CORPORATE GOVERNANCE: Being CEO + Director = Careful Handling

New Zealand Management, Jul 1, 2008 by Mark Peart

Chris Hopkins, the Dunedin-based chief executive and managing director of automation and engineering company Scott Technology, applies two distinct mindsets when fulfilling his dual responsibilities as leader of the company's management team and member of its board of directors.

As a manager, his key mantras include: not closely following the company share price; keeping the board fully informed through the chairman; seeing directors as a "sounding board"; making sure the management team is focused on the day-to-day task of running the company; taking decisions to the board as appropriate; and, educating his senior managers on all of the above.

As a director, Hopkins' priorities include: leaving his management hat behind; respecting the discipline of monthly meetings; using board meetings to critically analyse his own performance and the collective actions of the management team; worrying about the share price; considering disclosure; and, seeking best practice.

Hopkins has worked his way steadily up through the ranks of the company, joining then-owner Donaghy's Group in 1994 as corporate services manager. He has subsequently been the chief financial officer and general manager before being appointed managing director and CEO in 2006.

He started his career as a pilot trainee in the RNZAF (a little known fact in Dunedin business circles), but soon decided a life in the sky was not for him and moved into auditing.

"I still consider myself a new boy at Scott's even though I've been there 14 years. There are a lot of people there with a lot longer service than me. There are some people on the management team who have been there 40 years and 25 years - I'm still an apprentice and learning lots."

At a recent presentation to the Institute of Directors in Dunedin, Hopkins asked for a show of hands from people who thought it was a good idea for a CEO to also be a director, and then from those who didn't (disclosure: this writer kept his hand down at all times).

A majority disapproved of the dual role, which Hopkins says echoes a prevailing view in the United States. However the reality is that, for better or worse, he has dual roles - ones he is scrupulous about demarcating.

Hopkins isn't shy about seeking the advice of his fellow directors, and as CEO keeping in regular touch with the chairman. He does this with incumbent chairman Stuart McLauchlan, and also leaned heavily on former chairman Graeme Marsh, who until recently spent 38 years on the board, 32 of those as chairman.

"A problem shared is a problem halved," says Hopkins.

He also favours adopting a "no surprises" policy at board meetings, having in the interim used them as a sounding board and for guidance in developing management proposals for their eventual sign-off - or not.

"When you are on the board as the CFO or 2IC [which Hopkins was], it's always easier sitting on the sidelines and questioning things. But once you become the CEO or managing director, the buck stops with you, and you have to make the hard decisions.

"It can be quite lonely at the top at times, which is where getting that guidance from the board is good."

Hopkins also counts himself fortunate to have Ebos Group managing director Mark Waller as a colleague on the Scott board, and an additional source of useful counsel.

Marsh and McLauchlan have instilled in Hopkins an old-school and rigorous approach to having disciplined board meetings.

"That means getting minutes out on time, having board papers ready, and having structured corporate reporting."

The Scott board policy is that if directors don't have their papers three days before a meeting, nothing gets tabled.

"You don't circulate them in between times, you don't table them at meetings, you start on time. It's very important to have that structure. It adds to your professionalism, otherwise things can deteriorate quite quickly.

"Graeme was always very supportive of me, and he made some great comments along the way. I would ring him up and say whether we'd had a good month or a bad month. It's useful when times are tough to have that sort of chat, whether it was Graeme or now Stuart."

"It's great to bounce ideas around, and find out about issues other people in other companies are having. Sharing ideas enhances the effectiveness of the board."

As mentioned, Hopkins says as a member of the board of directors, he has to leave his management hat behind.

"How do you do that effectively?" he asks, without volunteering a substantive answer.

"Some people question whether you can wear two hats: if you look at one of the board's key roles it's appointing and managing the performance of the CEO."

A tricky area Scott and Hopkins need to manage carefully is the appointment of directors of Scott Technology's subsidiary companies.

Senior managers are encouraged to apply, but sometimes baulk at the prospect: "Probably rightly so if they are not sure what it involves or what their responsibilities are.

"We have had a few people that have had the opportunity and are simply not interested in taking on the responsibility. Others jump at it and see it as something to aspire to, and as a prestigious step in their career."