Scotland business

Q&A: Lord Smith of Kelvin reveals what makes a good company chair

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Lord Smith of Kelvin is one of Scotland's most experienced boardroom bosses, holding the chair of several major companies including SSE, Forth Ports and the Green Investment Bank, as well as the Glasgow Commonwealth Games organising committee. He has also recently been appointed chair of industrial valve-maker IMI. BBC Scotland's business and economy editor Douglas Fraser asked Lord Smith about the role of chair of the board.

So what makes a good chairman?

You'd better ask other people about my performance but I think it is an ability to listen, it's an ability to be decisive.

Sometimes you get people around a table who don't say very much and you want to bring them out more.

Sometimes you have people who say too much and you have got to somehow tell them that they taking up space and board time.

And it has got to work cohesively - if you have someone in that boardroom - and you do want challenge, you do want grit in there - but if you have got someone in there who is just making life pretty miserable for everyone, a chairman has got to do something about that.

It's a team and if the team is not pulling together, and I mean the non-executive team on that, then it is up the chairman to show leadership over that.

In the financial crash of five or six years ago non-executive directors, including some big company chairmen, were not able to control the excesses of some chief executives. Has that approach changed in big companies, such as the ones in which you operate?

It has changed a bit, I guess. There is much more public scrutiny. I still believe that even 10 or 15 years ago, a chairperson or a non-executive director worth his salt should have been challenging then anyway.

If you go back, and I am old enough to have been on boards about 30 years ago, it was almost that you were on there for your connections. It was really to get business - there wasn't so much of actually challenging and taking responsibility for what the company was doing.

That changed quite markedly. I wrote a report on audit committees in 2003 and by that time people were really beginning to understand. We had collapses of companies such as Enron in the United States where it looked as if the board just wasn't supervising things properly or were complicit in what was happening.

Corporate governance began to get a much higher profile just around 1999/2000/2001. When I wrote my report it was pushing against an open door.

So is there a clearer, stronger sense of responsibility now to shareholders and perhaps also to ethics in the public interest?

Yes. If you are a surgeon, or a chartered accountant, you have to have a professional qualification. People realised you had to keep that up to date too, because you don't want a surgeon who qualified 40 years before and didn't know there were anaesthetics around or something. It's the same with a chartered accountant who didn't know accounting rules had changed.

Well, company directors come into exactly the same category. It is a profession now. And believe me, all boards now do all sorts of educational programmes to make sure you stay up to date with company law, with custom and practice, with best practice and so on. So it is much much more of a professional role than it used to be.

Being chair is a part-time role - How do you spend your time and how much of it is spent talking to analysts and major shareholders?

The chairman and the senior independent director and - famously these days - the chair of the remuneration committee spend quite a lot of time talking to investors.

You have to know what the owners of the company are thinking.

And in other roles like in SSE, obviously I spend time speaking to regulators and to government and indeed to the great British public, if you like, to customers. But all chairs have to spend time with shareholders.

If you are unhappy, or if the analysts and the shareholders are unhappy with the direction taken by the chief executive, how do you go about challenging that? Is that done softly, quietly, or does it require tackety boots in the boardroom?

I've seen tackety boots and I'm capable of putting on pairs of tackety boots - or taking one off and tapping someone on the head with it.

But it is obviously better if you can do this by consensus, by persuasion. But sometimes you actually have to be very direct.

It's like anything in life - sometimes you have to be fairly straightforward about what you want to see.

You can hear more from Lord Smith by listening to BBC Radio Scotland's Business Scotland programme on the BBC iPlayer.

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