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Board of directors guide


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Board of directors guide

  1. 1. Extract from article published in BestyrelseshåndbogenReproduction of this article or any part of it is not permitted according toDanish copyright law.Børsen Ledelseshåndbøger is Denmark’s largest and most influentialknowledge and development society. No matter which area or topic youare dealing with, you will have access to a complete body of digital and/orprinted content providing you with a clear overview and insight.The management handbook is a practical and easy-to-use tool for peoplewho want to stay 100% up-to-date within a specific field – even if you havea busy career to attend to.Børsen Ledelseshåndbøger, 2012
  2. 2. 7.4.The communicativeresponsibilities of the BoardSteffen Lüders | Board Chairman | Mannov A/S | sl@mannov.dkHow visible should a Board of Directors be in public?When should a Board Chairman speak out publicly?And where should we draw the limit between the com-municative responsibilities of the Board and manage-ment? The Board and management need to be alignedon these issues to secure that they serve the interests ofthe corporation in the best possible way. There shouldnot be a shade of doubt or confusion as to the capabili-ties and roles of the Board and management.As executive management in a corporation or organi-zation, there will be times when the Board must step inand assume a communicative role. Similarly, there willbe times when it is vital that the Board does not inter-fere in external communication. When and how this isthe case was reviewed on Netværk Danmark’s Boardmember training by the Public Relations agency Man-nov A/S for a number of experienced business leaderson 18 November 2010. The thoughts presented hereas well as the subsequent debate are the foundation ofthis article on the communicative responsibilities of theBoard as well as the distribution of roles between theBoard and management.Mannov A/S has vast experience in counseling Boardsand executives on how they can best meet the commu-nication challenges of their companies, and how to de-fine the assignments of the Board and management inthe strategic and practical communication execution.1. The Board must define its communicative roleFor Board members, there is no doubt that the overriding as-signment for a Board is to assist the executive management ofa corporation or an organization and ensure the recruitment ofqualified day-to-day management. But what is the responsibilityand role of the Board in terms of communication? Should theBoard of a company be visible at all? And if yes, where are the
  3. 3. borderlines toward the CEO? The answers to these questions are not set in stone. The inter- pretation of how to practice this may vary significantly among different companies and Board chairmen. Confidence or doubt When a Board steps up in a communicative role in public, this is oftentimes based on careful considerations. For instance, if a company is serious financial trouble and the situation at- tracts overwhelming media attention, speculations may arise on whether the strategic direction of the company is the right one, and whether the day-to-day management is up for the task. In this case the Board needs to clarify the situation and share what is being done. Additionally, the Board must consider the gravity of the situation and assess the confidence of stakeholders as well as themselves in management’s ability to manage the issue. On a related note, the Board must decide whether the gravity of the situation renders it necessary to communicate a vote of confi- dence in the selected strategic direction and/or management’s ability to manage the challenges. The vote of confidence can help restore calm but may also be counterproductive for the company if any doubt arises on management’s competence and on wheth- er management should be released from its duties. Differing opinions Potential consequences like the ones mentioned above need to be carefully considered by the Board before it communicates in public. There are differing opinions on this topic even among high-ranking Board chairmen and experts: Need for more than one “It’s not because I want to get in the media – actually it’s theperson in the public do- other way around. But the CEO may be fired, get in a car acci- main dent or quit. Is it prudent to hand the reins of an entire company to one person in the public domain?” asks Fritz Schur, who him- self doesn’t shy away from public statements. According to Fritz Schur, the most obvious downside of the cri- sis is that chairmen seem to have all but disappeared from the public limelight. “We have become a bit scared. The legislation was changed for publicly listed companies to prohibit working chairmen. But this is foolish. From my perspective, chairmen who are too pas- sive are a greater problem than chairmen who are too active,” he says. Berlingske Nyhedsmagasin, no. 23, 2009 At the time of writing, Fritz Schur was chairman of the Board in DONG Energy, Post Danmark and SAS. Michael Pram Rasmussen finds it difficult to understand Fritz Schur’s argumentation. He does not endorse any other spokes- people. If a relevant issue arises, you should respond on a case- by-case basis.
  4. 4. Divided system with “The tasks solved by a CEO and a Board chairman are complete- clear roles ly different. I greatly appreciate the fact that the Danish execu- tive model is based on a divided system in which the day-to-day management handles daily management and related tasks, while the Board chairman manages general guidelines, strategy and control. That’s checks and balances. If you get too involved as a chairman, you will ruin the inherent division of the system.” He believes it should only be necessary to support a CEO in cas- es where the strategic direction or the CEO’s support is cast into doubt. Berlingske Nyhedsmagasin, no. 37, 2009 At the time of writing, Michael Pram Rasmussen is Board chair- man in A. P. Møller – Maersk and Coloplast, among others. Secretiveness can “It’s easy to give rise to role confusion, which is why this should backfire be firmly established for the sake of the company,” explains Steen Thomsen, perhaps the most active observer of Board ser- vices in Denmark in his capacity of Manager of the Center for Corporate Governance at Copenhagen Business School. “The chairmen typically become more visible when the CEO is under pressure. They step in to ensure continuity. Danske Bank’s chairman Alf Duch-Pedersen supported Peter Straarup when he felt this was necessary. And that was fine. There is a need to establish authority because it is fatal for a company if doubts arise around it,” Steen Thomsen adds. Openness will – and must – increase in the long term, Steen Thomsen points out. However, global corporations will devote their focus to international media. Secretiveness can backfire, Steen Thomsen believes. Berlingske Nyhedsmagasin, no. 37, 2009 At face value, the statements from these two high-ranking Board chairmen may seem like polar opposites. However, it is likely that the rationale for their differing views can be attributed to the different company types they serve as chairmen for.Different company types Whereas SAS, Post Danmark and DONG Energy are public com- panies and operate within the intersection of vital social tasks and market-driven business management, A. P. Møller – Maersk and Coloplast are listed companies owned by trusts without pub- lic ownership and any particular social obligations as providers of infrastructure or public service. The two types of businesses have radically different political agendas and responsibilities, which bears significance for the chairman’s role. However, this is not in itself enough to explain the differingResponsibilities are not views on the role of the chairman and the Board in relation to self-evident management. A more comprehensive explanation is that the most appropriate division of the communicative responsibil- ities and the issue of public visibility not only comes down to the ownership structure of the company (public, private, trust, stock, etc.). It depends on a wide range of factors such as com-
  5. 5. pany exposure and size, company history, the people who serve as executive managers and on the Board – but above all, on the realities faced by the company in terms of internal and external challenges and events. In other words, the role of the chairman and the Board in rela- tion to management is not self-evident. That is why it is crucial for the Board to perform a thorough analysis and assessment in order to develop a firm description of the Board’s communi- cative responsibilities and the right division of work between Board and management for current situation faced by the com- pany. When talking about communication, it is important to point out that we don’t mean communication in a narrow context relat- ed to media as Fritz Schur mentioned specifically in the quote above. It could also mean communication related to collabora- tion partners, large clients, banks, other financial partners, etc.Discussed by the Board With this in mind, our recommendation is that the Board should discuss its communicative responsibilities at least once a year – and more frequently if the company faces or is preparing for a major transformation process. This article elaborates on a number of principles that can inspire Boards to define the right communication policy. However, let’s start out by taking a closer look at the different communication paradigms that various companies let their Boards deploy. 2. Five different Board scenarios There are significant differences in how Boards act in different companies. This is reflected in their needs to communicate. The following section includes some relevant examples, though this should not be seen to comprehend all types of businesses in Denmark… About the authorThis is an extract of Steffen Lüdersthe article brought inLedelseshåndbogen. Steffen has been CEO of the PR agency Mannov since 1 January 1995, serving as working chairman as of 1 January 2013. He hasTry a free Ledelseshåndbogonline counseled a wide range of Danish and international companies on strategic communication as well as issues and crisis man-Please order on boss. agement. He is on the Board and the Business Committee of, send an email to Danish Chamber of Commerce, where he also serves as or man of the Counseling and Professional Services (+45) 70 127 129. Additionally, he is a Board member of the International Cham- ber of Commerce Denmark and the Danish Corporate Gover- nance Network.