What is the role of the Board Chair

Gavin Robertson, principal lawyer, Macpherson Kelley, writes recently about a decision of the Federal Court that provided a succinct summary of the role of a Board Chair –

In the recent Federal Court case of Australian Securities and Investments Commission v Mitchell (No. 2) [2020] FCA1098 (31 July 2020), Beach J at paragraphs 1408 and following delved into the position of the chair of the Board. In summary Beach J’s comments were as follows:

  • The chair has no authority or power to manage the company, and his or her primary function is to preside at board meetings and exercise procedural control. Otherwise they have no greater authority than an ordinary director.
  • The chair does have the power for setting the agenda for board meetings.
  • They have the power and responsibility to ensure that the Board has sufficient information before it to be able to meaningfully consider and decide matters on the agenda (see further comment below).
  • The chair has the power and responsibility to ensure that sufficient time is allowed for discussion of complex and contentious matters.
  • They are there to ensure the board members work effectively together and that skills and personalities complement each other.
  • He or she is there to ensure workable and harmonious relations between the executive and non-executive directors.
  • The chair has an important role in dealing with disruptors on the board.
  • He or she may have greater responsibility for defining and ensuring that the board sets and implements the corporate culture of the organisation as well as corporate governance structures. This is not as definitely expressed as the other matters, which suggests that it applies in the absence of any delegation.
  • Other responsibilities include assisting to identify new directors and dealing with their induction.
  • He or she is there to ensure that there is appropriate communication with shareholders.
  • The chair has a role in representing the board and the company to outside parties.

At paragraphs 1166 and following, the Judge commented in some detail about the chair’s role in ensuring that the Board has sufficient information to carry out its functions. These include:

  • He or she is not entitled to completely delegate this function to the chief executive officer, but if the chair is satisfied that the CEO has made the appropriate judgement they are entitled to rely on it.
  • If information is being presented to the board in oral form rather than in written form the chair must make sure through prodding or asking questions that the information presented is sufficient for the relevant agenda items.
  • If a person other than the CEO is appropriate to present to the Board then the chair should ensure that that person is present at the meeting.
  • The chair is responsible for determining how agenda items are dealt with — that is do they require a formal resolution or are they presented for information purposes?
  • Is the form in which the information is presented appropriate — that is, is it sufficient and is it comprehensible?

The judgment concerned the chair of Tennis Australia a not-for-profit company — a company limited by guarantee. However, the observations would apply equally to the chair of any commercial entity.

(used by permission)