The ‘simpatico’ that exists between John Palmer and Ralph Norris helps deliver what every success-bent organisation strives for, smooth and effective interface between the board of directors and the senior management team, and more particularly between the chairman and the CEO.
Norris believes successful working relationship between CEO and his or her chairman must be built more on mutual respect – for each other’s honesty, trust and competencies – than friendship or commonality. That said, had Norris’ style and personality been in conflict, Palmer says the board wouldn’t have appointed him and Norris would not have taken the job.
The flipside, adds Norris, emerges when CEO and chairman become too cosy. That presents just as many dangers. “CEOs and chairmen who are too comfortable with each other must work doubly hard to ensure the relationship doesn’t deliver complacency. But with Air NZ director numbers now half what they used to be, board members can’t just drift along,” says Norris.
An essential quota of rigour and openness through which his board reaches agreements stops the board becoming too complacent, says Palmer. And that’s the way it should be. Admittedly, the roles and responsibilities between the chairman and the CEO do prescribe for openness. But from Palmer’s observations long-standing relationships pose greater danger to that level of openness than style and personality alone.
Key chemistry
American defenders of the US practice of creating the all-powerful combined position of chair and chief executive do so on the basis that individual egos invariably prevent chairmen and chief executives from working successfully together. So what, at least in Palmer’s and Norris’ experience, are the key personal and job-specific ingredients for successful chair/CEO partnership?
The chemistry between board members – especially the CEO and the chair – governs how the roles and responsibilities are implemented in practice, says Palmer. Assuming trust and respect are given, it makes huge difference when people feel comfortable with each other.
Sooner or later, the net effect of poor relationship between the chair and the CEO impacts negatively on an organisation’s performance. “Personalities that fit together make for positive, harmonious board,” says Palmer. “An unsuccessful relationship at the top will result in dysfunctional board table. This will lead to some sort of paralysis in the company that usually leads to trouble.”
The critical shape Air New Zealand was in after the Ansett buy-out debacle played an important part in influencing Palmer’s style as chairman. It also influenced what he considered were the essential capabilities required of new CEO. He remembers an abnormally high number of meetings as the new board, with Norris installed as managing director, immersed itself in an industry they knew relatively little about and moved to bed down new strategic direction for the future.
Hands-off approach
With new strategy firmly in place, Palmer quickly resumed hands-off management approach. Based on Norris’ former experience at CEO level, Palmer adopted chairman’s governance posture and contented himself with overseeing the management of the business. That might not have been his approach had less experienced CEO been at the helm.
The chairmanship style he adopted at Air NZ was one of guiding principle – helping management to create shareholder wealth. “With an experienced CEO like Ralph there was less reason for me to play the same sort of mentoring role that might be needed with less self-contained CEO.”
How they operate
How does the partnership work now and how often are Palmer and Norris in contact?
The relationship is managed on strictly ‘no-surprises’ basis, consequently Palmer and Norris communicate “as needed”. Palmer travels from his home in Nelson to Auckland for the airline’s monthly board meeting and talks to Norris by phone about three times week on board business, and almost daily with other aspects of the airline’s operation. “Based on that understanding, I know Ralph will flag anything to me as soon as he deems it practical to do so.”
In real terms, Palmer spends about day week focused solely on Air NZ matters. That time is divided into three different action areas:
•The continued development of the alliance framework, such as strategy options with Qantas.
•Day-to-day monitoring of operations and performance, especially areas of under-performance. “It’s important to get better understanding of these issues before they come to the board,” says Palmer.
•People matters, especially the committee he chairs which addresses remuneration issues for top level managers.
Not about friendship
The relationship CEO has with the chairman of the board should, by definition, be closer than the one he or she has with other board members. But, says Norris, that doesn’t mean the CEO should live in the chairman’s pocket. It is important that chairmen don’t let their relationship with the CEO compromise their objectivity and independence. “I think John handles that superbly. He doesn’t leave any doubt as to what he expects,” says Norris.
Norris admits he enjoys Palmer’s company on social level – watching rugby, skiing and playing the odd game of tennis. But had they not had that level of contact, Norris doubts it would have significantly impacted their working relationship. “It’s good to see people in different environment. Like me, John doesn’t like losing. But it’s not about friendship,” says Norris.
A chairman and CEO must simply put their personal likes and dislikes aside, says Norris. What ultimately makes the relationship work, is the mutual respect that leads to open communication. When that respect disappears one of the two should leave, and it’s usually the CEO. “The last thing any board needs is clash of egos between the CEO and the chair.”
Points of separation
Norris says solid understanding of the points of separation between executive and board roles keeps each out of the other’s patch. Norris and Palmer believe the correct separation of responsibilities hinges on identifying what activities fall within the board’s realm, in other words, Air New Zealand’s corporate governance.
It’s equally important to Norris that execution of the board’s strategy and operating plan within agreed policy remain his responsibility. Anything that falls outside that parameter should be established by well-defined board policy. “If the policy framework isn’t working, the CEO should explain why pretty quickly,” he adds.
The bottom line, according to Palmer, is that the CEO is answerable to the board, and the conduit to that board is the chairman. “It’s Ralph’s job to manage the business plan approved by the board and without interference from the board. Conversely, it’s the board’s job to monitor performance in the context of that plan,” he says.
When lines cross
There are times, admits Norris, when Air NZ directors have crossed the fine line between monitoring and interfering in management affairs. In these rare, and “minor cases”, Norris has been able to go to Palmer and unambiguously communicate his concerns. The process, he says, pays big dividends. “I have no qualms about addressing (responsibility) issues with the chairman. It’s important to nip any concerns early and before they become major issues,” says Norris. “The chairman coordinates the board and acts as the linkage to the CEO on an ongoing basis. Directors should be more interested in issues that impact the organisation than the day-to-day operational stuff.”
Norris thinks directors usually breach the line and stray into management’s territory because they have insufficient board experience. There is, he says, no shortage of examples of this occurring within local authority and hospital boards where political appointees have little understanding of the respective roles of board and management.
Agreement through probing
But breakdowns occur
