The Governance Trinity: Chair, CEO & CoSec

[00:00:00] Intro: Welcome to Minutes by boardcycle, where in each episode we pack the insights from one of Australia's boardroom leaders into just a few minutes.

[00:00:08] In this episode, host Richard Conway is joined by Carol Schwartz, Chair of Equity Trustees and member of the Reserve Bank of Australia, to discuss the important relationships between a chair, a CEO, and a company secretary.

[00:00:24] Richard Conway: Hello and welcome to Minutes by boardcycle. I'm your host Richard Conway and today I'm joined by Carol Schwartz. Carol, welcome to the podcast.

[00:00:36] Carol Schwartz: Nice to be here with you Richard.

[00:00:38] Richard Conway: So Carol's one of Australia's leading directors and is currently the Chair of Equity Trustees and a member of the Board of the Reserve Bank of Australia. She's also an agitator on a number of social issues including climate change, gender equality and women's leadership as reflected by her roles as the Chair of the Climate Council and Women's Leadership Institute Australia.

[00:00:59] Richard Conway: Today, [00:01:00] Carol's allowing me to pick her brain about a governance topic, being the intertwined roles of the chair, the CEO and the company secretary of an organisation.

[00:01:09] Richard Conway: So Carol, a director that we previously had on this podcast said that the chair-CEO relationship affects shareholder value in an organisation.

[00:01:19] Richard Conway: So I wanted to ask, do you agree with that? And what in your view are the secrets to a successful chair-CEO relationship?

[00:01:27] Carol Schwartz: Yeah, absolutely. If you don't have a good working relationship with your CEO, then you should probably not be the chair. For me, when I'm chairman of an organisation, I see my role as being the partner to the CEO.

[00:01:44] Carol Schwartz: I'm the sounding board. I'm partner. I'm a link to other board members. And I'm there to facilitate anything that I can for the CEO to be as successful [00:02:00] as she possibly can be. And that is my role.

[00:02:03] Richard Conway: And do you have any tricks or particular approaches that you take to foster that relationship or particularly to deal with stressful times, whether it's stressful in terms of your relationship or stressful in terms of an event that's happening to the organisation?

[00:02:21] Carol Schwartz: Yeah, well, I've been involved in those, all those sorts of situations, I guess. I think it's really important to be very open, very truthful, and also, have channels of communication constantly open. So, I will speak to CEOs at least once a week, if not more. If we are having challenging times for one reason or another, it's usually more than once a week.

[00:02:49] Carol Schwartz: It can be daily, depending upon the challenges that we're facing. But I think that's really important. And when I say, partner, sounding board, [00:03:00] in those roles, it's really important to be honest. So if you think that the CEO is stuffing up for one reason or another, you have to be honest about that.

[00:03:09] Carol Schwartz: If you think that they're taking the wrong direction with something, you have to be honest about that. The only way you can create that relationship of honesty is by constancy and consistency of communication. I mean, I've heard of situations where chairmen don't speak to their CEOs in between board meetings.

[00:03:32] Carol Schwartz: I can't imagine what that must be like. Not being on top of the challenges that CEO is dealing with, not being there to support them through those challenges, not being there as a sounding board. I mean, that just does not work for me at all. And for me, it needs to be a really honest, open, well communicating partnership.

[00:03:54] Richard Conway: And what are you, obviously from the CEO side, you're expecting them to reciprocate that [00:04:00] honesty and openness. But are there other things that you really expect or hope for a CEO to do or to drive in that relationship to make it successful?

[00:04:09] Carol Schwartz: Well, I mean, as you just said, they have to be open, that I guess they have to see me incredibly approachable.

[00:04:16] Carol Schwartz: I've seen situations where, chairman can be quite remote, quite conservative. That would not suit me at all. I've also seen situations where, CEOs are resistant to the communication. To having that call once a week as a minimum, that doesn't suit me either. No, there has to be a relationship.

[00:04:40] Carol Schwartz: And I think if it's not working, it will impact the business. It will definitely impact the executive team. It'll definitely impact shareholder wealth. And for me as a chairman, if I was in a situation where I had a CEO that I couldn't get on with, I could not remain chairman of that [00:05:00] organisation.

[00:05:01] Richard Conway: Yep, absolutely. So I guess to sort of summarise that there needs to be an absolutely mutual, kind of commitment to that relationship and see eye to eye in it, effectively in the importance and the value of making that relationship work for it to be successful.

[00:05:18] Carol Schwartz: Absolutely. Beautifully expressed.

[00:05:20] Richard Conway: And, I guess another thing I wanted to ask you about, which I think can happen both on the chair side and the CEO side is that, the chair can perhaps be in a situation where some directors, on the board are not satisfied with the CEO or management's approach to things, on the flip side, the CEO can sometimes be in a world where the management team are not satisfied with the way that the board are approaching things. And how do you think about navigating those kind of issues, whether they're real or perceived?

[00:05:51] Carol Schwartz: Yeah, that's a very interesting question. I've probably been involved in both those types of situations. I'm [00:06:00] not a particularly formal chair. So I'm very happy for my directors to have a direct link to the CEO or the executive leadership team. I think that's really crucial because each director needs to be able to form their own relationship with the CEO and executive team.

[00:06:21] Carol Schwartz: I think that's important because each one of them actually plays a different role on the board. So for example, you might have somebody who's the chair of the audit committee, who needs to have that relationship with the CEO and the CFO. You'll have somebody who's the chair of the HR and REM committee.

[00:06:42] Carol Schwartz: They need to be able to have that direct link with the CEO, with the head of HR. You have somebody who's the chair of the risk committee. Same thing. And then we've had, in organisations that I'm involved with, which has worked really well, you [00:07:00] have a director who's actually appointed as leading strategy discussions.

[00:07:06] Carol Schwartz: We don't have a strategy committee, but you have a director who leads the strategy discussions. Well, obviously, they're going to need to have that relationship with the CEO and the executive leadership team. I mean, I don't know whether I'm really lucky cause I have great people sitting around me on the boards that I'm on.

[00:07:26] Carol Schwartz: And you know, they're very high performing boards, but you know, that really works for me and it seems to really work for my fellow directors and the boards that I'm on. Now, that's not to say that that's going to work for everybody, that it's going to suit everybody's style.

[00:07:44] Carol Schwartz: But then I think, you know, when one becomes a chairman, you have to work out what is your style, what works for you, and you craft the board to make sure that it's as high functioning as possible and that everybody has bought into the style of [00:08:00] leadership that you bring as chair.

[00:08:01] Richard Conway: And Carol, I wanted to introduce the company secretary into this conversation or this dynamic. And the reason for that is because I guess, like the chair and the CEO, they are at an interface between the board and management. I wanted to ask you to start off with, as a chair, what are the key things that you're looking for your, CoSec to do in that interface role.

[00:08:25] Carol Schwartz: I need somebody really well organised who never forgets anything. Because the CoSec takes all the minutes at the meetings, they're responsible to produce the minutes. Minutes are absolutely crucial. I mean, the fact is, you don't want to be reading 150 pages of minutes, but you want to have minutes that truly represent the meeting as it was.

[00:08:47] Carol Schwartz: And I think that's a hugely crucial role for a company secretary. I also think that, keeping us on track with our compliance [00:09:00] requirements, within a board meeting structure is really, really important. And also liaising with the chair and other directors. I've been lucky enough again to have been exposed to great company secretaries, but I've also been exposed to some not so good company secretaries.

[00:09:19] Carol Schwartz: And the distinction is stark. I think that a good company secretary keeps all meetings, all, regulatory requirements, absolutely on track. And particularly in the, listed board context, that is absolutely crucial. You don't want to be making mistakes.

[00:09:40] Richard Conway: And Carol, thinking about those company secretaries who perhaps haven't met your expectations, can you outline what you think the things were that they weren't doing that you really distinguish them from the good company secretaries?

[00:09:55] Carol Schwartz: Sloppy. Sloppy, you know. Not having a good memory as [00:10:00] to, you know, what was said, what wasn't said, bad minutes. Not organising the meetings in the way they need to be organised.

[00:10:09] Carol Schwartz: I mean, and I think that's really bad for a CEO as well. A CEO has to really be able to depend on the company secretary for that part of the business. The structure, the organisation, and the focus. That needs to be, on the area of meetings, of regulatory requirements, and of, minute taking. I think it's absolutely crucial.

[00:10:34] Richard Conway: And so Carol, the company secretary's board facing role is usually pretty clear, but surprisingly, I think their role in management, and what their relationship with the CEO is sometimes a little bit less clear. And so I wanted to ask you to talk from that perspective.

[00:10:52] Richard Conway: How do you think a company secretary should be approaching their relationship with the CEO in particular and management more broadly?

[00:10:59] Carol Schwartz: [00:11:00] It needs to be a very close one for the reasons that I've just said. You're not going to have effective meetings, and a well organised meeting structure unless the, and also good agendas for the meetings, unless the CEO has that good relationship with the company secretary, it is an absolutely crucial role. In a way the CoSec and the CFO are almost like, the 2ICs together with the CEO and, you know, the CEO must be heavily reliant on them, should be heavily reliant on them, and must have the right people in place so that they can rely on them.

[00:11:41] Richard Conway: And Carol, so to develop that reliance, I guess, both on the, with the chair and the CEO, a company secretary needs to develop a really trusted relationship with both of those people.

[00:11:54] Richard Conway: And so, how do you think a company secretary should navigate situations where those [00:12:00] two roles are not seeing eye to eye, for example, or, you know, again, more broadly where there's tension between the board and management.

[00:12:08] Richard Conway: And so do you think the company secretary has a role or responsibility to sort of proactively, smooth those tensions?

[00:12:16] Carol Schwartz: I've never thought about that. Behind the scenes they might smooth those tensions. I don't know, to be absolutely honest. I've never seen that play out. I don't know, what's your experience been?

[00:12:29] Richard Conway: I would say that I think sometimes the company secretary, you know, needs to take conversations with both the management side and the board side in confidence. That's important to creating trust, in those scenarios.

[00:12:44] Richard Conway: But like all people in senior roles, you have to see potential train smashes well and truly before they happen and try and do what you can to head those things off so I would say, I think that there's a role for the company [00:13:00] secretary in trying to, if they can see, for example, potential miscommunication happening, that's an obvious place where I think a company secretary should play a proactive role.

[00:13:10] Richard Conway: If it's more personality based or something like that, I think it's much more difficult for a company secretary to play a role in that scenario. And ultimately, when you're thinking about a chair and CEO, chair-CEO-company secretary dynamic, there's a clear primary relationship there and secondary relationships.

[00:13:32] Richard Conway: So it's obviously very important not to overstep into that primary relationship and let the chair and CEO, for example, resolve things the way that they think is best in the end.

[00:13:42] Carol Schwartz: Yeah. I think, you've probably spot on. And also I do think there is an element of personality in that and in the relationships.

[00:13:53] Carol Schwartz: As I said, I've never had a situation where that's been an issue. I have been [00:14:00] exposed to some really fabulous cosecs who play really, really good roles and who do see themselves Also, in a different sort of way, as a sounding board for the CEO, vis-a-vis things that might be going on within the organisation that don't escalate up to the relationship between CEO and chair.

[00:14:26] Carol Schwartz: And I think it's probably a very trusted role.

[00:14:29] Richard Conway: Perhaps, you've never seen it because you've had excellent company secretaries who are who are doing it without you ever even knowing it's happening.

[00:14:36] Carol Schwartz: That's probably absolutely right.

[00:14:38] Richard Conway: And, one last question, Carol, if there was one thing that you wished company secretaries would do, but you think they rarely or never do, what would that be?

[00:14:47] Carol Schwartz: I've never actually worked in a company where we need separate legal counsel. And very often, cosecs have legal [00:15:00] training.

[00:15:00] Richard Conway: Yes.

[00:15:00] Carol Schwartz: Which is interesting. Very often they're not practicing lawyers, but they do have legal training. And I think that probably that combination of legal and CoSec is a really great combination.

[00:15:15] Carol Schwartz: Maybe CoSecs should be encouraged more to get involved in giving legal advice. When you think about the role of the CoSec, I mean, it does sort of dovetail into legal counsel as well. And, perhaps some of the CoSecs just need a little bit more encouragement to take on the more of a role of legal counsel as well.