Allow SID to be vicious

4 November 2022

Imagine getting to be CEO – the freedom to act as you wish. You’ve spent a whole career climbing up the greasy pole, hoping for chance to wear the yellow jersey. The pinnacle, of course, is to command a Plc, fully listed, preferably in the top 250, ideally in the top 100. Now you really are in charge.

Picture it – your first day as the boss. You park in the space reserved for the CEO, normally right next to the exit so mere mortals will know you are in the house and will be ready with their impressive elevator pitch for promotion, should they bump into you.

On arrival, you are met by your secretary, taken to your executive suite and introduced to your staff.

You feel the power coursing through your fingers – at last you have the opportunity to run a business as it should really be run.

It is normally around this time that you will be told about your first meeting with the chairman – essentially this is your boss, at least that is what the Combined Code of Corporate Governance would suggest. But in practice you know you shouldn’t have too much to worry about – they are not only chairman of the board but also of the nominations committee, which means they have put their considerable reputation on the line by backing you. They want you to succeed, they need you to succeed.

For a time, you might be right. The performance of a CEO is evaluated essentially by the chairman in consultation with the non-executive directors. If you are his or her hire, and build a tight, constructive relationship, how awkward can the chairman really be?

Enter the senior independent director (SID). SID is a historically low-profile individual with the power to tackle the boss’s boss. All Plc boards have a SID, and one of their primary duties is to evaluate the performance of the chairman.

They are independent in the true sense of the word – they are the means by which the shareholders might raise concerns that are otherwise not being addressed. Most importantly, the SID is the key to tackling any unhealthy relationship between the CEO and chairman – without doubt the most important relationship in a Plc business.

The problem is, NSCG does not feel SID has the teeth to do an adequate governance job. Whilst the Combined Code gives SID the authority to provide feedback to the chairman, it is less clear about the consequences of underperformance and the levers or pressures that SID can apply. In the eventuality of an over-cosy relationship between CEO and chairman, it would take a SID with huge reserves of courage, and a philosophical attitude towards their future career, to step into that space and challenge the objectivity and probity of the business leadership.

We believe the SID should be given a bigger stick, enabling shareholders to sleep safe at night knowing the CEO and chairman are being properly governed. In short, allow SID to be a little more vicious, if need be.

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