Then in the late seventeen hundreds and early eighteen hundreds, as international trade began to become strategically important for the national well being of most countries a large number of family businesses began a series of take-overs and mergers in order to present a more solidified presence in the market place as well as gain the benefits of economy of scale. It was at this point where more formal board structures were introduced and in a number of instances Chairmen were appointed from outside of the close family circles. These Chairman appointments weren’t based on skill or experience but more on political favours or the measure of commercial influence individuals could exert for the benefit of the business. Thus, particularly in France, Italy and Britain, it wasn’t what you knew but who you knew which became a catalyst for Chairman and board appointments.
This practise of Chairman appointments began to wane in the late nineteenth and early twentieth centuries when Chairmen were appointed more for their skills and experience with the selection process being carried out by the shareholders and maybe a couple of directors in gentlemen’s clubs or over private dinner tables.
Now we move to the early thirties right after the great depression when so called transparency in the appointments of both chairmen and directors was seen as the holy grail to ensure shareholder protection. The directors were appointed at an annual general meeting and then the directors at their first board meeting elected their new Chairman. This practise in various forms and variations (outside of the Executive Chairman model) still continues today.
However I question if this is indeed the best model in today’s market with the call for more shareholder involvement associated with governance issues coupled with markets that are changing at a speed never before experienced. In my view the Chairman’s role has assumed an importance far beyond simply being a referee, a moderator and an administrative head around a board table. Today’s Chairmen need to be real leaders with strategic acumen , fearless in their determination to make the company successful and exceed shareholders expectations. With the call for more diversity around board tables, more subcommittees associated with a variety of specialised technology or market requirements, an increased focus on correct governance practises and an overriding monitoring discipline associated with performance and strategic initiatives today’s Chairman need to have an exceptional skill range, outstanding leadership and communication qualities. They need to work closely with the CEO to provide guidance and support. Therefore I believe that the appointment of the Chairman is far too important to be left to the directors.
Instead, it is the shareholders who should appoint the Chairman. It is their investment that drives the business, their funds that are at risk, and their reputations that are soiled should the business fail. I notice with some satisfaction that there are a small number of companies both public and private who are beginning to move in this direction.
In conclusion, my point is that the Chairman of any company is the most important individual in ensuring that business success is almost guaranteed. Therefore shareholders need to take control of the selection and appointment process as a means of protecting their investment.
"Thus, particularly in France, Italy and Britain, it wasn’t what you knew but who you knew which became a catalyst for Chairman and board appointments."