with terms of office for one year, renewable up to a set maximum”. This makes the role of chairs in nomination and dismissal processes easier. Chair succession is less structured than director turnover, although some companies have well-defined succession plans with a two-year horizon. In others, appointment of the previous deputy chair assures a high level of continuity. Relationships with Non-Shareholding Stakeholders Relationships with the broader stakeholder community vary considerably between boards. Developing relationships with stakeholders is part of the board’s resource provision role and can also form part of the firm strategy. Stakeholders are prioritized according to their importance for the company: regulators and public authorities in general, key suppliers, banks, workers’ representatives. The participation of workers or their representatives in Spanish boards is not mandatory and is therefore rare. However, some chairs have frequent contacts with labour unions when they are important for the company. The chairs in our sample emphasize the need to have a strategic focus in all stakeholder relationships: they also realize that this strategic focus must have a long-term outlook. The tasks involved are often shared (tacitly or expressly) with the CEO. For example, the chair might deal with the media and key customers or suppliers, and the CEO with worker representatives, or vice versa.

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Changes in the Chair’s Role The chairs and “observers” interviewed for this study are aware that these are times of extraordinarily profound change but do not find it easy to make confident forecasts about future trends. They envisage smaller boards, which will be more flexible and more involved in strategy, with more female members. In addition they expect to welcome younger board members, who will be more accustomed to the major transformations that have already happened and better able to adapt to the disruptions on the horizon. Technological and social changes are also predicted. This is why our interviewees stressed that future board chairs will need to have a global mindset and identify new challenges. The chair must be increasingly like a dish antenna picking up everything important for the company. The changes are very profound, and eyes must be kept wide open to know what is happening. This means reading a lot, travelling a lot and “being everywhere”.

To fulfil these needs, chairs believe it is necessary to listen with an open mind, to learn and to understand how society is evolving. A chair with an authoritarian “I’m the boss” style of leadership makes this crucial learning process impossible. Constant obstacles and changes of direction are unacceptable. It is important to be flexible, listen to people with important information and not make hasty judgements. Chairs must be calm, good listeners, and invested with authority by those implicated in their decisions. All of this adds up to the need for another attribute: credibility to shareholders, stakeholders and the markets in general. The future is likely to be more complex due to rapid technological developments and increasing connectivity and interdependencies. It is no longer enough to deal with your product market only: capital markets and other markets must be considered at the same time; operations will be increasingly complicated; and globalization will increase interdependencies. This will require a systemic outlook, which is why the chairs in our sample prize in the new directors the ability to understand and interpret the wider landscape, its evolution and its ramifications. Survival in an interconnected world requires political skills, astuteness, diplomacy and the ability to liaise with key stakeholders. Once again, reputation is crucial.

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Another underlying trend mentioned by our chairs is that ESG (environment, social and governance) factors and, particularly, human capital factors will become increasingly important in their work. This is why they advocate greater awareness of sustainability, social considerations and ethical standards in governance. In addition, they identify: emotional intelligence; the ability to handle consolidated internal and external lobbies; a degree of humility; and the capacity to motivate and guide individuals and groups who are important for the company’s future. Chairs, they conclude, must also show more explicit concern for values, culture and talent, otherwise the company’s messages about these subjects will lose credibility. In the light of these increasing demands and responsibilities, the board chair is expected to have more influence in the future. Thus the balance of power between the chair and the CEO is likely to shift. Yet, in the words of the oldest chair in our sample: [Despite the changes] in coming years, the chair will still need a sense of authority, must be very well versed in the business in hand, have a wellproven track record, a very good reputation, empathy, body language and leadership. The chair must be the leader and also a good coach for the CEO and key stakeholders.

Finally, it is important to mention that governance and chair roles are idiosyncratic and depend largely on the context. They are affected not only by the company’s internal and external circumstances, mission, outlook and strategy, but above all, by the power structure between shareholders and the board. Change is constant and profound changes may come from a new—already visible—equilibrium between supervisory functions and board innovation. Our interviewees envisage a relative loss of power by the board to be an inevitable adjustment factor, as the management becomes willing to take more risks and innovation becomes an increasingly important core responsibility of the board. Herein lies one of the great dilemmas for the future role of board chairs in Spain.

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References Aguilera, R. (2005). Corporate Governance and Employment Relations: Spain in the Context of Western Europe. In H. Gospel and A. Pendleton, ed., Corporate Governance and Labour Management. Oxford: Oxford University Press, pp. 197–225. Baixauli-Soler, J.S. and Sanchez-Marin, G. (2015). Executive Compensation and Corporate Governance in Spanish Listed Firms: A Principal–Principal Perspective. Review of Managerial Science, 9(1), pp. 115–140. Crespí-Cladera, R. and Pascual-Fuster, B. (2014). Does the Independence of Independent Directors Matter? Journal of Corporate Finance, 28, pp. 116– 134. De Miguel, A., Pindado, J. and De La Torre, C. (2004). Ownership Structure and Firm Value: New Evidence from Spain. Strategic Management Journal, 25(12), pp. 1199–1207. Duppati, G., Scrimgeour, F. and Suñe, A. (2018). Relevance of Corporate Boards in Driving Performance in the Period that Covers Financial Crisis. Corporate Governance, 19(2), pp. 321–338. Gebhardt, M. and Saz-Carranza, A. (2018). European Revolving Doors: Corporate Boards in Germany and Spain. Available from: http://itemsweb.esade. edu/wi/esadegeo/workingpapers/17_18/201802%20WP%20Gebhardt%20% 20Saz-Carranza%20-%20European%20revolving%20doors.pdf [Accessed 1 December 2020]. Hernández, A., Camelo, C. and Valle, R. (2010). The Effects of Boards of Directors on R&D Investments: The Case of Spain. International Journal of Human Resources Development and Management, 10(2), pp. 152–165. Kakabadse, A. and Kakabadse, N. (2007). The Return of the Chairman. Business Strategy Review, 18(4), pp. 62–65. Leech, D. and Manjón, M.C. (2002). Corporate Governance in Spain (with an Application of the Power Indices Approach). European Journal of Law and Economics, 13(2), pp. 157–173. Meyer, E. (2014). The Culture Map: Breaking through the Invisible Boundaries of Global Business. New York: Public Affairs. OECD (2018). Board Evaluation: Overview of International Practices. Available from: https://www.oecd.org/daf/ca/Evaluating-Boards-of-Directors2018.pdf [Accessed 1 December 2020]. Pascual-Fuster, B. and Crespi-Cladera, R. (2018). Politicians In the Boardroom: Is It a Convenient Burden? Corporate Governance. An International Review, 26(6), pp. 448–470. Reguera-Alvarado, N., de Fuentes, P. and Laffarga, J. (2015). Does Board Gender Diversity Influence Financial Performance? Evidence from Spain. Journal of Business Ethics, 141(2), pp. 337–350.

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Sánchez-Ballesta, J. and García-Meca, E. (2005). Influence of the Firm on Financial Analyst Forecast Errors: A Meta-Analysis. Revista Espanola de Financiacion y Contabilidad, 34(127), pp. 831–842. Saz-Carranza, A., Albareda, A. and Federo, R. (2020). Network Tasks and Accountability: A Configurational Analysis of EU Regulatory Networks. Public Administration, 98, pp. 480–497. Spencer Stuart (2019). Spain Board Index 2019. Available from: https://www. spencerstuart.com/-/media/2019/october/spain_board_index_2019.pdf [Accessed 1 December 2020]. The World Bank (2019). World Development Indicators. GDP Ranking. Available from: https://data.worldbank.org/indicator/NY.GDP.PCAP.CD [Accessed 1 December 2020]. The World Economic Forum (2019). Global Competitiveness Report 2019. Available from: https://es.weforum.org/reports/global-competitiveness-rep ort-2019 [Accessed 1 December 2020].

CHAPTER 13

Ukraine: Navigating the Maze Kateryna Timonkina

The Chair’s Work in Context Ukraine proclaimed its independence from the Soviet Union in 1991 and still struggles to achieve social stability and economic prosperity. The second-largest country in Europe, with a territory of 603,628 square kilometres, it has a population density of just 77 people per km2 . Ukraine has been through two popular revolutions, each of which produced a new president, three severe economic crises and two defaults on sovereign debt.1 The 44.3 million-strong nation2 remains a low-income economy with GDP per capita in 2019 of Int$ 13,341.3 Heavy industry has traditionally been—and to some extent remains—the engine of the Ukrainian economy. In recent years the contribution of agriculture to the 1 Wilson, A. (2014). Ukraine Crisis: What It Means for the West. London: Yale University Press. 2 The World Bank (2020). Population, Total. Available from: https://data.worldbank. org/indicator/SP.POP.TOTL [Accessed 1 December 2020]. 3 The World Bank (2020). GDP Per Capita, PPP (Current International $). Available from: https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD?year_high_desc= true [Accessed 1 December 2020].

K. Timonkina (B) Executive Coach, INSEAD, Fontainebleau, France © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_13

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GDP increased up to 14%. The somewhat underdeveloped service sector contributes 54.4% of GDP,4 with the IT industry generating up to US$ 4.2 billion in software exports.5 Ukraine experienced a severe economic downturn in 2014 and 2015 following the annexation of Crimea and the military conflict in the East.6 Between 2016 and 2019 the Ukrainian economy expanded and showed some signs of stabilization.7 However, the outbreak of the COVID-19 pandemic turned the favourable tide. The IMF projects a 7.7% decline in GDP in 2020.8 Official Ukrainian analytics predict that the Ukrainian economy will recover by the second quarter of 2021, with a 6.6% increase in GDP.9 Ukraine is a representative democracy. The President is the head of state and the commander-in-chief. The one-chamber parliament— Verkhovna Rada—approves the government’s composition and primary legislation, while the judicial power is independent. Since 2014 the Ukrainian government has undertaken significant efforts to battle corruption, remove bureaucratic barriers, improve transparency and increase the effectiveness of its institutions.10 The country has made some progress in such areas as transparency of government policymaking, ease of

4 The World Bank (2020). Services, Value Added (% of GDP). Available from: https:// data.worldbank.org/indicator/NV.SRV.TOTL.ZS [Accessed 1 December 2020]. 5 IT Ukraine Association (2020). Export of Ukrainian IT Increased by 30% During 2019. Available from: https://itukraine.org.ua/en/exp ort-of-ukrainian-it-increased-by-30-during-2019.html#:~:text=According%20to%20the% 20data%20on,and%20totaled%20USD%204.17%20billion.&text=Export%20of%20comp uter%20services%20constitutes,wheat.%20exports%20(USD%203.65%20billion) [Accessed 1 December 2020]. 6 Olekseyuk, Z. (2018). Ukraine’s Unconsidered Losses from the Annexation of Crimea: What Should We Account for in the DCFTA Forecasts? Review of Development Economics, 23(2), pp. 877–901. 7 European Bank (2019). Transition Report 2019–20. Available from: https://2019.trebrd.com/countries/ [Accessed 1 December 2020]. 8 Nordea (2020). Ukraine: Economic and Political Overview. Available from: https://

www.nordeatrade.com/fi/explore-new-market/ukraine/economical-context [Accessed 5 November 2020]. 9 Ukraine Economic Outlook (2020). Available from: http://ua-outlook.com.ua/en/ [Accessed 1 December 2020]. 10 Wisła, R. and Nowosad, A. (2020). Economic Transformation in Poland and Ukraine. London: Routledge.

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doing business11 and economic freedom.12 Corruption13 and excessive bureaucracy, however, remain major stumbling blocks.14 In 2014 Ukraine signed the Ukrainian Association Agreement and the Free Trade Area (DCFTA) agreement with the European Union. The government undertook to complete corporate-governance reforms in order to increase public-sector efficiency and reduce budgetary risks. Corporate governance began in Ukraine in the early 1990s with the creation of stock exchanges and the privatization of state-owned enterprises following the dissolution of the USSR. Benefiting from the first and consecutive waves of privatization, a handful of businesspeople often referred to as oligarchs, built multi-industry economic empires and control a significant proportion of the Ukrainian economy today.15 They also exercise a substantial influence over Ukrainian politics. Today Ukraine is a market economy with different forms of private, public and state-owned companies. The Civil Code of Ukraine,16 the Commercial Code of Ukraine,17 the Law on Limited and Additional Liability Companies,18 the Law on Joint Stock Companies19 and the Law

11 Trading Economics (2019). Ease of Doing Business in Ukraine. Available from: https://tradingeconomics.com/ukraine/ease-of-doing-business [Accessed 1 December 2020]. 12 Heritage (2020). 2020 Index of Economic Freedom. Available from: https://www. heritage.org/index/country/ukraine [Accessed 1 December 2020]. 13 Bazaluk, O. (2016). Corruption in Ukraine: Rulers’ Mentality and the Destiny of the Nation, Geophilosophy of Ukraine. Newcastle upon Tyne: Cambridge Scholars Publishing. 14 Fedosov, V. and Paientko, T. (2017). Ukrainian Government Bureaucracy: Benefits and Costs for the Society. Business and Management Studies, 3(2), pp. 8–19. 15 Wisła, R. and Nowosad, A. (2020). Economic Transformation in Poland and Ukraine. London: Routledge. 16 Verkhovna Rada (2003). The Civil Code of Ukraine. Vidomosti Verkhovnoi Rady Ukrainy, 40–44, p. 356. 17 Verkhovna Rada (2003). The Commercial Code of Ukraine. Vidomosti Verkhovnoi

Rady Ukrainy, 18, 19–20, 21–22, p. 144. 18 Verkhovna Rada (2018). On Limited Liability Companies and Additional Liability Companies: The Law of Ukraine №2275-VII of February 6, 2018. Vidomosti Verkhovnoi Rady Ukrainy, 13, p. 69. 19 Verkhovna Rada (2008). On Joint Stock Companies. Vidomosti Verkhovnoi Rady Ukrainy, 50–51, p. 384.

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on Securities and Stock Market20 establish Ukraine’s corporate governance legal framework. The Ukrainian Corporate Governance Principles (the Code) were first released in 2003 and then revised in 2008 and 2014. In 2020 The National Securities and Stock Market Commission (from now on referred to as NSSMC) approved the new Corporate Governance Code of Ukraine.21 This document provides guidance on good corporate governance, including environmental and social risk management. The Code is based on the OECD Principles of Corporate Governance and regulates listed joint-stock companies. Simultaneously, the Code serves as an essential benchmark for all public and private companies seeking to build an effective governance system.22 Three forms of legal entities with boards of directors are present in the Ukrainian economy. There are around 640,000 limited liability companies (LLCs),23 where supervisory boards are optional,24 and approximately 14,000 joint-stock companies (JSCs), where supervisory boards are mandatory. In a JSC the board appoints members of the management board, sets their compensation, approves strategy and makes decisions about significant investments. The company’s charter and by-laws, together with agreements between the supervisory-board members and the company, outline supervisory-board members’ exact duties. Amendments to the governance regulations in August 2020 will allow JSCs to choose between one- and two-tier models, conduct shareholders’ meetings remotely, and emphasize the board’s role in risk oversight.25 20 Verkhovna Rada (2006). Law on Securities and Stock Exchange. Vidomosti Verkhovnoi Rady Ukrainy, 31, p. 261. 21 NSSMC and UCGA (2018). The Core Code of Corporate Governance: Ukraine. Available from: https://ucga.com.ua/sites/default/files/pdf/corporateUA_web. pdf [Accessed 1 December 2020]. 22 McGee, R. (2008). An Overview of Corporate Governance Practices in Ukraine. In: R.W. McGee, ed., Corporate Governance in Transition Economies, pp. 351–354. Boston: Springer. 23 Vasil Kisil and Partners (2019). Ukraine: Corporate Governance. Available from: https://vkp.ua/en/publication/ukraine_corporate_governance [Accessed 1 December 2020]. 24 Syvyy, R. (2017). Corporate Governance in Ukrainian Firms: Multiple Model Selections, Their Current Functioning, and Potential Future. Review of Central and East European Law, 42(4), pp. 364–408. 25 Prysiazhniuk, O. and Orlyk, M. (2020). Market Snapshot: Ukraine. Changes Expected by Joint Stock Companies in Ukraine. Market Spotlight: Ukraine, pp. 50–51.

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There are six stock exchanges in Ukraine.26 However, their total capitalization did not exceed 4% of GDP in 2018 (the world average was 70.75%).27 There are only 67 Ukrainian companies listed on the Ukrainian stock exchange in 2020,28 compared to 173 in 2014.29 The Ukrainian state remains an important economic force through direct participation in over 1500 enterprises.30 The 100 largest of these generate 93% of all state-owned companies’ revenue.31 In 2015 the government launched the State-Owned Enterprises (SOE) Governance reform to improve state-owned companies’ effectiveness and efficiency. The reform aimed to separate regulatory and ownership functions by transferring control of SOE strategic management from the sector-related ministries to independent supervisory boards—with the further objectives of securing operational and reporting transparency, accountability and autonomy from political pressure. It also sought to enhance professional boards’ independence with respect to appointing and removing CEOs.32 Eight such independent supervisory boards were created in 2018–2019: at the five largest state-owned enterprises and three state banks. Independent directors chair these boards, which include international governance experts as members.

26 NSSMC (2020). Stock Exchanges. Available from: https://www.nssmc.gov.ua/reg ister/litsenzuvannia-ta-reestratsiia/stock-exchanges/ [Accessed 1 December 2020]. 27 The Global Economy (2018). Ukraine: Stock Market Capitalization, Percent of GDP. Available from: https://www.theglobaleconomy.com/Ukraine/Stock_market_capita lization/ [Accessed 1 December 2020]. 28 Ukrainian Exchange (2020). Exchange Members. Available from: http://www.ux. ua/en/members.aspx [Accessed 1 December 2020]. 29 The Global Economy (2018). Ukraine: Listed Companies. Available from: https:// www.theglobaleconomy.com/Ukraine/Listed_companies/ [Accessed 1 December 2020]. 30 Ministry for Development of Economy, Trade and Agriculture of Ukraine (2019). Top 100 State-Owned Companies Earned Profit in the Amount of USD 21.5 Billion in the First Half of 2018. Available from: https://www.me.gov.ua/News/Detail?lang= en-GB&isSpecial=True&id=44187d17-f5c6-4e3b-933b-7fd895c218ec&title=Top100-Sta teownedCompaniesEarnedProfitInTheAmountOfUsd21-5-BillionInTheFirstHalfOf2018 [Accessed 1 December 2020]. 31 Ibid. 32 OECD (2020). State-Owned Enterprise Reform in the Electricity Sector in Ukraine. Available from: http://www.oecd.org/corporate/soe-reform-electricity-sector-ukraine.htm [Accessed 1 December 2020].

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There have been a few notable reform achievements in terms of the political autonomy of SOE boards, the transition from ceremonial to professional governance and the creation of well-functioning independent nomination committees. At the same time, in 2020, several prominent foreign directors left SOE boards, citing a lack of governmental support for corporate governance reforms as the principal reason for their departure.33 The Ukrainian Code defines a chair’s role as facilitating the board’s work to ensure its effectiveness and performance in carrying out its mission.34 The Code recommends that chairs remain independent of any personal interests and draw a clear distinction between the responsibilities and duties of the chair, CEO and management. These distinctions and an explanation of the role and responsibilities of the chair should be captured in the company charter and/or by-laws. Additional duties include: exercising leadership to encourage individual contributions and effective collaboration between the board and the management; information sharing; promoting critical discussions; and providing relevant information to shareholders. As we will show in this chapter, that may mean entirely different things to different people. Despite the recent reforms, the fate of corporate governance in Ukraine is far from certain. The virtual non-existence of capital markets, the domination of oligarchic industrial-financial groups and the high political and economic uncertainty are objective barriers to the development of a modern governance culture.35 More subjectively, many business owners have not embraced the virtues of separating powers in a company and establishing professional boards of directors and independent control bodies. As one of them put it: “Many shareholders in both public and private sectors are stuck in the Soviet mentality of total control. They cannot comfortably entrust complex strategic and financial matters to professionals

33 Interfax-Ukraine (2020). Senior Fellow at Atlantic Council Aslund Leaving Ukrzaliznytsia’s Supervisory Board. Available from: https://en.interfax.com.ua/news/eco nomic/691128.html [Accessed 1 December 2020]. 34 NSSMC and UCGA (2018). The Core Code of Corporate Governance: Ukraine. Available from: https://ucga.com.ua/sites/default/files/pdf/corporateUA_web. pdf [Accessed 1 December 2020]. 35 Wisła, R. and Nowosad, A. (2020). Economic Transformation in Poland and Ukraine. London: Routledge.

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they hired to do the job”. These shortcomings indicate areas for future improvement of Ukraine’s corporate governance system. Ukraine represents a unique context for the work of a board chair. On the one hand, the formal frameworks are very similar to those in other European countries; on the other, the existing norms and informal governance practices often clash with them. As we will show later in the chapter, board leaders are developing original strategies to resolve this contradiction. The COVID-19 pandemic not only hit the Ukrainian economy hard but created unprecedented levels of uncertainty and instability in the country, thus making a significant impact on the work of boards and their chairs.36

National Culture and the Work of the Chair There is no academic literature on board chairs in Ukraine. However, we have developed some research hypotheses about their work and attributes, based on analysis of Ukrainian business culture and studies of chairs’ work in other European countries. According to The Culture Map by INSEAD professor Erin Meyer, Ukraine is a “high-context”, hierarchical, “top-down”, “principles-first”, relationship-based culture with a relatively “flexible-time” scheduling style (see Fig. 13.1 and Appendix 1). We expect the high-context and relationship-based aspects of Ukrainian culture to make chairs rely more on informal interactions and oral agreements based on personal bonds than on formal structures and rules. They will likely invest their time in developing relationships with key stakeholders—shareholders, board members and senior executives. Chairs will act as integrators of stakeholders’ interests. Many important board decisions will be prepared—or even finalized—through informal interactions with these stakeholders rather than in the boardroom. We anticipate that chairs from outside the country will face a serious integration challenge in the high-context Ukrainian environment with its tight interpersonal networks, strict boundaries and low acceptance of diversity. The cultural tendency to exchange information-rich messages 36 Danylyshyn, B. (2020). The Peculiarities of Economic Crisis Due to COVID-19 Pandemic in a Developing Country: Case of Ukraine. Problems and Perspectives in Management, 18(2), pp. 13–22.

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Fig. 13.1 Ukraine Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs])

with implied verbal and non-verbal cues may cause further problems for foreigners working in Ukraine. The hierarchical and top-down elements of the culture will likely make Ukrainian chairs central figures on their boards. They will often use their authority to influence board members directly. Ukrainian chairs will mentor other directors and CEOs. Some chairs may informally influence the board composition to bring in directors they know and trust—and phase out board members with dissident views. Ukrainian chairs will speak with a strong voice; however, they may use “Aesopian” (highly coded) language to convey sensitive messages. We hypothesize that the principles-first tendency will collide with the relationship-based and high-context elements of the culture. Chairs will try to establish board rules, educate directors in following them and instil board discipline. On the other hand, when such rules come into conflict with the interests of influential stakeholders, including the board leaders themselves, or with the pressures of the day, the chairs may disregard them and act opportunistically.

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Professor Meyer describes Ukrainian culture as confrontational with high acceptance of direct negative feedback; if this is correct, board chairs will tolerate a high level of disagreement in the boardroom, encourage open debate and frequently offer corrective feedback to board members. My 25 years of exposure to the business culture in Ukraine suggests that this assessment may be exaggerated. Senior leaders often prefer indirect ways of providing negative feedback to open candid conversations. We therefore expect chairs to exercise a relatively high level of control during board meetings, to allow for a moderate level of confrontation and to deal with severe disagreements outside of the boardroom.

Research Sample To test our research hypotheses and gain further insights into a board chair’s work in Ukraine, we conducted semi-structured interviews with 30 respondents: board chairs, board members, CEOs, shareholders and corporate governance experts. The interviews lasted from 45 minutes to 3 hours and took place between January and October 2019. We interviewed nine current and five former board chairs. There were four women and five men among the active chairs, while all the former chairs were male. One chair represented the state, one was a majority shareholder, another served as an executive chair and the rest served as independent chairs in state and privately owned enterprises (including family firms). Their ages ranged from 36 to 68. Three chairs were foreign nationals. Eight of the existing chairs led one board each; the other chaired a total of five boards. Three out of the five former chairs had led three or more boards at once. Four out of the nine current chairs were heading a board for the first time. Before this role, seven had founded their own companies and four had worked as CEOs. Six had been board members in the past. Together, our respondents had served on a total of 81 boards and chaired 30 of them. We also interviewed five professional directors, who served on 35 boards between them, and four shareholders: two business owners with independent chairs leading the boards of their companies; one owner who chaired the board of his company, which also included independent directors; and one owner who chaired a shareholder-only board.

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In addition, we spoke to four CEOs, who also served as non-executive directors, and four corporate governance experts. Seven out of the nine director-respondents were serving as independent board members. To gain insights into chair-board dynamics during the pandemic, we ran an additional survey during the third quarter of 2020. Our respondents were 14 chairs, directors and corporate secretaries from all types of boards, representing companies with 1000 to over 5000 employees.

Types of Chairs in Ukraine We identified five types of board chairs who are actively engaged in their roles. We will concentrate on these throughout this chapter, leaving to one side the army of nominal chairs that still lead thousands of Ukrainian boards. Principal. Most companies that have a board of directors in Ukraine are owned or controlled by one shareholder. This person usually runs the firm as the CEO, becomes the chair of the board, or, in the least likely scenario, engages an independent board and professional management. We call owners who decide to assume the chair’s role and play it whole-heartedly chair-principals. As in other European countries, such leaders have a strong sense of ownership, are committed to their companies, know them very well, and have strong ties with senior executives and employees at different levels of the company. They accept the board as a legitimate and useful body, but they may not always care about subtleties such as board and director independence; clear division of roles and responsibilities between shareholders, board and management; or directors’ equal rights and duties. Chair-principals consider themselves leaders of their companies, not just their boards. They use the chair’s position as a platform for this leadership and the board as an instrument to realize their own mission, that is, to create financial and reputational value for themselves as owners. Unsurprisingly, chair-principals are very involved not only with their boards but with their CEOs and management. They often cross the boundaries of modern corporate governance. They gently push boards to the side and do more than a chair should do—giving orders to the CEO, making decisions instead of the board or the CEO, communicating on behalf of the company with external stakeholders, etc. As one respondent put it: “Directors cannot fully fulfil their supervisory board

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duties, because the owner does not want to see a clear separation of functions between the management and the supervisory board”. At the same time, chair-principals offer their board members unique qualities that not all professional chairs can share—passion for business, deep industry and company knowledge, a comprehensive view of the company’s ecosystem, years of experience and a vast network of contacts. Many of them strive to improve their boards by bringing in new expertise, developing incumbent directors and improving the board process. One director shared: “His vast experience in the industry and connections are priceless assets for the bank. Yet he is constantly looking for new perspectives, new skills, new opportunities. He blends the new and the old skillfully”. Executive. Some owners, especially those who control more than one company, appoint a full-time executive as chair instead of taking on that role themselves. Sometimes these people are officers at the holding companies; sometimes, they are recruited from outside. As one such chair explained: “They [the owners] said: we want you to be there so that all of us know what is going on in the bank – we cannot grasp the real picture from far away”. Similar arrangements often emerge in other countries with private equity investors, such as the US37 and the UK.38 Executive chairs, who work for the owners rather than for the board or the company, are nonetheless quite involved with the board and the company and develop an in-depth knowledge of the business. They often act similarly to chair-principals, but they lack the same legitimacy and are therefore more attentive to corporate governance guidelines and boundaries between shareholders, board and management. Executive chairs have very close relationships with owners and serve as their voices on their boards. They often see themselves as responsible not only for board’s performance but also for its composition. They select directors based on the professional knowledge currently required by the company. One chair shared: “I chose directors with critical expertise in key aspects of the business and a track record in developing markets. I reshuffle the board when new competencies are needed”. As full-time employees, executive chairs work 37 Gilson, R. and Gordon, J. (2020). Board 3.0: What the Private-Equity Governance Model Can Offer Public Companies. Journal of Applied Corporate Finance, 32(3), pp. 43−51. 38 Acharya, V., Kehoe, C. and Reyner, M. (2009). Private Equity vs. PLC Boards in the U.K.: A Comparison of Practices and Effectiveness. Journal of Applied Corporate Finance, 21(1), pp. 45−56.

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closely with directors and executives, mentor them, and learn from them. They actively participate in the work of board committees and interact with external stakeholders, although in many cases, the latter function is performed by the actual owners. Some of the most effective Ukrainian chairs we interviewed belong to this category. Many executive chairs come from business, while some have a background in public administration or politics. Educator. We found one special type of board chair in Ukraine—the “educator”. These people become chairs to build corporate governance or improve its quality at a specific company by demonstrating, teaching, and discussing best practices. Chair-educators work for an idea—promoting sound governance and board practices in general rather than for a particular board, company, or shareholders. They use their boards and their stakeholders as conductors of better governance in Ukraine. Educators add a fourth “E” to the 3 Es of effective board leadership (engaging, enabling, encouraging, as seen in Chapter 1) by enlightening board members, business owners and other stakeholders about the philosophy, principles and practices of good corporate governance. As dedicated ambassadors of corporate governance, they are avid promoters of ongoing individual and group learning; they serve as role models; they mentor directors, owners and executives; they foster collective reflections. Our research respondents refer to them as gurus. Two directors who work with the same chair shared: “He is a guru – a vessel of wisdom” and “He is a partner and a mentor to all of us. He shares his personal cases and best practices. We learn from him and with him”. Educators are seasoned leaders with decades of local and international experience as executives and directors. These are not naïve romantics. They take their role as chair seriously and play it effectively. Yet they believe that their contribution to developing their directors’ and stakeholders’ mindsets and competencies is the most effective way to improve their board performance. One director explained: “The chair introduced me to the concept of serving leadership”. They understand that their critical assets are their authority and reputation, which make others, including owners, listen to them—and they guard these riches carefully. As one of them said: “A board head should not be afraid to lose income but needs to stay wary of losing reputation”. Some of the chair-educators that we met are former entrepreneurs. Others have an academic or government background. Nevertheless, they all have significant practical board experience and exposure to

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global best practices of corporate governance through programmes at business schools and universities, seminars, books and memberships of international directors’ associations. This global dimension makes them distinctive among Ukrainian chairs. In addition, we found that they all share three passions—for good governance, learning and helping others to learn. We believe that chair-educators will play a vital role in the transformation of corporate governance practices in Ukraine. Missionary. We came across several experienced independent board chairs who consider themselves to be on a mission. This mission could be to help a company to become listed on the stock exchange, to instil a culture of independent corporate governance, to create transparent reporting mechanisms, to clear up a mess in the governance of subsidiaries, or to ensure a smooth succession from a founder to a professional CEO. These professionals understand the roles of the board and the chair well and have adequate skills to do an excellent job. Their principal goal is to use their position as board chair to achieve their mission. Missionaries do not work for the company’s board but for the mission; their commitment to the board is limited both in time and scope, although they often work very hard. We found that many chairmissionaries are not Ukrainians and do not live in the country. Typically, they chair a board for three to a maximum of five years and then move onto another project. Many of them are former business executives; some come from top consulting firms; others have an academic background. Emerging professional. One of our respondents became quite emotional in describing the dire lack of professional chairs in Ukraine: “There are no professional chairs in Ukraine because it takes 15 years to become a professional chair – five years to learn how to play and ten years to learn how to win”. Our research uncovered a more complex picture, yet we broadly agree that an independent professional chair is a scarce commodity in Ukraine. The good news is that our study discovered an emerging cohort of chairs who are on their way to becoming professionals. These former executives, lawyers, management consultants and bankers, all with some experience as directors, have decided to make professional chairing their next career. Unlike their colleagues in Western Europe, many of whom have reached retirement age, most Ukrainian chairs are in their 50s or even 40s. They believe in the future of corporate governance in Ukraine and want to seize the opportunity to have meaningful and rewarding careers as professional board chairs.

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Most emerging-professional chairs preside over one board, are independent of owners and management, and participate in one or two other boards as non-executive directors. They work for the board and the company but take into account the expectations of shareholders and other stakeholders. These leaders value professionalism, effectiveness, time, debate, and diversity in the boardroom and… fun. They want their boards to embrace sound corporate governance principles and to become digital, socially and environmentally responsible. They learn mostly by trial and error, as little specialized education or mentoring is available to board chairs in Ukraine. Passionate and involved with their boards and companies, emerging-professional chairs find it hard to avoid executive behaviour in the board room but recognize this tendency as a challenge and work on overcoming it through evaluations, feedback and coaching. To a certain extent, emerging-professional chairs are the people who will define the future of board practices in Ukraine. If their numbers grow, the country will have a cadre of professionals with the right attitudes and skills to take its corporate boards to a new level.

The Work of a Chair There are essential differences in the ways different types of chairs define and play their roles. However, they share many effective approaches and practices. In the next sections, we will describe how Ukrainian board chairs define and play their core roles—interacting with shareholders and other stakeholders, leading the board, working with the CEO and management and preparing their succession. We will emphasize effective strategies and practices used by all chairs, adding specifics of the various types identified above when necessary. Defining the Role Most respondents did not have a crystal-clear definition of their role, but they willingly shared their thoughts on the subject. They all agreed that the major duty of a chair is to lead the board. The next most important role was interacting with shareholders, management and other stakeholders in order to be effective in their primary role. For chairrespondents, the underlying assumption was that a board is a group of competent individual contributors—equal, respectful to each other and capable of reaching collective decisions through open discussions. Based

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on our research an effective board of directors in Ukraine plays four roles: making decisions; providing oversight of management; interacting with shareholders, management and regulators; and balancing the influence of these key stakeholders. Chairs have to make sure these roles are properly recognized and fulfilled by the board. In some cases, they may perform some of these roles on behalf of the board. The work of a board chair in Ukraine is complex and delicate. Chairs have to be aware of the interests and expectations of various stakeholders in a culture where the latter may not always speak directly or share their concerns proactively. As one respondent put it: “The board is a tool for finding balance in the whole system”. Alignment and balance are the central themes for Ukrainian board leaders. Another recurring theme of our interviews was the “right board culture” by which respondents meant: a shared understanding of the board’s mission and role, as well as of board members’ duties and rights; working trust among directors; and generally accepted norms of collaboration such as preparedness, respect of others’ views and regular attendance. Chair-respondents considered board meetings only the tip of the iceberg of their work. They interact with directors informally, engage with shareholders and executives and use personal social networks to supply their boards with information, expertise and new members. They broker agreements between shareholders, mediate between owners and management, interact with regulators and resolve conflicts between directors. Leading a Board In Ukraine, preparation for a board meeting often starts with a hard look at board composition. As one chair put it: “When we needed to go digital, we hired the best in the business to the board”. Unlike their counterparts in many other European countries, Ukrainian chairs proactively influence their boards’ composition. One chair-educator explained that staffing the board is an essential part of his informal agreements with the shareholders of the companies for which he chairs boards. He and other respondents look for directors who have the required professional expertise, a wide network of contacts, time to do the work, a solid reputation and the ability to fit into the existing board both intellectually and culturally. The last item on this list is critical for chairs preoccupied with creating and maintaining a productive working atmosphere on their boards.

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The shareholders’ approval is also vital because it deepens their trust in the chair. As one chair explained: “When a shareholder has reservations about a candidate, I look for someone else. It has to be someone he will listen to”. Most of the time, chairs use their networks to find candidates. According to chair-respondents, their ability to influence board composition empowers them and makes them feel responsible for the results of their boards. At the same time, it adds extra power and increases their authority over other directors, who know who brought them into the boardroom… and who may take them out of it. Since chairs often play a crucial role in recruiting new directors, they feel responsible for ensuring their effective integration. We did not come across any formalized induction programmes, however. In most cases, chairs have a one-on-one meeting with the new director, followed by dinner with the board. Some chairs ask the CEOs to introduce a new board member to key managers and share relevant information. Chaireducators pay special attention to new directors, meet them frequently, inquire about their experience and share insights. The agenda is one of a few instruments that board leaders have at their disposal and Ukrainian chairs pay a great deal of attention to it. Our respondents stated that items on the agenda should be “relevant ”, “strategic”, “current ” and “future-oriented”. One chair always includes items related to innovation as a prerequisite to sustained success: “We need to understand numbers, but numbers are not enough to stay ahead of the competition. No innovation – no growth; it’s my job to ensure growth”. Ukrainian chairs largely co-create the final agenda with the CEO, based on requests from the management, directors and shareholders. One respondent is typical: “Usually, I briefly check in with the shareholders, directors and management, before I formulate the final agenda with the CEO to make sure that we have the right focus and attitude”. The number of items on the agenda varies depending on numerous factors: the company’s lifecycle, the number of board meetings a year and personal preferences of chairs and shareholders. Some boards have four to six formal meetings a year. Others meet once a month. Meetings last from two hours to two days, and the agenda may include anything from 4 to 40 points. Effective chairs recognize that information asymmetry between management and involved owners on the one hand and non-executive directors on the other is one of the significant challenges they have to overcome. They try to create and maintain what one of the respondents

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called the “information architecture of the board”, that is, the formats for information gathering and sharing and the rules regulating their use. The architecture typically includes formal (mostly from management) and informal sources of information and standards for managerial and committee reports (including their content, length and frequency). As one chair explained: “I proposed a standard for presentations , board members added their input, and we’ve followed the established guidelines ever since”. Chair-educators and most emerging-professional chairs involve directors in designing effective information systems and adjusting processes based on real-life feedback. For example, following directors’ feedback one chair instructed the corporate secretary to provide customized pre-meeting support for directors in the form of reminders and organize digital discussions. Most chairs review and edit board materials before their submission to ensure the quality of the information. One director explained that her motivation to stay engaged and to prepare depends on the quality of the pre-meeting support: “I am a busy person; when I get a 50-page-long report one day before the meeting, I do not read it ”. Most chairs try to deliver materials to their boards five to ten days before the meeting. An interesting practice that some Ukrainian chairs use extensively is so-called “information meetings ”, when directors get together for a short time to understand the issue before making a decision at the formal board meeting. Often such meetings happen online. Chairs also invite external experts to consult the board before an important decision. One respondent explained: “When we need an outside expert’s opinion on a particular issue, we invite professionals to brief us; we do not hire them into the board”. Board leaders also play the role of an information source for their boards, using their networks and directorial positions at other companies to gather this information. As one respondent put it: “The ability of the bank’s chair to maintain trusting relationships with the regulator and key industry influencers proves an essential source of information”. In addition, chairs solicit information from individual directors and make it available to the rest of the board. As one chair explained: “I talk to people outside of committees and meetings to get the info that otherwise would not be shared”. Most chairs keep multiple communication channels open 24/7 for directors. These include online messengers (WhatsApp, Telegram), Facebook groups, conference calls (Zoom, Skype, Teams) and phone calls. Most use digital channels to get real-time updates from management, address issues raised by directors, get their inputs and share knowledge.

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Many respondents reported organizing “rituals” to re-engage directors before board meetings, such as tête-a-tête lunches with individual directors and dinners with the whole board, sometimes including shareholders and top management. One chair-educator explained: “I usually take an hour before the board meeting to learn about the most relevant events in everyone’s life, so that we do not miss that someone had a son or opened a new business. It’s important to know what is going on in a person’s life”. Another chair starts every board meeting with a group prayer: “We never had a difficult situation that we could not resolve amicably after a prayer”. During the Meeting Our respondents emphasized that, while the technical elements of leading a board meeting such as following the agenda, hearing everyone’s voice and respecting the time frame are essential, the key factor for an effective meeting is the atmosphere of psychological safety and trust in the boardroom. The chair is largely responsible for ensuring this. As one respondent put it: “There is a lot of technical, administrative work, but leadership work is vital there, as the chair sets the tone. On the one hand, he must always pay attention to important things, and on the other, he must make sure that we hear everyone’s opinion”. A productive atmosphere emerges only when chairs consider it their priority. Ukrainian chairs use such enabling practices as precise framing of discussion questions; fair time allocation; facilitation that helps silent directors to speak up and talkative types to limit their airtime; respect for divergent positions; and tactful conflict mitigation. For instance, one chair shared: “I remind myself before the meeting to be attentive to everyone’s point of view and allow everyone to speak – to evaluate the argument, not the person behind it ”. Consensus-based decision-making is critically important for fostering an atmosphere of trust and collaboration at the board. Our respondents reported somewhat different approaches in executing this general strategy, which reflected the specifics of their boards and personal preferences. Most start meetings by reconfirming or adjusting the agenda with their directors, while some review and approve the minutes of the previous meeting to reconnect with the board. One chaireducator always starts with the CEO’s update: “The CEO prepares a oneto two-page report that describes everything he considers important, so that directors are in sync with his thoughts and priority tasks ”.

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Some chairs invite CEOs and CFOs—and, in some cases, other executives—to attend all board meetings, while others call them in for specific items. Some boards have joint meetings with the whole management team from time to time to exchange information and build rapport. Management presentations take 15–25% of the board meeting; the rest is spent on discussions and decision-making. Board leaders pay special attention to staying within the pre-agreed time frame but are likely to allow extra time for vital discussions. Most independent chairs from our sample are wary of domineering and remain neutral in the debate. As one of them explained, “I do not disclose my position until the end of the board discussion, but I can talk about my logic in exploring this issue”. Chairs limit their airtime to 10–15% of the total and work as integrators facilitating the process. Chair-principals and executive chairs may be more outspoken and tend to take more space in the boardroom. The chairs from our sample are comfortable with some conflict in the boardroom; a few even encourage it. One chair explained: “Yesterday, we had a heated discussion, when the CEO presented a strategy that did not look like a strategy to some board members. We got emotional, but we stayed within the norms and found a solution”. However, Ukrainian board leaders prevent conflict from escalating in the board room above a certain point. They focus on critical issues and facilitate discussions around them. One chair shared an unorthodox approach: When we disagree on the issue, I ask board members to switch roles and speak from somebody else’s standpoint. For example, I pretend to be the head of the audit committee, and my opponent may take my role for the rest of the meeting. We always arrive at new perspectives and find common ground as a result.

When the conflict gets out of control, chairs take it outside the boardroom. One chair outlined his strategy: “If we can’t resolve the issue in 20 minutes , I ask directors to stop the debate and continue discussions outside of the boardroom. I take them out for dinner and do the balancing act. Sometimes they just need someone who cares to listen to them without time restriction”. Another chair with extensive management experience utilizes networks to mitigate conflicts: “I use political diplomacy to deal with the conflict. I call each board member to gather their opinions and advice. I ask

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directors who are close to the person to talk to him and offer support, guidance, or a new perspective”. Two female directors told us that male chairs often delegate the task of informal reconciliation with an upset director to them because they are “nice” and “easy to talk to”. Humour is another strategy for dealing with tensions in the boardroom. As one chair put it: “You cannot stay too serious when you deal with serious issues and serious people. We have lived in a state of ongoing crises for the past 20 years. You have to laugh to remain sane”. Most chairs in Ukraine conclude the meeting by re-stating decisions and thanking the board for its good work. Many conduct executive sessions after the management has left the room, as one respondent explained: “The CEO, financial director, vice-president and head of corporate business attend all the board meetings. They leave when we close the agenda. Then the directors spend 40 to 60 minutes exchanging impressions and summing up”. Often, discussions continue in a restaurant, where the whole board goes to “trapeznichat ”, that is, share a lavish meal in a friendly, comfortable atmosphere and talk heart-to-heart. As one chair put it: “The best way to find solutions to important issues is to share food and wine”. Post-meeting Board evaluation has not become a standard practice in Ukraine. Only half of our respondents reported conducting regular assessments of their boards. Some of them organize non-structured discussions at the end of each board meeting; others conduct a survey once a year and then discuss the results at the board meeting. The content of the surveys evolves to reflect the changing environment and board dynamics. As we learned from the research participants, at times, evaluations lead to changes in board composition. Chair-educators regularly organize board reflection sessions and provide and seek feedback from individual directors. The development of the board and its members is an area of constant attention. Since external developmental programmes are scarce in Ukraine, the chairs perform the lion’s share of that work themselves. As one of them explained: “I take one course a year at a reputable university abroad. Every time I attend a course, I take one board member with me. When we return, we share knowledge with other directors and implement best practices ”.

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Relationship with the CEO Ukrainian companies can choose from two forms of executive power—a single person (chief executive officer) or a collective body (management board). In most cases, management boards serve as advisory bodies to their CEOs who, in the end, make all the important decisions. This arrangement reflects the country’s high-power-distance culture and makes the CEO a particularly important counterpart for the board chair. According to our respondents, building effective chair–CEO relationships represents a significant challenge for most board leaders and their executive counterparts. As one respondent put it: “For the relationship to work, both the chair and the CEO should be willing to invest time and stay within their roles ”. The latter seems to be a difficult task for many board leaders, who often cross the boundaries and interfere with executive work. Our research showed that the commanding type of chair–CEO relationship is widespread in Ukraine.39 Under this model, board leaders tell CEOs what to do, bypass them to give orders to other executives and teach them lessons in front of their management teams. We also discovered a few instances of state representatives giving chairs of their boards instructions to behave this way. Most chair-principals operate as bosses of their CEOs. As one of them put it: “I am still young. I enjoy being in the middle of the action”. Many emerging-professional chairs with a CEO background also struggle not to cross the line. As one chair explained: “The CEO comes to me for advice because I was effective in his role before. Sometimes, I have to restrain myself from diving into operations and stay within my role. It’s not easy; I am a good CEO. My chair experience is more limited”. Emerging-professional chairs with deeply ingrained executive behaviour tend to forget that they represent the board rather than themselves in their relationships with the CEO. Those who recognize the issue use various strategies, including technology, to mitigate this risk. As one chair shared: “I set up two groups in WhatsApp: one for an individual conversation with the CEO and the other to stimulate discussions between the board and the CEO to address pressing issues quickly”. Emerging-professional chairs are more familiar and comfortable with mentoring and supporting CEOs than principals or executive chairs and invest their time and efforts

39 Please refer to Chapter 1.

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accordingly. As one of them explained: “One of the key roles of the chair is to coach the CEO”. Chair-educators build more balanced relationships with the CEOs of their companies. They try to educate chief executives in corporate governance, the role of a board and the role of a CEO. One of them explained: “Most CEOs in this country have never worked with a real board of directors. They simply don’t know what to expect and what to do”. Therefore, the need for professional help could hardly be overestimated. Chairs mentor chief executives and serve as intellectual sparring partners and sounding boards. As one of them shared: “I wish I had the same support when I was a CEO, I simply did not have time and a trusted professional ear to talk to”. Chair-missionaries try to build partnering relationships between the boards they chair and the CEOs to ensure that the former collectively support and challenge the latter. As one of them put it: “The board is a 24/7 tool that provides any kind of help and advice to the CEO in realtime”. Another chair-missionary shared his view: “The most important task of the supervisory board is to point out blind spots to the management ”. Effective chairs of all types understand the critical importance of their relationship with the CEO and manage it carefully. As one respondent explained: “Building trust takes time; mutual respect sets the foundation for a relationship; explicit purpose increases engagement; and regularity turns these meetings into a working partnership”. The interaction takes different forms, from meetings in the office to informal phone conversations. The frequency varies from daily contacts between chair-principals and their CEOs to meetings once a week or a few times a month for chair-educators, emerging professionals and missionaries. Relationships with Shareholders With rare exceptions, Ukrainian companies are owned by individuals, who built or acquired them at a relatively early stage. These owners are emotionally attached and very involved with their businesses, even if they no longer hold formal executive or non-executive positions. No matter what the law or the Code says, they hire and fire the chairs of their companies’ boards and remain their key counterparts. Building and maintaining such relationships is an imperative for the chairs. Our respondents understand it very well and proactively work with shareholders. The fact that

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most owners are not only hands-on entrepreneurs but have little knowledge of the principles of sound corporate governance can make chairing a herculean task. To succeed in the role, chairs need to have patience, a good understanding of the context, intellectual courage, good knowledge of corporate governance and human nature and readiness to leave at any moment in time. As one chair put it: “When I see that I have exhausted all communication channels and stop being productive, I exit ”. According to our respondents, four strategies help chairs to maintain productive relationships with the owners. The first is being selective. Experienced independent chairs invest heavily in understanding owners with whom they are going to work. They do their research, use their networks to collect independent opinions and conduct comprehensive interviews with the owners. One chair-educator commented: “If they can name five valuable reasons why they cannot survive without the board, I am willing to listen further”. The second strategy is setting realistic expectations and moving in incremental steps. As many respondents explained, the biggest mistake “is to expect things to develop according to the book” (the Code). Effective chairs set their goals and expectations based on an honest assessment of the context, the first and sometimes second-generation owners being the central element of it. As one chair-educator explained: “An independent chair of the family board is merely an adviser because this board can be disbanded by the owner at any moment; you need to consider this when you agree to join”. Chair-respondents emphasized that most likely they will have to deal with—and adjust their expectations to—the following issues: “insufficient degree of autonomy”, “bias ”, “irrational decisions ”, “hidden agendas ”, “pressure to succumb”, “reluctance to delegate” and “fear of doing things differently”. Moving slowly is the second element of this strategy. One owner, recently converted into a corporate governance champion, recalled: “We hired the guy to resolve a family issue; he convinced us to form an advisory board and transition to the supervisory board when we felt the need. We did, and it was one of the best decisions we made; we are exploring vast opportunities we did not know existed before”. The third strategy is to keep fast-learning and self-confident owners engaged. As one chair explained: “The owner has to find this relationship stimulating and stay engaged in a continuous mental exercise”. Effective chairs keep owners discovering new things about governance that help their companies.

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The last but probably most critical strategy is to be reliable in the eyes of the owner. Reliability comes from delivering on promises, maintaining confidentiality and being available, caring and helpful, all of which translates into trust. And trust is perhaps the most valuable commodity of all in the high-context Ukrainian culture, where informal relations often supersede formal rules and regulations. One respondent explained it this way: “The owner took the risk of inviting us into his home (the company); our task is to deliver on expectations and stay honest ”. One owner told us about his emotional reaction when the chair of his board turned 77 and asked to resign: “I said, ‘I won’t let you go because I learn from you. You inspire me. I don’t care how old you are. You can throw your passport into the trash bin. Please stay’ ”. In relationships with shareholders, besides the standard European practices of informing, collecting expectations and seeking feedback on board decisions, chairs in Ukraine perform some extra functions. As we have already seen, many of them actively manage the composition of their boards. Some owners even go so far as to delegate the right to form a board to the chair in exchange for full accountability for its performance. Such practice undermines one of the fundamental principles of sound corporate governance, but our respondents consider it just a teething problem in Ukraine’s emerging board practice. Another distinctively Ukrainian practice exists at many private companies, where the owners agree with the chairs on annual objectives for the board and then review the board’s and the chair’s performance at the end of the year. One chair commented: “We need to be on the same page on benchmarks; otherwise, it is not clear what can be measured”. Some chairs serve as moderators between different shareholders and help them to align their positions; others advise owners on family governance and ownership succession. They educate shareholders about governance and enlighten them as to the state of affairs in their companies. As one chair put it: “We are the only ones who can tell the truth. If we don’t, then they will never know it ”. Chair-shareholder interaction takes various forms—from informal conversations over a meal to formal meetings in person, over video-link or by phone. Many chair-respondents reported that they stay available 24/7 for shareholders.

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Chair Succession The Code does not say anything about chair succession. Only two of the 14 chairs in our survey are working on their own succession planning. We came across four opinions to explain the issue: chairs and shareholders do not yet understand the importance of succession planning; chairs are afraid of potential competition for their job; chairs have no expertise in succession planning and have no idea what to do; and shareholders prefer to have complete flexibility when selecting a future chair. One respondentdirector acknowledged: “Succession planning is a problem in Ukraine; we do not have a mechanism for knowledge transfer to others ”. Another director went further: “This is considered a taboo topic, left to shareholders to resolve”. COVID-19 and Its Impact As in other European countries, COVID-19 created new challenges for Ukrainian boards and their chairs. According to our survey, the key challenges were running online board meetings, dealing with the lack of face-to-face interaction, high operational risks, inadequate operating models, resignations of board members, business uncertainty and uncertainty about the future of corporate governance in Ukraine. Chairs moved board meetings and other communication with stakeholders online relatively seamlessly. Although some respondents spoke about missing live interaction, the majority were satisfied with the online format and even praised its flexibility and efficiency. As one chair shared: “The good thing is that I can interact with directors more often now; we can reach each other at short notice; there’s less conflict , more emotional support – it’s convenient!” With online meetings came adjustments to format. Most chairs increased the frequency of meetings, while some shortened their length. Chairs added new items to their agendas to reflect the new reality of the pandemic, the most popular being (in descending order): health and safety risks, life after the epidemic, risk management, new business lines, reduction in investment programmes, compensation cuts for executives and board members, changes in management composition and decreases in dividends. Board agendas and decisions were primarily driven by the company’s financial situation and its industry’s dynamics. Severely hit firms made significant adjustments, including reductions in dividends and

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executives’ and directors’ pay, while some boards avoided any cuts. The chair of a state-owned technology company that was not seriously affected by the crisis shared that his board had introduced minor bonus cuts and hiring freezes, leaving the strategy intact and also monitoring employees’ health. Most chair-respondents believed that their boards engaged more with the company during the pandemic. With respect to decision-making during the crisis, boards in Ukraine relied (in descending order) on: company analytics, the personal and professional experience of directors, government regulations, management recommendations and knowledge from other companies with which directors were affiliated. Most chairs increased their time commitment to the role significantly, although some reported having less work, because shareholders or management had assumed full responsibility for the business. Some chairprincipals rolled up their sleeves and dived deep into their companies; one explained that “he feared losing the entire business ”. Executive chairs also moved their boards closer to management, often straying into executive territory by directly controlling cash flows and managing expenses. As one of them said: “The real board stays close to the business at times of hardship; this is how you know if your board is good or not ”. Independent chairs, in most cases, increased their engagement with the board and its stakeholders. However, they kept the board’s role largely unchanged, ensuring that it continued to provide oversight and support for management, making critical strategic decisions and managing significant risks, but avoiding interference in executives’ work. Many respondents reported that the advisory role of boards was strengthened during the pandemic. Conversely, some chairs from state-owned companies reported resignations of independent directors, who left citing frustration with government interference in supposedly independent supervisory boards and the companies they oversaw. COVID-19 aroused positive and negative emotions in Ukraine’s board chairs. It accelerated some processes such as digitalization and highlighted the importance of such new themes for boards as employee health and well-being, sustainability and business resilience. Most incumbent chairs admitted they had to work harder and learn quicker than ever before. Some even praised the new normal: “Before, I had to fly everyone someplace a few times a year to stay connected; now I have two phones, a laptop and an iPad on my desk. I can reach anyone very quickly, so I do not feel stressed”. They also reported increased interest from board members and private shareholders in learning more about best practices in corporate governance.

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What Makes a Chair Effective in the Ukrainian Context Board chairs of Ukrainian companies operate in a unique context, where informal governance practices often clash with formal regulations largely borrowed from more developed European countries. Many shareholders, executives, government officials, journalists and even board members do not always understand and appreciate the value of the latter. In such a context, chairs’ effectiveness largely depends on their personal qualities and competencies. We found that resilience to external pressures, a knack for building trusting relationships, a taste for innovation, lifelong learning ability and the courage to be a dedicated educator and reformer all allowed chairs to lead their boards and develop productive relationships with shareholders and management. Effective chairs lead by example. They integrate opinions and people. In the words of one interviewee they “provide psychological safety”. Or, as one respondent put it: “A good chair is greedy for a positive result and wants to leave a good legacy”.

Summary The future of corporate governance in Ukraine is far from certain. However, we view it with cautious optimism and predict that there will be more chair-educators and emerging professionals, who will play a leading role in improving their boards and their companies’ effectiveness over the next five years. There will be more female chairs, but men will continue to dominate. Chairs will actively use digital technology, and a significant part of board work will be done online. In all cases, the enlightening role will remain the key component of chairs’ work.

References Acharya, V., Kehoe, C. and Reyner, M. (2009). Private Equity vs. PLC Boards in the U.K.: A Comparison of Practices and Effectiveness. Journal of Applied Corporate Finance, 21(1), pp. 45–56. Bazaluk, O. (2016). Corruption in Ukraine: Rulers’ Mentality and the Destiny of the Nation, Geophilosophy of Ukraine. Newcastle upon Tyne: Cambridge Scholars Publishing.

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Danylyshyn, B. (2020). The Peculiarities of Economic Crisis Due to COVID19 Pandemic in a Developing Country: Case of Ukraine. Problems and Perspectives in Management, 18(2), pp. 13–22. European Bank (2019). Transition Report 2019–20. Available from: https:// 2019.tr-ebrd.com/countries/ [Accessed 1 December 2020]. Fedosov, V. and Paientko, T. (2017). Ukrainian Government Bureaucracy: Benefits and Costs for the Society. Business and Management Studies, 3(2), pp. 8–19. Gilson, R. and Gordon, J. (2020). Board 3.0: What the Private-Equity Governance Model Can Offer Public Companies. Journal of Applied Corporate Finance, 32(3), pp. 43–51. The Global Economy (2018). Ukraine: Listed Companies. Available from: https://www.theglobaleconomy.com/Ukraine/Listed_companies/ [Accessed 1 December 2020]. The Global Economy (2018). Ukraine: Stock Market Capitalization, Percent of GDP. Available from: https://www.theglobaleconomy.com/Ukraine/Stock_ market_capitalization/ [Accessed 1 December 2020]. Heritage (2020). 2020 Index of Economic Freedom. Available from: https:// www.heritage.org/index/country/ukraine [Accessed 1 December 2020]. Interfax-Ukraine (2020). Senior Fellow at Atlantic Council Aslund Leaving Ukrzaliznytsia’s Supervisory Board. Available from: https://en.interfax.com. ua/news/economic/691128.html [Accessed 1 December 2020]. IT Ukraine Association (2020). Export of Ukrainian IT Increased by 30% During 2019. Available from: https://itukraine.org.ua/en/export-of-ukrain ian-it-increased-by-30-during-2019.html#:~:text=According%20to%20the% 20data%20on,and%20totaled%20USD%204.17%20billion.&text=Export% 20of%20computer%20services%20constitutes,wheat.%20exports%20(USD% 203.65%20billion)) [Accessed 1 December 2020]. McGee, R. (2008). An Overview of Corporate Governance Practices in Ukraine. In: R.W. McGee, ed., Corporate Governance in Transition Economies, pp. 351–354. Boston: Springer. Ministry for Development of Economy, Trade and Agriculture of Ukraine (2019). Top 100 State-Owned Companies Earned Profit in the Amount of USD 21.5 Billion in the First Half of 2018. Available from: https:// www.me.gov.ua/News/Detail?lang=en-GB&isSpecial=True&id=44187d17f5c6-4e3b-933b-7fd895c218ec&title=Top100-StateownedCompaniesEarne dProfitInTheAmountOfUsd21-5-BillionInTheFirstHalfOf2018 [Accessed 1 December 2020]. Nordea (2020). Ukraine: Economic and Political Overview. Available from: https://www.nordeatrade.com/fi/explore-new-market/ukraine/economicalcontext [Accessed December 2020].

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NSSMC (2020). Stock Exchanges. Available from: https://www.nssmc. gov.ua/register/litsenzuvannia-ta-reestratsiia/stock-exchanges/ [Accessed 1 December 2020]. NSSMC and UCGA (2018). The Core Code of Corporate Governance: Ukraine. Available from: https://ucga.com.ua/sites/default/files/pdf/corporateUA_ web.pdf [Accessed 1 December 2020]. OECD (2020). State-Owned Enterprise Reform in the Electricity Sector in Ukraine. Available from: http://www.oecd.org/corporate/soe-reform-electr icity-sector-ukraine.htm [Accessed 1 December 2020]. Olekseyuk, Z. (2018). Ukraine’s Unconsidered Losses from the Annexation of Crimea: What Should We Account for in the DCFTA Forecasts? Review of Development Economics, 23(2), pp. 877–901. Prysiazhniuk, O. and Orlyk, M. (2020). Market Snapshot: Ukraine. Changes Expected by Joint Stock Companies in Ukraine. Market Spotlight: Ukraine, pp. 50–51. Syvyy, R. (2017). Corporate Governance in Ukrainian Firms: Multiple Model Selections, Their Current Functioning, and Potential Future. Review of Central and East European Law, 42(4), pp. 364–408. Trading Economics (2019). Ease of Doing Business in Ukraine. Available from: https://tradingeconomics.com/ukraine/ease-of-doing-business [Accessed 1 December 2020]. Ukraine Economic Outlook (2020). Available from: http://ua-outlook.com. ua/en/ [Accessed 1 December 2020]. Ukrainian Exchange (2020). Exchange Members. Available from: http://www. ux.ua/en/members.aspx [Accessed 1 December 2020]. Vasil Kisil and Partners (2019). Ukraine: Corporate Governance. Available from: https://vkp.ua/en/publication/ukraine_corporate_governance [Accessed 1 December 2020]. Verkhovna Rada (2003). The Civil Code of Ukraine. Vidomosti Verkhovnoi Rady Ukrainy, 40–44, p. 356. Verkhovna Rada (2003). The Commercial Code of Ukraine. Vidomosti Verkhovnoi Rady Ukrainy, 18, 19–20, 21–22, p. 144. Verkhovna Rada (2006). Law on Securities and Stock Exchange. Vidomosti Verkhovnoi Rady Ukrainy, 31, p. 261. Verkhovna Rada (2008). On Joint Stock Companies. Vidomosti Verkhovnoi Rady Ukrainy, 50–51, p. 384. Verkhovna Rada (2018). On Limited Liability Companies and Additional Liability Companies: The Law of Ukraine №2275-VII of February 6, 2018. Vidomosti Verkhovnoi Rady Ukrainy, 13, p. 69. Wilson, A. (2014). Ukraine Crisis: What It Means for the West. London: Yale University Press.

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Wisła, R. and Nowosad, A. (2020). Economic Transformation in Poland and Ukraine. London: Routledge. The World Bank (2020). GDP Per Capita, PPP (Current International $). Available from: https://data.worldbank.org/indicator/NY.GDP.PCAP.PP. CD?year_high_desc=true [Accessed 1 December 2020]. The World Bank (2020). Population, Total. Available from: https://data.worldb ank.org/indicator/SP.POP.TOTL [Accessed 1 December 2020]. The World Bank (2020). Services, Value Added (% of GDP). Available from: https://data.worldbank.org/indicator/NV.SRV.TOTL.ZS [Accessed 1 December 2020].

CHAPTER 14

Turkey: Between Traditional and Modern Leadership Hande Ya¸sargil and Elena Denisova-Schmidt

The Chair’s Work in Context Turkey is a transcontinental country linking Europe, the Middle East, North Africa and Central Asia. It is a constitutionally presidential republic. It has a population of over 83 million.1 Since 2000 the country has urbanized significantly and opened up to foreign trade and finance. Many laws and regulations have been harmonized with European Union (EU) 1 The World Bank (2019). World Development Indicators. Population, Total. Available from: http://databank.worldbank.org/data/reports.aspx?source=2&series=SP.POP.TOTL [Accessed 1 December 2020].

H. Ya¸sargil (B) Women on Board Association of Turkey, Istanbul, Turkey e-mail: [email protected] E. Denisova-Schmidt University of St. Gallen, St. Gallen, Switzerland e-mail: [email protected]

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_14

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standards, and access to public services has been greatly expanded. The driving forces of the Turkish economy—the seventh largest in Europe and nineteenth in the world2 —are light and heavy industry (textiles, vehicles, chemicals, machinery, electrical industry) and the service sector, with a significant contribution from agriculture. Family businesses of many different types, from “mom-and-pop shops” to multi-industry conglomerates, dominate the Turkish economy, accounting for almost 90% of all companies.3 In 2019, Turkish GDP was US$754 billion4 or US$9042 per capita,5 and inflation reached 15%.6 The high unemployment rate—14.3%7 as of June 2020—and the significant economic gap between rural areas (located mainly in the East and in the Southeast) and rapidly growing industrial centres are the main challenges for the labour market. Moreover, the Turkish labour market suffers from a relatively low employment

2 The World Bank (2019). World Development Indicators. GDP Ranking. Available from: https://datacatalog.worldbank.org/dataset/gdp-ranking [Accessed 1 December 2020]. 3 Tasman-Jones, J. (2013). Infographic: Turkish Family Businesses. CampdenFB, 59. Available from: http://www.campdenfb.com/article/infographic-turkish-family-businesses [Accessed 1 December 2020]. 4 The World Bank (2019). World Development Indicators. GDP Ranking. Available from: https://datacatalog.worldbank.org/dataset/gdp-ranking [Accessed 1 December 2020]. 5 The World Bank (2019). World Development Indicators. GDP per Capita, in International Dollars. Available from: https://data.worldbank.org/indicator/NY.GDP.PCAP.PP. CD?year_high_desc=true [Accessed 1 December 2020]. 6 The World Bank (2019). World Development Indicators. Inflation, Consumer Prices. Available from: https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?locati ons=TR [Accessed 1 December 2020]. 7 Eurostat (2020). Unemployment by Sex and Age—Monthly Average. Available from: http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=une_rt_m&lang=en [Accessed 1 December 2020].

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rate for women (about 34%)8 and a significant percentage of off-thebooks employment. Turkey is ranked 59th on the Human Development Index.9 When the COVID-19 pandemic inflicted a severe blow on the Turkish economy, which is highly dependent on exports and tourism revenue, the central bank eased monetary policy. This led to a 37% devaluation of the local currency. Corporate governance in Turkey has undergone profound changes in the last decade. The Turkish Commercial Code (TCC) and Capital Markets Law (CML) set out the main principles of corporate governance for public and private joint-stock companies (JSCs). Both largely reflect the spirit and the principles of corporate governance developed by the OECD. The Capital Markets Board (CMB) is an independent regulatory and supervisory body overseeing Turkey’s capital markets. The Corporate Governance Code in Turkey is represented by the Principles on Corporate Governance first issued in 2003 by The Capital Markets Board (CMB) and revised several times, most recently in 2014.10 Some of the provisions of the Principles are mandatory; others are to be implemented under the “comply or explain” approach. Turkey has a one-tier board system, under which both executive and non-executive members make up the board of directors, the highest governing body in the company. The board has full authority to manage the company. In practice, it delegates managing powers to the CEO or, in some cases, to multiple managing directors with equal powers. The responsibilities of the chair and the CEO are clearly delineated. Indeed, the Principles on Corporate Governance recommend that these positions be filled by two individuals and stipulate that, if they are combined, the board should disclose the reason.11 There are currently 8 International Labor Organisation (2020). Turkey Country Profile. Available from: https://www.ilo.org/ankara/projects/gender-equality/lang--en/index.htm#:~:text= Women%20constitute%20almost%20half%20of,Turkish%20Statistical%20Institute%20(TU% C4%B0K) [Accessed 1 December 2020]. 9 UNDP (2019). Human Development Report 2019: Beyond Income, beyond Aver-

ages, beyond Today. Available from http://hdr.undp.org/sites/default/files/hdr2019.pdf [Accessed 1 December 2020]. 10 The Capital Markets Board (2014). Communiqué on Corporate Governance. Official Gazette. Available from: http://www.cmb.gov.tr/SiteApps/Teblig/File/479 [Accessed 1 December 2020]. 11 Ibid.

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only four BIST 100 companies (the largest corporations listed on Istanbul Stock Exchange) where the chair and the CEO is the same person.12 By law, the CEO is required to sit on the board of Turkish banks, although the role cannot be combined with that of chair. Non-transferable powers of the board include the appointment of key executives, approval of the management structure, supervision of executives (including appraisal and remuneration), compliance with laws and regulations and organization of shareholder meetings. The board is also responsible for effective communication with shareholders. The Principles of Corporate Governance prescribe a board with no less than five members, at least half of whom should be non-executive directors and one-third independent directors.13 In 2019, there were 402 companies listed on the Istanbul Stock Exchange (BIST) with on average 6.8 board members and 31.5% independent directors. Only 36 companies (8%) had female chairs, 28 of whom were affiliated with shareholders.14 According to the Principles on Corporate Governance, the chair is responsible for setting the board agenda, providing materials, ensuring directors’ attendance and conducting board meetings in such a manner that every director contributes to the collective work.15 Turkey has one of the highest levels of ownership concentration in Europe, and shareholders often play a prominent role in managing and governing their businesses. Large shareholders are often emotionally attached to their companies and “owners’ pride” plays an important role in their decision-making. Half of all listed companies in Turkey are majority owned by individuals or families, and boards at 80% of Turkish public companies have at least one board member who is a member 12 The

Capital Markets Board and EBRD (2019). Corporate Governance Steering Report. Available from: https://www.spk.gov.tr/Sayfa/Dosya/1330 [Accessed 1 December 2020]. 13 The Capital Markets Board (2014). Communiqué on Corporate Governance. Official Gazette. Available from: http://www.cmb.gov.tr/SiteApps/Teblig/File/479 [Accessed 1 December 2020]. 14 . Women on Board Turkey (2019). The 7th Women on Board Turkey Annual Report. Corporate Governance Forum, Sabanci University. Available from: https://30percentclub. org/assets/uploads/Turkey/PDFs/7th_annual_report_0_(1).pdf [Accessed 1 December 2020]. 15 The Capital Markets Board (2014). Communiqué on Corporate Governance. Official Gazette. Available from: http://www.cmb.gov.tr/SiteApps/Teblig/File/479 [Accessed 1 December 2020].

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of the controlling or founding family.16 Many chairs are also significant shareholders—or their representatives.

Existing Research In spite of a growing interest in researching corporate governance in Turkey over the last decade, the literature on the subject is limited. One study devoted to board chairs in Turkey,17 based on interviews with chairs of eight Turkish public companies and ten board members, describes the context in which the chair operates and the scope of the role. The researchers concluded that, because of the complexity of personal relationships and the active role of shareholders in Turkey, “delicacy of touch” and the ability to nurture balanced power structures within the board were particularly important qualities. The study also highlighted that, due to internal and external relationship exposure, the spread of the chair’s responsibilities is extensive, as is the chair’s influence on the organization. A number of studies examine the impact of the structure of boards on the performance of Turkish companies. Some of these are of interest for our analysis, since among other issues they focus on the relationship between CEO–chair duality and company performance. Most of the research reveals that CEO–chair duality is negatively associated with performance.18 Other studies cover the relationship between certain aspects of the chair’s role and the company’s performance. For example, one study, based on a sample of 266 Turkish firms with majority family ownership, showed that in the highest-performing companies, chairs are rarely replaced—except in cases of death and old age. In addition, chairs 16 Kula, V. (2005). The Impact of the Roles, Structure and Process of Boards on Firm Performance: Evidence from Turkey. Corporate Governance: An International Review, 13(2), pp. 265–276. 17 Kakabadse, A., Kakabadse, N. and Yavuz, O. (2009). Turkish Chairmen: Contrasting the Art of Dialogue against the Discipline for Governance. In: A. Kakabadse, and N. Kakabadse, ed., Global Boards. Basingstoke: Palgrave Macmillan. 18 Kula, V. (2005). The Impact of the Roles, Structure and Process of Boards on Firm Performance: Evidence from Turkey. Corporate Governance: An International Review, 13(2), pp. 265–276; Kaymak, T. and Bektas, E. (2008). East Meets West? Board Characteristics in an Emerging Market: Evidence from Turkish Banks. Corporate Governance: An International Review, 16(6), pp. 550–561.

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in higher-performing companies tend to be less involved with routine affairs. Finally, the better the company’s performance, the more the chair determines the board agenda.19

Turkey Culture Map Using Turkey’s position on Professor Erin Meyer’s “Culture Map”, we can develop some hypotheses about the working practices of board chairs at Turkish companies (see Appendix 1). In Turkey communication is medium- to high-context, so board discussions may be nuanced and far from straightforward. If this hypothesis is correct, effective chairs will spend a lot of time clarifying assumptions and establishing relevant facts for their boards. In most principles-first cultures, such as Turkey, the chair is likely to focus on clarifying the logic behind certain decisions and the board’s overall mission. Decision-making is top-down rather than consensual in hierarchical cultures like Turkey, so we would expect chairs to be somewhat authoritarian. Turkish culture is relationship-based, which implies that chairs will pay attention to building and maintaining relationships with all stakeholders, both formally and informally. Turkey is medium-ranked in terms of confrontation, which should translate into chairs preventing arguments or heated debates in the boardroom—and avoiding tough face-to-face conversations outside it. Turkey operates in flexible-time mode, which is likely to make chairs adaptable in their attitude towards timings of board meetings and deadlines (see Fig. 14.1).

Data We conducted semi-structured interviews with seven board chairs—six men and one woman—aged between 55 and 65 years. With one exception, they were all based in Istanbul. Three are second-generation owners; four are professional chairs with a CEO background. Together the respondents have chaired the boards of 45 companies with significant private shareholders, 6 of which are publicly traded. They have all served as the chair of at least one charity in the past. Four of the chairs have a

19 Kula, V. and Tatoglu, E. (2006). Board Process Attributes and Company Performance of Family-Owned Businesses in Turkey. Corporate Governance: The International Journal of Business in Society, 6(5), pp. 624–634.

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Fig. 14.1 Turkey Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs])

full-time engagement with the organizations whose boards they currently chair. Their experience of chairing boards varies between 6 and 16 years. The interviewees’ boards meet either monthly or every two months, in most instances for half a day. Some of their companies have only shareholders as board members, while others have executive, non-executive and independent directors. Most chairs in the sample actively use committees, especially those mandated by the Turkish Capital Markets Board, such as risk and audit. Optional committees, such as ethics and human resources, operate in only a few of the companies. All boards have started to meet online since the outbreak of COVID-19, whenever meeting in person is not possible. To provide a 360-degree view of the chair’s work, we interviewed six other respondents—three women and three men—including three independent directors, one private shareholder, one representative of a shareholding family and one CEO. Five of them were over 50 years old and one was under 35. All were of Turkish origin and had CEO experience or represented a family. They also had significant experience of serving as board members for the public, private and charity sectors in different industries.

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We will present our findings by describing how board chairs in Turkey deal with major challenges, how COVID-19 has impacted their work and how the role and the work of a chair will evolve in the Turkish context.

Chairs in Turkey: Key Challenges and Practices Relationships with Shareholders In Turkey, where there is a high concentration of ownership and shareholders are very involved with the businesses they own, board chairs consider relationships with shareholders to be their top priority. The fact that most cases boards include shareholders makes managing these relationships even more challenging. In our research we observed a number of modes of chair–shareholder interaction and some specific practices supporting them. The modes are defined by the ownership structure, family ties, personalities and social status of the parties involved. Some chairs operate under the “I work for the company” model. As one experienced independent director noted: “He [the chair] works for and looks after the interests of the company, and nothing else, while looking after relevant stakeholders ”. Under this model an independent chair is aware of the interests and expectations of all shareholders, conveys them to the board and makes sure that the latter takes them into consideration while making decisions. The interests of the company do not always match those of the shareholders, and the board under the chair’s leadership has to advance the former. The chair and the board need a high level of independence from shareholders and those who sit on the board are required to leave their shareholders’ hats at the door of the boardroom. We came across this model at public companies with dispersed ownership and at private ones with three or more shareholders. In all cases, the chairs were independent, very experienced professionals with high social status. One particularly interesting occurrence of the model was at a public company where the chair was the majority shareholder. This required considerable autonomy, maturity and resilience from the chair as well as highly developed communication and moderating skills. By contrast, the “I work for the shareholders” model implies that a board chair puts the interests of shareholders above those of the company and other stakeholders. As one chair-respondent said: “He can have a

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small share in a business but be a wise and experienced man. I want him to feel that I value him as much as I do large shareholders ”. We observed this attitude in the board of a private company chaired by a minority shareholder. In his work the chair strived to understand and align the interests of all shareholders and viewed the board’s decision-making through the prism of maintaining and strengthening this alignment. Another model that we discovered could be called “I work for an individual”. One chair of a subsidiary, who had been nominated by the CEO (and majority shareholder) of the holding company, operates in such a way as to satisfy the latter above all else. Similarly, the chair of a public company may work for a controlling shareholder who sits next to him in the boardroom as a director. One variation on this model is “I work for a family”, where a chair (family member or non-family member alike) owes a duty to the founding family and orchestrates board business to the tune of its interests. Neither the “I work for the shareholders” nor the “I work for a person” model implies that the chair and the board ignore the interests of the company or forget about other shareholders. On the contrary, they respect the law and the Code. It is simply that they have a specific sense of duty and priorities. Furthermore, in reality none of the models we have described exists in its pure form. The boundaries between them are somewhat blurred, but they allow us to capture the variety of approaches to chairing a board in Turkey. In terms of practices, chairs use both formal and informal tools to interact with shareholders. Five of the chairs interviewed rely on regular reporting to keep shareholders informed and engaged. Most of them send all board materials to the shareholders before the board meeting, so that the latter feel in control and trust the former. One chair does not share board materials but organizes a meeting for shareholders—with the CEO’s participation—to discuss the upcoming board meeting. Another goes to see a shareholder to prepare for all the decisions to be made by the board. Some chairs take shareholders and their representatives out for dinner to discuss the upcoming board meeting informally. One respondent conducts an annual strategy meeting with shareholders to review and document strategy and board agendas for the next year. He then relies on the agreed points to navigate the board during the next twelve months.

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Board Dynamics In Turkey, with its hierarchical but non-confrontational culture, authority has to be visible yet warm. According to our respondents, effective chairs are welcoming, communicative, have high levels of energy and, at the same time, are capable of using power to make difficult decisions. We discovered three approaches to running board meetings among Turkish chairs, referred to as “structured”, “semi-structured” and “delegated” (or “professional”) facilitation. Structured facilitation. Proponents of this approach believe in planning, timing and controlling. They set the agenda and allocate time for each item in advance, establish the rules of engagement and enforce them. One chair always opens the meeting with procedural questions, tightly controls the time, the order and the flow of the discussion, disciplines anyone who deviates, solicits the opinions of silent directors and closes the meeting. He does not allow interruptions by phone or in person. Another chair insists on sticking to the predefined agenda and timetable. Semi-structured facilitation. One chair subscribes to a more flexible approach. She allows new items to be added to the agenda, but keeps them for the end. She organizes breaks when she feels directors need some fresh air. Another tries to lead with emotional intelligence: “You should be in the meeting, but also look at it from the outside to see what’s going on—and intervene accordingly”. Delegated facilitation. One of our interviewees is the chair of several companies where he is also a controlling shareholder. He delegates the job of chairing board meetings at some of these companies to lead independent directors (LIDs), who are usually experienced professional directors and sometimes professional facilitators. Under this model, the LID runs the meeting while the chair participates in it as a director. Another tries to create an inclusive, collaborative environment for active participation of board members, and in cases of non-constructive behaviour he intervenes with authority. Based on our research, structured facilitation is the most popular approach among chairs of Turkish companies. Although chairs are responsible for setting the board agenda, sometimes they do so in consultation with shareholders or the CEO. The agenda will reflect the company’s size, stage of development, industry and the complexity of its environment. However, boards in Turkey examine not only strategic but operational

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issues. As one experienced director explained, a typical agenda would be “60–80% strategic and the rest operational ”. We learned that there is more or less traditional way to start a board meeting in Turkey. The chair opens with a greeting and a short summary of what was decided at the previous meeting and then goes over the agenda, which in most cases remains as planned. Each item on the agenda has a time allocation and the chair brings the board’s attention to it. In conducting board discussions, effective chairs strive for a balance between effectiveness and efficiency. On the one hand, they encourage directors to speak up and let the discussion unfold while keeping personal egos in check. As one independent director, a pioneer in Turkish corporate governance, put it: “A chair tries to create a platform for a constructive and focused discussion and not let personal animosity take over the discussion”. On the other hand, well aware of flexible attitudes to time in Turkey, experienced chairs keep an eye on their watches to ensure that every director gets an opportunity to speak up. As one of the chairrespondents put it: “Timing is of the essence; each member should be given a sufficient time for his or her contribution”. Everyone we interviewed agreed that the ability to involve all directors and organize a productive discussion within a limited amount of time is one of the most important competencies of a board chair. As one respondent said: “The most important feature of an effective chairperson is [his/her] ‘effectiveness’, not only in terms of preparation of the agenda and the meeting, but also in facilitating discussion during the board meetings, and stipulating short- and medium-term risks and opportunities for the company”. Effective chairs create a productive environment for their boards by treating directors equally, encouraging everyone to speak up their minds, containing egotistic directors (discussed below) and setting an example of discipline and punctuality. “A good chair ensures a climate that allows the board to ask the right questions and harmonizes the environment to have maximum contribution from a diverse board”, in the words of one of the independent directors we interviewed. Another respondent shared the CRAFTED approach to building trust: Consistency, R esponsibility, Accountability, Fairness, Transparency and Effectiveness (see box). Building Trust: CRAFTED Approach

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The key to a successful board is to have trust among its members and between the board, the management and the shareholders. The main role of the chair is to ensure that a culture and climate of trust is established and maintained. This can only be accomplished by following the CRAFTED principles of good governance: Consistency A key element in gaining the trust of others is demonstrating consistency in behaviour. This is true not only where the board is gaining the trust of the stakeholders, but also where members of the board are gaining trust among themselves so as to create the proper climate to handle difficult decisions. Responsibility As the board is the final decision-making authority for corporate decisions, the ability to take the initiative, to say “no” and to bring tough issues onto the agenda are valuable attributes for board members. Accountability The board and its committees have to demonstrate humility, to conduct an annual self-evaluation process in order to identify areas for improvement in their own composition and operations and to bring about the changes required. Fairness The choice of a board member should not be based on their relationship with the chairperson, the CEO or other members, but on the value they could add to the board. Also, in balancing the interests of various stakeholders, fairness is a key principle in gaining the trust of others. Transparency Board members need to have the self-confidence and skill to be able to explain the basis for their decisions to each other, and to the management, in order to develop and maintain the right climate for raising challenging issues and to help management internalize the reasoning of board decisions for better implementation. Effectiveness Both the ability to demonstrate intellectual independence, in order to bring different perspectives to bear on board decisions, and the regular benchmarking of both corporate and board performance are essential for effectiveness. Source: Arguden, Y. (2009). Boardroom Secrets. Corporate Governance for Quality of Life. Basingstoke: Palgrave Macmillan.

The enabling approach applied by many effective chairs translates into the decision-making pattern on Turkish boards. Based on the characterization of Turkish culture as hierarchical, we expected board leaders to be “more equal” than other directors in articulating and influencing board decisions. We found this to be the case when the chair is also an important

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shareholder. However, we also discovered that many boards make decisions collectively with the equal participation of all directors, including the chair. As one respondent put it: “A board member, individually, has no authority to make decisions on behalf of the company. However, collectively, the board is the ultimate decision-making body. So the best practice of the chair is to enable this through effective facilitation and agenda management ”. Not surprisingly, all the directors we interviewed spoke against voting and in favour of consensus as the best way to make board decisions. Collaboration Outside the Boardroom To create a smoothly operating board effective chairs undertake various activities outside the boardroom. One respondent emphasized taking “great care to ensure that the team is formed properly from the outset ”. This view is seconded by another chair: “Team members should spend time together and exchange ideas and views so the board works as a unified team, not as individual stars ”. Specific activities include: meetings to discuss ideas and projects without keeping minutes; informal gatherings around meals or coffee; and one-to-one conversations with the chair. One board leader who emphasised the power of joint intellectual effort organizes brainstorming sessions for board members with the participation of external speakers. He brings directors to product launches and customer meetings, and even sets specific performance-improvement projects. Another appoints board members (including independent directors) as sponsors of executive initiatives. We came across two approaches to the challenge of ensuring that the board as a whole and individual directors have the required knowledge and competencies. One group believes that it is an important part of any chair’s job to help their directors acquire new skills and information. These board leaders organize training, site visits, meeting with executives and other developmental activities for the board members. They also take time to share knowledge and provide mentorship. The second group of respondents espouses the view that directors are mature professionals and have to look after their competencies themselves. Board leaders simply have to make sure that their boards are staffed with such people. As one respondent explained: “It is very important for the chair to choose the right person for the company rather than the person whose name is whispered in his ear”. Although chairs have no formal role in selecting directors, in the highly informal Turkish context many of them can influence nomination committees and shareholders’ decisions.

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One chair considers board committees to be an important venue for directors, and encourages and supervises committee work. He believes that competition between committees raises the quality of work and increases collaboration between committee members. He invites them to company-sponsored events like art exhibitions and award gatherings to enhance their feeling of belonging and togetherness. Some chairs also organize lunch after board meetings. As one of them said: “It is never enough just to come, have the meeting and go. They need to enjoy each other as well ”. Managing Difficult Board Members Maintaining discipline among board members is one of the main challenges board chairs face in Turkey. One type of disrupter is the “multitasking director” who tries to do several things in parallel during board meetings, such as talking on the phone or messaging. Effective chairs, according to directors and CEOs, lead the process with discipline, serving as role models to prevent the event from spiralling out of control. “A fish stinks from the head”, as one respondent so colourfully expressed it. Another problem is “challengers”, who interrupt other directors and make critical comments during the discussion. While we expected Turkish chairs to avoid direct confrontation, the majority of them do not shy away from it, replying directly to challengers and cutting interruptions short. They may even abandon a meeting altogether. One chair shared a dramatic story: “When everything was clear, but one member wanted to continue talking about the topic in spite of my warnings, I stood up, told them that I was cancelling the meeting and walked away”. In addition to open confrontation, chairs may use subtler practices. One handles difficult directors by talking to them one-to-one before a board meeting, or discussing critical issues at pre-meeting dinners or other social occasions. As one respondent accurately observed: “Difficult members get even more difficult if excluded; it is easier to manage those members by involving and engaging them”. Another professional chair stressed the importance of a non-judgemental attitude: The most important thing is to understand: if she/he has a tough reaction, that means we brought her/him to that stage. When we listen and show that we understand the point, it resolves automatically, and we see points where she/he is right too. It is important to listen to someone who is labelled

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a troublemaker with a non-judgmental attitude. When you listen to them genuinely, you deserve the right to say something.

This approach calls for emotional intelligence from the chair. Another director confirmed: “If the chair is impulsive in his reactions to the challenges coming from the directors, they will most likely be discouraged from sharing their views, which would be a waste of the value they can add”. “Quiet” and “non-contributing” directors present another challenge. Understanding why they abstain from discussions is of crucial importance for a chair. One respondent had realized that a director was afraid to speak up because he lacked industry expertise. The former sent the latter some additional materials and previous board books, as well as arranging meetings with executives to learn about the business. After a couple of meetings the director began to participate much more. A very effective way to manage difficult board members is to avoid them altogether. One professional chair described making sure that shareholders always seek clearance from him before appointing a new director, so that the chances of having a destructive board member are low from the beginning. In general, we found that chairs in Turkey are quite active in influencing board composition through: defining profiles of directors and “selling’ them to shareholders” (often informally); suggesting candidates and interviewing them; and conducting induction sessions and programmes. Unfortunately, chairs may themselves become a problem for the board. Abrasive behaviour from a board leader reduces directors’ willingness to participate and diminishes the board’s effectiveness. One directorrespondent articulated the chair traits that may become destructive for the board: “partiality, a loss of control, an authoritative tone, complacency” and/or “opinionated reactions to news or new ideas and enforcing his own views ”. Board Evaluation Regular board evaluations are relatively new in Turkey and we came across a variety of approaches. Some chairs organize “an in-camera executive session at the end of each board meeting to receive frank feedback from board members ”; others involve an external consultant. Some respondents shared that they had developed a questionnaire for each director to assess each other on standard dimensions—followed by whole-board discussions

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of the results. As one respondent pointed out, the key challenge with board evaluations is “to make every director contribute”. Many respondents questioned the effectiveness of formal board evaluations, which according to one chair “do not always measure what I want to assess or help to improve our board process ”. In his opinion, improvements require open and candid conversations among directors, which are not easy to have in a somewhat political board environment. Relationships with the CEO and Management “The chair manages the board, the CEO manages the company” might be easier said than done in Turkey. Our research found two main types of Turkish board leaders—chair–principals and professional chairs. The former has power over the organization because of their ownership stake, family ties, CEO position, social status or all of the above. They call the shots, no matter what the org charts or by-laws say. Directors and executives often work for chair–principals rather than for the board or for a nominal CEO. Under this scenario, the relationship between the chair and the CEO is hierarchical. The former is the boss and the latter a subordinate, although sometimes the CEO plays an advisory role vis-à-vis an all-powerful chair.

Professional chairs have no power base, except for their position and competence. They work for the board and in some cases for the specific shareholders who appointed them. In the latter case, the shareholders tend to remain very involved and influential in board matters, while the chair sometimes plays a more technical role. Under this scenario, the relationship between the chair and the CEO is one of two professionals with equal or similar status and usually falls into the “collaboration” and “mentoring” categories described in Chapter 1. One respondent described the chair’s role in such relationships as “a sounding board and counsellor to the CEO – the chair should help the CEO through bad times with advice and support ”. Another added that, although an effective chair challenges the CEO and management in a constructive way, “the chair should let neither personal aggressiveness nor complacency take over interactions with the CEO/management ”. A third respondent summed it up as follows: “A good chair is a person who is challenging at good times and supportive at bad times – and never vice versa!” The research identified a number of specific—and sometimes unorthodox—practices that Turkish chairs use to interact with CEOs.

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Clearly dividing areas of responsibilities. One respondent called himself an “executive chair”. Under his model the CEO is 100% responsible for execution and the chair for governance and strategy. All executives report to the CEO, but audit and risk report to the executive chair. Regular communications with the CEO. The optimal frequency for some respondents is daily: “A chair who does not cooperate with the management daily cannot portray the company’s dynamics to the shareholders in a correct or timely manner”. However, others mentioned only monthly meetings. The chair also brings information to the management team from the shareholders or from the other companies in the group. Managing CEO performance. One chair told us how he supervises the CEO. The board has established KPIs and the chair reviews progress in formal meetings with the CEO. In addition, there are less-formal mentoring sessions. Other respondents are also involved in direct supervision of CEOs and provide performance feedback, in some cases after each board meeting—particularly when the chair is the controlling owner or former CEO of the company. Mentoring . Advice and patronage are often the basis of the relationship with the CEO. One respondent explained: “Since I groomed and promoted the CEO, he consults me as he would an older brother, and I mentor him”. This kind of mentoring from a position of seniority has its drawbacks, as some CEOs try to devolve responsibility upwards. One chair said that he always pushes back on such attempts. Mentoring sessions for the CEO—1 level. One chair provides mentoring not only to the CEO but to his direct reports. This enables the board leader to gauge the company’s leadership talent. Recognition. The chairs we interviewed always make CEOs aware that their contributions are noticed and appreciated. They do not always wait for a formal performance appraisal session but give praise informally when the opportunity emerges, including during board meetings. Rehearsing meetings with the CEO. One chair-respondent rehearses upcoming board meetings with the CEO. He considers this not only a good way to ensure an effective meeting, but also a means to motivate and train the CEO. He observed that “Turks are less prepared than international CEOs and need more support ”.

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Initiative sponsorship. One chair uses the practice of assigning a board member as curator of each major initiative that management has to implement. The curators work closely with the CEO and other executives, providing mentoring, advice and feedback. Chairs’ Development and Succession Independent chairs in Turkey are not actively involved in their succession, leaving the decision to the shareholders. However, chairs who are large shareholders or CEOs of the company often think about and plan for their succession very carefully. One respondent shared that his successor is almost ready to take over, now that they have worked together for several years. One chair-owner of a large holding takes his succession particularly seriously—he selects external governance and business experts as independent directors for some of his companies and looks at them as potential candidates. One chair–CEO has two potential candidates to succeed him in both positions and another five years to make his choice.

Profile of the Chair in Turkey In recent years, there have been significant changes in the way chairs of Turkish companies approach leading the board. Our research has identified two major trends, which to some extent run counter to the national culture and long-standing tradition of ceremonial boards and nominal chairs. Both professional chairs and chair–principals are becoming expert facilitators, enabling every director to speak her mind and allowing constructive collective discussions to take place in the boardroom. They proactively manage board agendas, strive for balance between strategic and operational issues, balance presentations, discussions and information exchange and set the tone for the meeting. Board leaders are also acting more and more like mentors who support and give guidance, rather than senior leaders who decide and have the last say. These trends are in line with what is happening in other European countries, but they contradict some cultural elements and established practices. As a result some incumbents have been forced out of their comfort zones. Another role that is increasingly similar to that of counterparts across Europe is acting as a “bridge” between the board and the shareholders or management.

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In these relationships, chairs in Turkey are increasingly acting as representatives of the board rather than individual agents—as are chairs in other European countries. Although the formal corporate governance framework in Turkey is very similar to that in other European countries, our research revealed some notable characteristics of chairs in Turkey. A number of factors are behind these specifics: prevalence of private and family businesses with active physical shareholders; hierarchical, relationship-based and maledominated business culture; and dynamic coexistence of formal “global” governance rules and standards alongside traditional models and instruments of informal governance. We have identified a number of elements of the “Turkish chairing style”. For example, in Turkey chairs often have a family-style view of the organization, whereby the chair accords attention and respect based on individual status—as defined not only by formal affiliations or position but also by a whole web of social ties. This view translates into chairs paying attention both to performance (making effective decisions) and to relationships (keeping the board a “happy family”). Board leaders value social events, such as dinners, outings and conferences, and often rely on social contacts and informal ties to get things done. Chairs in Turkey do not shy away from emotions, even at formal board meetings and conduct their business in an authoritative but diplomatic style. As their colleagues in other European countries board chairs in Turkey may feel quite lonely and high-power-distance culture limits their opportunity for seeking external help. There are not many people a Turkish board chair can turn to for an advice or an emotional support. Some respondents put on a brave face and reported that they never need any help while others shared that they may consult with some of their board members, but nobody else. None of the chairs we interviewed worked with an advisor, mentor or coach.

Adapting During the COVID-19 Pandemic In the last fifty years Turkey has lived through four military coups, five major financial crises and countless moments of political turmoil. Some experts believe that coping with uncertainty is a part of the Turkish national character. Indeed, the central government dealt with COVID19 in a swift and decisive manner, limiting the number of infections and

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deaths and allowing the country to reopen for tourism in the summer of 2020. The “crisis-management gene” seemed to work at the micro level as well. Our respondents admitted that they were not fully prepared for the COVID-19 pandemic, given that it was such a low-probability event. However, they also told us that board leaders faced the new reality with courage and quickly adapted. First, they changed the format of board meetings, making them virtual and, in most cases, shorter. According to our respondents, the technology enabling virtual board meetings has been around for a while but was rarely used before the pandemic. COVID-19 left no choice. Boards moved online and adapted to the new format quickly. Our respondents praised Zoom and Teams (the most frequently used platforms) for their ease of use and flexibility. This technology also offers chairs more options. As one put it: “We used to have committee meetings in the morning just before the board meeting, which meant we needed to be in the same place physically. Now we do [committee meetings] a few days before the board meeting and it is much more effective”. Another chair reported hosting virtual coffee meetings for his board members, which helped to “tune them in” before actual board meetings. Our respondents all agreed that there is no return to the face-toface-only world. Even after the pandemic is over, boards will use both virtual and physical formats for their meetings and directors will travel less. One chair emphasized a positive effect of the lockdown: “The pandemic removed the constraints: we learned how to work flexibly and location-free. Now the talent doesn’t have to come to us; we can go to the talent, wherever it is ”. Second, during the pandemic chairs adjusted the agendas of their board meetings. All of our respondents put employees’ and sometimes customers’ health and safety at the top of these agendas. One chair called it “moving from management by objectives to management by caring ”. According to some respondents, such attention to employees led to saved lives, sustained performance and improved morale. Many boards also paid more attention to the day-to-day performance of their companies and such indicators as cash. Nevertheless, they continued—and in some cases intensified—strategic discussions and spent significant time speaking about the future. Sustainability made it onto the agendas of boards of directors in Turkey just before COVID-19 struck. One respondent went so far as to say:

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“Defining shareholders’ expectations and monitoring execution in relation to sustainable and environment-friendly growth is one of the key responsibilities of the chair”. Most respondents supported the view that climate change, sustainability and environmental topics had moved from “nice to have” to “must have” agenda items. The pandemic did not slow the trend for sustainability, but rather reinforced it. Respondents reported that their boards had recently approved sustainability strategies that included principles for conducting business in a sustainable manner with specific metrics. Examples included establishing the minimum length of fish to be caught before agreeing to finance a fishing company or refusing to develop business in ecologically sensitive wetlands. One chair mentioned that at the last general shareholders meeting his presentation was mostly about sustainability and the environment. Cybersecurity became another subject of increased boards’ attention during 2020. Many chairs brought it to the agendas feeling that boards and their risks committees should “own it ” because of a huge potential damage to the company these risks carry with them. Third, chairs in Turkey (with some exceptions) moved closer to the business and its executives—and increased their support for the latter, especially the CEOs. Our respondents recognized the enormous challenges that chief executives faced, especially during the early stages of the COVID-19 crisis, and helped business bosses to withstand them by: showing empathy and respect; regularly providing positive feedback and signs of appreciation; and making themselves available for consultations and counselling. According to one respondent the intensity of chair– CEO relationships has intensified, while the tone has softened. At the same time, board leaders were careful not to encroach into the executive zone. As one of them put it: “We needed to be distant from managing the company”. Fourth, board leaders increased the intensity of their communication with shareholders and other stakeholders in order to keep them informed and to help them deal with the dramatically increased uncertainty. One chair called it “being generous in sharing information with investors and stakeholders ”. Last but not least, during the pandemic board chairs served as role models for their companies, showing calm determination in overcoming challenges, along with care for people and respect for governance rules and principles. As one respondent so wisely said: “Tough times don’t build character but they do reveal it ”.

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The Future The tension between globalization and nationalism will likely be the driving force for Turkey’s development in the next decade. The parallel tension between modernity and tradition will influence how the work of chairs evolves. In addition to these macro trends, our respondents forecast some more specific developments. • The informal elements of the chair’s work will increase in volume and importance. More meetings will be held off-site, without minutes and even without all directors present. Digital technology will make such informal exchanges much easier, but face-to-face meetings will preserve their importance because of the trust and confidentiality that they foster. • Value protection for shareholders (rather than value creation) will become a top priority for chairs and their boards in Turkey. Chairs will use all their resources, including personal networks, to ensure business and ownership continuity. • Reliability, predictability and personal loyalty to key shareholders will be important chair-selection criteria. • Boards of Turkish companies will become more diverse. Our research shows that initiatives such as “Women for Boards” create awareness among board leaders and present them with capable female candidates. Some chairs actively participate in such initiatives as mentors and sponsors. Yet the progress is slow compare to other European countries as tradition seems to outpower awareness. Extra efforts from chairs, shareholders and society will be required to close the gap. • The CEO position and links to owners will remain the two principal avenues for becoming a board chair in Turkey. • Boards and their leaders will use information technology widely. Many board meetings will be held online and paper board books will disappear from the boardrooms of larger Turkish companies while boards of small enterprises may continue to operate in a more traditional ways.

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References Arguden, Y. (2009). Boardroom Secrets. Corporate Governance for Quality of Life. Basingstoke: Palgrave Macmillan. The Capital Markets Board (2014). Communiqué on Corporate Governance. Official Gazette. Available from: http://www.cmb.gov.tr/SiteApps/Teblig/ File/479 [Accessed 1 December 2020]. The Capital Markets Board and EBRD (2019). Corporate Governance Steering Report 2019: https://www.spk.gov.tr/Sayfa/Dosya/1330 [Accessed 1 December 2020]. Eurostat (2020). Unemployment by Sex and Age—Monthly Average. Available from: http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=une_rt_m& lang=en [Accessed 1 December 2020]. International Labor Organisation (2020). Turkey Country Profile. Available from: https://www.ilo.org/ankara/projects/gender-equality/lang–en/index. htm#:~:text=Women%20constitute%20almost%20half%20of,Turkish%20Statist ical%20Institute%20(TU%C4%B0K) [Accessed 1 December 2020]. Kakabadse, A., Kakabadse, N. and Yavuz, O. (2009). Turkish Chairmen: Contrasting the Art of Dialogue against the Discipline for Governance. In: A. Kakabadse, and N. Kakabadse, eds., Global Boards. Basingstoke: Palgrave Macmillan. Kaymak, T. and Bektas, E. (2008). East Meets West? Board Characteristics in An Emerging Market: Evidence from Turkish Banks. Corporate Governance: An International Review, 16(6), pp. 550–561. Kula, V. (2005). The Impact of the Roles, Structure and Process of Boards on Firm Performance: Evidence from Turkey. Corporate Governance: An International Review, 13(2), pp. 265–276. Kula, V. and Tatoglu, E. (2006). Board Process Attributes and Company Performance of Family-Owned Businesses in Turkey. Corporate Governance: The International Journal of Business in Society, 6(5), pp. 624–634. Meyer, E. (2014). The Culture Map: Breaking Through the Invisible Boundaries of Global Business. New York: PublicAffairs. Tasman-Jones, J. (2013). Infographic: Turkish Family Businesses. CampdenFB, 59. Available from: http://www.campdenfb.com/article/infographic-turkishfamily-businesses [Accessed 1 December 2020]. UNDP (2019). Human Development Report 2019: Beyond Income, beyond Averages, beyond Today. Available from http://hdr.undp.org/sites/default/ files/hdr2019.pdf [Accessed 1 December 2020]. Women on Board Turkey (2019). The 7th Women on Board Turkey Annual Report. Corporate Governance Forum, Sabanci University. Available from: https://30percentclub.org/assets/uploads/Turkey/PDFs/7th_ annual_report_0_(1).pdf [Accessed 1 December 2020].

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The World Bank (2019). World Development Indicators. Population, Total. Available from: http://databank.worldbank.org/data/reports.aspx?source= 2&series=SP.POP.TOTL [Accessed 1 December 2020]. The World Bank (2019). World Development Indicators. GDP Ranking. Available from: https://datacatalog.worldbank.org/dataset/gdp-ranking [Accessed 1 December 2020]. The World Bank (2019). World Development Indicators. GDP per Capita, in International Dollars. Available from: https://data.worldbank.org/indicator/ NY.GDP.PCAP.PP.CD?year_high_desc=true [Accessed 1 December 2020]. The World Bank (2019). World Development Indicators. Inflation, Consumer Prices. Available from: https://data.worldbank.org/indicator/FP.CPI.TOTL. ZG?locations=TR [Accessed 1 December 2020].

CHAPTER 15

Russia: Powerful Moderation Ekaterina Ryasentseva and Veronika Zagieva

The Chair’s Work in Context Russia is the largest country in the world, extending across Eastern Europe and Northern Asia. With 146.7 million inhabitants (79% of whom live in Europe),1 it is also the ninth most populous country2 in the world. Russia is a federation with 85 “subjects” (constituent units) and a presidential-parliamentary republic. The president is an elected head of state, while the prime minister is appointed by parliament as the head of government. 1 Russian Federation Federal State Statistics Service (2019). Population. Available from: http://www.gis.gks.ru/StatGis2015/Viewer/?53d3d315-5560-e911-8f04-c52 edb349072 [Accessed 1 December 2020]. 2 The World Bank (2019). Population Ranking. Available from: https://databank.wor ldbank.org/data/download/POP.pdf [Accessed 1 December 2020].

E. Ryasentseva Ward Howell, Moscow, Russia e-mail: [email protected] V. Zagieva (B) Ward Howell Talent Equity Institute, Moscow, Russia e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_15

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Russia’s GDP in 2019 was US$1.7 trillion3 , the 6th highest in the world4 (using purchasing power parity), but in terms of per capita GDP (Int$11,585) it ranks 89th in the world.5 Russia is one of the world’s leading producers of oil and natural gas, and a major exporter of steel and aluminum. This reliance on commodity exports makes it vulnerable to swings in global prices. On the Human Development Index, it ranks 49th in the world.6 About 3.8 million Russian companies7 employ more than 71 million people.8 The government plays a significant role in the economy. State and state-owned companies account for almost 70% of GDP, up from 40% in 2008.9 The primary sources of corporate governance regulation are the law on Joint-Stock Companies and the law on the Securities Market. In 2001, a Code of Corporate Governance was adopted and implemented on a socalled “comply or explain” basis. On the initiative of the Central Bank, it was revised in 2013 and a new Code enacted in 2014.10 This specifies the functions of a board of directors, the organization of its work

3 The World Bank (2019). World Development Indicators. GDP Ranking. Available from: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=RU [Accessed 1 December 2020]. 4 The World Bank (2019). World Development Indicators. GDP Ranking, PPP based. Available from: https://data.worldbank.org/indicator/NY.GDP.MKTP.PP.CD?loc ations=RU [Accessed 1 December 2020]. 5 The World Bank (2019). World Development Indicators. GDP per capita, in international dollars. Available from: https://data.worldbank.org/indicator/NY.GDP.PCAP.CD? locations=RU&most_recent_value_desc=true [Accessed 1 December 2020]. 6 UNDP (2019). Human Development Report 2019: Beyond Income, beyond Averages, beyond Today. Available from: http://hdr.undp.org/sites/default/files/hdr2019. pdf. [Accessed 1 December 2020]. 7 EMIS (2020) Number of Organisations According to Official Registration. Available from: https://fedstat.ru/indicator/58109 [Accessed 1 December 2020]. 8 Russian Federation Federal State Statistics Service (2020). Labor and Employment in

Russia. Moscow: Rosstat. 9 Federal Antimonopoly Service of Russian Federation (2019). Russia’ Competition Report 2019. Available from: https://fas.gov.ru/documents/687048 [Accessed 1 December 2020]. 10 Bank of Russia (2014). Russia Corporate Governance Code. Bank of Russia’ Vestnik, 40 (1518), pp. 3–63.

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and that of its committees, the criteria for independent directors, and recommendations on developing a remuneration system for executives. Russian companies operate under a one-tier governance system, with a single board composed of non-executive and executive directors. By law, the functions of CEO and chair must be separate. Based on a survey of 38 of the largest public companies, Russian boards are not small (10.4 members on average) and have limited gender diversity (only 8.4% of directors are women and none of them holds a chair position).11 According to the Corporate Governance Code, boards should have “a sufficient number” of independent directors—Russian boards have 36.7% of independent directors on average.12 Russian directors are also the youngest in the Europe—with an average age of 55.4 years.13 The Code recommends appointing a chair with an impeccable business and personal reputation and extensive executive experience, but limits guidelines on the chair’s role and responsibilities to the following: • Communication with shareholders. The chair of the board of directors should make himself/herself available to interact with company shareholders. • Management of the board. The chair should ensure that board meetings are held in a constructive atmosphere and that all items on the meeting agenda are discussed freely. The chair should ensure effective organization of the board’s work and its interaction with the other bodies of the company. • Providing information for directors. The chair should take “any and all measures required to provide board members in a timely fashion with information required to make decisions about issues on the agenda”. • Conducting board performance evaluations. The chair and nominating committee shall organize periodical evaluation of the board’s performance, and if necessary develop proposals on how to improve board and committee work committees, taking into account the results of such evaluations.

11 Spencer Stuart (2019). Russia Board Index 2019. Available from: https://www.spe ncerstuart.com/research-and-insight/russia-board-index [Accessed 1 December 2020]. 12 Ibid. 13 Ibid.

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Existing Research The role of the chair in Russian companies is not well researched, but there are a few studies that help to shed some light on this subject. In a survey of 50 members of the Russian Managers Association, chairs and directors were asked to rate the different aspects of chairs’ qualities and performance.14 Unsurprisingly, chairs rated themselves more highly than their fellow directors did on almost every aspect, especially styles and qualities. Compared to directors, chairs particularly overestimated their own “availability to talk”, “encouragement of feedback on own performance” and “seeking of consensus”. The authors conducted the same survey in the UK and Australia and found that Russian chairs scored higher in “enabling an understanding of organizational strategy” and “directors’ contribution to the board agenda” than their counterparts in the other countries. Another survey of 116 Russian managers from the three centrally located industrial regions of Russia, conducted in 2002, revealed the phenomenon of “informal CEO duality”.15 This occurs when the CEO tends to accumulate power over the board, even though the CEO and chair roles are formally separated. The research also revealed a negative relationship between informal CEO duality and firm performance. The number of “outsider chairs” in Russia has been growing steadily since the 1990s, when insider control prevailed.16 Data collected from 741 enterprises in 2008 showed that 46% of all chairs were promoted from within the company and the remaining 54% were from outside. The research also confirmed a strong positive correlation between the appointment of an outsider chair and the extent of outsider directorship in Russian firms.17 The increase in outsider chairs can be explained by the growing professionalization of Russian corporate boards and the availability of professional chairs. 14 Kakabadse, A., Kakabadse, N. and Myers, A. (2009). Chairman of the Board Research: a Survey of Russian Organisations. Wharley-End: Cranfield School of Management. 15 Judge, W. Q., Naoumova, I. and Koutzevol, N. (2003). Corporate Governance

and Firm Performance in Russia: an Empirical Study. Journal of World Business, 38(4), pp. 385–396. 16 Radygin, A. D. (1998). Russian Privatization: National Tragedy or Institutional Platform for PostSoviet Reforms. Mir Rossii, 7(3), pp. 3–32. 17 Iwasaki, I. (2008). The Determinants of Board Composition in a Transforming Economy: Evidence from Russia. Journal of Corporate Finance, 14(5), pp. 532–549.

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Fig. 15.1 Russia Culture Map (Source Based on the work of INSEAD Professor Erin Meyer, and her book, The Culture Map: Breaking Through the Invisible Boundaries of Global Business [New York: PublicAffairs])

One final study worthy of note established a positive correlation between the tenure of a board chair and the quality of corporate governance at a company.18

Russia Culture Map According to cross-cultural management experts, Russia has a highcontext, relationship-based, principles-first and confrontational culture with a strong top-down approach to decision-making and a flexible-time scheduling style (see Fig. 15.1 and Appendix 1 for a full explanation). On this basis, it can be assumed that Russian chairs are less straightforward and more sophisticated in delivering indirect messages than their Western European colleagues. At the same time, we would hypothesize that Russian board leaders do not shy away from open confrontation in the boardroom and are ready to face down deviant directors. As they operate

18 Kapalyushnikow, R. and Demina, N. (2005). Concentrated Ownership and Management Turnover: The Case of Russia. Russian Economic Barometer, 14(1), pp. 10–21.

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in a strongly relationship-based environment, Russian chairs presumably have to pay a lot of attention to managing their networks and are likely to have some connection to the company’s shareholders or management prior to their appointment. We also theorize that the hierarchical culture and top-down decision-making style results in comparatively little collaboration and egalitarianism inside the boardroom—with consensus not the primary goal of any discussion and voting considered a legitimate mechanism. Finally, it seems safe to assume that Russian chairs are highly disciplined in ensuring performance, but can be flexible in terms of timing and agendas.

Data For the first part of the project we interviewed nine chairs (one woman and eight men), aged between 44 and 63. All but one (who is British) are Russian citizens. They have extensive corporate governance experience: together they have chaired 28 boards and have served on a total of 57 other boards as directors. Currently they chair 13 boards. Five lead one board each (three are owners of the companies; two others—formerly topranking government officials—respectively, chair a state-owned company and a private company). Two of them chair two boards each (one is an independent chair of two private companies; the second is an affiliated chair in two joint ventures that belong to the parent company, where he is Deputy CEO). One chairs four large public companies, while another is no longer active but previously led four boards. Five of these nine respondents had been CEOs beforehand. To provide a comprehensive perspective, we also interviewed: • three professional directors who have sat on over 30 boards between them • three shareholders—a representative of an investment fund, who has sat on more than 12 corporate boards, and two business owners who sit on the boards of their own companies as well as those of companies they have invested in • two CEOs—both executive members of two boards of directors.

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For this edition of the book we have interviewed additional respondents— four chairs (one female), three board members (two females) and four corporate secretaries (one female)—representing public, private and stateowned companies.

Russian Chairs: Global Challenges and Practices The INSEAD Global Chair Survey 201519 identified a number of key challenges for chairs in Russia—such as relationships with large or controlling shareholders, managing difficult board members (special cases) and relationships with other key stakeholders. Our research questions were organized accordingly; we asked respondents to what extent they considered them relevant and how they dealt with them. We also enquired about other challenges and strategies, and practices used to manage them. Relationships with Shareholders For all respondents, the shareholder was the number one stakeholder. But that specific shareholder has to be big and powerful. Many interviewees admitted that they work for the interests of shareholders (not the company or all stakeholders). One even explained that he worked for a specific shareholder: “I always remember who nominated me as chair!” Since relationships with shareholders were high on the agenda of the chairs we interviewed, they all spent a significant amount of time interacting with these people or their representatives. Specific practices for dealing with shareholders were primarily defined by whether they were government representatives, private owners or another legal entity— although the individual chair’s personality and attitudes clearly played a role. In many Russian companies, the controlling shareholder sits on the board (if not chairing it). Thus, chairs have to adjust their styles so as not to dominate in the boardroom but at the same time manage discussions efficiently. Some chairs agree to play an advisory role at the beginning, gradually building credibility and accumulating more power in the boardroom: “The founder of the company sits on my board, so we all know who is 19 Shekshnia, S. and Zagieva, V. (2016). Chair Survey 2015. Available from: https://www.insead.edu/sites/default/files/assets/dept/centres/icgc/docs/chairsurvey-2015.pdf [Accessed 1 December 2020].

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the boss in the boardroom. Every meeting I play the game – managing the meeting without showing that I am in charge”. In some cases, the controlling shareholder turns the board meeting into “a podium to say what he wants ”. Some chairs are skeptical about their own influence (“you can’t fix this type of person, he will finish his speech no matter what ”); others at least try to encourage other board members to speak up. If there are several shareholders on the board, there is high risk of “turning the board meeting into a shareholders’ meeting ”. One chair provides his advice for preventing this from happening: “I hold meetings with two shareholders who are also board members before each board meeting. I try to facilitate a discussion between them so as not to spend time during the actual meeting ”. Another chair of a private company invites two large shareholders for an informal dinner before every board meeting and organizes a more formal shareholders’ get-together every six months to ensure alignment between their expectations and those of the board: “To be effective you need to be in virtually permanent contact with the key shareholders. They built this business and they care about it as if it was their baby, but they are also very dynamic individuals and develop new ideas quickly”. He has also created a WhatsApp group for shareholders and they exchange messages on a daily basis. One shareholder, who had independent chairs on the boards of his companies, confirmed the importance of informal meetings: “An effective chair connects shareholders and helps them to find a common language. Among good practices I have seen are informal shareholders’ meetings with an agenda (but without minutes ), dinners at the chair’s house (especially if he cooks well) and Telegram chats ”. The chair of the board (who is also a large shareholder) of a private company (in which a global corporation owns a 50% stake) told us that he made an annual trip to meet the CEO of the major shareholder in person to discuss dividend distribution and the investment programme. They also spoke over the phone every six to eight weeks. All respondents agreed that working with large shareholders was a top priority that required time, patience and flexibility. As one put it: “You just need to be available. They may have what they think is a brilliant idea and want to share it with you at the most inconvenient moment, but if you are not there they will share it with somebody else, and the whole governance system will be at risk”. Another agreed: “I think I spend 60 to 70 percent of my time working with shareholders. If you get it right, the rest is easy”.

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For board directors and CEOs, the chair should be a mediator between executives, shareholders and other important stakeholders. To do this effectively he or she should develop not only communication skills but also political instincts. As one of the CEOs we interviewed confessed: “In theory, a chair should be able to tell a shareholder, ‘I do not agree.’ But I never heard it in real life”. Another CEO commented that effective chairs should ensure that shareholders do not overfill the agenda with their favourite topics, such as executive compensation. In working with the government as a shareholder, chairs consistently relied on formal mechanisms such as registered mail, official minutes, written requests stating the shareholder’s position and so-called “directives”—formal instructions from the government to its directors about how to vote on a certain item on the board’s agenda. When the government is a majority shareholder, the chair is often a conduit of its will rather than its partner. One respondent commented: “It is a highly political function: 70 percent of initiatives come from the government and only 30 percent are generated by the board”. Another said: “I try to act in accordance with government interests, but in the rare cases when the government can’t see that its decisions contradict its interests, I speak up, clearly expressing my disagreement, and vote according to my conscience”. In Russia’s relationship-based culture, informal ties were acknowledged as playing an important role in connections between the chair and the shareholders. Chairs with extensive social networks actively used them to build relationships with and influence the government-shareholder. One explained: The government is an institution, but there is always a real person behind the institution. There are people who are responsible for the government stake in our company and I have good working relationships with them. Most of the time we find common ground. In rare cases when we don’t agree, I speak to people in my network who are above them or can influence them.

In the joint venture (JV) context, a chair who was also a senior executive at one of the partners considered himself a representative of the shareholders—and acted to advance those interests. He did not interact with other JV partners directly, but had created a system under which junior staff members from each organization prepared board decisions in advance and had them approved by the relevant parties before the board

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meeting. He had delegated the shareholder-management function to a specially created JV management and coordination department. Respondents generally did not spend a great deal of time interacting with minority shareholders. Most did not consider this part of their work a significant challenge. They did what the law requires, but no more. One chair of a public company said that this was the responsibility of the investor-relations manager, who reported to the board on a quarterly basis, together with the CEO. However, three respondents emphasized the importance of regular communication with minority shareholders. As one put it: “Minority shareholders are like a thermometer – they have no direct influence on the company but a sincere interest in its success. It is always interesting to talk with them and to listen to them. I try to make sure their rights are protected and their voices are heard”. Board Dynamics Pre-meeting According to the INSEAD Global Chair Survey 2015,20 the second major challenge for Russian chairs was managing difficult board members (special cases). We discussed this within the larger topic of managing board dynamics. Respondents took a pragmatic view of the board, its purpose and interpersonal dynamics: it exists to make major decisions in the interests of shareholders. One respondent said: “The board should work for the company not for the stakeholders ”. The chairs we interviewed did not waste time discussing the board’s mission or operating principles with directors—they got straight down to business. But as one of the respondents put it: In Russia, the board can play dozens of different roles – and the chair’s responsibility is to determine for himself what is the role of this board: to be an advisor to shareholders, collective mentor to the CEO or strategic decision maker? When you understand its identity, do not try to change it – just accept it.

None of the chairs we interviewed had tried to turn the board into a “team”, as one of them explained: “The board is not a team! According 20 Ibid.

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to the law, each member has a personal responsibility”. Unlike their peers in some other countries, chairs of Russian companies did not organize strategic off-sites or team-building events. At the same time, Russian chairs believe that their work outside the boardroom is crucial to the board’s effectiveness. They start with themselves, their own preparation and their own positioning. This is less about preparing for a specific meeting than making the board a platform for long-term effectiveness. All the respondents invested significant time in getting to know the company and its key players, and in becoming known and visible in the organization. As one shareholder put it: “The chair links all board members with the company. He makes sure directors understand this expectation, and have time and opportunities to visit the company and speak with executives and rank-and-file employees ”. One chair spent up to three days a week in the company, during which he worked with the CEO and other senior executives, attended management meetings, reviewed reports and worked with the company secretary. He had a personal office next to the CEO’s and shared the CEO’s assistant: “When I was just a ‘visiting chair,’ things did not work as well as they do now. My relationships with management were a lot more formal, materials less convenient and board meetings long and poorly structured”. Others likewise emphasized the importance of their physical presence at headquarters to being effective. One recalled: A few years ago I became the chair of the board at a large company. It was in the process of moving offices and planned to have a huge one for me. I refused at first, only to reconsider six months later. When you have a permanent office, you send a strong signal to all key stakeholders: “I am here. I am real. I care – and you’d better collaborate with me.”

Another added: “Physical presence gives you legitimacy in the eyes of shareholders, directors and management ”. One CEO-respondent shared his view that conducting board meetings at different company locations allows directors to know the organization better, meet executives outside of the headquarters and get valuable insights. Reflecting on the effectiveness of chairs, the directors and CEOs interviewed agreed that presence and involvement are crucial. In their opinion, a chair should not have a full-time job (such as being a CEO elsewhere), as he or she would always be distracted by executive responsibilities.

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In addition to presence, substance matters. One experienced chair said: “In Russia you need to understand the business very well. Some directors are often founders or their representatives, who eat, sleep and breathe this business. In order to gain legitimacy in their eyes, a chair has to develop industry and company knowledge”. The chair of two JV boards used his staff to generate this knowledge: “It gives me the opportunity to get any information and data I need”. Another used site visits, management meetings and interviews with executives. A number held meetings with the CEO to discuss the upcoming board meeting a couple of days beforehand. Respondents considered board committees a vital tool for making good decisions. One said: We do three quarters of the work during committee meetings. Some directors confirm that putting the majority of the discussion into committee work makes the board much more effective. Committees are small, their members possess relevant expertise and discussions are always candid. Board meetings are more formal, so I try to have good discussions at the committee level and ask the board to approve the proposed resolutions.

Another added: “Our committees are staffed not only with board members but external experts. We also invite consultants a few times a year to be part of the process. Committees do all the analytical work; the board does not need to spend much time on decision making ”. Some chairs in our sample actively managed committee membership. One said that he did not try to influence who was elected to the board, but cared instead about the selection of committee chairs: “I look for competent and honest ones ”. Although they relied on committees to prepare decisions, final decision-making power was rarely delegated to the committees. We found different degrees of chair involvement in managing board materials. One respondent had established strict rules for all the boards he chairs—materials were sent to all directors ten days before a meeting (others had seven- and five-day rules). Some verified the materials before they went out (“I always look at the materials first and sometimes I ask management to rework them”) and others delegated the task to executives. Many reported that they no longer sent materials by e-mail or post but downloaded them onto the board website.

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From the director’s perspective, it is the chair’s responsibility to make sure that board members are not overloaded with data. Information overload is even more dangerous than scarcity of information, as it makes directors reluctant to ask additional questions, in case the information was in materials that they failed to read! To ensure good attendance at board meetings, chairs used different strategies. Some scheduled an informal dinner the evening before, especially when the meeting was not due to be held on company premises, and in some instances dined one-to-one with directors. Others saw no point in sharing a meal. Two respondents reported that they included “come prepared” in the list of formal board rules. One experienced professional chair said: “In Russia you have very strict rules, but everybody bends them. You have to be flexible and use multiple tactics to make sure your board members come prepared”. Others called their directors a few days before the board meeting, not to discuss specific topics or secure support, but to remind them informally of their duties and encourage preparation and participation. Leading the Meeting Our interviews revealed specific ways in which chairs in Russia lead a board meeting. They tend to be quite formal and forceful: they sit at the head of the table, set a detailed agenda and have the board stick to it, keep detailed minutes, allocate strict time slots for presentations, questions and comments, actively manage the discussion process and insist on detailed board resolutions. Directors do not mind submitting to such strict discipline in the boardroom. Some director-respondents shared that they appreciated chairs who were openly critical of latecomers (“How can you manage a big company if you can’t manage your schedule?”) and insisted on a “no cell phone” policy. However, we found that Russian chairs often demonstrate flexibility, if they believe it is beneficial to the outcome of the discussion or social cohesion of the board. One commented: “The [board] process is flexible. First people tread a path and then it gets covered with asphalt ”. This blend of authority and flexibility produces a particular style, which we refer to as “domineering facilitation” (see below). Establishing and reinforcing the rules of engagement . Some chairs set formal rules for board work. One set a strict “30-20-40-10” schedule:

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30% of board time spent on presentations, 20% on Q&A, 40% on discussion and 10% on making and articulating the decision. Others provided a timeframe for every agenda item: When we have to approve the annual auditors’ report, I would give 10 minutes to the chair of the audit committee to speak, allow 15 min for questions and 5 min for discussion – the committee has done most of the work. When we need to approve an annual business plan there is no presentation – we go straight to the Q&A and spend the lion’s share of the time on discussion.

Many respondents had a set length of time for management presentations and numbers of slides: one limited slides to five; another allowed 12–15 slides for management presentations, and set specific formats for budgets and investment projects. Actively managing board discussion. Within a formal framework, respondents actively managed board dynamics, sometimes breaking their own rules: “Yes, we have this ‘30-20-40-10’rule, but when I feel that directors are well prepared I may ask the CEO to skip the presentation and go straight to the conclusions ”. They did not hesitate to interrupt board members who had spoken for too long or off subject, or to call on a specific director to speak when deemed necessary. Some regularly went “round the table” asking each director to state their position on a specific question. Postponing a decision or moving an item to the next board meeting was a routine tactic. As one of the shareholders shared: “A good chair controls the flow of the board meeting without being too assertive. He knows when to stop and when to let go”. Management participation in board meetings prompted controversy among interviewees. Those with CEO experience tended to have senior executives present throughout board meetings, except for discussions of confidential matters. Others were more selective, inviting the CEO and the most senior managers for a limited number of agenda items. Voting . As we predicted in the section above on the Russian “culture map”, reaching a consensus is not a must for chairs of Russian companies. One respondent said: “It’s nice to have everybody aligned, but we have to be efficient. When I feel the majority supports a specific decision, I put it to a vote as some directors may have a different view. We vote and move on”. Another added: “Voting is a legitimate instrument. When I use it, board members do not have bad feelings, even those who voted against the decision

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taken”. One of the directors confirmed the critical role of hierarchy in the boardroom: “One independent chair also asked the most powerful guy in the room to vote first, so other directors could form their views ”. The voting also helps shareholders to understand what is going on in the boardroom, when they see the voting protocols. Two respondents were categorically against voting, as they believe it destroys board unity. Both had attended executive development programmes at top international business schools. If the discussion is going to be hard or the topic is complicated, some chairs work in “reverse order”—that is, at the beginning of the exchange they formulate an example of the kind of decision to be made. This helps to frame the debate and demonstrate the kind of outcome needed. Some chairs also set time limits for discussions of no more than one or two hours—if the board cannot come to a conclusion, the chair puts the decision to a vote or postpones the discussion. Post-meeting When it comes to post-board meeting practices, arranging a dinner after a board meeting is the most common. Some chairs we interviewed had organized New Year parties for board members and senior executives: “At such events, real board issues are rarely discussed, but people get to know each other better”. One left time for informal discussion after the board meeting finished. Others met with directors informally and privately, to discuss specific business issues and strengthen social ties. One chair spent a day a month at company headquarters, keeping the office door open for both board members and executives. Several had created WhatsApp and Telegram group chats for their boards. Board evaluations are not a favourite tool for all our respondents. Three were champions of evaluation, five used it because they felt it had to be done and one was openly critical. The “believers” conducted a short oral assessment at the end of the each board meeting and a 360degree online evaluation once a year, followed by individual meetings with directors and discussion with the entire board. One said: The annual evaluation is a major tool for improvement. In one of my boards, we let go of two directors and brought in three new ones following last year’s assessment. In the other board, we overhauled the work of our committees. I don’t know how I would have done it without the annual evaluation.

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One chair-founder was dubious about board evaluation: “How could they evaluate themselves? They will only say good things about themselves! I am watching them and I tell them what does not work”. At the same time, our non-chair-respondents—CEOs and directors alike—considered annual evaluation as a very important tool. Comments included: “360-degree assessment helps to get rid of deviant directors ” and “annual evaluation legitimizes board composition decisions and disciplines directors, who know that their behavior will be assessed in the end of the year”. Managing Conflict Within the Board Arguments and emotions often flare up in the Russian boardroom, but our interviewees did not seem to worry about it. Coming from a culture of open conflict, they knew how to navigate heated debate. Respondents distinguished between “sincere” and “fake” disagreements. They praised the former—“directors are sincerely looking for the best solution, albeit from different points of view”—and encouraged healthy (even emotional) debates. However, they distinguished these from discussions where “people argue for the sake of arguing or, worse, want to advance some political agenda”. When “fake” disagreement emerged, they halted the discussion and dealt with it outside the boardroom, working individually with the interested parties and returning to the question at the next meeting. Although comfortable with a highly emotional style, one respondent stepped in from time to time to manage conflict in a forceful manner: “I don’t like surprises, but when the discussion becomes too emotional and unproductive, I say, ‘Cards on the table’, give every director a minute to state his position, and then we vote”. Another affirmed: “There are no conflicts, no disruptors, just different opinions. If you do your homework, prepare all the issues in committees, and all members know each other’s position, you don’t need to debate – just make the final decision by voting ”. This chair, in some instances, formulated his position before the board meeting and sent it to the other directors in advance. Managing difficult board members was not seen as a major challenge. “Talkative types”, “silent types”, “absent types” and “power types” were mentioned. The last of these was considered the most difficult, and included directors who were large shareholders or their relatives and friends, and important government officials. One professional chair said:

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These people are used to telling others what to do and doing it on their own terms. They have a hard time listening to others. Large shareholders have another problem: most of them forget that the board is not a shareholders’ meeting and put on their shareholders’ cap in the boardroom. To deal with it you need to combine patience with firmness.

Ways of working with power types included: holding a private meeting before the board; reminding them of the rules before and during the meeting; interrupting the meeting to have a word; and even conducting an emergency shareholders’ meeting. One chair shared his experience in dealing with a government official who considered himself an expert in everything and disagreed with everybody: “Initially I would always let him speak at the board, then I involved him in committee work so he could speak there, and it helped to reduce his airtime in the boardroom”. Another conceded: “Sometimes you just let the power guy speak for as long as he wants, hoping that you will be able to bring the discussion back when he is done. Other directors understand”. One CEO shared a practice used by the chair of his board: if the discussion became too heated with only one director arguing against everyone else, he postponed the voting and later allocated the decision to absentee voting, thus avoiding the next round of debate. There was less tolerance of “talkative” and “silent” types. Interrupting the talkers and reminding directors in the boardroom of their duties, as well as “cold calling” around the table were common practices. Some chairs pursued the matter outside the boardroom: one respondent had a one-to-one conversation with deviant directors and offered coaching help. Another applied “razgovor po dusham” (literally “heart-to-heart”)—a tough conversation with the threat of dismissal, if the offending behaviour did not change. Four chairs interviewed indicated they had to ask a director to resign. There were two distinct approaches to managing “absent” (nonattending) directors among our interviewees. The first was to try all means available to get them to participate, such as allowing attendance via phone or Skype, soliciting their opinion in writing and transferring their vote to other board members. The chairs who subscribed to this strategy wanted to keep absent directors engaged; they always informed them about the meetings they had missed and reminded them of their obligations.

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The second group subscribed to a more radical strategy: “You are either in or out ”. One said: “If a board member misses two or three meetings, he/she does not take the job seriously and should be removed”. This particular chair asked shareholders to re-elect the director or, in the case of a stateowned company, sent a written complaint to the government body. A softer option was: “I make fun of him, emphasizing that he does not know much about the problem under discussion”. Another said: “I call him on the phone and beg him to come. Sometimes I say, ‘I will send you a plane – please come to the meeting, it’s very important’ ”. Relationships with the CEO and Management

Principal Professio nal

CEO

The relationship with the CEO, and in some cases with other senior executives, is a top priority for all chairs interviewed, but takes different forms largely defined by the parties’ backgrounds. We identified two types of protagonists: principal (either a significant shareholder in the company or a fully empowered representative of it) and professional (someone who has no significant stake in the company and works for a salary). There were four resulting types of relationships between chairs and CEOs (see Fig. 15.2).

Dominant mentoring

Professional collaboration

Partnership

Advisory

Principal

Professional Chair

Fig. 15.2

Chair–CEO relationship matrix

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The principal chair-professional CEO dyad produces an intense relationship, which we refer to as “dominant mentoring”. The chair leads and the CEO accepts the role of follower. The former sets the agenda, chooses the forms of interaction, provides direct advice and feedback and even gives informal orders to the latter. We came across three cases of dominant mentoring where company founders had handed over the reins to a professional executive and had become the chair. One was quite open: “Of course, I know that I should not interfere in his [the CEO’s] work, but I know this business inside-out and sometimes I just have a better feeling of what should be done, so I tell him. Most of the time he is grateful ”. Another agreed: “I have a lot of experience and know many important people the CEO does not know. It’s natural that I give him advice and introduce him to some people, not the other way around”. With dominant mentoring, the chair acts not as a leader or a spokesperson for the board, but as an expert with a specific background and a powerbase unrelated to his or her formal position. In this model, the chair sometimes has to play shield the CEO from shareholders: “Our principal shareholder is a board member. For him, if the year was successful, that was because of a growing market, but if the year was bad, it was the CEO’s fault. I understand that it’s not fair logic, and try to protect the CEO from unfair accusations ”. When both the chair and CEO are principals, a different type of relationship emerges, which we call “partnership”. Both have a high degree of autonomy and room for independent action, but they have shared goals, align their agendas from time to time, and cooperate when required. A chair of a company with the government as its controlling shareholder described the relationship: We both represent government. The CEO is not appointed by the board, but by the Russian President. We both can open important doors, but we also can help each other to help the company. We agree on that, so he does his job and I do mine. But when required we join forces, for example on the business strategy, on regulatory constraints we have to overcome and in other cases. Sometimes he gets grilled by the board, but he accepts it. He knows that I am his great supporter.

When the chair is a professional and the CEO is a principal the relationship turns into what we call an “advisory” model. Formally, the chair is in charge of the board, sets the agenda and conducts the board meetings, but everyone in the system understands where the ultimate power resides.

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The board and its leader perform their functions but only up to a point, beyond which the power of the CEO–principal prevails. The chair advises and educates the CEO, brings important information to his/her attention and assists him/her in preparing and making decisions. The CEO may also educate the chair about the business, share concerns and challenges and ask for advice or a favour. The two cooperate but not on an equal footing. One chair-respondent described his relationship with a founder-CEO in a way that typifies the advisory relationship: I come to see him every month. We speak one-to-one, very informally. I update him on the board’s work, ask his opinion on important issues. He may ask my views on anything from US politics to the last remuneration committee meeting. Sometimes he asks for help in specific deals. I feel that he values my advice.

When the chair–CEO relationship involves two professionals, we call it “professional collaboration”. The chair of a JV, who is a senior executive at one of the partner organizations, described his work with the CEO, who is a former executive of the same company: “I provide him with all the information I have and he does the same for me. I run all major decisions by him before they go to the board. You may call it informal mentoring, but he also mentors me in some areas such as regional politics or local markets ”. Similarly, one ex-government official turned professional chair said: “[It’s] partnership and cooperation, not mentoring! My office is next to the CEO’s. It helps our close professional relations, as I can easily ask him: ‘Sasha, please come to my office as there are questions regarding the investment programme’”. Another chair described a specific instance, when the company he chaired was experiencing a major crisis: “In this situation I supported the CEO, because I believed he could manage it. He just needed time. As chair I could have taken responsibility and tried to fix it, but I’m not sure it would have been a smart decision”. In terms of specific communication between CEOs and chairs, respondents largely opt for informal one-to-one meetings with no minutes on the company premises, phone and Skype conversations and texting. Some wine and dine their counterparts; others don’t: “Dinner is useful to break the ice and establish relationships, but when you know a person it’s better to meet in the office”. Most of our respondents did not claim to mentor their CEOs. One was categorical: “A chair should not be a mentor to the CEO, otherwise they

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become friends and the chair will start protecting management interests ”. However, they all willingly introduced CEOs to the people in their social networks and provided other resources.

Other Challenges External stakeholders. Most respondents regard relationships with external stakeholders, such as clients or suppliers, as less of a challenge than relationships with internal stakeholders, with one exception— government. Chairs with a government background or high social status (for example, large shareholders) tend to play a significant government relations and public relations role in addition to fulfilling their direct duties. They meet with government officials, speak at summits and conferences, supervise charity projects and promote the company image in other ways. In contrast, professional chairs usually stay out of the public eye and undertake projects only when asked by the CEO. Sense of responsibility. Russian chairs work hard and feel the weight of responsibility on their shoulders. One said: “I am representing the company all the time and everywhere. It is a huge responsibility, which creates some constraints. For example, I do not drink in public so as not to damage the image of the company I chair”. Yet they still find room for humour: “I am not afraid of joking, sometimes even to the point of absurdity. It helps to keep spirits up”. Sustainability. Since a lot of Russian companies work in heavy industries such as mining, oil and gas, and metallurgy, sustainability is a hot topic. “We see an increased pressure from the investor community to be open about sustainability issues ”, comments one chair, “But I don’t like to play games trying to change public opinion about the nature of our business [coal mining]. As a board we are trying to be as pragmatic as possible in trying to mitigate what we can mitigate”. Chair succession. Planning and preparing their own succession was not a priority for the chairs interviewed. Only one respondent was working on getting the CEO of a joint venture ready to succeed him as chair, but the decision in this case had been made by the chair’s boss. Other interviewees mentioned “shareholders”, a “dedicated board committee” and even a “corporate secretary” among the parties responsible for finding their successor. It is worth mentioning here that there is no culture of planning leadership succession in Russia, which makes the above observations less surprising.

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Diversity. Russian boards are lagging behind in terms of gender diversity (only 8.4% of directors on the boards of the 38 largest Russian public companies are female).21 Most chairs do not address gender diversity as an important topic; some of them even consider discussion of it as “impolite towards female professionals ”. With the advance of digital transformation into the boardroom, younger board members (30–45 years old) have become the norm, increasing the age gap to as much as 45 years on some boards. The main challenge for chairs is not to allow polarization and the withdrawal of some board members from discussion of particular topics: At some point the board divided into two groups – younger directors with experience in digital and investments, and older ones with mostly CEO and finance experience. It would not have become a problem, if both groups had contributed evenly to discussions, but I noticed that there were unspoken “spheres of influence”. Younger directors didn’t interfere in financial topics, while older ones didn’t even try to participate in discussions of digital. What did I do? Mixed directors into committees and working subgroups. It seems that it works.

Covid-19 In August–September 2020 we surveyed around 60 Russian chairs and board members to gauge how boards and chairs had adapted to the new reality. More than 65% of respondents assessed board preparedness for the current crisis as high. It seems that several recent economic and political crises in Russia had prepared boards to cope with the uncertainty and volatility caused by COVID-19. Some chairs we interviewed even seemed proud, claiming that nothing had changed in their board work—neither frequency and length of meetings nor interactions with shareholders and management. “I think it’s important for the board to remain an oasis of stability during hard times ”, the chair of a government-owned company shared. However, not all boards have remained the same. The pandemic and ensuing crisis brought many controlling shareholders out of the boardroom and back into direct management (according to our research the

21 Spencer Stuart (2019). Russia Board Index 2019. Available from: https://www.spe ncerstuart.com/research-and-insight/russia-board-index [Accessed 1 December 2020].

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same thing happened during the 2009 crisis)22 . Some put board meetings on hold or even dismissed the board. One independent chair told us: I always thought the board was important for our controlling shareholder (he is also the founder). But when the pandemic started to unfold, the founder gathered the directors in a room, thanked everyone and told us that he didn’t need our services to manage the crisis but would like to continue board meetings after.

Some of the chairs in our sample were prepared for such a turn of events and shared their practices for preventing a controlling shareholder from shutting down the established corporate governance system. These include: creating clear communication channels; asking the CEO to inform directors about all decisions made with the controlling shareholder; taking full responsibility for one area of business (for example, negotiations with banks); and disseminating news from other boards and companies. “You have to show your engagement and ability to help the owner with actions, not just advice”, shared the chair of one privately owned company. Managing relationships with local and federal government was another challenge that chairs faced during the pandemic. Chairs have to “activate the company’s political connections ” so as to get the most out of cooperation, not necessarily financial help but also long-term gains, such as closer relationships: The pandemic shows us how important it is to have a good relationship with the government in an area you operate in. We do business in a very remote area with few companies present, so we were regarded as a critical partner for government and for the local hospitals in managing the pandemic. What did it do for us? It emphasized our role in the whole microcosm of this region.

Almost all the chairs in our sample focused on supporting the CEO and the management during the crisis. In some cases, they had to shield CEOs from pressure applied by shareholders or holding companies:

22 Shekshnia S., Zagieva V. (2015). CEO Succession. Available from: https:// www.wardhowell.com/journal/7-vypusk-preemstvennost-v-rossiyskom-biznese [Accessed 1 December 2020].

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I had to analyse the CEO’s stress level – whether or not I needed to push him and add additional stress, since the shareholders were pretty tough. I decided to focus on a supporting role, even if I thought the CEO should have been better at managing the crisis. The worst thing we could have done was to break him in the midst of all this.

Most of the boards covered by our research were sufficiently prepared for moving their meetings into a virtual space, especially boards with a high proportion of non-residents. “We see almost no difference”, said one interviewee, “as one third of our board meetings were already held online before the pandemic”. Despite a common complaint about a lack of informal communications in such a setup, some chairs experienced the opposite: “We have a pretty diverse board – the pandemic itself and technology made us finally feel that we are in the same boat: everyone sits at home, everyone is in the same square on the screen. It led to more open and informal discussions ”. Some respondents even lamented that communications became too informal: “Any unusual background (like cats or nice gardens) caused side discussions, so at one point I asked everyone to turn off cameras ”.

Summary Modern capitalism is only 25 years old in Russia and corporate boards as we know them in the West emerged only about two decades ago. The Russian model of corporate governance is still a work in progress and the chairs we interviewed are at the forefront of this. While it is too early to draw far-reaching conclusions, our key findings are as follows. Public companies with dispersed ownership are virtually non-existent. Russia is dominated by first-generation private businesses or stateowned corporations. The owners or their representatives (in the case of government-owned companies) are powerful and have a strong impact on the work of board leaders in terms of their attention, time allocation and even style. In this context it is understandable that chairs should work for shareholders, not all stakeholders or the long-term interests of the company. Relationships are more important than institutions in Russia. While the authority and responsibilities of corporate boards are well defined and correspond to global standards, other factors have a stronger impact on board dynamics. Ownership structures and the power networks of key players such as shareholders, their representatives, board members and

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top executives create specific constraints for chairs, and largely define their roles and the practices they use. Authority and facilitation. Russian chairs are pragmatic—they want their boards to be effective decision-making bodies. Yet they are ambivalent in the way they try to achieve this goal. On the one hand, they operate from a position of authority and often act in an authoritative and even authoritarian way. Yet they can instantly switch to a facilitating mode, ask other directors to speak their minds and reach a consensus—only to put the dictator’s mask back on if things do not go their way. We believe that extensive use of voting is one manifestation of this ambivalence. Traditional informal ways of getting things done, such as drinking sessions or sauna parties, are not in the arsenal of board chairs in Russia. They are quite modern in the way they work, opting for office meetings and Skype calls rather than drinking sessions. As one said: “We all are busy people. I would rather spend my time on a one-to-one meeting with a director than arrange a big drinking party”. Russian chairs also seem increasingly health-conscious and strive for a healthy lifestyle.

Trends for the Next Five Years Russia’s history teaches us that it is hard to make accurate forecasts, but we believe the following trends will materialize. • There will be more professional chairs who exclusively dedicate themselves to this type of work, but the percentage will still be lower than in more developed countries. • The “professional collaboration” model of chair–CEO relationship will spread to many organizations, especially private and public businesses. • Many government officials and ex-government officials will assume chair roles; for some it will be an informal retirement plan. • Women chairs will remain a tiny minority. • Chairs and their boards will become technology-savvy. Information technology will have a transformative impact on the way Russian boards work.

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References Bank of Russia (2014). Russia Corporate Governance Code. Bank of Russia’ Vestnik, 40 (1518), pp. 3–63. EMIS (2020). Number of Organisations According to Official Registration. Available from: https://fedstat.ru/indicator/58109 [Accessed 1 December 2020]. Federal Antimonopoly Service of Russian Federation (2019). Russia’ Competition Report 2019. Available from: https://fas.gov.ru/documents/687048 [Accessed 1 December 2020]. Iwasaki, I. (2008). The Determinants of Board Composition in a Transforming Economy: Evidence from Russia. Journal of Corporate Finance, 14(5), pp. 532–549. Judge, W.Q., Naoumova, I. and Koutzevol, N. (2003). Corporate Governance and Firm Performance in Russia: an Empirical Study. Journal of World Business, 38(4), pp. 385–396. Kakabadse, A., Kakabadse, N. and Myers, A. (2009). Chairman of the Board Research: a Survey of Russian Organisations. Wharley-End: Cranfield School of Management. Kapalyushnikow, R. and Demina, N. (2005). Concentrated Ownership and Management Turnover: The Case of Russia. Russian Economic Barometer, 14(1), pp. 10–21. Meyer, E. (2014). The Culture Map: Breaking Through the Invisible Boundaries of Global Business. New York: PublicAffairs. Radygin, A.D. (1998). Russian Privatization: National Tragedy or Institutional Platform for PostSoviet Reforms. Mir Rossii, 7(3), pp. 3-32. Russian Federation Federal State Statistics Service (2019). Population. Available from: http://www.gis.gks.ru/StatGis2015/Viewer/?53d3d315-5560e911-8f04-c52edb349072 [Accessed 1 December 2020]. Russian Federation Federal State Statistics Service (2020). Labor and Employment in Russia. Moscow: Rosstat. Shekshnia S. and Zagieva V. (2015). CEO Succession. Available from: https:// www.wardhowell.com/journal/7-vypusk-preemstvennost-v-rossiyskom-biz nese [Accessed 1 December 2020]. Shekshnia, S. and Zagieva, V. (2016). Chair Survey 2015. Available from: https://www.insead.edu/sites/default/files/assets/dept/centres/ icgc/docs/chair-survey-2015.pdf [Accessed 1 December 2020]. Spencer Stuart (2019). Russia Board Index 2019. Available from: https:// www.spencerstuart.com/research-and-insight/russia-board-index [Accessed 1 December 2020]. UNDP (2019). Human Development Report 2019: Beyond Income, beyond Averages, beyond Today. Available from http://hdr.undp.org/sites/default/ files/hdr2019.pdf [Accessed 1 December 2020].

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The World Bank (2019). Population Ranking. Available from: https://databank. worldbank.org/data/download/POP.pdf [Accessed 1 December 2020]. The World Bank (2019). World Development Indicators. GDP Ranking. Available from: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locati ons=RU [Accessed 1 December 2020]. The World Bank (2019). World Development Indicators. GDP Ranking, PPP based. Available from: https://data.worldbank.org/indicator/NY.GDP. MKTP.PP.CD?locations=RU [Accessed 1 December 2020]. The World Bank (2019). World Development Indicators. GDP per capita, in international dollars. Available from: https://data.worldbank.org/indicator/ NY.GDP.PCAP.CD?locations=RU&most_recent_value_desc=true [Accessed 1 December 2020].

CHAPTER 16

“Top Fives” of Chairing a Board in Europe Stanislav Shekshnia and Veronika Zagieva

In this chapter, we would like to synthesize the research findings presented in the country chapters to highlight commonalities and differences in how board chairs conduct their business in different European countries. We will use a “top five” approach, identifying: the five practices most widely used across Europe; the five most “destructive” practices or common traps for board leaders; and the five most important personal attributes that make chairs effective. We will make one exception to our rule of five and present the most original practice from each country— making fourteen in total. We will conclude by presenting five learning strategies that novice chairs can use to master the job and seasoned professionals can apply to improve their performance.

S. Shekshnia (B) INSEAD, Fontainebleau, France V. Zagieva Ward Howell Talent Equity Institute, Moscow, Russia e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_16

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The Five Most Common Practices in Europe 1. Arranging dinners with board members the evening before the board meeting. We found shared meals in the toolkit of board leaders in all of the countries we studied. One of the most experienced chairs from the Netherlands summarized the advantages of organizing a dinner for directors on the eve of the board meeting: You kill a few birds with this stone. First, directors usually travel for the meeting or had a committee meeting in the afternoon, so they are hungry and you feed them. Second, you do it in a nice restaurant and they see that you care. Third, you allow them to reconnect with the board and the company in a relaxed setting. Fourth, you create some positive group dynamics around a dinner table, which will hopefully migrate to the boardroom next morning. Fifth, you find out if there are any concerns and disagreements between directors with regard to the next morning’s agenda and plan the discussion accordingly. Finally, you can have some content-rich discussions about current and future issues without the pressure of making a decision.

2. Reaching out to each director before the board meeting to discuss the agenda and seek input. This practice takes a number of forms. In pre-COVID-19 Europe, one-on-one meetings or phone calls were the two predominant formats; in 2020, chairs use Zoom or Teams. It is a way of re-engaging directors with the company and the board, showing their importance, soliciting specific input on the agenda and exploring other board-related issues. It takes little time but can be very effective. As one director-respondent put it: “A 15-minute phone call gives me a chance to pick every director’s brain before the board meeting. It also reminds them about the need to prepare for the meeting ”. 3. Speaking last during boardroom discussions. We will explain later in this chapter how restraint is one of the key attributes of an effective board chair. One of the most popular ways to enable productive discussions and diversity of opinions in board meetings is for leaders to withhold their personal opinions until the last moment. We found the practice of taking the floor only after all other directors have spoken quite common among European chairs. It was best described in the words of one UK chair: “I try to take up as little room as possible. My task is to help others to speak their minds ”. Another chair

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from Switzerland confirmed: “I listen. I also decide when it is time to decide, but everyone can express himself without fear”. 4. Meeting with shareholders to discuss an upcoming board meeting. In all of the countries, we studied effective chairs are proactive and go beyond compliance in their relationships with shareholders. This proactivity takes on different forms—from diagnostic questionnaires to mentoring sessions—in different countries, yet respondents from all of them identified meeting active shareholders in advance of the board meeting as one of the chair’s most productive practices. As one French chair put it: “I always have preliminary discussion with each [significant shareholder] before the board meeting to understand their positions ”. The meeting can cover a range of subjects, such as shareholders’ strategies, their positions on specific items of the agenda, or their general expectations of the board. Usually such meetings take place informally, without strict agendas and minutes, although some chairs reported writing informal summaries and sharing them with shareholders—and in some cases board members. With the pandemic, the meetings moved online and their frequency increased. Effective chairs consider such meetings as important venues for information exchange between the board and shareholders, but stand firm against any attempts to impose decisions on the board via its leader. As one chair-respondent put it: “I am not promising them we will do what they want; I am promising that we will keep it in mind”. 5. Being available for the CEO 24/7. The relationships between board chairs and CEOs are usually complex and intense, and take different forms depending on both objective and subjective factors. However, we found that many board leaders in Europe make themselves available to the CEO on a “5/7 or 7/7” basis. As one chair from France explained: “I am available to take my CEO’s calls anytime”. Another board leader seconds this view: “Whenever the CEO calls me I thank her and repeat that I am available 24 h 7 days a week. She knows that I care and she can rely on me”.

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A supplementary practice to help close the troublesome information gap between executives and the board1 is for the CEO to compile—and circulate to the chair and directors—a regular update about recent and future developments at the company. We came across different names for this document (“CEO report ”, “chair report ”, “board report ”, “management report ”, “monthly update”), different frequencies (monthly, bi-monthly, quarterly) and lengths (from one to six pages), but the objective is always the same: to keep board members informed and engaged. Some chair-respondents leave it to the CEO to define the format and content of the report; others set their own standards. One veteran chair explained that he wants a two-page document every month with the first page devoted to what has already happened and the second to what is going to happen during the next month. He does not allow any financial information (“we have it online”), only qualitative descriptions. The chair reads the document first and then sends it to other directors with his comments.

The Five-Plus-One Most Important Traps to Avoid2 In our interviews with board chairs and their key stakeholders, we came across not only effective but also “destructive” practices. The latter reduce the effectiveness of the board or damage chair–CEO and chair–shareholder relationships. In most cases, board leaders have developed these habits in other contexts where they might have worked well—and then unconsciously transferred them into the chair’s role. As one of the respondents put it: “We are all creatures of habit, but we often refuse to recognize that habit ”. In his opinion, “experience” and “reflection” are the two best cures for the bad habits board chairs carry with them. In the course of our early research, we identified five behavioural traps that board leaders should be aware of. The COVID-19 pandemic uncovered another, so we will break our rule of five and present six traps.

1 Larcker, D. and Tayan, B. (2011). Corporate Governance Matters. Upper Saddle River, NJ: Pearson Education, p. 133. 2 Some findings presented in this section were previously published as Shekshnia, S. (2018). How to Be a Good Board Chair. Harvard Business Review, March–April 2018, pp. 96–105.

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1. Executive behaviour in the boardroom. Around 85% of board chairs interviewed for this project had been CEOs earlier in their professional life (compared to 77% in the whole population of chairs).3 CEOs and other senior executives thrive by setting a vision, making bold moves, appointing people, giving them specific tasks, assuming responsibility and leading by example. Action- and resultsoriented, they are at the centre of their companies. On becoming chairs, many former CEOs naturally adopt the same old behaviour patterns. Such leaders start treating directors as “members of my team”, take the lion’s share of airtime in the boardroom, offer decisions the board should make before other directors have expressed their views, talk more than listen and occupy centre stage. Instead of energizing and stimulating directors, such an approach often leads to disengagement and resentment at being treated as “subordinates”. Many respondents shared personal stories of how they discovered, sometimes painfully, that the work of a chair requires a very different type of leadership from that of a CEO. They reflected on how much more effective they could have been if only they had paid attention to this from day one. As a chair from Russia put it: “My advice to novice board chairs is: ‘What got you here will not make you successful. Unlearn your CEO activism and become a hands-off, reflective leader’ ”. 2. Sweating the boardroom. We found a striking difference between experienced and inexperienced chairs in their attitudes towards the importance of actual board meetings. The latter think that it is all about the boardroom; the former consider the meetings just the tip of the iceberg. In reality, the work that takes place outside the boardroom creates a solid foundation for the meeting itself. The famous 80:20 rule applies to the board process: actions taken (or not taken) before and after the meeting determine 80% of its effectiveness. This also means that effective chairs budget the lion’s share of their time for working outside of the meetings. For most chairs, the workload beyond the four walls of the boardroom increased yet further during the pandemic. 3 Shekshnia, S. and Zagieva, V. (2016). Chair Survey 2015. Available from: https:// www.insead.edu/sites/default/files/assets/dept/centres/icgc/docs/chair-survey-2015.pdf [Accessed 1 December 2020].

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One very experienced chair shared his approach to steering effective governance. It had four components: “planning ”, “preparation”, “followup” and “communication with key players ”. He plans the dates for board and committee meetings for the next 24 months on a rolling basis and tries to avoid changing the dates at all costs, since it upsets directors and undermines respect for the board as an institution. His favorite formula is committee meetings in the afternoon, followed by a dinner for all nonexecutive directors (“It saves me some time in the boardroom to get them going ”) and a board meeting the next morning. He does not believe in meetings that last more than five hours and avoids having any after lunch. The preparation starts for him with the induction of a newly appointed director and includes committee work; preparation and distribution of board materials; and planning of the board meeting itself. According to this chair, committees are critical: We do three-quarters of the work during committee meetings. Committees are small, their members possess relevant expertise and discussions are always candid. By definition board meetings are more formal, so I try to have profound discussions at the committee level, and have them do all the analytical work and prepare resolutions for the whole board.

He keeps detailed minutes of his various meetings and quickly shares them with all board members. They are action-oriented for the benefit of management as well as for the board. They cover different views and opinions as well as conclusions and resolutions. In addition to formal control mechanisms, the chair informally reaches out to the CEO and committee chairs once a month and, among other things, enquires about the outcomes of recent board decisions: “It shows them that I remember and I care – and gives them an extra nudge”. Communication cuts across planning, preparation and follow-up. The chair reaches out to committee chairs, directors and the CEO on a regular basis and encourages them to contact him. Since the beginning of the pandemic, this particular chair has adopted some new tactics but has kept the overall strategy. He still plans for 24 months, relies on committees and schedules their meetings before the board comes together. He also orchestrates the system by being personally involved. To reflect the new reality, however, he makes sure that online meetings do not last longer than three hours and reaches out to directors

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more frequently between them. And he hopes that dinners will become possible soon. 3. Building the team. Another practice that works well for executives but backfires for board chairs is team building. One of our respondents had become an independent board chair after being CEO of an international retail chain and explained how his firm belief in teamwork and team building failed him big time with his first board. Soon after becoming a chair, he organized an off-site event to discuss shared goals, team rules and mutual expectations. All of the directors showed up, but two had to excuse themselves in the middle. The chair pressed on with his team-building agenda and scheduled a new off-site, but only six out of ten directors showed up. The board evaluation that took place a few months later yielded some surprising news: the directors did not appreciate their leader’s efforts. After some reflection and discussions with other chairs, our respondent realized that there are fundamental differences between an executive team and a board of directors. While executives work for one company and usually under one roof, see each other frequently and report to one boss, board members spend little time together (four to six board meetings a year plus some committee meetings and phone calls), usually belong to more than one board and may have a very different full-time job. Most importantly they do not report to the chair, who has no administrative power to give them an order or to reward and punish them. Building a team from such people is an enormous task. After realizing this, our respondent concentrated on creating conditions for the group to work collectively and make effective decisions when they were together. In fact, he started practising 3E-leadership— engaging, enabling and encouraging directors’ performance, as described in Chapter 1. 4. Trying to be the CEO’s boss. Quite simply, the CEO is the boss, solely responsible for executive decisions and accountable for their outcomes. Other company executives report to him and in their turn

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have direct reports of their own. This logic of boss-subordinate relationships works well in most organizations and is deeply ingrained in the psyche of many executives who later become board chairs. Board chairs typically have frequent interactions with the management, particularly the CEO. The chair and the CEO may discuss board agendas and plans, review board materials, finalize a company press release, follow up on board decisions, or meet regulators together. In some cases, chairs even visit customers or vendors, attend PR events or hold meetings with government officials, all of which create additional opportunities to liaise with the CEO. It is not surprising, therefore, that some chairs come to see themselves as the CEO’s boss. Good chairs do not make this mistake. They always remember that they represent the board and keep other directors informed about all new developments and insights. They understand that the board serves as the “collective boss” of the CEO and that the task of the chair in this system is to make sure that the board creates a dynamic frame for management action, which includes setting goals, resources, rules and accountability for executives. A good chair orchestrates this process but never dominates it. Avoiding this trap became especially important during the pandemic when high uncertainty and personal stress pushed some chairs to assume more commanding mode towards CEOs. One chair from the UK shared his approach: “When the pandemic struck, we asked ourselves a question: ‘Are our current CEO and the management team fit to manage through this crisis?’ We had a good long discussion and we said ‘yes’. After we made that decision it became clear that we as a board needed to continue what we did before: support, challenge and oversee the management. The crisis shortens the feedback loop, but it does not change the nature of board–management interaction”. 5. Looking for perfect metrics. “What gets measured gets done”. This quote—at different times attributed to Edwards Deming, Peter Drucker, and Tom Peters—has become a mantra of the executive world. Not surprisingly, many ex-CEOs when they become chairs start looking for metrics to evaluate the performance of the board of directors. Some even engage strategy consultants from McKinsey

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or BCG to help develop such indicators. However, we could not find any evidence that such efforts produce good results. Instead, we discovered that experienced chairs take a more holistic and long-term view of board performance. As one respondent who currently chairs boards of two multinationals put it: “The decisions our board makes today will shape the company for decades to come. It is naïve to think that we can find a metric or a set of metrics to apply at the end of the year to tell how effective the board has been”. This chair, along with many other experienced board leaders, concentrates on measuring what can be measured and what he calls the “inputs ”: directors’ competencies, board agendas, board materials, board processes and board minutes. If the quality of inputs is assured, the desired outputs will follow. Other respondents emphasized the importance of involving all directors in discussing board effectiveness, doing so regularly, not fixating on a limited number of specific indicators bur rather maintaining a big-picture outlook. This view was seconded by a non-chair-respondent—a seasoned private equity capitalist who has nominated a few hundred board chairs during the course of his career: “When during an interview an aspiring chair answers my question about board effectiveness by suggesting quantitative metrics , it’s a red flag for me”. 6. Relying on plans and schedules. The experience of boards and their leaders during the COVID-19 pandemic made it clear that we had to include one more trap. Some respondents shared that at the beginning of the pandemic, they tried to stick to the pre-existing plans and agendas to provide some sense of stability to their companies. However, they soon realized that it simply did not work. As one chair explained: “You either adapt and then you stay in the game or you stick to the old ways and others —shareholders or executives —will call all the shots. We threw away our annual board plan and started from scratch”. Another board leader explained that plans are important as they create some certainty and continuity, but flexibility is “all-important as it allows to stay relevant ”.

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Five Attributes that Make a Chair Effective During our research, there emerged a fitting metaphor for the role of a board chair—a balancing act. Almost every interview revealed some evidence of ambivalence. On the one hand, the chair is a centre of power, arguably the most important person inside the company—and almost certainly the most prestigious from the outside. On the other hand, board chairs have no instruments of organizational power, such as unilateral decision-making authority, investment budgets or a pyramid of subordinates, particularly in Europe. Their organizational leadership can materialize only through the decisions of the boards they chair. Board chairs cannot lead without the collaboration of other board members and strong leadership skills are required to earn the support and respect of their fellow directors. Effective leaders need to have attributes of both a leader and a follower. We have distilled five pairs of such attributes, which seem self-contradictory but in fact capture the crucial competences for mastering ambivalence. Authority and humility. Chairs need authority to gain legitimacy in the eyes of directors, executives and shareholders. Such authority allows them to guide their boards through tough decisions, such as firing the chief executive or sending home employees to protect them from a virus, and to build productive relationships with shareholders and CEOs. Most of the board chairs we encountered during our research have an authority that does not come from their titles but from their expertise and knowledge, work history and social networks, personality and background. The way they conduct their jobs reinforces or diminishes that authority and therefore increases or decreases their effectiveness. True authority, however, often comes with humility. An important aspect of chairs’ work is to enable others to shine—whether board members or executives. One of the most experienced chairs in our sample, a participant from the Netherlands put it this way: “If you intend to use your chair position as a platform for self -aggrandizement, you are in for trouble”. Effective chairs speak little, making their interventions sharp, encouraging and focused on process and people, rather than on content. One director-respondent talked about an effective chair he had known: “She never said ‘I’, never spoke first and never took more than 10% of the airtime during any board meeting ”. In fact, the figure of 10% was mentioned by a number of respondents from several countries as a benchmark for how much the chair should speak in the boardroom.

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Commitment and detachment. The chair’s presence should be felt as little as possible and as much as necessary. A good chair gives other directors room to speak and yet is there to direct the conversation. In the words of one respondent from Denmark: “It may be called a non-executive and part-time job, but I have no illusions: I have to be ready to mobilize and commit all my time to this board if the need arises. And I stay in a permanent contact with the company to make sure I don’t miss this need”. Commitment is not so much about giving the board and the company an unlimited amount of time; it is the mental attitude of putting the interests of the institution first, of fully embracing the work and its consequences in spite of its part-time nature. However, the commitment has to be balanced by keeping sufficient distance between the chair and the company, as the former needs to look at the latter from the outside and to leave room for the executives to run it. As one respondent put it: “One of the chairman’s qualities is not to work too much. He should know how to keep a distance from the day to day. He should have diverse activities to avoid overinvesting in his chairmanship”. Distancing also helps chairs to preserve independence in their thoughts and actions. To most of our respondents, independence is a critical attribute. They believe that chairs should protect their independence from shareholders and management at all costs—even resignation. Incisiveness and patience. Board chairs orchestrate complex intellectual work that involves dozens of smart people; they need to be intellectually bright to grasp this complexity and to enable effective decision-making. At the same time, their personal cognitive capabilities should not be expressed as domineering voices in the boardroom. Chairs need to be attentive to the ideas of other board members, since patience is a major component of effective decision-making. Good chairs do not rush to get things done quickly but focus on getting things done properly; they strive for effectiveness rather than efficiency. They enable a reflective approach and encourage board members to ponder, to contextualize, to question. They wait patiently until an agreement emerges from the discussion. As one respondent put it: “A good chair needs patience to get to consensus in the boardroom”. Our respondents emphasized and reemphasized the critical importance of deep listening and the discipline to withhold personal opinions until the very end of the discussion. As one of them put it: “It is important to listen to directors with a non-judgmental attitude. Only when you listen to them genuinely do you deserve the right to say something”.

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Helicopter view and company knowledge. The role of leading the collective body that makes the most important decisions in the company demands a quality that one of our respondents called a “helicopter view”. This attribute enables the chair to set board agendas, to sort out ideas and alternatives and to avoid low-level discussions in the boardroom. As one chair described it: “A good chair sees the big picture; it allows him to frame questions properly and to achieve the required level of detail during discussions ”. At the same time, effective chairs also understand the business of the company, its key talent and its culture. They land their helicopters on the ground from time to time and get to know the troops, the landscape and the weaponry without, according to one interviewee, “competing with the CEO in their understanding of the industry”. Our respondents believe that such company knowledge contributes to chairs’ authority, allowing them to conduct strategic discussions and helping the board to assess the fitness and performance of the management. Interestingly, many incumbent chairs did not consider industry knowledge a must to be an effective board leader. One said: “For a chair to enable the board to make decisions it’s better to have ‘an empty head’ —to have no opinion on the subject matter. When you are an industry expert, it’s hard to achieve”. Hard and soft skills. Effective chairs combine broad business acumen with highly developed behavioural skills. They comfortably navigate strategic and financial matters; they understand risk mitigation strategies and contemporary executive compensation philosophy; they embrace digital technology and grasp the concept of sustainable development. As one respondent put it: “A good chair understands the general laws of business ”. While to an outsider the work of a chair may look highly technical and even ceremonial, it is almost exclusively about human relations with specific types of people—senior, successful, smart, performancedriven individuals with diverse backgrounds. Facilitating the collective work of these people requires exceptional behavioural skills such as effective listening and speaking, asking powerful questions, framing discussion items and providing feedback.

Fourteen Original Practices We now present fourteen (one from each country) of the most original chair practices we encountered in the course of our research, each example reflecting cultural specifics in some way. We are grateful to the authors of the country chapters, who helped us to select them.

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UK: Written agreements between large shareholders and boards defining the rules of engagement for both parties. The UK is known as a country of unwritten rules, yet we came across this approach in a number of cases. The respondents explained that it comes from their previous negative experiences with large active shareholders who tried to bend corporate governance rules in their favour. Some chairs tried to make such agreements legally binding; others did not. One said: “Just having it on paper helps to cool some hot heads when all of a sudden they want to tell the board what to do”. Board independence is one of the top priorities of British chairs and they use formal agreements to reinforce it. The Netherlands: “Polderen”. Polderen is a traditional Dutch approach to decision-making in a context with multiple stakeholders. It comes from politics but has spread to other situations where people with diverging views have to make a decision. Usually it is translated as “willingness to compromise” or “search for consensus”. Board chairs who practise polderen allow the discussion to take as long as is needed to make a decision—and often nudge directors towards a compromise. In the Netherlands, where equality and consensus are the norm, chairs ensure that all decisions are made unanimously. As one chair put it: “It is better to postpone a decision when things are too complex; a bit more reflection on the topic often helps ”. This implies that voting hardly ever takes place in the boardroom. Switzerland: “No-surprise” agreement between the chair and the CEO. In Switzerland, the relationship between the chair and the CEO is critical both for board and company effectiveness, since chairs often engage with various external stakeholders and speak on the company’s behalf. A number of chair- and CEO-respondents reported that they make an informal pact: the CEO reports all company problems to the chair as soon as they arise—and only after that do they become known to the rest of the board or other stakeholders. The pact also implies that neither party will bring any undiscussed items to the board. This practice comes from the Swiss culture’s emphasis on reliability and predictability. Denmark: Threatening to resign and resigning. In Denmark, where almost every company has significant shareholders, most chairs have to work with “active owners”. While effective chairs welcome owners’ engagement, they are adamant about protecting their boards’ independence and their own autonomy as board leaders. For them, resignation and the threat of resignation are legitimate ways to assert their authority. As one explained: “I tell my shareholders: I listen to you, yet I have my own

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way; if you don’t respect it, I will resign”. Some chairs go even further. They suggest that in cases of disagreement, shareholders should fire the whole board and elect a new one. Although such situations are rare, some respondents reported going through them and eventually stepping down. Sweden: Signing an “Ägardirektiv” (owners’ directive). In Sweden, board chairs consider understanding shareholders’ expectations and needs and bringing them into the boardroom one of their top priorities. In private, especially smaller companies, chairs proactively help shareholders to become more effective owners and improve shareholder-board interactions with the help of an “Ägardirektiv” (owners’ directive). An owners’ directive is a document that clarifies shareholders’ medium- to long-term interests and establishes the ground rules for their interactions with the board and management. Chairs often help shareholders to draft the directive and then use it as an important reference. Some of them are quite categorical about having one: “I will not take on the role of a chair for a private company if there is no written owners directive. In my experience, it facilitates my work and means I do not have to meddle in unproductive disputes between owners ”. Norway: Spreading decision-making over a few board meetings. According to our respondents from Norway, one of the worst things that can happen to a board chair is an “omkamp” (rematch), when—after supposedly reaching a consensus—some members of the group raise the issue again, using a new excuse. To avoid an omkamp, Norwegian chairs allocate as much time as is required to important items. They even spread the decision-making process over few meetings, following the rule that more haste means less speed. As one respondent put it: “When we have to make an important decision, I prefer to spend plenty of time, across several meetings, to discuss it. I don’t want the temptation to make a quick decision to affect the board”. Finland: Inviting middle managers and high-potentials to the board meeting. Finnish culture can be described as egalitarian or lowpower-distanced. As one respondent explained: “We are a small country, where everyone knows everyone else”. At the same time, board chairs in Finland are quite involved with their companies, for example, in leadership development and succession planning. Many of them invite middle managers into the boardroom: “First, it builds trust —we show that we have nothing to hide from them and there is no hidden agenda. Second, it gives us access to the information we need in real time. Third, they bring a different perspective, which enriches our debate. Finally, it gives us a chance

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to get to know them better and to see what kind of support they need from us ”. Such meetings also provide important inputs for future leadership appointments. Germany: Making careful adjustments to meet with worker representatives. In order to appear on an equal footing with employee representatives, German chairs may choose down-to-earth meeting locations, wear casual clothes or arrive in a modest car. German board leaders operate in a system of corporate governance that is highly socially oriented and cooperative. Manoeuvring between the interests of large shareholders, employee representatives and other stakeholders is one of the most challenging tasks that German chairs face. Nevertheless, equal treatment is embedded in German culture. German chairs understand that different types of stakeholders need different approaches and adjust their behaviour, tools and practices accordingly. France: Encouraging strategic debate. Strategy discussions figure prominently in the boards agendas in France and chairs play a central role in initiating and facilitating them. Some respondents linked this practice to the long standing tradition of combined chair–CEO role when an all-powerful PDG used the board as a sparring partner in the strategy development process. Open and sometimes heated debates are also characteristic of French culture and chairs try to turn this cultural feature to the benefit of the board by stimulating healthy level of directors’ engagement. They use a variety of practices such as: having a discussion with their colleagues ahead of the meeting; creating a seating plan and changing it for every board meeting; organizing “tours de table” in which all directors offer their opinions one after another; asking less talkative directors to express themselves and containing more talkative types; organizing informal dinners to develop interpersonal relationships; always speaking last; wrapping up at the end to make sure that there is a clear view of what was decided and what is still pending. Italy: Informal meetings with external stakeholders. Italy has a reputation for being one of the most regulated countries in Europe, yet it is a high-context culture, where people have to “read between the lines”. Here informal one-on-one encounters play an important role in enabling individuals to understand each other’s positions, clarifying mutual expectations and preparing decisions to be made in formal settings. The image of a chair is an important asset, which the company uses to find potential clients or negotiate deals with bankers. Chairs meet their stakeholders over coffee, lunch, dinner or even summer holidays. It is an important

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element of their work: “Face-to-face meetings are very much part of the Italian culture. We need to sit at the same table and look at each other to reinforce the trust and sense of sharing goals ”. Spain: Choosing the time to speak. In Spain, chairs regulate the dynamics of board meetings by timing their interventions with precision. When they want to explore an issue and stimulate a comprehensive discussion, they frame questions carefully, encourage directors to speak up and follow up with further questions to provoke further debate. When chairs believe an issue is not worth debating, they speak first, declare their position and nudge the board’s discussion towards the desired outcome. Ukraine: “Potrapeznichat ”—the leisurely sharing of a good meal with good wine and talking heart-to-heart. As one respondent put it: “If you want to be successful, you have to ‘trapeznichat’, over a shared meal —that’s how things get done in Ukraine. It creates a context for candid conversations that lead to trust ”. Chairs in Ukraine invite directors for one-on-one meals and organize breakfasts, lunches or dinners for the whole board. They use these opportunities for multiple purposes: discussing real issues informally prior to the board meeting; educating directors in corporate governance; assessing and getting to know them; and creating a spirit of camaraderie. As one chair explained: “I take directors for a meal in order to understand them better, to find common interests and shared views. Informal interaction is very important ”. Turkey: Rehearsing upcoming board meetings with the CEO. Turkey is a hierarchical and, like Italy, high-context culture, which translates into significant informal, behind-the-scenes work on the part of a chair. Rehearsing a board meeting and coaching a CEO in preparation for it is a distinctive practice that reflects Turkish culture. This tactic is designed to ensure a smooth-running meeting, to develop the CEO, to strengthen the chair–CEO relationship and to reinforce the informal hierarchy. For the chair, the CEO’s performance is his own performance, so the former tries to make sure that the latter is fully prepared—diving deep into the details. As one chair-respondent put it: “Since I groomed and promoted the CEO, he consults me as he would do with an older brother, and I mentor him”. Russia: “Razgovor po dusham”, translated literally as “heart -toheart”. In practice, this is a one-to-one, straight-talking encounter behind closed doors between a chair and a board member. It takes place when the former wants to alter the behaviour of the latter. Chairs resort to this practice when less powerful signals to deviant directors fail to produce results.

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At the same time, in conflict-tolerant Russian culture, such an approach does not inflict any deep wounds and, no matter how emotional the heartto-heart, the pair continue to interact and cooperate in a professional manner. “There are no conflicts, no disruption, just different opinions ”, as one chair explained.

Five Learning Strategies for a Board Chair One of the most surprising findings of this research project was that the number one motivation for people to become chairs is the learning opportunities that come with the job. Number two is the prospect of using the acquired knowledge and skills. Despite their achievements (and often considerable age), board leaders are eager to continue learning and growing. On the one hand they are very pragmatic in their learning—our respondents seek to deepen their understanding of the company and its environment and to learn more about their key stakeholders. On the other hand, they strive to expand their mental models of what constitutes good governance, a high-performing board and an effective chair. We would like to conclude this chapter by describing five learning strategies that novice chairs can use to master the job and that seasoned professionals can apply to further improve their performance. Going deep. Not only new but also experienced chairs constantly find opportunities to interact with company executives, middle managers, hi-potentials, rank-and-file employees, customers or suppliers to expand their company knowledge and understanding of the key stakeholders’ expectations. One chair developed a rule for herself to have six such conversations every month with company managers. Another respondent regularly meets with sales representatives and company customers because they are “the best sources for understanding what is important ”. One chair interviewed the wives of the military personnel for whom the company provided accommodation. Going wide. Effective chairs cast a wide net of knowledge and learn from colleagues on other boards, former chairs, members of their own boards, people not involved in governance, regulators, seminars and books. A pragmatic lens—“how can it help me to be a better chair?”— makes this exploration effective. One chair shared his approach: “I am always in a learning mode for what I consider to be my major job—chairing a board. While sitting on other boards as a director or a trustee, speaking with a CEO I meet for the first time or a parliamentary deputy I have

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known for years, I always try to find something useful and most of the time I do”. Another chair seconds his view: “I constantly transfer practices and ideas that emerge between the boards that I chair”. Many respondents emphasized that they no longer rely exclusively on information that comes from the management but seek it from independent sources such as investment bankers, analysts and industry experts. Going back to school. Many respondents acknowledge that they try to follow academic and more practitioner-oriented research through books, journal articles, websites, seminars and webinars. One chair attends two developmental programmes a year at international business schools— one with his board and another alone. Other chairs reported regularly participating in seminars and webinars on such subjects as corporate governance, board effectiveness, sustainability, digital transformation, executive compensation and social corporate responsibility. As one chair put it: “Business school programmes make me reflect upon things I do not normally reflect on. They help me to maintain mental agility, which is critical for a leader operating in an ever-changing world”. COVID-19 gave an additional boost to chairs’ interest in online learning programmes. One respondent revealed that since the beginning of the pandemic he has been attending no less than two webinars a week. Going new. Governance is a conservative domain, but experienced chairs know that learning does not happen without abandoning some old habits and trying out new ones. They experiment with formats, rules and personal behaviours, usually on a small-scale yet continuous basis. As one chair explained: “Once I heard from a colleague that at every board meeting, she changes the seating plan to create new momentum. The idea seemed interesting, but I was not sure how directors would react to it. I called it an experiment and suggested we try it for three meetings. Everybody accepted, we tried it out and we made it our standard practice”. COVID19 presented many opportunities for board leaders to try new things. Our respondents reported experimenting with various practices from banning management presentations altogether or running board meetings with 100% open agendas to limiting time for directors’ remarks to five minutes or turning off talkative board members’ mikes. Going reflective. As for all senior professionals, most learning for board chairs comes from doing the job. Good chairs collect feedback about their performance from various sources, both formally and informally. They periodically reflect on it, increasingly with the help of a coach,

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and adapt their mental models, attitudes and practices. One respondent described his approach: We have an express evaluation session at the end of each board meeting. I always ask directors to give me feedback. The day after the meeting I meet with the CEO and ask for her feedback. Then I analyze the feedback, compare it to my evaluation and make a list of learnings and actions. I discuss the list with my coach and commit myself to some behaviour changes. Most of the time I share my intentions with directors at the next board meeting.

References Brickley, J., Coles, J. and Jarrel, G. (1997). Leadership Structure: Separating the CEO and Chairman of the Board. Journal of Corporative Finance, 3, pp. 189–220. Hayward, M.L.A., Rindova, V.P. and Pollock, T.G. (2004). Believing One’s Own Press: The Causes and Consequences of CEO Celebrity. Strategic Management Journal, 25, pp. 637–653. Knockaert, M., Bjornali, E. S., and Erikson, T. (2015). Joining Forces: Top Management Team and Board Chair Characteristics as Antecedents of Board Service Involvement. Journal of Business Venturing, 30(3), pp. 420–435. Larcker, D. and Tayan, B. (2011). Corporate Governance Matters. Upper Saddle River, NJ: Pearson Education. Shekshnia, S. (2018). How to Be a Good Board Chair. Harvard Business Review, March–April 2018, pp. 96–105. Shekshnia, S. and Zagieva, V. (2016). Chair Survey 2015. Available from: https://www.insead.edu/sites/default/files/assets/dept/centres/ icgc/docs/chair-survey2015.pdf [Accessed 3 December 2018]. Shropshire, S. (2010). The Role of the Interlocking Director and Board Receptivity in the Diffusion of Practices. Academy of Management Review, 35 (2), pp. 246–264.

CHAPTER 17

The Future Role of the Chair in Europe Filipe Morais and Andrew Kakabadse

This final chapter offers a forward-looking view that emerged from our research on how the chair’s role and functions will evolve over the coming decade, especially in light of the paradigm shift that was brought about by the COVID-19 pandemic. In the first edition of this book, we identified two main areas of change: first, the chair’s demographic profile; and second, the role, tasks and capabilities of the high-performing chair in light of key developments. For the second of these areas, we also identified four main drivers of change: (a) stakeholder engagement and sustainability; (b) the increased frequency of business disruptions; (c) board leadership of corporate culture; and (d) the impact of technology on how boards and businesses operate. As we write this update for the second edition of the book, we realize that the drivers that shape the role, tasks and capabilities of the chair have not changed. The emergence of the COVID-19 crisis has, however,

F. Morais (B) · A. Kakabadse Henley Business School, Greenlands, United Kingdom e-mail: [email protected] A. Kakabadse e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1_17

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increased the speed and magnitude of their impact—especially in the case of technology. These factors make the chair’s role more important and indeed pivotal,1 but at the same time more challenging and demanding. We believe that, as the next decade progresses, the chair position will rise to greater prominence, often eclipsing that of the CEO. We begin this chapter by discussing chairs’ demographics. Then we will present four key factors that will define the chair’s role and the capabilities required to be effective in that position. At each stage, we will consider how the COVID-19 crisis has reinforced or altered pre-existing trends— if at all. We will conclude by discussing monitoring versus stewardship components of the chair’s role.

Chair Attributes: Who Will Occupy the Role Over the Next Decade? COVID-19 has had little impact on the trends we observed with respect to the gender, age and background of chairs two years ago. However, as more chairs fail to cope with the changes in the business environment that have been accelerated by the pandemic, chair turnover is likely to increase and to bring more noticeable demographic changes. In ten years’ time, there will be more female chairs in European companies than there are today, yet they will remain in a minority everywhere. The legislative and regulatory pressures felt across Europe in recent years2 —although perceived by many as insufficient—mean that more women will have the required board experience to become board chairs. In 2020 46% of non-executive directors at the largest UK public

1 Kakabadse, A., Kakabadse, N. and Barratt, R. (2006). Chairman and Chief Executive Officer (CEO): That Sacred and Secret Relationship. Journal of Management Development, 25(2), pp. 134–150. 2 International Finance Corporate (2015). A Guide to Corporate Governance Practices in the European Union. Available from: https://www.ifc.org/wps/wcm/connect/c44 d6d0047b7597bb7d9f7299ede9589/CG_Practices_in_EU_Guide.pdf?MOD=AJPERES [Accessed 1 December 2020]; Jourova, V. (2016). Gender Balance on Corporate Boards: Europe is Cracking the Glass Ceiling. European Commission Fact Sheet. Available from: http://ec.europa.eu/newsroom/document.cfm?doc_id=46280 [Accessed 1 December 2020].

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companies were women.3 56% of board remuneration committees were chaired by women.4 Such progress will translate into some of these directors attaining the board chair position in the next decade, not just in the UK but in other European countries. Recent studies5 suggest that a major barrier to women reaching the board chair is their comparative lack of experience as CEOs. As long as there is a significant gender imbalance among occupants of the CEO role, a similar imbalance will persist at chair level. As far as age is concerned, chairs will continue to be older than executives, with many professionals in their seventies and even eighties continuing to lead boards. The increase in time and effort demanded by the role—as well as the new capabilities that complexity and technology will necessitate—may mean that there will be more chairs in their forties and fifties. Board leaders’ backgrounds will be more diverse than they are today, but the CEO/general management route will remain the main career path for the job. “Celebrity chairs”—those chairing boards on account of their personal prestige alone—will almost disappear. Prestige will secure a chair position only if accompanied by capability and a clear track record of contribution to governance and performance. Overall, the profile of the chair will change slowly over the next decade to include more women, younger people and fewer celebrities. In addition, although general management will remain the main route to chairing a board, a wider range of backgrounds will be considered, with the role increasingly requiring experience in areas such as stakeholder engagement, sustainability and corporate culture.

3 Spencer Stuart (2020). UK Board Index 2020. Available from: https://www.spence rstuart.com/-/media/2020/october/ukbi2020/ukbi-highlights-oct2020.pdf [Accessed 1 December 2020]. 4 Ibid. 5 Shekshnia, S., Zimina, V. and Zagieva, V. (2020). Putting More Women at the Helm of Corporate Boards. Available from: https://knowledge.insead.edu/leadership-organisat ions/putting-more-women-at-the-helm-of-corporate-boards-13476 [Accessed 1 December 2020].

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Four Key Factors Shaping the Role of the Chair A number of factors will influence the nature of the role and the capabilities required to be a high-performing chair. These factors also mean that chairing a board will require a greater time commitment—with, therefore, fewer chairs occupying more than one such position. Chairs will be busier and their focus will be split between running the board, interacting with the CEO and engaging with shareholders and a variety of other stakeholders. Chairs will find themselves more frequently called upon to lead through a particular crisis or disruption. They will need to pay more attention to their task of overseeing corporate culture and creating the right conditions for the board to function as an effective steward of the appropriate culture for the business. These factors are discussed in greater detail in the following sections. Shareholder Activism, Stakeholder Engagement and Sustainability The push by European authorities for increased shareholder rights and a stronger shareholder voice in the affairs of corporations—as exemplified by the Shareholder Rights Directive (SRD)6 and the UK Stewardship Code7 —means that chairs will have to pay greater attention to the voices of shareholders and act as effective bridges between shareholders, the board and management. Emerging policy and regulation is advocating improvements in dialogue between companies and investors through the creation of stakeholder advisory panels and annual reporting on how companies engage with stakeholders. There is some evidence that COVID-19 is already accelerating and deepening companies’ engagement with stakeholders.8

6 European Parliament (2017). Directive (EU) 2017/828 of the European Parliament and the Council of 17 May 2017. Official Journal of the European Union, L 132. Available from: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri= CELEX:32017L0828&from=EN [Accessed 1 December 2020]. 7 Financial Reporting Council (2020). The UK Stewardship Code. Available from: https://www.frc.org.uk/getattachment/5aae591d-d9d3-4cf4-814a-d14e156a1 d87/Stewardship-Code_Dec-19-Final-Corrected.pdf [Accessed 1 December 2020]. 8 The Sustainability Board Report (2020). COVID-19 Special Report: The Acceleration of Stakeholder Centricity. Available from: https://a89c8240-f3c4-4e8b-b920fae53 2b127b6.filesusr.com/ugd/f6724f_ec604912509c4340be7fc2a4d1a47c51.pdf [Accessed 1 December 2020].

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PwC’s annual corporate director survey indicates that, while shareholder engagement has become more common in recent years (54% of the 884 directors of public companies surveyed in 2016 stated that their board was involved in direct engagement with investors), not all corporate directors view this as beneficial, with 21% reporting that they derived no valuable insights from such engagement.9 Chairs will therefore become the focal point of governance, and their ability to reconcile competing agendas and build trust is going to be stress-tested to the maximum. They will have to create meaningful and proactive engagement with investors, and manage the frustrations that this process may bring for the various parties. However, in a more recent survey10 covering a range of chair tasks, only 36% of respondents considered chairs to be very effective at communicating with shareholders (46% viewed them as somewhat effective and 24% as ineffective), with this competence scoring lowest among all categories of chair task effectiveness. Chairs will have to engage with shareholders over a great range of topics beyond financial performance and executive remuneration. The pressure for firms to integrate strategically and to monitor and disclose material environmental, societal and governance (ESG) issues is increasing11,12 but is yet to be taken seriously, even by those boards

9 PricewaterhouseCoopers (2016). The Swinging Pendulum: Board Governance in the Age of Shareholder Empowerment. PwC’s 2016 Annual Corporate Directors Survey. Available from: https://www.pwc.es/es/publicaciones/consejos-y-buen-gobierno/2016annual-corporate-directors-survey.pdf [Accessed 1 December 2020]. 10 PricewaterhouseCoopers (2018). The Evolving Boardroom: Signs of Change. PwC’s 2018 Annual Corporate Directors Survey. Available from: https://www.pwc.com/us/ en/governance-insights-center/annual-corporate-directors-survey/assets/pwc-annual-cor porate-directors-survey-2018.pdf [Accessed 1 December 2020]. 11 PricewaterhouseCoopers (2019). Mind the Gap: The Continued Divide between Investors and Corporates on ESG. PwC’s ESG Pulse 2019, Corporate Governance Insights Centre. Available at: https://www.pwc.com/us/en/services/assets/pwc-esg-divide-invest ors-corporates.pdf [Accessed 1 December 2020]. 12 KPMG (2017). ESG, Strategy and the Long View: A Framework for Board Oversight. Available from: https://assets.kpmg.com/content/dam/kpmg/lu/pdf/lu-en-esgstrategy-framework-for-board-oversight.pdf [Accessed 1 December 2020].

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whose firms report on sustainability.13 This will change. The head of engagement for a large institutional investor recently told us: Concerns over climate change and how these concerns are being integrated in investees’ strategies is growing in the investment community. There is also a renewed push for better assessment of social impact, one of the aspects of ESG that often gets forgotten. I think this will become very relevant over the coming years – as firms and investors learn how to engage effectively and mindset change starts to build.

Indeed, boards are already changing. The Sustainability Board Report looked at how the 100 largest of the Fortune 2000 companies had changed between 2019 and 2020 and found a 17% increase in boardlevel sustainability committees, a 19% increase in the number of directors on those committees and a 33% increase in directors with an interest in sustainability. However, a recent study14 from Henley Business School— based on 100 firms on the London Stock Exchange’s Alternative Investment Market (AIM) and Main Market and 50 investors—has shown that, while ESG is high on the agenda of many firms, chairs and their boards still need to develop their capability in this area significantly in order to respond meaningfully to mounting pressure from regulators, investors, marketplace forces and pressure groups. For many chairs, a shift in mindset and practice will be required. Their thinking will need to become more holistic and boardroom debate will need to include social and environmental considerations alongside traditional ways of looking at value creation; perhaps a non-executive director will need to have specific responsibilities for sustainability; an executive

13 Kiron, D., Kruschwitz, N., Haanaes, K., Reeves, M., Fuisz-Kehrbach, S. and Kell,

G. (2015). Joining Forces: Collaboration and Leadership for Sustaninability. MIT Sloan Management Review. Available from: https://sloanreview.mit.edu/projects/joining-for ces/ [Accessed 1 December 2020]; UNEP (United Nations Environment Programme) (2014). Integrated Governance: A New Model of Governance for Sustainability. Available from: http://www.unepfi.org/fileadmin/documents/UNEPFI_IntegratedGovernance.pdf [Accessed 1 December 2020]. 14 Morais, F., Simnett, J., Kakabadse, A., Kakabadse, N. and Myers, A. (2020). ESG in Small & Mid-Sized Quoted Companies—Perceptions, Myths and Realities. Available from: https://www.theqca.com/article_assets/articledir_442/221356/ QCA_Research_Report_ESG_in_Small_and_Mid-Sized_Quoted_Companies.pdf [Accessed 1 December 2020].

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committee may need to report directly to the board; and CEO performance and incentives will need to be designed to reflect investors’ ESG concerns. Sustainability performance is not just another fad that will fade with time. It is here to stay and will be a tremendous source of competitive advantage in the not-too-distant future. Greater shareholder involvement also means that chairs will be under closer scrutiny, and face removal if they fail to take due and balanced consideration of shareholder concerns. There is a possibility that the length of chair tenure will be reduced over the coming decade. In order to support chairs will have to balance shareholder value with the preservation of value for other stakeholders, including employees and communities (e.g. well-being, diversity, inclusion and human rights) and society as a whole, especially in terms of issues connected with climate change (e.g. energy and natural resource usage, carbon emissions and biodiversity). More Frequent and More Complex Business Disruptions Business disruptions are becoming more frequent and more complex. Since the turn of the millennium, we have witnessed: technological innovations disrupting entire industries (e.g. music, transportation); recurring reputational crises fuelled by social media; systemic and global financial meltdowns; prolonged recessions; and continuous political instability. As if this was not enough, we are now living through a global pandemic of which the social, political and economic effects are yet to be fully appreciated. The World Economic Forum Global Risks Report 2020 failed to anticipate the pandemic but highlights fundamental concerns: the increased risks of extreme-weather events; political and economic confrontations between major powers; cyber-attacks; and the persistent underlying weaknesses of global financial systems.15 All of these risks have been magnified by the pandemic and a May 2020 WEF report16 on the preliminary impacts of the pandemic showed that business leaders have added other concerns to their list: prolonged recession of the global 15 World Economic Forum (2020). The Global Risks Report 2020: 15th Edition. Available from: http://www3.weforum.org/docs/WEF_Global_Risk_Report_2020.pdf [Accessed 1 December 2020]. 16 World Economic Forum (2020). COVID-19 Risks Outlook a Preliminary Mapping and Its Implications. Available from: http://www3.weforum.org/docs/WEF_COVID_ 19_Risks_Outlook_Special_Edition_Pages.pdf [Accessed 1 December 2020].

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economy (66.3%); surge in bankruptcies (big firms and SMEs) and a wave of industry consolidation (52.7%); cyber-attacks and data fraud due to a sustained shift in working patterns (50.1%); failure of industries or sectors in certain countries to properly recover (50.1%); protracted disruption of global supply chains (48.4%); tighter restrictions on the cross-border movement of people and goods (42.9%); and another global outbreak of COVID-19 or different infectious disease (35.4%). A survey17 of 699 CEOs across 67 countries in different regions has shown how pandemicinduced changes are here to stay. About 24% of CEOs believe that post-COVID, their business model will become more digital through the digitalization of core business operations; 17% believe that their business model will become more virtual through the addition of new digital products/services; and 15% believe their business model will become more flexible through the growth in proportion of remote and/or contingent workers. The majority of these CEOs also believe that remote collaboration (78%), automation (76%), low-density workplaces (61%) and supply chain safety (58%) will be permanent phenomena. Navigating these increasingly turbulent waters, developing crisismanagement skills and bringing together different parties to reach shared solutions18 are tasks that are increasingly likely to fall to the chair. The uncertain business landscape will see corporations more frequently shifting consensus at the top on how they should be governed and directed, and strategic tensions will likely be exacerbated.19 Chairs have long been depicted as playing a greater role during upheaval and disruption.20 Indeed, a recent large US study showed that, in contexts of high complexity and resource scarcity, chairs account for up to 9% of 17 PricewaterhouseCoopers (2018). 21st CEO Survey: The Anxious Optimist in the

Corner Office. Available from: https://www.pwc.com/gx/en/ceo-survey/2018/pwc-ceosurvey-report-2018.pdf [Accessed 1 December 2020]. 18 Morais, F., Kakabadse, A. and Kakabadse, N. (2020). Leading through Discontinuous Change: A Typology of Problems and Leadership Approaches in UK Boards. Long Range Planning, 53(2), pp. 1 − 15. 19 Morais, F., Kakabadse, A. and Kakabadse, N. (2018). The Chairperson and CEO Roles Interaction and Responses to Strategic Tensions. Corporate Governance: The International Journal of Business in Society, 18(1), pp. 143−164. 20 Mizruchi, M.S. (1983). Who Controls Whom? An Examination of the Relation between Management and Boards of Directors in Large American Corporations. The Academy of Management Review, 8(3), pp. 426−435; Parker, H. (1990). The Company Chairman: His Roles and Responsibilities. Long Range Planning, 23(4), pp. 35−43.

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the variation in firm performance over and above the variation explained by the CEO.21 The coming decade will see more chairs called upon to step up and lead directly from the board in times of upheaval—as these disruptions will require more collaborative leadership, as opposed to the archetype of a strong, dominant CEO saving the day. Chairs will be required to equip their boards with the capabilities they need to face up to different types of threats, both by ensuring a diverse board composition with the right mix of skills and experiences, and also by developing scanning and sense-making processes to enable effective directional responses to emerging issues. A recent article22 points out that boards need to: review their own skills and capabilities regularly in order to “reflect the board’s purpose as well as the company’s strategy, its risk exposure and other elements of the context in which it operates”; ensure that directors on the board have digital competency, agility and crisis-management skills (perhaps from experience of extreme circumstances elsewhere); and ensure that directors have the time to respond to any emerging crisis by reducing “over boarding” (membership of too many boards). Finally, chairs will need to ensure that their board can raise uncomfortable issues and vigorously debate them on a regular basis. Setting the tone for robust debate about tension-generating topics while ensuring board cohesiveness will be all the more challenging in the years to come. Chairs that combine this capability with an evidence-based approach, along with proficiency in stakeholder engagement and a long-term focus, will be better equipped to succeed in turbulent times.

21 Withers, M.C. and Fitza, M.A. (2017). Do Board Chairs Matter? The Influence of Board Chairs on Firm Performance. Strategic Management Journal, 38(6), pp. 1343−1355. 22 Shekshnia, S., Zagieva, V. and Nazarova, M. (2020). A Checklist for Boards in the New Normal. Available from: https://knowledge.insead.edu/leadership-organisations/achecklist-for-boards-in-the-new-normal-15256 [Accessed 1 December 2020].

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Technology: How Will It Change the Way the Chair Works? If there is one area where COVID-19 made a real impact, it is the widespread adoption of remote working and collaboration—and the realization by boards that this can unlock enormous value and even be a true source of competitive advantage for their companies.23 More modestly, the accelerated adoption of “board technology” during the pandemic promises to change the way chairs organize and lead their boards. Previous reports24 found that 42% of European directors had concerns about breaches of data and over 50% of boards using boardmanagement software reported it as being unhelpful during a crisis (in terms of responding within time constraints and assuring good communication between directors). The pandemic has changed these perceptions and more directors are recognizing the enormous opportunities of technologies such as specialized software to support the whole-board process (not only the meetings); real-time access to operational and financial data to reduce the information gap with management; and regular industry updates to keep board members in the loop.25 However, for virtual board meetings and virtual board processes to be effective, directors need also to work differently. A recent article26 identified eight steps to improve virtual board work effectiveness. First, directors should “emphasize pre-work” by reading the materials, seeking information and giving feedback ahead of the meeting. Second, meeting agendas should be “shortened and energized” by removing items not critical to collaboration and oversight and focusing on those that do. Third, 23 KPMG (2020). Workplace Transformation in the Wake of COVID-19: Thriving in the New Environment. Available from: https://assets.kpmg/content/dam/kpmg/ xx/pdf/2020/04/workplace-transformation-in-the-wake-of-COVID-19.pdf [Accessed 1 December 2020]. 24 Forrester Consulting (2018). Directors’ Digital Divide: Boardroom Practices Aren’t Keeping Pace with Technology. Too Many Boards Still Use Personal Email and Fail to Adopt Technology for Sensitive Communication. Available from: https://diligent.com/wp-content/uploads/2018/10/Global-Report-Forrester-Dir ectors-Digital-Divide-Boardroom-Practices.pdf [Accessed 1 December 2020]. 25 Shekshnia, S., Zagieva, V. and Nazarova, M. (2020). A Checklist for Boards in the New Normal. Available from: https://knowledge.insead.edu/leadership-organisations/achecklist-for-boards-in-the-new-normal-15256 [Accessed 1 December 2020]. 26 Ferrazzi, K. and Zapp, S. (2020). The Upside of Virtual Board Meetings. Available from: https://hbr.org/2020/07/the-upside-of-virtual-board-meetings [Accessed 1 December 2020].

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focus can also be gained, by spreading sessions over one or two weeks. Fourth, there should be purposefully and carefully planned serendipitous moments for informal interaction between directors in the virtual environment so that trust can be built. Fifth, “breakout rooms” should be used in a productive way with no more than three directors and for a maximum of 30 minutes so that directors can pressure-test ideas and provide depth of thinking. Sixth, the chair should include “candour breaks” in the agenda, as in virtual meetings it is harder to pick up cues from people who still have something to say. A seventh suggestion is to try and “replicate the dinner experience” by enabling directors to connect with the wider executive team. An eighth and final recommendation is to take advantage of the ease of joining meetings remotely to invite guest experts who can widen the board’s perspective on particular subjects. The way board members interact will continue to change in the coming decade, and this may have profound implications. If every board activity is recorded and undertaken remotely (i.e. online), a possible outcome is that directors maybe (even) less inclined to have those difficult conversations for fear of them being recorded and subsequently either leaked to the press or used against them in a lawsuit by an aggrieved shareholder or other stakeholders. Also, online communication has a greater potential for misunderstandings, in comparison with face-to-face, as behavioural language is important in conveying meaning. On the positive side, online communication may make less talkative board members feel more willing to contribute—even if handling disagreement proves more difficult. In summary, chairs will need to maximize the pros, minimize the cons and exploit technology in a way that maximizes the efficiency of board operations without jeopardizing either relationships or the quality of debate. Shaping Corporate Culture Peter Drucker has been credited with the quote “culture eats strategy for breakfast”, an idea which has become the subject of much debate. It is an assertion that is increasingly recognized by regulators,27 with organizational culture cited as the basis of the 2008 financial meltdown 27 Financial Reporting Council (2018). The UK Corporate Governance Code. Available from: https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f4806 9a2/2018-UK-Corporate-Governance-Code-FINAL.PDF [Accessed 1 December 2020].

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along with other corporate failures. An early report by the UK Financial Reporting Council28 showed that boards acknowledge the responsibility of determining the purpose of the company (why it exists, beyond merely generating profit)—and therefore also the values and behaviours that are required to fulfil its purpose. Yet “culture” is perceived by many chairs as simply the determination of strategy: the rate of expansion, the markets in which the company is likely to succeed and the mode of entry, among other factors.29 Although regulators are paving the way for culture to feature high on board agendas, boards are yet to attach any importance to this critical governance function. Nor have they developed any means by which to fulfil their responsibility to assure shareholders and other stakeholders that the culture of the firm is healthy and conducive to sustainable business performance. Recent research by Board Agenda and Mazars, in association with INSEAD, has revealed that much work awaits chairs in ensuring that their boards can be effective stewards of corporate culture.30 Boards either fail to value culture as a topic or are simply ill-equipped to handle it, yet many recognize the existence of fractures between strategy and culture. Directors generally assume that the principal ways to influence corporate culture are to set the right tone from the top, ensuring the CEO is supportive of the desired culture, and making the right appointments to the board and senior management. A recent survey shows that, currently, in assessing culture, approximately 66% of directors rely on gut feeling based on interactions with management, yet only 32% believe this is effective.31 However, our own research suggests that non-executive directors’ 28 Financial Reporting Council (2016). Corporate Culture and the Role of Boards:

Report of Observations. Available from: https://www.frc.org.uk/getattachment/385 1b9c5-92d3-4695-aeb2-87c9052dc8c1/Corporate-Culture-and-the-Role-of-Boards-Rep ort-of-Observations.pdf [Accessed 1 December 2020]. 29 Ibid. 30 Board Agenda and Mazars (2017). Board Leadership in Corporate Culture: European Report 2017. Available from: https://www.mazars.com/content/download/ 914232/47476119/version//file/Board%20Leadership%20in%20Corporate%20Culture% 20Report.pdf [Accessed 1 December 2020]. 31 PricewaterhouseCoopers (2018). The Evolving Boardroom: Signs of Change. PwC’s 2018 Annual Corporate Directors Survey. Available from: https://www.pwc.com/us/ en/governance-insights-center/annual-corporate-directors-survey/assets/pwc-annual-cor porate-directors-survey-2018.pdf [Accessed 1 December 2020].

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(NEDs’) informal contact with a company’s operations and people is an invaluable resource complementing more formal ways of assessing corporate culture. With many CEOs still feeling nervous about allowing NEDs to visit operations and talk with other layers of management, chairs need to ensure that these activities happen, so as to enable NEDs to have a line of sight into the corporation’s culture. It is up to the chair to set the tone for culture—and that starts in the boardroom. One chair recently told us: A wildly underplayed aspect of board performance is culture, values and behaviours. You can have exactly the same people sitting around the board table, but with a different style of chair you will get a completely different dialogue from the same people.

Many leading firms with enlightened boards and chairs are actively promoting breakfasts in which NEDs meet employees from different parts of the organization, inviting employees to present to the board and enabling NED visits to operations. These companies’ CEOs do not regard such practices as stepping into their territory but rather as ways in which NEDs can become more useful. One highly experienced FTSE 100 chair commented on his approach: Non-executives can go into executive meetings , R&D, product marketing, visit any research establishment, any manufacturing or commercial unit, find out what’s going on… no chaperoning. Initially I said, ‘Go and be a fly on the wall but if you need to ask a question, ask a question.’ That is now part of the way the company operates. I always had that right, if you like, but I wanted to make sure all my board members did too.

In the future high-performing chairs will routinely start every board meeting by reminding board members of the purpose, values and behaviours that are integral to the firm’s culture. They will be crystal clear in identifying the types of behaviours that are not tolerated—and swift and assertive at addressing them if they do occur.

Conclusion The coming decade will be the post-COVID-19 decade. The effects of the pandemic will continue to be felt across multiple dimensions and will change the way we live, work and do business. According to a McKinsey

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report,32 the world can expect a metamorphosis of demand, a transformed workforce, a vastly increased requirement for resilience and huge regulatory and public-health uncertainty. Chairs in Europe will be required to collaborate more extensively, both internally and externally, in order to seek shared solutions to frequent and complex business disruptions. Past experience will help less, and the ability to forge creative solutions will be a test for chairs whose boards lack diversity of thinking. The focus of the chair will be divided between, on the one hand, the more traditional role of oversight and dealing with the CEO and, on the other, a greater emphasis on stewardship in terms of shareholder engagement, sustainable performance and corporate culture. The chair will become the guardian of the long-term future of the firm and the one individual who reminds everyone—board members, executives and shareholders—of the higher purpose that the firm serves, maintaining the quality of engagement and ensuring the alignment of the different and shifting interests in and around the boardroom. Such a shift in emphasis will require chairs to become more available, which will often include leading the company through difficult situations. The skillset of the high-performing chair must expand to include holistic thinking, political savviness, long-term vision, and an ability to reconcile competing agendas and gather the support of external stakeholders. One effect of the chair’s changing role is that the profile of the senior independent director (SID) will also become more important. SIDs will need to understand how the chair’s role and prominence are expanding, and develop their own skills in new domains in order to be in a position to support and/or challenge the chair when required. The conclusions detailed above point to our most significant prediction. That is, the role of the chair is set to become the most important in contemporary organizations, surpassing that of the CEO. Welcome to the age of the board chair.

32 McKinsey (2020). COVID-19: Briefing Materials—Global Health and Crisis Response. Available from: https://www.mckinsey.com/~/media/McKinsey/Business% 20Functions/Risk/Our%20Insights/COVID%2019%20Implications%20for%20business/ COVID%2019%20July%2023/COVID-19-Facts-and-Insights-July-23-vF.pdf [Accessed 1 December 2020].

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References Board Agenda and Mazars. (2017). Board Leadership in Corporate Culture: European Report 2017. Available from: https://www.mazars.com/content/ download/914232/47476119/version//file/Board%20Leadership%20in% 20Corporate%20Culture%20Report.pdf [Accessed 1 December 2020]. European Parliament (2017). Directive (EU) 2017/828 of the European Parliament and the Council of 17 May 2017. Official Journal of the European Union, L 132. Available from: https://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:32017L0828&from=EN [Accessed 1 December 2020]. Ferrazzi, K. and Zapp, S. (2020). The Upside of Virtual Board Meetings. Available from: https://hbr.org/2020/07/the-upside-of-virtual-board-mee tings [Accessed 1 December 2020]. Financial Reporting Council (2020). The UK Stewardship Code. Available from: https://www.frc.org.uk/getattachment/5aae591d-d9d3-4cf4-814 a14e156a1d87/Stewardship-Code_Dec-19-Final-Corrected.pdf [Accessed 1 December 2020]. Financial Reporting Council (2016). Corporate Culture and the Role of Boards: Report of Observations. Available from: https://www.frc.org.uk/getatt achment/3851b9c5-92d3-4695-aeb2-87c9052dc8c1/Corporate-Cultureand-the-Role-of-Boards-Report-of-Observations.pdf [Accessed 1 December 2020]. Financial Reporting Council (2018). The UK Corporate Governance Code. Available from: https://www.frc.org.uk/getattachment/88bd8c45-50ea4841-95b0-d2f4f48069a2/2018-UK-Corporate-Governance-Code-FIN AL.PDF [Accessed 1 December 2020]. Forrester Consulting (2018). Directors’ Digital Divide: Boardroom Practices Aren’t Keeping Pace with Technology. Too Many Boards Still Use Personal Email and Fail to Adopt Technology for Sensitive Communication. Available from: https://diligent.com/wp-content/uploads/2018/10/Global-Rep ort-Forrester-Directors-Digital-Divide-Boardroom-Practices.pdf [Accessed 1 December 2020]. International Finance Corporate (2015). A Guide to Corporate Governance Practices in the European Union. Available from https://www.ifc.org/wps/ wcm/connect/c44d6d0047b7597bb7d9f7299ede9589/CG_Practices_in_ EU_Guide.pdf?MOD=AJPERES [Accessed 1 December 2020]. Jourova, V. (2016). Gender Balance on Corporate Boards: Europe is Cracking the Glass Ceiling. European Commission Fact Sheet. Available from: http://ec. europa.eu/newsroom/document.cfm?doc_id=46280 [Accessed 1 December 2020].

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Kakabadse, A., Kakabadse, N. and Barratt, R. (2006). Chairman and Chief Executive Officer (CEO): That Sacred and Secret Relationship. Journal of Management Development, 25(2), pp. 134–150. Kiron, D., Kruschwitz, N., Haanaes, K., Reeves, M., Fuisz-Kehrbach, S. and Kell, G. (2015). Joining Forces: Collaboration and Leadership for Sustaninability. MIT Sloan Management Review. Available from: https://sloanreview. mit.edu/projects/joining-forces/ [Accessed 1 December 2020]. KPMG (2017). ESG, Strategy and the Long View: A Framework for Board Oversight. Available from: https://assets.kpmg.com/content/dam/kpmg/ lu/pdf/lu-en-esg-strategy-framework-for-board-oversight.pdf [Accessed 1 December 2020]. KPMG (2020). Workplace Transformation in the Wake of COVID-19: Thriving in the New Environment. Available from: https://assets.kpmg/content/ dam/kpmg/xx/pdf/2020/04/workplace-transformation-in-the-wake-ofCOVID-19.pdf [Accessed 1 December 2020]. McKinsey (2020). COVID-19: Briefing Materials—Global Health and Crisis Response. Available from: https://www.mckinsey.com/~/media/McKinsey/ Business%20Functions/Risk/Our%20Insights/COVID%2019%20Implica tions%20for%20business/COVID%2019%20July%2023/COVID-19-Factsand-Insights-July-23-vF.pdf [Accessed 1 December 2020]. Mizruchi, M.S. (1983). Who Controls Whom? An Examination of the Relation between Management and Boards of Directors in Large American Corporations. The Academy of Management Review, 8(3), pp. 426–435. Morais, F., Kakabadse, A. and Kakabadse, N. (2018). The Chairperson and CEO Roles Interaction and Responses to Strategic Tensions. Corporate Governance: The International Journal of Business in Society, 18(1), pp. 143–164. Morais, F., Kakabadse, A. and Kakabadse, N. (2020). Leading through Discontinuous Change: A Typology of Problems and Leadership Approaches in UK Boards. Long Range Planning, 53(2), pp. 1–15. Morais, F., Simnett, J., Kakabadse, A., Kakabadse, N. and Myers, A. (2020). ESG in Small & Mid-Sized Quoted Companies–Perceptions, Myths and Realities, Available from: https://www.theqca.com/article_assets/articl edir_442/221356/QCA_Research_Report_ESG_in_Small_and_Mid-Sized_ Quoted_Companies.pdf [Accessed 1 December 2020]. Parker, H. (1990). The Company Chairman: His Roles and Responsibilities. Long Range Planning, 23(4), pp. 35–43. PricewaterhouseCoopers (2016). The Swinging Pendulum: Board Governance in the Age of Shareholder Empowerment. PwC’s 2016 Annual Corporate Directors Survey. Available from: https://www.pwc.es/es/publicaciones/con sejos-y-buen-gobierno/2016-annual-corporate-directors-survey.pdf [Accessed 1 December 2020].

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PricewaterhouseCoopers (2018). 21st CEO Survey: The Anxious Optimist in the Corner Office. Available from: https://www.pwc.com/gx/en/ceo-survey/ 2018/pwc-ceo-survey-report-2018.pdf [Accessed 1 December 2020]. PricewaterhouseCoopers (2018). The Evolving Boardroom: Signs of Change. PwC’s 2018 Annual Corporate Directors Survey. Available from: https:// www.pwc.com/us/en/governance-insights-center/annual-corporate-direct ors-survey/assets/pwc-annual-corporate-directors-survey-2018.pdf [Accessed 1 December 2020]. PricewaterhouseCoopers (2019). Mind the Gap: The Continued Divide between Investors and Corporates on ESG. PwC’s ESG Pulse 2019, Corporate Governance Insights Centre. Available at: https://www.pwc.com/us/en/services/ assets/pwc-esg-divide-investors-corporates.pdf [Accessed 1 December 2020]. Shekshnia, S., Zagieva, V. and Nazarova, M. (2020). A Checklist for Boards in the New Normal. Available from: https://knowledge.insead.edu/leadershiporganisations/a-checklist-for-boards-in-the-new-normal-15256 [Accessed 1 December 2020]. Shekshnia, S., Zimina, V. and Zagieva, V. (2020). Putting More Women at the Helm of Corporate Boards. Available from: https://knowledge.insead.edu/ leadership-organisations/putting-more-women-at-the-helm-of-corporate-boa rds-13476 [Accessed 1 December 2020]. The Sustainability Board Report (2020). COVID-19 Special Report: The Acceleration of Stakeholder Centricity. Available from: https://a89c8240f3c4-4e8b-b920fae532b127b6.filesusr.com/ugd/f6724f_ec604912509c434 0be7fc2a4d1a47c51.pdf [Accessed 1 December 2020]. UNEP (United Nations Environment Programme) (2014). Integrated Governance: A New Model of Governance for Sustainability. Available from: http://www.unepfi.org/fileadmin/documents/UNEPFI_IntegratedGo vernance.pdf [Accessed 1 December 2020]. Withers, M.C. and Fitza, M.A. (2017). Do Board Chairs Matter? The Influence of Board Chairs on Firm Performance. Strategic Management Journal, 38(6), pp. 1343–1355. The World Economic Forum (2020a). The Global Risks Report 2020: 15th Edition. Available from: http://www3.weforum.org/docs/WEF_Glo bal_Risk_Report_2020.pdf [Accessed 1 December 2020]. The World Economic Forum (2020b). COVID-19 Risks Outlook A Preliminary Mapping and Its Implications. Available from: http://www3.weforum.org/ docs/WEF_COVID_19_Risks_Outlook_Special_Edition_Pages.pdf [Accessed 1 December 2020].

Appendix A: Research Methodology and Data Collection

To describe the work of a board chair in the European context, we have relied on both qualitative and quantitative data. We use quantitative data collected through two surveys. The first of these, the Global Chair Survey was administered in 30 European countries in 2015.1 The survey was mailed to 600 European chairs identified through the INSEAD alumni database and other sources, and we received 118 valid answers. The survey covered a variety of topics related to board leaders, such as their demographics, backgrounds, motivation, remuneration and tasks, as well as their time commitment and its allocation. On the basis of the survey, we identified several challenges that chairs in Europe face in performing their work, which formed the foundation for the second leg of data collection. The second survey Board Practices during Pandemic was conducted in May–June 2020 in 23 countries (mostly in Europe). We

1 Shekshnia, S. and Zagieva, V. (2016). Global Chair Survey 2015. Available from: https://www.insead.edu/sites/default/files/assets/dept/centres/icgc/docs/chairsurvey-2015.pdf [Accessed 1 December 2020].

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1

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surveyed 266 chairs, directors and CEOs to see how the work of boards has changed during the pandemic.2 To identify some specific practices that board leaders use to deal with the challenges we uncovered, we assembled a team of researchers, who conducted semi-structured interviews in 14 European countries (8 in the first edition of this book). We selected these countries—Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland, Turkey, Ukraine and the UK—using a number of criteria. First, we wanted to have a compact sample reflecting the diversity of Europe. This is why our list includes both developed and emerging economies, larger and smaller nations, and countries from the North, West, South and East of Europe. Second, we intended to look at the work of a board chair under different European governance models: the single-board model (Denmark, Italy, Russia, Switzerland, Turkey, UK); countries where there is an option of two tiers but a single tier is generally preferred (France, Finland, Spain, Ukraine); the two-tier board model (Germany, the Netherlands); and the co-determination model (Denmark, Germany, Sweden). As one of the core research questions was whether effective chair leadership varies across national and cultural boundaries, we needed a unified approach to assess the different cultures in which our chair-respondents operate. We used our fellow INSEAD professor, Erin Meyer’s methodology, as set out in her book The Culture Map: Breaking Through the Invisible Boundaries of Global Business.3 This model presents eight scales, showing how cultures vary along a spectrum from one extreme to its opposite. We adopted six scales (Communicating, Persuading, Deciding, Trusting, Disagreeing, Scheduling) out of the eight and placed our countries on each dimension, based on Meyer’s research (see insert).

2 Shekshnia, S., Zagieva, V. and Nazarova M. (2020). Pandemic or No, It’s Business as Usual for Boards. Available from: https://knowledge.insead.edu/leadership-org anisations/pandemic-or-no-its-business-as-usual-for-boards-15066 [Accessed 1 December 2020]; Shekshnia, S., Zagieva, V. and Nazarova M. (2020). A Checklist for Boards in the New Normal. Available from: https://knowledge.insead.edu/leadership-organisations/achecklist-for-boards-in-the-new-normal-15256 [Accessed 1 December 2020]. 3 Meyer, E. (2014). The Culture Map: Breaking Through the Invisible Boundaries of Global Business. New York: PublicAffairs.

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Culture Map dimensions Communicating: low-context versus high-context In low-context cultures, good communication is precise, simple and clear. Repetition is appreciated. In high-context cultures, good communication is sophisticated and nuanced. Messages are both spoken and read between the lines. Persuading: principles-first versus applications-first In applications-first cultures, individuals begin their argument with a fact, statement or opinion and later back it up with explanations if necessary. Discussions are conducted in a practical manner. In principles-first cultures, the preference is to begin with the theoretical background or broader concept and later move to concrete statements or opinions. Deciding: consensual versus top-down In cultures with a consensual decision-making style, decisions are made in-group through unanimous agreement. In top-down cultures, decisions are made by individuals. Trusting: task-based versus relationship-based In task-based cultures, trust is built through business-related activities. Work relationships are formed and dropped easily, based on the situation. In relationship-based cultures, trust is built through informal activities. Work relationships are built slowly over time. Disagreeing: confrontational versus non-confrontational In cultures tending to open confrontation, conflict is appropriate and does not negatively impact relationships. In countries that avoid confrontation, conflicts are considered negative for a team or organization. Scheduling: linear-time versus flexible-time In cultures with a linear-time approach, deadlines and schedules are strict with a focus on promptness over flexibility. In flexible-time cultures, the focus is on adaptability, time is considered as a fluid substance and deadlines can stretch. Adapted from Meyer, E. (2014). The Culture Map: Breaking Through the Invisible Boundaries of Global Business. New York: PublicAffairs.

To collect data we developed a questionnaire with 35 open-ended questions, incorporating the findings of the INSEAD Global Chair Survey 2015 and existing academic theories on the work of the chair. In each country, our researchers conducted face-to-face semi-structured interviews centred on practices that chairs use to deal with 11 challenges:

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• • • • • • • • • • •

APPENDIX A: RESEARCH METHODOLOGY AND DATA …

Relationship with a controlling/large shareholder Managing a difficult board member Informational asymmetry with the CEO and other executives Diversity in board members’ backgrounds Relationship with the CEO/management Relationship with external stakeholders, such as clients, suppliers and government Insufficient time commitments of board members Level of collaboration and teamwork among board members Relationships with minority shareholders Relationships with financial analysts Low motivation and absenteeism of board members.

Chairs were also asked about their practices for facilitating board meetings, the impact of digital technologies on their work, the planning process for chair succession and their ideas about the future of chairs’ work. Interviews lasted from one to three hours. In total, the team conducted 130 conversations with chairs, many of whom led more than one board. We also conducted 143 interviews with CEOs, directors and shareholders (or their representatives), who have significant dealings with chairs. For the second edition of the book, we interviewed 56 additional respondents (chairs and board directors) in May–October 2020, asking about chairs’ practices in dealing with such challenges as board diversity, climate change and sustainability, digital transformation and cybersecurity, and, most recently, COVID-19. Given the niche nature of our target group, it would have been impossible to obtain a representative sample. At the same time, we strove to achieve a high level of diversity. Selecting only seasoned board chairs (more than five years’ experience in chairing boards and chairing more than two boards) in each country, we included female and male respondents who had experience in companies with different ownership structures, from different industries and of different sizes. We interviewed shareholders of three different types: controlling family representatives, private equity representatives and institutional investor representatives. We also spoke to directors who had more than five years’ experience of serving on boards and had worked with at least three different chairs, and CEOs who had more than five years of CEO experience and had

APPENDIX A: RESEARCH METHODOLOGY AND DATA …

435

worked with at least three chairs. All respondents spoke on condition of anonymity but provided demographic information. We recognize that our small sample size is a limitation of the study. Despite this fact, the overall sample of interviewees is quite large for a quantitative research project on such a niche group. The number of respondents interviewed per country varies from 5 to 15 chairs, and from 2 to 4 of each type of other stakeholders (CEOs, directors, shareholders), which limits the generalization of findings on a country level. Nevertheless, we believe that the qualitative value of many responses is significant.

Appendix B: Chairs’ Challenges and Practices

Using the challenges of board chairs, as identified by the Global Chair Survey 2015, and findings from interviews, we compiled the table below to summarize the challenges and the practices described by the participants in their interviews. The challenges are listed in the order of importance established by the survey. For the second edition, we added three new challenges: self-development and learning; managing COVID-19; and facilitating online board meetings.

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1

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APPENDIX B: CHAIRS’ CHALLENGES AND PRACTICES

Challenge

Practices

Relationships with controlling or large shareholders

Asking shareholders to fill in a structured questionnaire about their position on key dilemmas such as growth, dividends, acquisitions, owners’ pride Preparing an agreement with shareholders to establish formal rules of engagement Organizing annual roadshows to meet with shareholders’ representatives and engage them in discussion Conducting an annual strategy meeting with shareholders Emailing to the largest shareholders to enquire whether they would like a private meeting Inviting the five largest shareholders and independent directors for a working dinner once a year Inviting representatives of large and small shareholders to the board meetings to hear their positions and concerns Having informal dinner with large shareholders before every board meeting Preparing summaries of board meetings for shareholders Conducting follow-up meetings with shareholders after board meetings Consulting with the top 25 largest shareholders on remuneration Personally supervising the preparation of the annual remuneration report Creating group in WhatsApp for shareholders to exchange news Trying to be always available for shareholders Using shareholders’ networks for recruitment, information gathering or lobbying Nudging shareholders to get to know corporate governance regulations through reading or attending specialized courses Articulating personal expectations and setting boundaries between the board and the shareholders Signing ownership directive Threatening to resign and resigning in cases of disagreement Reminding major shareholders that a chair works for all shareholders Preventing shareholders from reaching out to management and directors without the chair’s participation (continued)

APPENDIX B: CHAIRS’ CHALLENGES AND PRACTICES

439

(continued) Challenge

Practices

Managing difficult board members (special cases)

Induction interview with a director Assessing personality, character, communication skills and cultural fit of future directors Formalizing behavioural norms for directors Conducting a formal performance evaluation Conducting a 360-degree evaluation Inviting the person in question for a one-to-one meeting Recommending that the difficult board member should not stand for reelection Polite confrontation Putting debates on pause after 20 minutes of heated discussion Reminding egoistic members of the collective nature of the board’s work When disagreeing, asking board members to switch roles and speak from somebody else’s standpoint Delegating the task of informal reconciliation with an upset director to the “nicest” board member Repeating board rules before the meeting Soliciting opinions of “silent” directors before the meeting and presenting them on their behalf Asking for written opinions to ensure that everybody participates Asking every director to state his or her opinion Formulating own position before the board meeting and sending it to the other directors in advance Suggesting professional support to a difficult board member Preparing specific development plan for under-qualified director Personally coaching “timid” board members Involving the whole board in discussing deviant behaviour to strengthen the message Preparing mitigation strategies Postponing the discussion to reach a decision acceptable to all board members (continued)

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APPENDIX B: CHAIRS’ CHALLENGES AND PRACTICES

(continued) Challenge

Practices

Relationships with the CEO and management

Establishing developmental objectives for CEO Going on business trips together with CEO Having formal mentoring sessions with CEO Assigning board directors to coach members of executive team Having lunch with CEO and CFO every quarter Having meetings with hi-pos Never talking to CEO’s direct reports versus meeting with other executives Setting board meeting agendas together with CEO Conducting a CEO debrief after each board meeting Sharing personal experiences of being a CEO Supporting CEO when necessary, for instance, in moments of crisis, to take pressure off CEO Connecting CEO with experts Introducing CEO to important people in business and government Attracting CEO’s attention to potential problems and opportunities Protecting CEO against intrusion of shareholders Providing feedback on a regular basis Conducting external assessment of top leadership team Rehearsing meetings with CEO Setting mutual expectations by asking “Where do you want me to contribute?” Planning and preparing CEO succession Consulting about the agenda with other directors Calling every director and asking if they are happy with the next meeting’s agenda or would like to change something Defining format of board materials Conducting an express evaluation at the end of the meeting Conducting in-camera sessions (without executives present) at the beginning or end of the board meeting Distinguishing between subjects that need a discussion and subjects that need a decision Opening every meeting by reminding the board about the last one Spreading a discussion of one agenda item over a few board meetings Planning a discussion for one meeting and the decision-making for the next

Facilitating effective board discussion

(continued)

APPENDIX B: CHAIRS’ CHALLENGES AND PRACTICES

441

(continued) Challenge

Practices Putting an item forward at a board meeting to allow the decision to “mature” Dealing with technical and less important issues offline Following “30-20-40-10” rule (30% of time spent on management presentations, 20% on Q&A, 40% on discussion, 10% on making decision) or “30-70” rule (30% of time on presentations, 70% on discussion) Forbidding or limiting management presentations Setting specific formats for presentations Verifying materials before they go to other directors Prioritizing important topics in advance Placing agenda items that require significant time and mental effort earlier and before lunch Giving every director the same amount of airtime Creating a seating plan and changing it for every board meeting Asking every director to state their position Assigning the role of devil’s advocate to one board member Asking management always to present at least three alternative decisions Discouraging preliminary conversations between directors because it may lead to taking positions too early without seeing the whole picture Giving the floor to the most knowledgeable director first to set the tone Openly encouraging directors to speak, while reminding them of the need for brevity and specificity Not rushing the conversation in the boardroom and letting the discussion flow Not indicating one’s personal position Speaking the last Taking as little room as possible Limiting own airtime to 10–15% of the total Outlining criteria for decision-making No voting Giving each of the conflicting parties the floor Writing proposed resolution on a flip-chart Making sure that every director supports a proposal before it becomes a decision Casting a decisive vote in case of deadlock Wrapping up at the end to make sure that there is a clear view of what was decided and what is still pending (continued)

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APPENDIX B: CHAIRS’ CHALLENGES AND PRACTICES

(continued) Challenge

Practices

Level of collaboration and teamwork among board members

Arranging a dinner after a board meeting Arranging a dinner with non-executive directors on the eve of a board meeting Having personal talks with each of the directors versus avoiding any separate conversations “Chair’s minute” at the opening of the board: update on developments since the last board meeting Convening off-site meetings with the help of facilitators Creating WhatsApp group chats for the board members Starting every board meeting with a group prayer Conducting board meetings at different company locations Encouraging directors to spend time at the company Attending management meetings Spending time in the company’s offices, having an office in the company “Chair Report”—CEO monthly update prepared for the chair Checking board materials before they are sent to directors Providing executive summary for each item of the agenda Providing slide deck with options and arguments pro and con Defining format for board materials, digital board book Asking CEO to write two pages of plain text rather than put together a PowerPoint presentation Guiding the CEO’s preparation for the board meeting by discussing what to present and how to present it to the board Conducting “information meetings ”, when directors get together for a short time to understand the issue before making a decision at the formal board meeting Inviting external experts and consultants Updating industry information, particularly about competition, every 15 days Talking to each of the executive team members once annually in a one-on-one conversation Maintaining intense communication with CEO, CFO and internal and external auditors Open-agenda meeting with CEO Conducting employee surveys on a regular basis Assigning a board member as curator of each major management initiative Assigning different board members “special missions”, i.e. projects outside of the regular board committee responsibilities Creating temporary board subcommittees to address a specific issue

Informational asymmetry with the CEO and management

(continued)

APPENDIX B: CHAIRS’ CHALLENGES AND PRACTICES

443

(continued) Challenge

Practices

Arranging meetings for improving directors’ knowledge of the company and its business, including customer visits Inviting the whole management team to attend board meetings twice a year Inviting high-potential managers to make presentations to the board and its committees Relationship with Interacting with media on a regular basis external stakeholders Participating in industry conferences such as clients, Running governance roadshow—communicating to actual and suppliers, potential shareholders the state of corporate governance at the government company Visiting customers together with CEO Sharing information in local languages to reach the community Organizing open events on company premises and inviting stakeholders Managing diversity Appointing an board member for his out-of-the-box approach in board members’ Individual coaching of new directors backgrounds “Round-the-table” questions—asking one director after another to state their position on a specific question Coaching employee representatives to help them gain the confidence to speak up Specific induction programmes for employee representatives to enlighten them about their role, rights and responsibilities Providing employee representatives with financial and business training Meeting with employee representatives before each board meeting Insignificant time Calling all directors a few days before the meeting to ensure participation and encourage preparation commitment by board Obtaining time commitment from every candidate upfront members Setting all board and committee meetings dates for the next two years Scheduling a call with directors and asking them to reflect more on the particular topic before the call Expressing gratitude for director’s contribution Confronting directors who come unprepared or unfocused Appointing a special representative as a voice for minor Relationships with shareholders in board discussions minority Providing the same data to majority and minority shareholders shareholders Staying on after the AGM to meet minority shareholders and answer any questions Engaging a professional communications agency to assist board in dealing with activist shareholders Making adjustments to meet with worker representatives in order to appear on an equal footing with employee representatives (continued)

444

APPENDIX B: CHAIRS’ CHALLENGES AND PRACTICES

(continued) Challenge

Practices

Planning and preparing chair’s succession

Preparing chair profile description for the search Using external consultants for succession planning Using headhunters for benchmarking purposes Using shareholders and board members networks to identify potential candidates Encouraging every board member to attend at least two seminars per year Onboarding by ex-board members Collaborating with top business schools Holding outside meetings with pollsters, accounting firms or lawyers Attending industry events Soliciting information from individual directors and making it available to the rest of the board Asking every board member whether they see any trends that will impact the company Taking one board member to every course or training programme attended Finding sparring partner among other chairs Creating a pool of external experts Creating a group chat for board directors and members of executive team in WhatsApp to share news Declaring 24/7 availability Increasing frequency of board meetings Having daily calls with CEO Having biweekly calls with shareholders Moving from “management by objectives” to “management by caring” Reminding board members of board’s mission and division of responsibilities between board and management Risk mapping and deciding who does what in the event of a crisis Creating crisis committees, with directors and management included Creating COVID-19 subcommittees charged with the task of acquiring relevant knowledge and sharing it with the rest of the board Organizing board meetings in parks and gardens to ensure directors’ safety Protecting CEOs and management teams from excessive requests for information from their boards Shielding CEO from shareholder’s pressure Regularly providing positive feedback and signs of appreciation to CEO Launching community initiatives Inviting external experts to board meetings Conducting “lessons learned from the pandemic” sessions

Self-development and board learning

Managing COVID-19

(continued)

APPENDIX B: CHAIRS’ CHALLENGES AND PRACTICES

(continued) Challenge

Practices

Facilitating online board meetings

Making online board meetings shorter and more intense Keeping video cameras on throughout the meeting versus keeping them off to avoid distraction Banning phones Using digital polls to facilitate discussions Limiting individual directors’ interventions Sending directors to digital breakout rooms Hosting virtual coffee meetings for board members

445

Index

A acceptance, 5 accommodation, 409 accountability, 20, 159, 315, 334, 352, 400 activist shareholders, 27, 43, 220, 226 advising relationships, 19 Ägardirektiv, 138, 146, 406 age, 41, 64, 77, 78, 89, 99, 103, 214, 234, 276, 323, 345, 414 agendas high power chairs, 9 scheduling, 65 setting, x, xiii, 5, 10, 37, 56, 93, 175, 199, 266, 344, 350 shareholders involvement, x, 5 alignment, xxii, 26, 92, 110, 128, 183, 223, 255, 256, 272, 273, 279, 292, 349, 372, 426 Arguden, Y., 352 auditors, 51, 105, 106, 137, 147, 190, 265, 272, 279 authority, 39, 43, 106, 113, 116, 158, 167, 182, 192, 194, 197, 198,

203, 239, 243, 244, 247, 259, 260, 264, 303, 306, 318, 322, 326, 343, 350, 377, 388, 402, 405 availability, 98, 368

B background of chair Denmark, 109, 117, 120 effectiveness, 56, 402 future directions, 207 insider vs outsider, 37, 368 Netherlands, 65, 67, 77 Sweden, 7, 26, 139, 147, 148 Switzerland, 85, 92 Turkey, 345, 346 Ukraine, 16, 317, 322 United Kingdom, 174 Bank of England, 2 bias, 20 board agenda, 175, 216, 222, 232, 243, 259, 276, 335, 346, 349, 400

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 S. Shekshnia and V. Zagieva (eds.), Leading a Board, https://doi.org/10.1007/978-981-16-0727-1

447

448

INDEX

board of directors. See also evaluations of board of directors; meetings “celebrity” members, 4, 5 chair as representative, 23 chair leadership, 10, 13 composition, 5, 7, 27, 29, 41, 94, 98, 105, 109, 138, 147, 172, 182, 285 conflict, 201 dynamics, 45 employee representatives, 106, 125, 191 future models, 20 history, 1 management of members, 20, 85, 106, 173, 266 mission, 260 recruitment, 109 role overview, 10 shareholder intervention, 27 size, 8, 109, 123, 287 body language, 48, 73, 80, 307 Bowman, C., 38 brainstorming, 9, 25, 353 Bresser, R.K., 215 bridging, 26 Britain. See United Kingdom

C “Cadbury Report”, 11 “celebrities” chairs, xiv, 18, 56, 78, 415 shareholders, 8 CEO–chair duality, 266, 345 CEOs chair relationship overview, ix, 18, 19, 50, 155, 202, 253, 256, 271 Denmark chair relationship, 127 Finland chair relationship, 205 France chair relationship, 247

Germany chair relationship, 233 Italy chair relationship, 275 leadership role, 10 Netherlands chair relationship, 67 Norway chair relationship, 182 Russia chair relationship, 9, 18 Spain chair relationship, ix, 307 Sweden chair relationship, 18 Switzerland chair relationship, x, 18, 19, 99, 405 Turkey chair relationship, 19 Ukraine chair relationship, 19 United Kingdom chair relationship, 17, 53, 368, 400 CFO–chair relationship, ix, 9, 18, 19, 50, 67, 127, 155, 202, 253, 256, 271 chair age, xiv, 78, 89 context of role, 3–10, 12. See also specific countries corporate governance, 3, 5, 11 effective attributes, 144 future directions, 20, 207 power types, 380 as representative of the board, 11, 23, 55, 125 role overview, 4, 6, 10–12, 18 succession, 53–54 challenges Germany, 215, 217 Russia, 371, 374 summary, 128 Switzerland, 90 Turkey, 348, 354 United Kingdom, 42, 44, 51 climate change, 79, 232, 260, 277, 419 coaching, 38, 44, 49, 129, 152, 180, 206, 324, 408 code of conduct, 226 co-determination principle, 215

INDEX

cohabitation, 18 cohesiveness, 49, 93 collaboration CEO–chair relationship, 17, 18 Denmark, 18, 104, 108, 125, 126 France, 88 future directions, 92 Germany, 88 Italy, 88 Netherlands, 18 practices summary, 178 Russia, 124 Switzerland, 18, 92 “teaming”, 13 Turkey, 124 commanding relationships (“boss model”), 19 commitment, 18, 39, 56, 118, 258, 260, 292, 323, 403 availability, 368 time, x, 37, 45, 56, 74, 94, 225, 233, 291, 431, 434 committees audit, 35, 41, 137, 139, 191, 217, 240, 300, 347 crisis, 148, 277, 444 Denmark, 7 effectiveness, 4, 122, 147 Finland, 6, 16, 190, 191, 197, 198, 205 France, 240, 251, 257 Germany, 222, 224, 229, 233 Italy, 5, 277 nomination, 7, 35, 41, 96, 97, 110, 137, 139, 145–147, 155, 156, 168, 171–174, 178–180, 182–184, 190, 191, 197, 198, 202, 205, 217, 222, 233, 241, 249–251, 257, 258, 265, 276, 280, 300, 316, 353 Norway, 167, 173

449

remuneration, 5, 20, 35, 41, 139, 173, 217, 240, 255, 265, 269, 300, 384 Russia, 5, 385 Spain, 286, 300 subcommittee, 148, 223 Sweden, 4, 7, 137, 139, 145, 147, 155 Turkey, 360 United Kingdom, 6, 8, 35, 174 communication chair encouragement, 217 culture maps, 107, 216, 287 Denmark, 106, 107 financial crisis, 9 future directions, 92 Germany, 215, 217, 225, 230 Italy, 7 mediator, 373 Netherlands, 18, 65 practices summary, 9 pre-meeting, 65 Russia, 10, 27 shareholders, 7, 9, 10, 21, 28, 50, 55, 91, 99, 105, 110, 192, 220, 222, 247, 268, 275, 292, 303, 344, 348, 361, 367, 373, 374, 387 Switzerland, 89, 99 technology, 99 Turkey, 27, 346 United Kingdom, 55 company characteristics, 7 compliance, xiii, 8, 22, 26, 76, 98, 105, 111, 113, 148, 159, 183, 185, 196, 214, 232, 264, 279, 344, 395, 415 conflict, xiii, 43, 73, 120, 121, 152, 273, 274, 279, 288, 296, 305, 312, 318, 325, 328, 329, 335, 380, 409, 433

450

INDEX

confrontation culture maps, 216, 241 dysfunctional, 57 Germany, 216 Italy, 267 Russia, 369 Turkey, 346 consensus culture maps, 107 Denmark, xi, 104, 109 Finland, xii, 199 France, 88 future directions, 20 Netherlands, x, 81, 405 Spain, 299 Switzerland, 88 Turkey, 346 United Kingdom, 39, 299, 368 consistency, 352 consultants, external, 48, 93, 97, 122, 123, 178, 230, 266, 273, 442, 444 cooperatives, 108, 192, 407 corporate culture, xxii, 413, 415, 416, 424–426 corporate governance acceptance, 5 “Cadbury Report”, 11, 285 communication, 21, 335, 387 Denmark, 5 enforcement, 5 Finland, 16, 190, 194–196, 203 France, 239, 247, 284 future directions, 317, 323 Germany, 215, 233, 284, 407 Italy, 5 Netherlands, 62, 64, 75 Norway, 167, 173 Russia, 5, 367, 369, 370, 388 Spain, 284–286 Sweden, 4, 137, 156 Switzerland, 99

Turkey, 5, 343, 345, 351, 359 Ukraine, 313, 316, 319, 322, 323, 334, 335, 337, 408 United Kingdom, 4, 405 corporate values, 4, 117 COVID-19, viii–x, xii, 6, 14, 15, 21, 24, 34, 41, 42, 46, 51–53, 55, 56, 68, 80, 111, 121, 135, 148, 149, 152, 157, 176, 179–182, 185, 200, 201, 207, 212, 218, 222, 230, 251, 252, 255, 260, 278, 312, 317, 335, 336, 343, 347, 359–361, 386, 396, 401, 410, 413, 414, 416, 420, 422, 434, 437, 444 CRAFTED approach, 351 crisis management CEO–chair relationship, ix communication, xiii, 9, 387 external stakeholders, 96, 252 future directions, 157, 207 leadership, ix, 56, 413 macroeconomics, 283 shareholder–chair relationship, ix, 194 technology, 202, 336 culture. See societal norms and values culture, corporate, xxii, 415, 416, 423–426 culture maps Denmark, 107, 108 Finland, 193 France, 241, 242 Germany, 216 Italy, 267, 268 Netherlands, 64, 66 Norway, 170 Russia, 369, 378 Spain, 287, 288 Sweden, 140 Switzerland, 87 Turkey, 346, 347

INDEX

Ukraine, 318 United Kingdom, 40 cybersecurity, 78, 79, 148, 230, 277, 361, 434 D data sources Denmark, 121 Finland, 198 Germany, 224, 226, 234 methodology, 139, 431 Netherlands, 64, 217 Norway, 177 Russia, 368, 370, 376 Spain, 289 Sweden, 139 Switzerland, 90 Turkey, 346 United Kingdom, 6, 41 decision-making board dynamics, 374 chair’s deciding vote, 225 CRAFTED approach, 351 culture maps, 107, 369 Denmark, 107, 117, 125 Italy, 267, 279, 407 Netherlands, 174, 405 Russia, 117, 369, 374 Switzerland, 405 Turkey, 344, 346 Ukraine, 336 United Kingdom, 37, 48 Denmark context of chair’s work, 7, 103 culture map, 107, 108 data sources, 121 meetings, 5, 7, 106, 117, 120, 121 post-meeting, 117, 121 practices, ix, 5, 7, 28, 108, 117, 120, 128 profile summary, 117 research, ix, 109, 128

451

trends, ix, 129 difficult board members Denmark, 123 engagement, 124 Germany, 117 Italy, 274 Netherlands, 124 Norway, 180 practices summary, 439 Russia, 371 Spain, 291 Switzerland, 85 Turkey, 124, 354 United Kingdom, 44 digitalization. See technology dinners. See meals directors. See also board of directors future directions, 207 history, 1 relationship management, 7 role overview, 2 3E-leadership, 13 women, xxii, 41, 77, 94, 99, 106, 111, 139, 169, 234, 367, 415 disagreement culture maps, 267 Denmark, 121, 124 Italy, 88 Netherlands, 63 Russia, 373 technology, 159, 200 United Kingdom, 6 discipline, 39, 128, 195, 218, 221, 222, 225, 234, 259, 350, 351, 354, 377, 403 discussions. See communication diversity age, 77, 99, 214, 234 Denmark, 104 Finland, 207 future directions, 207 gender, 78, 94, 99, 214

452

INDEX

Italy, 87 Netherlands, 76 Norway, 185 practices summary, 443 Russia, 274 Spain, 286, 287, 289 Sweden, 135 Switzerland, 86, 88 Turkey, 344 Drucker, Peter, 400, 423 Dutch East India Company (VOC), 2

E East India Company, 2 economic crisis, 311, 386 Edmondson, Amy, 13 education, 88, 134, 188, 324 effectiveness, 28, 29, 39, 45, 107, 110, 118, 122, 123, 129, 147, 201, 205, 207, 256, 324, 351, 352, 356, 403 ego, 57, 92 employee representatives Denmark, 106, 120, 125 Finland, 191 France, 250 Germany, 215, 221, 223, 407 Netherlands, 20 Norway, 168 Sweden, 144, 150 enablement Denmark, 123 Finland, 199 France, 247 Germany, 233 Norway, 172, 183 overview, 5 speaking last, 407 Turkey, 343 United Kingdom, 34 encouragement overview, 16

enforcement of corporate governance, 5 engagement difficult board members, 226 engaging-asserting dynamic, 114, 115 future directions, 172 overview, 14 post-meeting, 14, 45, 48, 49 pre-meeting, 14, 45 rules, 226, 241, 350, 377 shareholders, 264, 413, 415–417, 421, 426 entrepreneurship, 80 Equal-distancing, 26 ESG, 232, 307, 417–419 evaluations of board of directors Denmark, 106 Finland, 190, 201 France, 240 Germany, 117 Italy, 84 Netherlands, 62 practices summary, 178 Russia, 117 Spain, 287 Switzerland, 85, 94 Turkey, 343 Ukraine, 325 United Kingdom, 84 evaluations of CEO, 28 executive vs non-executive chairs, 291

F Facebook, 327 fairness, xi, 47, 67, 112, 119, 129, 175, 200, 227, 351, 352 family businesses chair role, 8 Denmark, 8 engagement, 91

INDEX

Germany, 229 Italy, 268–270, 276 Netherlands, 8 Spain, 8 succession planning, 53, 54, 75 Switzerland, 25 Turkey, 8, 342, 359 feedback, x, 15, 17, 19, 24, 50, 51, 56, 96, 124, 147, 154, 178, 179, 226, 228, 251, 256, 324, 330, 334, 357, 358, 361, 383, 404, 410, 422, 440 financial crisis, 9, 359 communication, 9 supporting the CEO, 9 Financial Reporting Council, 424 Finland context of chair’s work, 187 corporate governance, 190 culture map, 193 data sources, 198 practices, 207 research, 207 Forrester, 422 France context of chair’s work, 237 corporate governance, 239 culture map, 241, 242 data sources, 256 research, viii, 242

G gender diversity. See diversity Germany challenges, 215 context of chair’s work, 211 corporate governance, 212, 215 culture map, 216 data sources, 217 meeting, 224 post-meeting, 225

453

practices, 215, 220, 221, 223 profile summary, 233, 234 research, 215, 224 globalization, 362 “government-linked” companies Italy, 264 Norway, 172 Russia, 366, 370 shareholder relationships, 23, 90 Switzerland, 90 Turkey, 344 group cohesiveness, 110 Grundtvig, Nikolaj, 108, 128 H health, 15, 35, 41, 52, 53, 80 Higgs, D., 17, 126, 127 History, 1 humour, 39, 80, 124, 206, 225, 330, 385 I imposition, 28 induction programmes, 45, 143, 198, 251, 294, 295, 301, 326, 443 industry knowledge, 50, 193, 404 influence, nine-model typology, 37 informational asymmetry, 74, 94, 434, 442 information exchange, 25, 126, 153, 252, 358, 395 INSEAD Global Chairs Research Project 2016, 40, 65 INSEAD Global Chair Survey 2015, 40, 42, 90, 217, 269, 371, 374, 433 Italy context of chair’s work, 263–266 corporate governance, 273 culture map, 267, 268 data sources, 268

454

INDEX

practices, 278 profile summary, 278, 279 research, 275

J Jantoloven, 110 Jobome, G., 37 joint-stock companies, 1, 168 joint ventures (JV), 292, 370, 373, 385

K Kakabadse, A., 37, 38 Kakabadse, N., 37, 38

L laws, ix, 5, 55, 56, 125, 133, 137, 189, 314, 341, 344. See also corporate governance leadership chair role, ix, 4, 11, 316, 320, 413 context, ix, 2, 287 corporate governance, xix, 4, 55, 316, 322 Denmark, ix, 107 Germany, ix, 212, 229 Italy, ix, 432 networking, 107, 402 research, ix, 2, 11, 432 3E-leadership, ix, 13, 221, 247, 399 Turkey, 341 United Kingdom, ix, 39 learning, x, xii, xiv, 15, 51, 56, 70, 76, 88, 97, 117, 134, 147, 175, 202, 204, 207, 229, 251, 257, 273, 300, 306, 322, 323, 336, 337, 393, 409, 410, 437, 444 Ledeneva, Alena, 3 Lee-Davies, L., 39

legislation. See corporate governance Lorsch, J.W., 13 M macroeconomics, 84, 283 management relationships Denmark, 106, 120, 126, 127 Germany, 212, 215, 224, 234 Italy, 277 Netherlands, 8, 62, 63, 69, 78, 113 practices summary, 17, 27, 120, 137, 248, 271, 324, 358, 410 Russia, xxii, 6, 369, 376 Switzerland, 85 Turkey, 356, 358 Ukraine, 16, 314, 320, 323, 330, 336 United Kingdom, x, 17, 113 materials, xi, xii, 4, 14, 15, 17, 21, 25, 46, 66, 72, 80, 98, 115, 118, 126, 151, 176, 199, 217, 222, 225, 243, 248, 266, 273, 294, 295, 301, 327, 344, 349, 355, 376, 377, 398, 400, 401, 422, 440–442 Mazars, 424 McNulty, T., 37, 38 meals post-meeting, 48, 73, 121, 225, 379 pre-meeting, 273 relationship management, 127, 228, 330 shareholders, 5, 25, 334 media appearances, 9, 19, 50, 55, 75, 88, 97, 135, 157, 184, 195, 212, 228, 247, 256, 279, 305, 419, 443 meetings Denmark, 7, 117, 120, 121, 124, 127, 137, 138 effectiveness, xii, 5, 150, 202

INDEX

executive meetings. See in-camera meetings Finland, 6, 194, 198 France, 248 Germany, 217, 221–225 in-camera meetings, 8, 119, 249, 251 Italy, 274, 275, 277, 407 Netherlands, xi, 18, 69, 71 Norway, xii, 175–177, 179, 182 post-meeting, 14, 45, 73, 121 practices summary, x, 5, 14, 25, 178 pre-meeting, 14, 45, 65, 71, 118 rehearsals, 357, 408, 440 Russia, 7, 18, 20 shareholders, x, 5, 7, 9, 10, 23–27, 43, 87, 91, 96, 106, 115, 117, 145, 168, 169, 172, 174, 189, 190, 196, 197, 205, 214, 219, 220, 255, 361 Spain, 286, 287, 299, 408 Sweden, xi, 7, 139, 152 Switzerland, 93, 395 Turkey, 346, 350, 351, 355, 359, 408 Ukraine, 16 United Kingdom, 8, 221 mentoring board members, 8 CEO–chair relationship, 9, 18, 356, 357 future board members, 222, 280 methodology, xv, 192, 241, 244, 432 metrics, 173, 205, 228, 361, 400, 401 Meyer, Erin, 40, 66, 87, 107, 108, 140, 170, 192, 193, 216, 241,

455

242, 267, 268, 287, 288, 317, 318, 346, 347, 369, 432 “Minder Initiative”, 86 minutes, 15, 71, 74, 121, 151, 153, 155, 193, 196, 199, 220, 225, 273, 296–298, 300, 319, 328–330, 353, 362, 372, 373, 377, 378, 384, 395, 398, 401, 410, 423, 439 Morris, C., 37 Myers, A., 37

N Netherlands context of chair’s work, ix, 61 corporate governance, 62, 64, 75 culture map, 64, 66 data sources, 64, 217 meetings, xi, 17, 69, 71 practices, ix, x priorities, 113 research, 64 trends, ix networking as asset, 321 Denmark, 28, 107 Germany, 233 informal, 5 Italy, 5, 275 peers, 71 Russia, 370, 373, 388 Turkey, 362 Ukraine, 317, 325 neutrality, 69, 97, 154, 227, 294, 329 non-executive chairs. See executive vs non-executive chairs non-executive directors, 8, 17, 34, 38, 46, 48, 63, 64, 76, 77, 106, 111,

456

INDEX

125, 234, 251, 266, 320, 324, 326, 344, 398, 424, 442 “Nordic model”, 105, 106, 137 Norway context of chair’s work, x corporate governance, 167, 173 culture map, 170 data sources, 177 practices, x, 167, 176 research, viii, 169

O onboarding. See induction programmes ondernemingsraad, 62 one-tier system, 239 online meeting, 15, 52, 121, 152, 185, 202, 251, 335, 398

P pandemic, vii–ix, xii, xiii, 6, 15, 16, 21, 24, 34, 42, 51–53, 79, 80, 97, 111, 118, 121, 127, 135, 148, 152, 175, 181, 182, 185, 200, 202, 206, 207, 212, 230, 231, 251–253, 260, 261, 277, 278, 312, 317, 320, 335, 336, 343, 360, 361, 386–388, 395–398, 400, 401, 410, 413, 414, 419, 420, 422, 425, 431, 444 part-time compared to full-time chairs, 28, 36, 37 patience, 218, 234, 250, 258, 259, 295, 333, 372, 381, 403 peer networks, 71 personality, 11, 77, 92, 96, 98, 207, 227, 233, 279, 371, 402, 439 persuasion, 241 Pettigrew, A., 37, 38

planning, 50, 54, 86, 96, 128, 144, 153, 156, 159, 182, 185, 199, 204, 205, 214, 217, 218, 222, 223, 241, 248, 252, 256–258, 293, 335, 350, 385, 398, 406, 434, 440, 444 polderen, 73, 81, 405 politics, 20, 279, 313, 322, 384, 405 power distance, 8, 19, 27, 107, 203, 241, 359 power types, 380, 381 practices commonalities, 393 Denmark, ix, x, 108 Finland, x France, x Germany, x Italy, x, 5 Netherlands, ix, xxi, 68, 69, 81 Norway, x, 167, 168 Russia, 5 Spain, 284 speaking last, 394 summary, 29, 98, 128, 278 Sweden, ix, x, 155 Switzerland, 85–87, 97, 98 Turkey, xiv Ukraine, xiii United Kingdom, 35, 38, 42, 48, 49, 54, 55, 57 pragmatism, 88 presentation, 15, 18, 46, 52, 95, 118, 120, 146, 151, 153, 176, 181, 206, 222–224, 229, 247, 249, 272, 273, 295, 297, 298, 301, 327, 329, 358, 361, 377, 378, 410, 441–443 private companies. See also family businesses Denmark, 7 Germany, 213 Italy, 26

INDEX

Netherlands, 62, 174 Russia, 7, 27 shareholder–chair relationship, 7 Spain, 286 Sweden, 7, 134, 135, 139 Switzerland, 89, 99 United Kingdom, 174 private equity, 21, 23, 26, 43, 51, 54, 98, 111, 136, 138, 146, 156, 157, 174, 219, 270, 299, 321, 401, 434 proactivity, x, 42, 129, 196, 395 public companies Denmark, 7, 104 Germany, 219 Italy, 7, 26 Netherlands, 62 Russia, 367, 386, 388 shareholder–chair relationship, 7 Switzerland, 86 United Kingdom, 35 publicity, 9 R razgovor po dusham, 5, 381, 408 recruitment, 115, 438 reflection, xiii, 15, 16, 67, 73, 123, 153, 177, 202, 204, 225, 256, 322, 330, 396, 399, 405 regulations, xiii, 3–5, 7, 17, 21–23, 74, 99, 104, 105, 111, 113, 115, 144, 184, 213, 219, 314, 334, 336, 337, 341, 344, 438. See also corporate governance; “soft laws” relationship management, 4, 7, 11, 49, 56, 69, 95, 112, 126 remuneration Russia, 5, 367 shareholder discussions, 43, 190, 214, 438 Switzerland, 86, 157 research (existing)

457

Denmark, ix, 109, 112 diversity, 276 Finland, 192, 195, 203 France, 242 Germany, 215, 218, 224, 228, 233 Italy, 266, 276 Netherlands, 64 Norway, 169, 171 Russia, 19, 368 Spain, 288 Sweden, 139 Switzerland, 88, 90 Turkey, 345, 350, 356 Ukraine, 317, 319, 330, 331 United Kingdom, 36, 55, 57 resignation/resignation threats, 116, 335, 336, 403, 405 resilience, x, xiii, 15, 38, 53, 98, 159, 336, 337, 348, 426 resistance, 278 respect Denmark, 107, 112 United Kingdom, 39 responsibility, xii, 9, 13, 15–18, 51, 53, 56, 58, 68, 73, 75, 77, 79, 93, 96, 142, 144, 147, 167, 173, 185, 214, 247, 258, 276, 280, 285, 305, 307, 336, 352, 357, 374, 375, 377, 384, 385, 387, 397, 410, 424 restraint, 155, 394 Roberts, J., 38 role overview, 4 Russia challenges, 371 context of chair’s work, ix, x corporate governance, 5, 367, 369, 370, 388 culture map, 369, 378 data sources, 368, 370, 376 meetings, 7, 18, 20 practices, 5

458

INDEX

profile summary, 10 research, 368 trends, 389

S sanctions, informal, 5 Schilling, F., 215 self-development. See learning shareholders active/passive, 23, 25, 34, 112, 115, 395, 405 activists, 27, 43, 220, 226, 291, 443 board meeting agendas, 23, 25 as board members, 91, 118 chair relationship, 50, 271 communication, 7, 21, 50, 91, 110, 192 controlling, 42, 90, 91, 136, 141, 145, 267 Denmark, 7 equality, 42 expectations, 7, 22, 23, 25, 114, 115, 145, 184, 195–197, 324 Finland, 189 France, 245, 246 Germany, 219 history, 2 Italy, 26 legal agreements, 44, 371 majority, 9, 28, 42, 74, 75, 91 meeting, 7, 10 minority, 42, 91, 105, 137, 190, 226, 269, 270, 284, 293, 349, 374 Netherlands, 69 Norway, 168, 169 practices summary, 7 remuneration decisions, 43, 168, 190 Russia, 10

Spain, xiii, 285, 291 succession planning, 27, 75, 129 Sweden, 26 Switzerland, 25 Turkey, 345, 348 Ukraine, 27, 320 United Kingdom, 24, 34, 42, 43, 405 Skype, 49, 51, 69, 74, 99, 176, 327, 381, 384, 389 social events, xiv, 5. See also meals social networks. See networking Societal norms and values, 5 “soft laws”, 3. See also regulations Spain context of chair’s work, 283 corporate governance, 285 culture map, 287, 288 data sources, 289 practices, 304 research, 288 Spencer Stuart, xxi, 48, 78, 157 stakeholders, external France, 246 Germany, 228 Italy, 407 Netherlands, 75, 274 practices summary, 322 Russia, 274 Spain, 291 Switzerland, 96, 97 Ukraine, 336 startups, 7, 23, 25, 134 state-owned companies. See “government-linked” companies Stewart, R., 38, 111 strategy balance with regulations, 42 CEO role, 267 corporate culture, 413 shareholder expectations, 25 structuurregeling , 63

INDEX

succession planning corporate governance, 27, 53 Denmark, 37, 128 Finland, 205, 406 France, 257 Germany, 233, 241 Italy, 275 Netherlands, 75 Norway, 182, 183 practices summary, 128, 129 Russia, 385 Sweden, 144, 155 Switzerland, 96, 97 Turkey, 358 Ukraine, 335, 385 United Kingdom, 55, 58 supervisory boards, 62, 63, 68, 137, 190, 192, 213, 214, 218, 220, 221, 314, 315, 336 sustainability, 180 Sweden context of chair’s work, 133 corporate governance, 137 culture map, 140 data sources, 139 research, 139 Switzerland challenges, 90 context of chair’s work, 83 corporate governance, 86 culture map, 87 data sources, 90 practices, 85–87, 96–98 profile summary, 98 research, 88

T team-building, 13, 45, 375, 399 “teaming”, 13 Teams, x, 51, 107, 155, 253, 327, 360, 394

459

technology crisis situations, 16 current usage, xx future directions, 24, 53, 58, 78, 182, 207, 331 security, 79 Telegram, 26, 327, 379 Thiele, R.V., 215 3E-leadership, ix, 13, 221, 247, 399 time commitment, x, 26, 37, 45, 56, 74, 94, 225, 233, 291, 336, 416, 431, 434, 443 transparency, 4, 63, 105, 126, 129, 137, 260, 284, 293, 312, 315, 352 trust CRAFTED Approach, 351 culture maps, 140 Denmark, 104 Netherlands, 63 Switzerland, 94 United Kingdom, 174 Turkey challenges, 342, 348 context of chair’s work, 341 corporate governance, 343 culture map, 346, 347 data sources, 346 practices, 348, 349, 356 profile summary, 358, 359 research, 345, 362 two-tier system, 68, 239

U Ukraine context of chair’s work, 311 corporate governance, 313, 323, 332, 335, 337 culture map, 318 data sources, 327 meetings, 328

460

INDEX

post-meetings, 330 practice, 327, 328, 330, 334 research, 319 United Kingdom challenges, 42, 44 context of chair’s work, 33 corporate governance, 34, 35 culture map, 40 data sources, 40 meetings, 46 post-meetings, 48, 49 practices, 35, 38, 42, 48–50, 54, 55, 57 profile summary, 55 research, 36, 37

V venture funds, 67 vice-chairs, 223 virtual meeting, 16, 182, 206, 231, 261, 423

voting, 90, 93, 109, 200, 250, 353, 370, 378, 381, 389, 405 chair’s deciding vote, 225 Russia, 378–380 W Ward, K., 38 WhatsApp, 6, 14, 25, 26, 327, 331, 372, 379, 438, 442, 444 women, 35, 41, 57, 77, 86, 94, 99, 111, 139, 168, 169, 188, 193, 207, 214, 217, 234, 239, 244, 265, 268, 276, 286, 319, 343, 347, 414, 415 as chair, 66, 159, 169, 389 as directors, 77, 106, 169 works councils, 62, 63 Z Zoom, viii, x, 51, 99, 155, 253, 327, 360, 394