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Board Advisory

Defining the Role of the Senior Independent Director (SID) on Boards

At the Winter 2020 London Senior Independent Directors Dinner Series, we gathered 14 senior independent directors to discuss the role and its related challenges.

Defining the Role of the SID

In general, it was agreed that the SID is an artful role. It is a fine balance, where “you have influence but not prominence.” It is a listening role, where one must express empathy and is best conducted with humor. It is also an unusual role where “one can run along for years and nothing happens, then suddenly, it is all go!”

Sequencing and Proper Succession Planning

Some SIDs exhibit “naked ambition” for the chair role. Another challenge is when the chair does not want to step down. Equally, “it is very uncomfortable when you, as the SID, get a call from the shareholders wishing to exit the chair.” Normally, the SID can be “the catalyst for the chair going provided they are not a candidate.”

Therefore separation and clarity is critical. “Should the SID on appointment, rule themselves out of the chair process? Or if they do aspire to be chair, should they be compelled to declare it from the off?” Some of the group agreed this could be helpful, others questioned this notion. “I worry about too much definition. In some cases, particularly where the company is in crisis, the SID might be the best person to assume the chair role.” Therefore, each situation needs to be taken on its own merits, but it is helpful to plan chair and SID succession, particularly if the chair and the SID have joined the board at a similar time. The search consultant can help in this discussion by teasing out what is really going on and then helping the board to manage this. “It was particularly difficult to run the CEO succession without the SID.” However, it is not the chair’s role to find his or her successor.

The Nine-Year Rule

The nine-year rule has implications, in particular, around whether it makes sense for the SID to pursue the chair role from a timing perspective. On balance, attendees agreed it is a positive change.

How Can the SID Ensure He or She Is Successful?

It is difficult for a SID to be successful when either the SID does not understand the purpose of the role or when he or she does not have prior PLC experience. It can be highly pressured, and is increasingly in the public eye, “if something goes wrong, everyone looks to us.” Yet often the issues at stake are highly confidential, so it can be lonely. Therefore it is important to have resilience.

It is important to understand the “nuances of the UK market and also to recognize that there are not many materials or teachings on how to conduct the role effectively.”
 

We [the SIDs] are the unsung heroes/ heroines.


It is essential that the SID leads the review of chair. Two board meetings a year should occur without the chair to create a safe space for the other NEDs to review the chair and compile constructive feedback. “Whether you are the SID or the Chair, it is essential to build relationships across the business, in particular with the appropriate compliance teams. This makes it much easier to act when something goes wrong.” Overall, it is about good judgement: “We don’t have rules, we have a code. In general, if we vary from the code, we are doing it for a logical reason. Call on comply or explain!”

A long-term crisis situation is different. In this situation, significant change can be required across both the board and executive team. It is important to strike a balance between the “muscular SID” versus “the SID in name only.” Often, we are at extreme ends of the spectrum on this issue.

The Governance Code and the Role of Proxies

There was a discussion as to whether the code actually leads to better performance. In general, attendees agreed that when the code is breached, things go wrong. It can be disruptive following the proxies unless they are prepared to engage with the board, especially with remuneration. “An ISS vote against, knocks 10 points off the vote. ISS normally only gives you 48 hours to reply, even if the facts are not straight, so this is another dimension that needs to be managed.” Employee Engagement, Culture & Board Responsibility

ESG (including employee engagement) is a growing area that the SID should engage with and have a point of view on. Importance of Supporting the Chair

“NEDs are human beings and the board is a team.” Rather than focusing on the possible problems, and the things that can go wrong, it is critical to support the chair when you are a SID. The SID can help the chair by facilitating one-on-one feedback sessions with the NEDs. Sometimes the role of the SID “is to build the chair’s confidence.”

Conclusion

It is essential to be “prepared to speak truth unto power. We were concerned by our chair’s health. That is a difficult conversation to have.” The role can be “deeply uncomfortable or very benign.” Perhaps being a SID is not about being a leader, because it is more important to be supportive in this role. Finally, attendees agreed, “it is woefully underpaid.”

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