Sir Mike Rake: having a legal mind on the board can mean the right questions are asked
We recently welcomed Sir Mike Rake to come and share with us his experience of heading boards and the positive role lawyers can play on them.
Mike Rake has very wide Board and leadership experience, as the former head of KPMG and since as a Chairman and NED of many organisations, including public companies (including BT plc) in the UK and US, the NHS (Gt Ormond Street Hospital), the CBI etc.
Mike sees the key challenges for boards as follows: constructively addressing the key issues facing the organisation; defining and adhering to the organisation’s culture and values; understanding and mentoring the key senior executives; succession planning; and ensuring good governance and compliance.
It is vital for the Board to stand back and look at the bigger picture. A clear strategic framework is important, not least as there are CEOs who are strategic but not operational and those who are operationally strong but can’t see the big picture. Meanwhile, Boards must know enough about what is coming through on the operational point of view.
The role of the board is one of huge responsibility but also very interesting and challenging. Ultimately, it is all about people. For example, sometimes boards have to work with a strong, aggressively confident CEO with little or no financial background who may be trying to push things forward; in such situations, the Board must be alert. Board members must bring a complex balance of professional experience, constructive challenge, advice and encouragement. Obviously, integrity of reporting is essential. Boards must also have close constructive dialogue with their auditors, and the role of the big accounting firm is very important.
The role of the Chair is to ensure there is a balance of tone and constant, constructive challenge. The UK’s board system is generally a good one compared to the US system, where the combination of CEO and Chair roles can be problematic and lacking in challenge.
The composition of the board is important, bringing different perspectives but with the ability to work constructively together. Too big a board is as bad as no board – and the same goes for the information provided to the board – i.e. too much data flowing is as bad as no information! It really is unreasonable to expect a non-exec to understand an enormous level of detail when, realistically they maybe only involved (in the NFP sector particularly) with an organisation 4 – 6 times a year.
It is important that the board is diverse in terms of age, gender, social and educational background and professional and international experience, in order to achieve the board’s objectives. The UK has made a start in the right direction, for example with the 30% Club but headhunters can be a big problem here. They tend to introduce Chairs to people they already know of, to make you feel comfortable. Boards would be improved by widening the net and board diversity has the capacity to have a real impact on success. With a smaller board you do need to work quite hard to find the right people, who can bring the experience and skills you need.
The NEDs’ role is often to ‘ask the stupid question’ – incidentally there is no such thing as a stupid question! The Chair needs to create the right environment where that is acceptable. The UK approach to boards has been effective, particularly with more private sessions with the Chair outside the boardroom. It allows the Chair to get feedback and often to become aware of what is going on behind the scenes.
Compared to the accountants, who often successfully move from accountancy to business roles, lawyers tend not to do as well in making a similar transition. Often, doubts exist about lawyers’ financial literacy. HR directors can also find it difficult to get onto boards for similar reasons. Lawyers are seen more as ‘compliance officers’ and so, unfortunately, lawyers on boards are not common nor are they much in demand. Is it because the legal profession is not seen as being commercial enough, too specialised?
How do you go about building a profile outside the legal profession? The Not for Profit world is more fertile ground for lawyers. Ironically, though many Chairs think they don’t need a lawyer on their boards because they already have in-house advice, or they can buy it in – many of the biggest mistakes have been by my in-house legal departments not reporting issues to the top management. And if there was a senior legal person on the board then the right questions might be asked.
Q & A
At what point does a Chair’s opinion ‘enter the room’?
You have to be disciplined. In large organisations, the Chair tends to be there frequently, and so gets more in-depth exposure to the major issues of the organisation. But NEDs won’t have access to the same degree of information. You need to manage by example. These are complex issues and not everyone has the same level of understanding.
In Board discussions, for the Chair it is a question of drawing out the pros and cons during the discussion, and though it can be tempting to push to a conclusion, it is important to encourage those NEDs who may not feel they have much to say on the topic in question to give their views. And many non-executives will add value outside the board room, given the opportunity.
If head hunters are prone to putting forward well-known, conventional candidates as NEDs, how does one get through the impenetrable headhunter wall?
Ideally, Chairs need to get together as a group and lobby the head hunters to broaden the backgrounds of their network of people.