“MORE PRES­SURE ON THE ROLE OF CEOS”

Insurance - - COVER STORY -

UThe CEO is the lynch pin – the per­son in the mid­dle of the board and the man­age­ment team that car­ries out the board’s strat­egy and

poli­cies

nfor­tu­nately, as a side ef­fect of this gen­eral im­prove­ment in cor­po­rate gov­er­nance prac­tices and stan­dards, there has been more pres­sure placed on the role of the CEO. Some of the new gov­er­nance chal­lenges have been in­ten­tional. Oth­ers, how­ever, are un­in­ten­tional con­se­quences and per­haps not even fully recog­nised, but they do add a sig­nif­i­cant bur­den to the CEO’s al­ready chal­leng­ing role. The best ex­am­ple of an in­ten­tional im­pact on the role of the CEO is the split of the chair­man and CEO po­si­tions. At one time, it was fairly com­mon­place for the same per­son to be both chair­man of the board and the CEO. While this was prac­ti­cal and un­doubt­edly ef­fi­cient, it ob­vi­ously did not hold well in a sit­u­a­tion of an overzeal­ous CEO, as it gave him/her too much power, while at the same time, the guid­ance and mon­i­tor­ing role of the board be­came de­pleted. It is be­cause of this, that in most ju­ris­dic­tions, there is a re­quire­ment to split the chair­man and CEO po­si­tions. This is a gov­er­nance ini­tia­tive, where even though the CEO’s chal­lenge in­creases, the ben­e­fits are worth­while. There have been other gov­er­nance changes, where the im­pact on the CEO is per­haps un­in­ten­tional. Chief among these is the grad­ual in­tro­duc­tion of a larger pro­por­tion of in­de­pen­dent di­rec­tors on the boards of listed com­pa­nies. The the­ory is that the more in­de­pen­dent that the di­rec­tors are, the more likely the board is likely to act in the in­ter­ests of the share­hold­ers as a whole, rather than in favour of a sin­gle or se­lect group of share­hold­ers. There is no ar­gu­ment that the pres­ence of in­de­pen­dent di­rec­tors does bring a more ob­jec­tive mind-set to the scene. How­ever, this has also brought with it a class of di­rec­tors that is not fa­mil­iar with the busi­ness. In some cases, an in­de­pen­dent di­rec­tor is not only un­fa­mil­iar with the work­ings of the com­pany, but also has neg­li­gi­ble ex­pe­ri­ence of the in­dus­try it­self – we have all heard of some of the dif­fi­cult sit­u­a­tions cre­ated by, say, med­i­cal doc­tors be­ing on the boards of banks or in­sur­ance com­pa­nies. They put them­selves at risk be­cause they do not un­der­stand some of the tech­ni­cal­i­ties, and they also put the per­for­mance of the com­pany at risk as well for the same rea­son.

THE CEO IS BY NA­TURE THE CAP­TAIN OF THE SHIP WHO GETS THINGS DONE. HE/SHE IS A LEADER, NOT AN ED­U­CA­TOR.

This sit­u­a­tion, of a large num­ber of in­de­pen­dent di­rec­tors, has an im­me­di­ate im­pact on the role of the CEO. The CEO is the lynch pin – the per­son in the mid­dle of the board and the man­age­ment team that car­ries out the board’s strat­egy and poli­cies. If a large pro­por­tion of board mem­bers do not un­der­stand the busi­ness in de­tail, a lot of the CEO’s time is taken up in ed­u­cat­ing them in too much ex­pla­na­tion of pro­pos­als and “hold­ing the hand” of the non- tech­ni­cal board mem­bers. This can greatly im­pact the per­for­mance of a CEO that is by na­ture the cap­tain of the ship that gets things done. He/She is a leader and not the born ed­u­ca­tor that he/she sud­denly has to act as. If the CEO does not ex­cel at this type of ed­u­ca­tion, the gov­er­nance im­pact is that board de­ci­sions are slower or worse, and there are no de­ci­sions at all in ar­eas where the board is un­com­fort­able. In or­der to get around this, board mem­bers are usu­ally al­lowed to en­gage con­sul­tants at the cost of the com­pany – this un­for­tu­nately sim­ply adds to cost and

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.