I was recently asked to contribute to an article on the role of the Chairman of an AIM listed company. Here is my response which I think has general application beyond the particular requirements of AIM.
The responsibility of a chairman of any company can be summarised as follows:
1. He/she should set the Long Term Strategy.
2. He/she should monitor plans by which the executive intend to implement that strategy.
3. He/she should examine exceptions to that plan.
4. He/she should run the Board (Governance)*.
5. He/she is responsible for hiring & sometimes firing the CEO.
* The Board’s primary role is to govern the company while the executive’s primary role is to manage the company. As chairman he/she should discharge his responsibility for governance by:
1. Setting appropriate agendas
2. Ensure a suitable mix of knowledge among the Board’s members to challenge management. This by the way is how the diversity agenda should be tackled, not by quotas of gender, ethnic background etc but by ensuring diversity of experience, knowledge, character etc.
3. Understanding the distinction between governance and delegation
The chairman should leave the executive to manage the company but the line over which he steps moves depending on the performance of the company and the Chief Executive.
The Alternative Investment Market (AIM) is a sub-market of the London Stock Exchange, allowing smaller companies to float shares with a more flexible regulatory system than is applicable to the main market.
The AIM was launched in 1995 and has raised over £68 billion for more than 3,100 companies. Flexibility is provided by less regulation and no requirements for capitalisation or number of shares issued. Some companies have since moved on to join the Main Market, although in the last few years, significantly more companies transferred from the Main Market to the AIM. (The AIM has significant tax advantages for investors, as well as less regulatory burden for the companies themselves).
AIM’s regulatory model is based on a comply-or-explain option that lets companies that are floated on AIM either comply with AIM’s relatively few rules, or explain why it has decided not to comply with them.
In return for granting leeway in regards to regulatory compliance, the Exchange also mandates continuous oversight and advice by the issuer's underwriter, referred to as a Nominated Adviser (Nomad). The role of Nomads is central to AIM’s regulatory model, as these brokers play the role of gatekeepers, advisers and regulators of AIM companies. In advising each firm as to which rules should be complied with and the manner in which existing requirements should be met Nomads provide the essential service of allowing firms to abide by specific regulation, reducing regulatory costs in the process.
Clearly the Chairman should have a close working relationship with the Nomad. Investors would normally expect to see the Chief Executive and the Finance Director but large investors will also expect to see the Chairman and share their concerns with him/her if there are questions about performance. Much will depend on size. It would be unusual in my experience for a Chairman to meet shareholders alone unless there are serious questions over performance.
Is the role of an AIM listed Chair different from a FTSE 100 Chair? In concept not at all. In practice there will be greater demands on a FTSE 100 Chairman because of size. However, the FTSE Chairman will be properly supported by full time staff in company secretariat, investor relations etc and will have a large experienced Board with a well developed committee structure. None of this will be in place except in a part-time capacity in all but the largest AIM listed companies and so much of this burden will fall inevitably on the Chairman.
This is not a full time job and so a Chairman of an AIM listed company needs to develop a way of monitoring the business by exception and through regular discussion with the CEO and other key members of staff. He/she might develop the routine of visiting the HQ once per week and meeting other touch points e.g. key customers from time to time. He/she will not be monitoring daily sales or financial records but will encourage his/her CEO to report major variations both positive and negative in a timely manner rather than waiting for monthly or less frequent Board meetings and formal reports.
Turning to what sort of person would be a successful Chair of an AIM listed company, he/she will understand business, mentoring of high level executives and good corporate governance. He/she will be familiar with the requirements of a listed company and the alternative methods of raising fresh capital. He/she may be found in a variety of places but there is no guarantee that a successful CEO can become a successful Chairman as the requirements of the roles are very different. He/she needs to command the respect of all members of the Board.
I have been asked what are the time commitments necessary for the role and my answer is as long as a piece of string. They may range from two days a month in a well-run slick successful business to all the time you have in a business which needs intensive care.
And finally what tips would I give to an aspiring Chair of an AIM listed company? Take some training in Governance, familiarise yourself with the Listing Rules, spend time with a Nomad discussing what a successful AIM company looks like, and do your due diligence duly and diligently.
Copyright David C Pearson 2010 All rights reserved