In September 2018, zRating ranked Sunrise Communications AG top out of more than 170 listed Swiss companies for the board with the best corporate governance. At the beginning of 2018, chairman Peter Kurer had commissioned PwC to do a thorough evaluation of his board to get an objective picture of its performance and ability to interact.
In this interview with Disclose he explains why he sees this analysis as a vital tool in sustainable corporate governance, and what kind of advice he would offer other board chairs.
Peter Kurer, what prompted you to have the Sunrise board evaluated by an external expert?
I believe regular board evaluations are a key tool for good corporate governance. It’s best to get the help of an external specialist who knows how to do a professional evaluation. We will be repeating the exercise in the foreseeable future.
The evaluation focused less on the traditional work of the board and more on the way its members interact. How did your fellow directors and executives react?
All the members of our board are experienced and realise that a regular board evaluation is part of the toolbox for ensuring good corporate governance.
What were the benefits of the evaluation?
Afterwards we knew how individual members rated collaboration within the board, where there was potential for improvement, and whether we had any serious problems.
Did it yield any key insights?
Even the process in itself gave us plenty of insight. From the report we could see whether members feel they are properly informed and sufficiently involved in discussions, and whether they experience board interaction as open and constructive. Another question the evaluation focused on was how the management perceives the work of the directors. We got a clear picture of whether the management believes we’re putting in a strong, effective performance. Last but not least, the evaluation also assessed the work of the audit committee and the nomination and compensation committee.
Were there any surprises?
There weren’t any surprises, but there were things we hadn’t seen in such clarity before. We were able to shift our focus when addressing these issues.
What has this process brought you personally as chairman of the board?
I see the evaluation as a success. It helps me continue doing a good job. It also helps me focus on the right topics and adopt a new approach to matters of relevance.
Do you think the analysis was wide-ranging enough? Or would you have liked to have other areas reviewed?
There are different approaches to a process of this sort: you can do a comprehensive evaluation of corporate governance to find out whether the board comes up to the standards of best practice. But that wasn’t the question we wanted answered. Neither did we have individual board members assessed. That kind of approach is most appropriate when you suspect weaknesses in the team. We wanted to examine the work of the board as a whole. The scope of the evaluation was very broad, and in my opinion covered all the relevant areas.
How do you go about making sure the planned measures are implemented?
We defined five actions on the basis of the evaluation report. They’re pretty easy to implement. We review the status of implementation on a regular basis.
Do you intend to repeat an evaluation of this sort?
Yes. I believe it’s part of the standard corporate governance toolbox, so it should be done regularly. I think it makes sense to have an evaluation every two years. In between, the board can evaluate itself by way of a standardised questionnaire.
What would you recommend to other chairs in terms of assessing the functioning and performance of their board?
It’s worth taking different angles. Firstly the boardroom itself: How does management keep the board of directors informed? How are presentations held? How are pending decisions prepared and presented? Is there a good culture of discussion? How often are opinions expressed? To what extent are different opinions respected? A second set of questions should focus on the committees: How efficiently do they operate? How do the chairpeople keep the work of the committees moving forward? The person chairing the board should also be examined: Are they accepted by their fellow directors? Do they manage to foster a fruitful boardroom culture? Do they allow the committees to work efficiently? How do they achieve a balance when it comes to making decisions? And how do they make sure the board’s decisions are focused and purposeful? Finally, there are questions about specific topics: Is appropriate weight given to the different items on the agenda? Does the focus tend to be on strategic matters or more on supervisory and regulatory issues? Here opinions often vary significantly, so it needs balance.
One sensitive issue is maintaining the appropriate distance or proximity to management. How do you strike the balance?
That’s a complex question, because there’s a complex system of interactions involved. The CEO and chair both have to master the rules of good collaboration. It begins with a clear definition of roles. The CEO is responsible for managing the business, the chair for governance. This covers a range of duties: making sure that basic principles and guidelines are respected, that the company works for the interests of the investors, that the right oversight is in place, that financial matters are addressed properly, and that there’s a risk management system. When it comes to defining strategy there are overlaps between the chair and the CEO. According to the Swiss Code of Obligations, in this context the board of directors has a strategic remit. The CEO is responsible for executing strategy. But they can only do this if they formulate strategy together with the board to ensure that the strategy is informed by the strengths of both sides. It’s important for the members and chair of the board to focus on key strategic success factors and not interfere in operational matters. By the same token the management shouldn’t bypass or ignore the board of directors and treat it as a necessary evil. Unfortunately, this is a common error in practice. Experienced professionals with a healthy amount of self-discipline manage to strike the proper balance.
You got Ingrid Deltenre onto the Sunrise board as its second female member. How do you rate the value of board diversity? What facets of diversity do you see as being especially important?
Naturally there are many other components besides gender diversity. I believe diversity is of pivotal importance, and have always placed particular emphasis on the male/female mix. Unfortunately, the ways this requirement is met these days are often counterproductive. I see people being elected to boards without ever having had a management role.
At Sunrise, management experience is one of the key criteria when a new board member is appointed. We want people on our board who are familiar with the challenges of a leadership role. I don’t think there should be any compromise on this point. Other qualities include industry experience, financial know-how, a knowledge of the opportunities and threats of digitalisation, an affinity with the media, and last but not least a good grasp of risk management. No single board member possesses all these qualities in equal depth. That’s why it takes directors with a range of experience and backgrounds to maintain board diversity.
Peter Kurer, many thanks for talking to us.
