Corporate Governance for Banks in Southeast Europe: Policy - IFC

A5. Role of the chair 29
The chair of the board plays a crucial role in the
governance of the bank. A good chairperson can bring
out the talents of board members and provide the
leadership and context necessary for board members
to contribute. A bad chairperson can stifle debate and
hamper the board in achieving its objectives. One of
the most important responsibilities of the chair is to set
the board agenda and ensure that important decisions
are subject to proper discussion and examination.
The Need for Strong Board Leadership
“If push comes to shove, and you asked
me to choose between financial industry
expertise and leadership skills, I would
say go with leadership skills.”
Catherine Lawton, United Kingdom
More specifically, the chair’s responsibilities are to ensure that 1) the board receives accurate, timely, and clear
information from management to enable the board to make sound decisions; 2) sufficient time is allowed
for discussion of complex or contentious issues; 3) constructive debate and criticism flourish; 4) effective
communication with board committees occurs; 5) induction and other training opportunities exist; 6) the
performance of the board is evaluated at least once a year; and 7) plans are made for strengthening the
board and bank governance.
SEE chairpersons may not fully appreciate some of these general and specific responsibilities that contribute
to the sound governance of the bank. They tend, understandably, to be more focused on performance
issues. However, governance ultimately influences bank performance by affecting the quality of decision
making at the board level. More progressive and forward-looking board leadership is a key to improving bank
governance. The need for leadership may be particularly important in boards of subsidiaries of foreign groups,
where the work may focus narrowly on implementing directions from the home office.
Best practice increasingly suggests that the roles of chief executive officer and chairperson be separated
or that other means be found to provide an appropriate counterbalance to the powers of the executive. In
countries with two-tier boards, the roles should be separate by definition, since executives should not sit on
supervisory boards. In countries where single-tier boards exist, there is continued discussion on whether the
roles of chairperson and chief executive officer should be separated.
The argument in favor of combining the two is that it provides a better understanding of the operational
issues at board level, fewer decision-making hurdles, better integration of strategy and tactics, and clearer
direction. The arguments against are that it is hard for other board members to challenge a powerful chief
executive officer who is also chairperson, independent board members can be intimidated and neutralized,
and the evaluation of board and executive performance becomes biased. In the end, the argument for is
based on the notion that there is an irreconcilable conflict between the roles of monitor and executor.
In SEE, the chair of foreign subsidiaries are usually executives from the home office of the bank. So, in effect,
there is a separation of the roles of chairperson and chief executive officer among the vast majority of banks,
though such separation does not automatically guarantee sufficient control of the executive. Among locally
owned banks, the chair is often the major shareholder or the major shareholder’s representative, and the
roles of chair and chief executive officer may be combined.
29 2010 BIS Principles, Section III.A, p. 12.
Corporate Governance for Banks in Southeast Europe Policy Brief 23