 Welcome to this fourth in a series of interviews with people whose expertise, experience and interests lies in the role that boards can play in this extraordinary revolutionary period of commercial and company law history. It's clear that the responsibilities that sit with members of boards is rising fast. A step change is required in the way in which board directors go about their leadership, the way they direct, oversee and accountable for the organizations that they head. The buck really does stop with them. I'm Richard Calland. I'm a fellow of the Institute of Sustainability Leadership at Cambridge and a professor in public law at the University of Cape Town. In this series we've looked at the changing relationship between the executive and the board. We've looked at the legal responsibilities increasing as they are on board directors. And we've talked about the role that governance plays as a binding glue that links purpose, strategy and the execution of legal responsibilities, including of course reporting. In this fourth in this series of podcast interviews on the subject of board leadership and governance, I'm joined by Patrick O'Sullivan. And the main topic of our conversation is about the role that the chair plays on a board. Patrick has had a long eminent career in business leadership and as a board member and he was chairman of Old Mutual, the major international but originally South African insurance. Patrick, thank you very much indeed for joining me on this podcast series. Well thank you very much Richard and very enjoyable to join you on this. That's a very interesting question. I'll think hard here as I look back at it. I think perhaps the first board that I joined was the Man Board in 2007 just before the financial crash. I did my six years on that board. Of course we were a hedge fund, the largest quoted hedge fund in the world. And about my only contribution of real value that I can think about even though I was the CFTC qualified series three futures and options trader from way back when, my only contribution was a banking contribution to save them. I can see this crash coming. Something's happening and I think it's time for you to make sure that you get out there and become better known to your banks so that when the tough times come and the discussions happen inside those boardrooms and those credit approval committees, they'll know who you are. And indeed so it turned out and man group is still doing well. That was an extraordinary exciting time and it harps back to when I ran futures and options, broken for Bank of America in London at the time of the crash in October 87 which was even more exciting. I'm speaking to you from sweaty, strangely thundery Cape Town today and there came a time in your career where you came south towards us here in South Africa with the old mutual board. Please tell us about that. Yeah well just prior to that at the end of the 90s I was CEO of a company called Eagle Star which was African subsidiary which was SA Eagle and subsequently I became CFO of the Zurich Insurance Group based in Switzerland and became chairman of that group even though it was wholly owned at that point in time. So then later from the man board I ended up in a position where some people thought that I was fit to run an insurance company that had a spot of bother which indeed it did. It was having some solvency issues after the crash in 09 and I'm happy to tell you that the South African authorities, the Central Bank were very helpful in responding to that challenge. I joined the group as chairman in 2010 and I was there till we listed old mutual in Joburg in 2018. And that was a very big event in South African economic affairs to have this big company go to London then come back again. South Africa is a complicated place Patrick and you and I have talked a few times in the past about the kind of complex dilemmas you had to encounter because as chair of that board it wasn't just about the kind of hardcore commercial decisions. There was a whole range of external complexities that you had to understand and get to deal with and some hardcore politics as well. Oh they were absolutely right because of the solvency challenges of the financial crash. Pravin Gordon was the Minister of Finance and he believed that that whole episode proved that the move by old mutual to list in London in 1999 didn't make sense. So that was the politics of it and he was very clear in making his case for bringing old mutual back to South Africa. From a UK regulatory perspective because again of the difficulties around 2007-08 the UK regulator the FSA as it was at the time in approving me as the role as chairman actually demanded that I change the entire board. And I said I would do it over three years but I certainly wouldn't do it immediately because when I examined all of the issues it was clear that the board had lost sight of perhaps some of their key responsibilities but not all of them and they were being collectively blamed for the situation the company found itself in. So are you saying Patrick that you wanted to get to know your team as it were and find out really the strengths and weaknesses of the individual board members before making drastic choices about who should stay and who should go? Absolutely you have no choice when you come in as a chairman you've already got a fated comp play in the terms of those who are sitting on your board some of them may be ready for a change but that tends to be in a properly managed board a very carefully orchestrated change process and not everybody leaves at once or at one point that would be disastrous. So most of the board members had only been appointed in the previous three years and under UK governance rules and the king principles in South Africa you've got nine years to go. So I had to carefully orchestrate a situation to determine whether I thought the regulator really had done their review properly as to where the board had fallen down and make judgment according. And what sort of skill set were you looking for either in the particularities of that situation with all the mutual and all of the complexity you've touched on but also in any board what's the perfect team the first 11 or even the perfect squad for a chair of a board to have at his or her disposal? In the jargon that we use today it's diversity and it's fit for purpose you have to have the individuals who understand what they're looking at. So one of the first appointments I made was a new head of the audit committee who had been a senior partner at Pricewaterhouse Coopers and who had extensive experience of the insurance industry so that you knew that he couldn't be blindsided in this case. The other thing of course was at that point in time we didn't have what I would call a diverse board. There were no women and there were no South Africans and in particular Black South Africans. Now we didn't immediately stuff the board so to speak with women and Black South Africans but we moved to hiring a Zimbabwean who was very well appointed with South Africa, a South African after Ruel Koza who had stepped down Trevor Manuel and indeed we managed to get in the end by about 2015 five women one of whom was the CFO and two of whom were Black. Now I'm intrigued by how you frame this firstly in terms of two dimensions fit for purpose and then diversity so can we just explore that a little bit more. Fit for purpose sounds to me as if what you're talking about competence you're saying that you need people on the board who have the right professional skills knowledge to match the particular commercial needs of the company but that's a leading question so let me put that to you and ask you if I've understood that right and then we can move to diversity. Now you absolutely have financial institutions of course are very demanding in terms of what the board has to understand on risk risk management controls and all of the jurisdictional issues with the individual regulators that apply in each of those jurisdictions wherever the financial institutions happen to operate so you simply can't have an engineer who has no experience of finance I mean by that banking and the intricacies of banking or insurance sitting running a risk committee just doesn't make sense so absolutely you have to have people who are fit for purpose. So you need the right pegs in the right holes as it were but turning then to diversity when in South Africa for obvious reasons our history of apartheid the need to transform our economy and so on as you pointed out there was a need to bring in black South Africans in particular and women as well so that's one level of diversity is that the only level or do you think of diversity in terms of professional and intellectual diversity? Well of course it's a very difficult to test for intellectual diversity that's a process of having a very narrow list of candidates interviewed by colleagues and you know by definition you're testing their knowledge experience their ability to understand complex financial situations and so on but you're not putting them through what I would call any kind of IQ test it clearly is a demonstration when you're hiring people like that they've had a career path which when you delve into it you can very quickly determine whether they've had the kind of exposure that's required for them to understand the business in the way you would need it to be understood when it comes to male versus female diversity having been a bit of a skeptic I have to say from the beginning I discovered the following one woman on the board you have to warn all the other male members please do not talk about soccer and football and the things that you like among yourselves find a way to include her when you get two women on the board they tend to perform their own cabal and they're not really integrated either three women begins to move to a different dimension and then it depends on how you instruct the board to react and to listen carefully to what they have to say eventually you get to a point where with a balance board say out of the 12 or 13 we had on the old mutual board five of them were women as I say one of them is the CFO well the men were listening very carefully to what they had to say so Patrick with your talk of a balanced board you're hinting at a sort of equilibrium point and the Vana that a board needs to get to and I'd like to explore that more with you but first a question that niggles with me and concerns me and I've talked to some board members who have indicated that this sometimes is the case if you have a board particularly in a company that has a sort of heavy financial or engineering or very technical base it could be a mining company as well as a bank or an insurance company and you have people who are to use your words fit for purpose on the board in relation to that commercial kind of strategic intentionality and purpose and then you have other people who are there to bring diversity in all of its forms it to enable the board to look out of the window and really as a collective understand that complex world we're operating in is there a danger that you end up with a kind of divided or where the real work the commercial work gets done by X group and and then the Y group get put into kind of maybe the sustainability committee or in other softer areas of board leadership and governance can I put that to you and get your thoughts well there you have to be very careful on how you stack the committee so to speak it becomes imperative that you mix and match so that there isn't a heavy weight one committee say risk management and then a weak board which deals with matters around the customer for example or you know the customer at the board meeting the empty seat for the customer I think it really is down to the chairman how the board committees are set up to make sure that mix happens but of course depending on the subject at any one point in time that's in front of the board other than say let's call it the non-controversial governance issues which tend to take up way too much time because you have to go through the process of signing off on various recommendations come through the committees when subjects arise that are critical and of a different aspect to each other different people react in different ways to each of those issues as they're put in front of the board it's to the chairman to make sure that those people he or she believes have the expertise are brought firmly into the conversation and that the rest of the board gets time to their views of course the parolary of that is you can get somebody with a very strong opinion and some of the women that I've had on my boards have had very strong opinions because if you think about it women who get to be at that position historically anyway have had to break through the glass ceiling and they do that by having very strong personalities there's a danger then that you get way too much from that individual because that's how they're used to reacting to difficult issues making sure that their voice is not just heard but it dominates the room and you can't let that happen either so it sounds to me as if what you're describing is in your case you had to be the composer because you had to reconstruct the board at Old Mutual but you then had to be the conductor of this orchestra and to make sure that the brass was not too loud and there was balance with the string section and so on is that is that a good metaphor for it in fact the chairman or chairperson or chair as you like to call it in South Africa which took me a bit of time to understand when the chair is running an effective board he or she is very much in the background just orchestrating as you say the key players around the table who can bring their subject matter expertise to bear on the conversation you can't allow them of course to dominate either from back to the point I mentioned earlier whoever it happens to be because an SME individual can believe that the only they are right and everybody else doesn't really understand enough and you can get to a point of impasse at that point where the good chair will say okay we've heard your points of view let's take this offline because you clearly can't get satisfaction on this issue at this point in time and let's try and address it and come back to it and in terms of managing those power dynamics how important do you think other kind of structural considerations subcommittees and the design elements of how a board governs what have you learned from your many years of experience in this role you can't govern without them that's the most important point because you simply don't have the time available in a board to address meeting subjects in the way that they need to be addressed which they can be in a committee you can have too many committees and the tendency now of course with a lack of IT skills necessarily at the age group that you have of a board which tends to average in the early 60s or something like that so they start talking about how are we going to get hold of the young people in their the millennials and get them into the debate okay let's form a subcommittee but the reality is the committee it can be too detached from what the board needs to be hearing um it's a very difficult thing to get absolutely right but as chairman of course you do spend quite a bit of your time attending the committees you have no say in them but you have to listen to what's going on so Patrick to then move the conversation towards sustainability and the need for a full integration of sustainability strategy into business strategies how important is the structure at that point there's a sort of debate that goes on as to whether one should have a sustainability committee or whether in fact one should try and mainstream a sustainability thinking into the board in all of its thinking and decisions where are you at on that that sustainability or environmental issues needs to be at the board it can't be delegated to a subcommittee the problem however is that again if you look at the individual objectives of say a CEO and his key team or her key team it's very difficult to get enough of those objectives dedicated to what I would call non-profit focused objectives and so you end up in an environment where other than perhaps something like fossil fuel extraction where most of your life is spent on these issues anyway most others certainly in financial institutions sustainability would be less than 15 percent of a CEO's objectives so it's very important that the board have the perspective or that you take time off to have seminars to bring board members up to speed we've got individual training sessions if necessary so that the board can have that debate with the CEO and make sure it doesn't get lost among all the other objectives that he or she has so that's very interesting because that suggests to me that what we're saying is that for a board to actually lead and to be ahead of the CEO rather than chasing the tail of the CEO is as is often I think the case the board really has to work hard to equip themselves with the knowledge the skills the thinking to be able to play that leadership role absolutely and I think for the last it's probably certainly feels post the financial crisis anyway of 0708 that the old camaraderie of named individuals who look good in an annual report is not the way for any board to run itself it needs to have the skill set as I say people need to be fit for purpose and you don't need more than two of any one time to make sure that they have the diversity within themselves in terms of their knowledge and experience but equally as well that they can keep themselves up to speed and are very keen and anxious to remain ahead of the developments that are happening all around us at extraordinary rapid pace what's advice do you have for the chair of a board where either he or she thinks the board is just lagging doesn't get it there isn't the power dynamic that will allow the board to really challenge business as usual or where the CEO and his or her team are so strong that the board just can't kind of find an angle what advice would you have for the chair in those kinds of circumstances in the first case my advice is to tell the board did you think that way we don't have what we need here and I'm going to have an individual discussion with each of you figure out a way to see how we can get that and at the back of your mind of course as the chair is to think well if I'm not happy with the conversation I have one on one subsequent to this with the individual members I'm going to have to sit down have that tough conversation about how long they're going to remain on the board and that's the difficult part for aside from hiring and firing a CEO that's the most difficult job of a chairman in respect of whether they have the technical knowledge or not the way to get it is to immerse the whole board including the CEO and some of his or her key leaders the key manager team in getting the best advice you can get so that the board becomes proficient as a whole when you've got a board where the CEO is so dominant then the board better have a chair that can stand up to that position it isn't for each member of the board themselves to take on the CEO but it is definitely for the chairperson to take on the CEO in a constructively critical way to say to the CEO look I think you're being too strong in the way you're advocating this position right now and if you don't agree with me feel free to talk individually to each member of the board and see what they think but then the chairman needs to circle back with each individual member of the board say how did your conversation go and what's your conclusion from it how do we collectively address this issue if you have to do it you do it in the board only session where it's only non-executives and even if necessary taking the CEO out of the conversation now that's a dangerous thing to do because when you go into those non-exec discussions only with a CEO in attendance he or she is there to listen to what the non-execs are saying not to dominate the conversation and sometimes when it gets very difficult then you have to ask the CEO to step out of the room at which point of course the CEO begins to wonder well how long am I going to be around here for but those things happen and of course that is what leadership is often about being able to navigate the delicate politics of those kind of situations and to govern an organization that ensures that it can achieve its purpose I'm sure that you like CSR available to help guide and advise chair people of committees and boards I should say that have this serious task to perform as business enters this brave new world this dangerous new world in which many of the things we've taken for granted for so long are now very much imperiled so Patrick thank you very much for your wisdom your thoughts and your commitment to board leadership at this point in your career and for sharing your insights from your long and eminent career with us in this podcast thank you very much great pleasure Richard thank you very much