Aubyn Hill
CORPORATE governance as a management issue has taken a fairly pervasive hold around the world, both in businesses, large and small, and in government.
The best companies and government agencies have grabbed the issue and used it to improve the way they govern themselves and their operating results. Directors with foresight, business savvy and self-confidence have endorsed the idea and have made it work in their firms.
THE EXCEPTION PROVES THE RULE
Chances are that some of my readers on seeing the topic will immediately point to executive chairmen who ran and run excellent companies. They will rightly identify Jack Welch - whom everyone knows I admire - and Douglas Orane whom I lauded in last week's article.
Both have been very successful in bringing radical but enlightened changes to their companies with unusually consistent success, and their shareholders have been rewarded with quite extraordinary increases in their personal wealth.
To be fair, GraceKennedy's board reviews the combined post regularly and in the just-
published 2004 annual report, non-executive members were "of the opinion that this (Mr. Orane remaining as both chairman and CEO) is in the best interest of the company." But for every one outstandingly successful executive chairman, think of how many have achieved the opposite for their enterprises. Look at the bunch of executive chairman who fell in the FINSAC era!
The analogy that comes to mind when these good exceptions are raised as reasons to support the executive chairman arrangement is that of a benevolent absolute monarch. His Majesty Sultan Qaboos bin Said of Oman is one such benevolent, wise and absolute monarch. He has ruled the Sultanate since his father was removed as the Sultan in 1971.
That the present Sultan of Oman is wise and has been largely good for the country does not make me believe that an absolute monarch is better that a democratically elected leader who has limits on his or her authority and power, and must share the leadership of his or her enterprise (country). Indeed, one only has to look to the present Sultan's predecessor, his father, to see the suffering Omanis had to endure under a 'tyrant' absolute ruler that was hard to remove. Even with a 'good exception' like Sultan Qaboos I remain a democrat (small 'd'). So, too, is my belief that the powerful post of chief executive officer (CEO) should remain independent and not be combined with the position of the board chairman.
TOO MUCH POWER IN ONE PERSON'S HANDS
It is becoming more and more accepted best practice to have the board chaired by a non-executive chairman in order to make the management really accountable to the board of directors the representatives of the owners known as shareholders.
Although the CEO will generally be a member of the board, the non-executive chairman and non-executive directors will provide the necessary checks and balance that well-run (and all need to be well-run) publicly traded or publicly (government) held companies or agencies need.
I am very well aware that the leader of a business enterprise, whether in the private or public sector, needs the autonomy, authority and manoeuvring room to run the business well. I do not believe for a single second that any non-executive board member should interfere one bit in the day-to-day operations of such a company once the CEO and the management team are following the approved mandate and policies of the board.
However, the CEO should be separate from the board chairman because of the axiom about 'absolute power corrupts absolutely' and CEOs and board chairman are driven human beings - more than most. The longer each stays in the post the more power gravitates to the officeholder.
When these two positions are combined, each long-serving executive chairman who is also CEO amasses great power that often distorts perception and judgement and invariably affects performance. There are many examples around. Persons like Al Dunlap (formerly of Rubbermaid), Carly Fiorina (formerly of Hewlett Packard), and Michael Eisner (currently of Disney where his board recently split both positions leaving Mr. Eisner only as chairman - after almost two decades of holding both posts).
THE PRIVATE SECTOR AND GOVERNMENT MUST ACT
Whenever I write I will generally address my comments, first, to the private sector. I believe it is us in this sector, not the government, that should be the first movers and drivers of the economy. Some private sector firms have already acted to split the post of CEO from chairman.
Jamaica Broilers Group has Danny Williams as a non-executive chairman and Robert Levy (whose family is the dominant shareholder) as president and chief executive officer.
Edgechem (a private unlisted company) is run by Doreen Frankson as managing director (she is the majority shareholder) while Bill McLeod is the non-executive chairman. It is interesting to note that six of the eight finalists (all unlisted privately held companies) in the recent Observer Business Leaders Awards had executive chairmen and only two did not.
The government has on its agenda the moving away from the executive chairmanship position in the public sector. The recommendation that only in the most extraordinary circumstances should there be posts of executive chairman in the public sector came from a 1995 report by a committee appointed by the government to examine and make recommendations to improve efficiency and accountability of the public sector entities.
The committee was chaired by E. C. Thorburn, former Partner, Touche Ross Tomatsu, with the other members being Dr. Keith Panton, former president of Alcan Jamaica Company; Gloria Barrett-Sobers, registrar, UWI and former management consultant, Price Waterhouse (as it was then); the Hon. Kingsley Thomas (then chairman of the Agricultural Credit Bank and the National Housing Trust); and Dennis Boothe, accountant and then chairman of Jamaica Commodity Trading Corporation. This was certainly a group of eminent persons.
Ambassador Gordon Wells, then contractor general, has this response to the report: "I totally agree that only in the most extraordinary circumstances (only the Bank of Jamaica comes immediately to mind) should there be posts of executive chairman in the system. It was not so many years ago that the Planning Institute of Jamaica had an executive chairman with other members of the board of directors being staff members of the agency. It was a bad arrangement." (Emphasis added).
The government accepted Ambassador Wells's view and so do I. Enough said. Let us act.
Aubyn Hill is managing partner, Corporate Strategies Ltd. Respond to: writerhill@gmail.com
