It’s better to be a cokehead chairman than a blockhead chairman
Random knowledge tests for all directors are needed, just like drugs tests for sportsmen
Who makes a worse company chairman: one who is always scratching his head, or one who is off his head?
I have been turning over the question of blockhead-versus-cokehead since the ex-chairman of Co-op Bank was a) filmed apparently handing over £300 for cocaine and crystal meth and b) told a treasury committee that the bank had £3 billion in assets when it had £47 billion.
I’m not saying that Paul Flowers himself is either cokehead or blockhead, as I don’t know enough about him to judge. Instead I’m asking more broadly: if you were a shareholder of any company, which type would you be more appalled to find you had in a position of power?
You could protest that cokeheads and blockheads go hand in hand; though which leads to which is hard to say. If you are on drugs, that could make your command of the facts a little hazy. (Though coke tends to make you wildly optimistic, so you’d be more likely to overestimate your assets tenfold than the other way round.) On the other hand, if your command of the facts was hazy initially, that might drive you to coke as a way of dealing with your low self-esteem and the clawing fear of getting found out.
Yet if you take the two types as distinct, the obvious answer is that the cokehead is more lethal. For a start, coke is illegal – and having a chairman arrested, as Mr Flowers was last week, never does any good to a company’s reputation. More than that, a coke habit can make people irritable and unpredictable, distort their judgment, lead to paranoid psychosis as well as doing nothing for the lining of
None of that is desirable. But it is still better than being ruled by a blockhead. Anyone who is ignorant of the basic facts of a business can only do harm to a company.
It is true that ignorance on the scale of Mr Flowers’ is exceptional (the Co-op’s structure is so idiosyncratic it made a virtue of having people on the board who knew nothing about banking). Yet my strong hunch is that there is a great deal of ignorance on most boards that may not be quite as jaw-dropping as at the Co-op, but is still worrying.
If I think of some of the directors I have come across, many have large and shaming gaps in their knowledge. These arise either because their markets have changed in ways they have not kept up with, or because they hop from one industry to another, and after a bit in a new one it becomes too embarrassing
to ask: can someone explain how we actually make our money? Add to that the fact that businesses are increasingly complicated - and keeping up becomes increasingly hard.
If ignorance is so common, how come we almost never hear of it? Politicians occasionally let their inner bonehead show – Sarah Palin was caught getting her Iran and Iraq confused – yet the people who rise to the top in business are worryingly good at keeping theirs hidden.
This is for three reasons. First, they delegate. Don’t know how big your assets are? Never mind – your finance director can answer that one.
Second, jargon and flannel come to their aid. “This is an issue currently out of my sightline, and I’ll revert going forward when I have some clarity around it,” sounds more impressive than “no idea”.
Thirdly, when you are really senior, nobody ever calls your bluff. If a tiresome journalist asks a tricky question, then
it is quite simple: you answer another question instead.
Put on the spot
Indeed the only time that directors are really put on the spot is when they get hauled before the regulator or a select committee, where there is no finance director to field tough questions, and where bluster doesn’t work. But even then, they have time to prepare. When I was summoned before the Financial Services Authority (as a routine part of being a non-exec) I spent several weeks beforehand revising furiously.
What is needed is a new system of fierce and random knowledge tests for all directors, just like drugs tests for sportsmen. Directors would be accosted at unpredictable times and forced to answer basic questions about their company, its performance, its risks and the market in general. This would flush out the most lethal blockheads and focus the minds of all directors, all of the time.
Just as Andy Murray recently almost missed getting to Buckingham Palace on time to collect his OBE because the drugs testers had showed up on his doorstep demanding a urine sample, so it should be for company directors. No excuses. No diverting the questions to someone else. No flannel. If you don’t know the answer, you’re out.
– Copyright The Financial Times Limited 2013