Sir Douglas Flint is chair of Standard Life Aberdeen, IP Group, the Just Finance Foundation, the Corporate board of Cancer Research UK and is a trustee of the Royal Marsden Cancer Charity. He was previously Group Chairman of HSBC Holdings. He has held other roles, notably as a non-executive director of BP.
What changes would you make to UK boardrooms to make them more effective?
Boards need to spend more time on what’s important rather that what’s urgent. There are 5 key questions that we need to think about:
- Where do we think our industry is going to be in 5 or 10-years’ time?
- What do we need to do to put ourselves in a position for that change?
- What resources do we need, human, financial, and technology?
- What do we think our competitors are doing to position themselves?
- What do we think people who aren’t our competitors today but do have the capability to be our competitors in the future are doing?
How can boards focus on the long-term?
Private markets have a better balance at focussing on the long-term rather short-term. Private Equity firms have analysts who do strategic analysis on competitors, long-term threats, and technology challenges for a 30-page board briefing note.
The short-term board pack urges things that are irrelevant. Papers have to be more discursive in terms of “this is the issue we are talking about, here are the factors, background, contextual, competitors we are thinking about and here are the variety of choices” to make people think broadly about the issue rather than: “Here’s the pack we gave to Exco last week, what do you think?”
The normal non-executive does not have that analyst support to dig deeper into those issues. Maybe there should be an “Office of the Chairman”, a quasi-internal strategy group that advises the board on issues.
Do you see a pressure from the regulators to spend more time in the detail?
Yes, and the US is more guilty than here. The theory goes that the best way to put pressure on the execs is to give the non-execs responsibility because they’ll hold the execs to account. That risks a complete destruction of the distinction between non-exec and exec. It can create confusion within an organisation as to who is in charge. Is it the executive director in charge of this or is it the committee who oversees him? Who has the real executive authority?
You have to be really clear. I think one of the responsibilities of the chairman is to remind independent directors from time to time that we are non-execs. The execs bring us a plan and if we lose confidence in the plan then we’ve probably lost confidence in the people and that’s our responsibility.
How powerful is information in facilitating the board discussion?
Hugely. Every board review says “we need to spend more time on strategy and the papers are too voluminous”. Yet the papers keep growing in volume and strategy discussions take up too little of the agenda.
It’s a challenge for the executive to be thoughtful about what you are asking Directors to do. If you are asking them to make a decision, then tailor the information towards that: the papers should be 2–3 pages long, stimulating and actually challenging people; the paper should say what are we trying to do; you shouldn’t have to delve 20 pages to find out what it is.
In a regulated industry, it is challenging when the regulators are saying — partly to protect their own position — that everything has to be seen by the board. I think that email is one of the curses of the 21st century due to reply all. There is an argument that the more senior you are you should take yourself off the email system as you may be deemed to have read everything that goes into your inbox — which is never going to happen.
How can boards make better decisions?
A framework I used — and the information I look for in a decision-making paper — is not that “you should go this way or that way”, but “if you go this way you should believe the following things”. You’re mapping out that tree. Then, people can think “I thought I was going to go that way, but I’m not sure I believe all the things I need to. I’m not sure I’m that confident in them”. It helps you make the decision.
What’s the smartest business decision you’ve made?
It’s always very dangerous to say what’s the smartest decision you made because you may be proved wrong!
I think the most important decision was when HSBC decided to buy into two significant unlisted financial companies in China. It was a bold strategic move that turned out well — and an interesting decision on the basis of limited information.
How do you get comfortable with making a decision with limited information?
I think it’s a combination of 4 things:
- Is it consistent with our strategy?
- Would investors think that this is an odd thing to do?
- If it plays through well, is the opportunity significant?
- If it plays through badly, can we afford to lose what we’ve invested?
What is your golden rule?
Transparency and honesty. Make sure that there is clarity of communication, not just to the outside world, but to employees so they know where they are heading. Nowadays people want to be associated with an organisation that matches their own values. They are associating themselves with a brand. You can build a tremendous loyalty by being open and transparent about the challenges. People agonise over the external communication without realising that the most important and critical audience is the people that work for you.
What book is on your bedside table?
I recommend The Last Tycoons by William Cohan. It’s a great reminder of how far the financial industry has come by, illustrating what it was like in days gone by.