Proof – finance directors make excellent company chairmen. While the CEO and
the FD are paid to run the company – the chairman is paid to run the board. To
do so, a successful chairman must possess many qualities – several of which are
synonymous with the qualities required of a successful financial director.
According to Sir Derek Higgs’s January 2003 review, a chairman’s duties can
be clearly defined: to lead the board; to ensure accurate information reaches
directors and shareholders; to evaluate the board; and to make sure there are
constructive relationships between execs and non-execs. So, excellent leadership
(with particular emphasis for managing egos), a close eye for detail, good
communication skills and excellent moral values seem to be prerequisites for any
aspiring chairman – all of which should sound familiar to any FD worth his salt.
According to our research into FTSE-350 chairmen, made possible with the kind
help of BoardEx and Thomson Financial, finance directors excel in the role. What
we did was to compare the total shareholder returns (TSR) generated during each
chairman’s tenure, compared with that of the FTSE-All Share: a measure greater
than 1.0 means the company has outperformed the market under the chairman’s
leadership; less than 1.0 indicates underperformance.
The vast majority of former FDs who now occupy a FTSE-350 chairmanship have
outperformed the market. And, while less than 10% of the FTSE-350 employ a
former FD as their chairman, this seems certain to change.
Of the 25 former FDs who are currently FTSE-350 chairmen, 20 have led their
boards to outperform the FTSE-All Share – three have even done it for more than
one company. Some, like Benzion Freshwater at Daejan Holdings, Nigel Ellis at
Quintain Estates, Roger Lewis at Berkeley Group Holdings and Robert Speirs at
Stagecoach Group, have done so by many multiples.
Steve Tappin, managing partner for the UK Board and CEO Practice at headhun
ters Heidrick & Struggles, interviewed more than 70 chairman as part of a
report he compiled into chairman succession last year. He is not surprised by
the findings. “Well-managed companies have a very close relationship between the
chairman, chief executive and finance director,” he says. “Finance directors
have a good combination of financial and commercial expertise – and if you have
a good grasp of the business, then it’s easier to give the CEO space to run the
Tappin is in no doubt that more FDs will become chairmen. “Because there is
an increasing number of FDs becoming CEOs, they’ll ultimately step up to
chairman. The mechanics are already in place,” he says.
The role of the chairman has evolved over the past few years. While once they
were perceived as experienced hands, ready to offer advice and support in times
of need, this is no longer true. They are proactive, challenging and play an
increasing role in the strategic direction of companies.
As one FTSE-350 chairman who responded to Tappin’s research, says: “You can’t
underestimate, as chairman, the influence you are exerting on the management
team and the entire business by the discipline you impose in the boardroom and
by how you behave. The tone in the boardroom sets the tone for the management
and the whole company.”
Robert Speirs, Stagecoach Group
Operating bus routes may not be the most thrilling of industries, but in terms
of shareholder returns, the past five years or so have been hugely impressive
for Stagecoach Group. Robert Speirs has been chairman of the group over those
five years, during which time the company has outperformed the market by an
average of 28% a year – a TSR of 3.06 against the FTSE All-Share’s base of 1.0.
Speirs is a former finance director of Royal Bank of Scotland.
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* Jan du Plessis, BAT & RHM
Jan du Plessis was the finance director of tobacco brand Rothmans and, later, pa
rent company Richemont. The experience certainly seems to have served him well
as he is one of just three other former FDs in our research who enjoy more than
one FTSE-350 chairmanship. Despite his full plate, du Plessis’ performance has
certainly not suffered. During his tenure as chairman of the two companies, BAT
has outperformed the market by an average of 8.6% per year, while RHM has
outperformed the FTSE-All Share by 8.5%. Total shareholder return is 1.24 and
1.15 respectively (All-Share = 1.0).
* Du Plessis is no longer chairman of RHM, since its ongoing acquisition by
Philip Hampton, Sainsbury
With three FTSE-100 finance directorships already under his belt, Sir Philip
Hampton is one of the UK’s most successful businessmen. Now chairman of
Sainsbury, Hampton has extended his qualities to the chairman role where he has
presided over a period during which the supermarket has outperformed the FTSE
All-Share by an average of 9.4% a year. Total shareholder return was 1.26,
relative to the All-Share’s 1.0.
Dr John Buchanan, Smith & Nephew
As the former group FD at BP, current non-exec at AstraZeneca and BHP Billiton,
Vodafone deputy chairman and Smith & Nephew chairman, Dr John Buchanan is
probably the most experienced chairman in our research. He also, perhaps not
surprisingly, tops The Times 2006 Power 100 list. His workload seems to have
done him no harm, however. Since becoming Smith & Nephew’s chairman this
time last year, the group has outperformed the market by 35%.