A shake-up of Britain's boardrooms under a revised Corporate Governance Code has attached greater importance to the role of chairman. But will more scrutiny make able directors think twice about taking the job?

Sir Roy Gardner, former chairman of Manchester United Football Club, had been in his new role at Connaught for just two months before his leadership of the board was tested. Shares in the social housing maintenance group plummeted in July after it revealed a breach of its banking covenants and announced the suspension of a managing director over a share sale.

Gardner has parachuted in an "A-team management" and is in talks with the company's lenders, but how he manages the board of directors and communicates with shareholders will test not only his mettle but also his reputation. Witness what BP's Carl-Henric Svanberg, or Prudential's Harvey McGrath have been contending with to understand what a juggling act he has on his hands.

The role of chairman has historically been regarded as a slap on the back for a long career in industry. But as two separate reports-by consultancy Iddas and executive firm Heidrick & Struggles-released in June illustrate, times have changed. Serving chairmen interviewed for both reports felt that the role had become more serious; full-on if not full-time; less anonymous, and more exposed than ever.

The financial crisis triggered a deep review of corporate governance guidelines and, by extension, the role of chairman. The Financial Reporting Council (FRC), the UK's corporate governance regulator, has now introduced changes to the Corporate Governance Code to improve board effectiveness and increase accountability in the UK's largest companies.

Helen Pitcher, chairman of Iddas, says that although those aspiring to the role still regard it as a considerable honour, they are thinking long and hard about the strategic, financial and governance responsibilities they will assume. They realise that if there is a sudden crisis or structural challenge, they will be called to account.

"The chief executive gets all the credit when things are going well, but the minute things are going badly the chairman comes into the spotlight, as has happened with BP," says Pitcher. "And the chairmen told us that it takes a huge amount of time, and far more time than it used to, to effectively discharge their responsibilities." The events of the past few years have thrown into relief many boardroom issues, explains David Peters, managing partner at Heidrick & Struggles. "We've seen examples of non-executive directors on boards being found wanting, or chairmen not engaged enough, or fallen foul of an imbalance of power on the board.

"We've seen strange decisions, despite the excellent work and input we've had from [Sir Derek] Higgs and [Sir David] Walker. That is, a lot of attention on the process side of governance, but maybe not so much on the softer issues such as listening, influencing, coaching and building consensus, and the style and effectiveness of the chair and the role, which are critical."

Reaction to the new Corporate Governance Code has been widely positive, with some reservations. The recent changes encourage a clearer statement of the board's responsibilities relating to risk. Companies are urged to promote greater boardroom diversity, appoint people on merit and from different backgrounds, and approach more women to join boards.

Chairmen specifically are encouraged to report in their annual statements how these provisions have been applied. Francis Bergin, tutor for the IoD's Role of the Company Chairman course, believes the code has been tweaked rather than overhauled. It's his view that a good chairman who is appropriately governing rather than ticking a box won't be too anxious. There are a few noteworthy additions, though.

"They're now talking about proper debate in the boardroom, more than they were in the past," he says. "They're trying to avoid 'group think'. They're talking about externally facilitated reviews at least every three years. And that directors should be put forward for re-election every year, which the institutions aren't very happy about, and nor am I."

While three years is sensible, he suggests, one year could be destabilising. As Pitcher adds, some chairmen were sceptical that annual re-election would improve effectiveness or accountability. "Some people were saying that we need to make sure the governance isn't driving the wrong behaviour," she says. "So, for example, that it's not driving short-termism. It's not a popularity contest being on a board."

IoD chairman and co-author of the recently published The Effective Board, Dr Neville Bain, points out that the challenge is to supply a governance framework that delivers long-term success for the organisation in its mission and objectives. And this is where the chairman needs to focus on the culture of the boardroom and engagement with senior and non-executive directors. Are they challenging or supporting one another appropriately?

Bain says: "The wise chairman will hold one-to-one meetings with non-executives at least once a year, to find out how their strengths and weaknesses are perceived, and where performance can be improved. The process for making recommendations to improve board effectiveness need not be heavy. The aim should be to limit the process to the essential and devote time to searching for improvements."

Peters is not convinced that all chairmen are the exceptional facilitators and communicators that they need to be. "There are many chairmen and boards, particularly in the larger, good companies that are well ahead of the curve on these things. It's not all chaos out there," he says. "But there are a still significant, and a quite concerning, number of cases where standards are not what they should be."

He'd like to see a more rigorous evaluation of the effectiveness of the chairman based on clear and measurable criteria. The relationship between the chief executive and the chairman, as both reports highlighted, is also crucial. It's the chairman's job to stand out of the way while the chief executive gets on with running the company. In other words, to chair the board and not the business.

But in many instances that distinction has become blurred. Which is why, says Bergin, the chairman and chief executive should list their responsibilities and division of duties and have them formally agreed by the board. "That way, you don't get overlaps and turf wars."

The chairman must pull together strong people who will have their own egos and agendas, and forge those into an effective team, continues Pitcher. "They need to support the vision and corral people without doing the CEO's job. They've got influence without power," she says.

Someone who has been in a boardroom for a while will have a good idea of what an effective chairman is supposed to be, adds Bergin. But with few women on British boards—only one in eight directors of top UK firms are female—how will companies find the kind of balance sought by the FRC?

Peters feels companies may find the diversity they're seeking by drawing from a wider pool of candidates such as senior civil servants, heads of professional services firms or investment bankers. "It's important for people who chair boards to understand the workings of the boardroom so you can't really put people in there who haven't been deeply immersed in boardroom activity," he says. "But the traditional model of, 'you've done your time as a CEO, now pick up a chairmanship' isn't enough for the future."

He'd like to see younger directors placed in non-executive roles earlier in their careers, with a view to a chairmanship before the age of 60. But now that the role is under so much scrutiny, could there be an issue around good people willing to take it on? As David Doe, director at Lloyd's broker Alwen Hough Johnson, points out, not every director is cut out to be a good chair-the skill set is different to that of managing director. He also feels that the role is increasingly exposed to shareholder disputes and even litigation.

"There's a more enhanced risk in taking that role, depending on the size and profile of the company, that has to be considered. There will be senior people who will baulk at it because of the inherent liabilities that come with the role. What about corporate manslaughter, personal liability? There are big potential downsides."

Could there be a dearth of good chairmen in the future? Pitcher believes recent events have discouraged some people. "Because the role is so serious, it's making people think twice," she says. "If I do take on a chairmanship, which company is it going to be with? What's the potential reputation damage for me? And how would I mitigate against that?"

There's no room on the board for amateur directors, says Bergin. Not only do chairmen have to balance the needs and interests of multiple stakeholders and personalities, they also have to be alert to wider trends and issues. The best chairmen, then, are capable of having an external focus. The financial crisis has been a wake-up call for boards, which need now more than ever a set of able and motivated directors to steer their business. The role of the chairman is pivotal.

Secrets of good stewardship

The Stewardship Code is part of the corporate governance shake-up following the financial crisis. The Stewardship Code and the UK Corporate Governance Code have been designed by the Financial Reporting Council (FRC) to be complementary sets of good practice for institutional investors and company boards, with the aim of fostering more accountability.

Sir David Walker has used the term stewardship to apply to how investors should behave, says Mark Goyder, director at
thinktank Tomorrow's Company. But Goyder prefers to talk about stewardship as something that should be the joint focus of both companies and investors.

The FRC's rule that investors publish details of how they engage with companies whose shares they own on behalf of trustees and other institutions—and reveal how they vote at annual general meetings—will make fund managers feel more accountable, says Goyder.

So what makes good stewardship? It starts with setting a clear direction, suggests Goyder. "Know the purpose, values and strategy of the business and roles and responsibilities. What the chairman is responsible for, and what the chief executive is responsible for. In the best-run businesses these things are clear but in too many listed companies they're left rather murky."

Focus on continuously improving performance, he adds, and make sure you see the company "as part of the landscape". Next, think about balancing the risks of today with the possibilities of tomorrow. "Know what you need to do to keep the business alive now and six months hence, but also know about the management of tomorrow. Does the CEO have a succession plan? Is there proper investment in new technology? Is there a focus on innovation?"

Making the right appointments is vital to improving governance and stewardship, says Goyder. "What's more important than having the right people to represent investors in the boardroom? What could be a more important focus for time-scarce investors than making sure the leading companies in which their funds are at risk know who the board are and how they're performing?"

In favour of annual re-election, he concludes: "What's needed is
a more rigorous process of choosing directors. A less club-like process. Annual election is merely the discipline that ensures that process is happening."