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Boardroom Conversations: Converse wth an Acknowledged Expert and take the Benefit of Their Experience Back to Your Board
20 February 2013
“A Boardroom Conversation with Sir Winfried Bischoff”
Facilitated by James Bagge director of Bvalco Ltd
Bvalco hosted the conversation with Sir David Walker as part of the ‘Boardroom Conversations’ series of targeted discussions with experienced Chairmen enabling them to share their insights and learning experiences of boards and corporate governance.
The following paper is a summary of the conversation including questions from the floor.
1. SIR WIN – SINCE THE FINANCIAL CRISIS THERE HAVE BEEN MANY DISCUSSIONS ABOUT THE DISTINCT CHALLENGES OF RUNNING A FINANCIAL SERVICE ORGANISATION. COULD YOU TALK ABOUT YOUR MODEL OF RUNNING A FINANCIAL SERVICES BOARD? HOW DO YOU SEE THIS CHANGING GOING FORWARD PARTICULARLY WITH THE PLAN FOR RING FENCING OF THE RETAIL BANKS?
Financial institutions are in the news for all kinds of reasons. Part of it may be because of governance issues. Financial institutions should have people on their board who have a deep understanding of the business. It should not be the case that only the executives are practicing bankers. We used to take the view that, for the non-executive directors to complement the executives, there ought to be non-bankers on the board. This used to work well, but now it is important to have independent board members who are themselves bankers, and who are therefore able go head to head with the executives on the banking matters of the business. To make an analogy, I am on the board of a pharmaceutical company. I wouldn’t have joined if I had not been satisfied that there were at least two or three others on the board who understood the core business; matters concerning research, selling, etc. The boards of banks do also need those with broader experiences, but it would be wrong not to have banking expertise well represented on the board.
Secondly, boards are much more complex than people think, giving rise to the need for a chairman with a deep expertise and understanding of banking in order for the board to be most effective. When I was the CEO of Schroders, the Chairman was a banker and was full time. However, the separation between the CEO and the Chair has to be made clear to the board – the CEO has to be seen as the most important person in the company, even though the Chair can fire the CEO. The CEO must be able to say no, even to the Chair. The Chair should be there as a support, and even if it is a full time role, should not get involved in running the place.
Recent changes have seen more bankers recruited to boards, and the inclusion on boards of people who have run banks, or at least the divisions of banks.
2. DOES THE FACT THAT THE LAW PLACES A SHARED AND EQUAL RESPONSIBILITY ON DIRECTORS TEND TO COUNTER AGAINST GREATER DIVERSITY OF EXPERIENCE BEING REPRESENTED ON THE BOARD IN THE SENSE THAT WITH EQUAL RESPONSIBILITY THERE MAY BE A HESITANCY TO RELY OR BE DEPENDENT ON THE EXPERTISE OF OTHERS?
On any board people have different experiences and diversity is helpful. But you do need people who know the business. In the aircraft business, people need to understand about safety – what Boeing needs to do about the batteries in their planes; are they safe to fly again? Boards have very difficult decisions to take and need the relevant expertise to be able to do so. I see no problem with a board being able to reach a collective judgement on an issue.
3. SO IF THE END RESULT IS A COLLECTIVE JUDGEMENT, WHAT TECHNIQUES DO YOU AS CHAIR USE TO ORCHESTRATE THE DIFFERENT SKILLS ROUND THE TABLE?
If one feels particularly strongly about an issue, it is useful for the Chair to state his view and let the board respond. If not though, most of the time it is useful to let the board do the talking, and to listen. There should be a clear consensus on most issues to make a decision – 7:5 in favour is not in my view a strong enough consensus.
4. HOW DO YOU ELICIT DEBATE ON INDIVIDUAL ISSUES? DO YOU INVITE CERTAIN PEOPLE WITH RELEVANT EXPERTISE TO LEAD, TO PLAY DEVIL’S ADVOCATE?
On boards there are always the usual suspects who will play devil’s advocate, those who will be pessimistic, those who are adventurous and those who will see the consumer’s perspective, which is really useful. As Chair you get to know who’s good on what and ask them to speak first.
5. GIVEN YOUR ENTHUSIASM FOR DIVERSITY, BUT RECOGNIZING THE NEED FOR IN-DEPTH KNOWLEDGE OF THE BUSINESS ON THE BOARD, DO YOU FIND THAT REGULATORS WHEN VETTING NEW ENTRANTS TO THE BOARD ARE TOO FOCUSED ON THE NEED FOR FINANCIAL SERVICES EXPERIENCE AND NOT ENOUGH ON THE BENEFITS OF A GREATER DIVERSITY OF EXPERIENCE?
They are doing fine as long as they don’t expect everyone on the board to have been bankers. Now the board induction is so much more extensive and time consuming. We know NEDs will be up in front of the FSA and they don’t want to fail – nor do we want them to. This means seven or eight full days of coaching. We also have refresher training every year for NEDs as well as other, more specialised courses. For example, the Life Insurance business at Lloyds is huge in itself – it needs separate tuition.
To read the rest of the conversation, download the PDF version here
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Bvalco draw on their recent experience of conducting independent external board evaluations. Bvalco have observed diverse boards of directors including organisations in the FTSE 100. Their Bvalco board reviews have highlighted six common challenges to board effectiveness. In this paper Bvalco explain these challenges, providing an informed insight into why they arise, examining in particular the board behaviours that may be at their root.
TUESDAY 10 SEPTEMBER 2013
A Boardroom Conversation with Jim Leng
Jim Leng is Non-executive Chairman of HSBC Bank Plc and also European Chairman of AEA, an American private equity partnership. He sits on the Boards of two listed companies as a Non-executive Director: Alstom SA (French Engineering company) where he chairs the Nomination and Remuneration Committee, and as Senior Independent Director of Genel Energy PLC, an oil and gas company with its principal interests in Turkey and Kurdistan.
For more information about Bvalco Boardroom Conversations click here.
TUESDAY 5 NOVEMBER 2013
A Boardroom Conversation with Sir Simon Robertson
Simon has been in Investment Banking for over 50 years, at Kleinwort Benson where he became Chairman and more recently at Goldman Sachs. He started his own company in August 2005, Simon Robertson Associates LLP, now called Robertson Robey Associates, offering corporate finance advice to a limited number of international companies. He is also Chairman of Rolls-Royce Group plc and Deputy Chairman & Senior Independent non-executive Director of HSBC Holdings plc.
Read more about Sir Simon Robertson.
For more information about Bvalco Boardroom Conversations click here.
TUESDAY 9 APRIL 2013
A Boardroom Conversation with John McFarlane
John McFarlane is Chairman of Aviva plc. He has had a prestigious career in financial services spanning 37 years and was awared an OBE. Mr McFarlane joined us for a Boardroom Conversation on 9 April 2013 highlights of which included his fascinating ruminations on the different styles of corporate governance betwenn the UK and the southern hemisphere. Read more about John McFarlane, and for more information about Bvalco Boardroom Conversations click here.
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A summary of the Conversation with Sir David also appears in the July issue of "Governance". View a PDF version of "Governance" here.
Boardroom Conversations: Converse with an Acknowledged Expert and take the benefit of their experience Back to your Board
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