Giving what it takes

According to the Institute of Directors' Centre for Director Development, becoming an effective director should involve better training, performance measurement, adoption of best practice and continuous improvement. The new Combined Code of Practice, which is derived from the Cadbury and Greenbury reports and comes into effect this month, states for the first time that directors of listed companies should receive appropriate training as soon as they are appointed to the board and subsequently whenever necessary.

The code is a response to the fact that, in a surprising number of cases, directors have many gaps in their knowledge and skills. In the interests of continuous improvement, I recently attended an IOD course, entitled "The role of the managing director", with 23 other managing directors from a variety of small and medium-sized businesses.

The course examined the key tasks and responsibilities of the managing director, and focused on the relationship between the managing director and board of directors. All very topical, in view of recent boardroom struggles at Barclays and Marks & Spencer.

The first thing that struck me is how easy it is for someone to develop preconceived ideas about the role of the managing director. In practice, there is no prescribed position on what powers the managing director should have. The decision is unique to each company, and boards vary considerably in the allocation of activities between the managing director and the rest of the board. It is important, therefore, for a managing director to be aware of the limits on his or her authority. This was vividly illustrated by certain case studies, including the 1990 Guinness bid for Distillers. It was also interesting to note that some of the participants on the course were not familiar with the parameters of their business and the distribution of power set out in the memorandum of association, or the articles of association of their business.

The managing director is judged not only on the company's performance within the overall strategy agreed by the board, but also on how he or she manages key relationships, such as those with executive and non-executive directors, the chairperson and shareholders.

The managing director needs the board as much as the board needs him or her to provide the right leadership. It is also the board that will monitor and, if necessary, replace the managing director.

The course highlighted the disadvantages of combining the roles of chairperson and managing director. The chairperson leads the board, and manages the board, not the company. It reminded us, too, that shareholders can remove the board whenever they like. We were also reminded of the importance of being aware of how your colleagues see you. One participant, who happened to be the most senior among us, told the rest of the delegates how he spent a lot of his time carrying out appraisals of his staff, including the other directors. When questioned about whether anyone had assessed him, he replied: "I've never thought about it." When urged to consider this option, he asked: "Who could assess me?" When somebody suggested his fellow directors, or staff, he said he thought this was not a good idea.

It became clear that general management ability and the personality of the managing director are just as important, if not more so, as financial or technical expertise.

The course showed that the biggest challenge for the managing director is how to manage contradictory pressures. For example, being sufficiently knowledgeable about the company to be answerable for its actions, and yet able to stand back from day-to-day management to retain an objective, longer-term view. Or, as another example, being entrepreneurial and driving the business forward, while keeping it under prudent control.