In Conversation with Tesco Boss John Allan – What is the Role of a NED?

Article by The Business Influencer

In Conversation with John Allan, Chair of Tesco, discussing the importance of NED (Non-Executive Directors) and a Board for businesses.

What is the role of a NED or Board? Why are they needed, as they’ve been referred to as nodding heads?

It’s a very important role.

In the UK it’s about having a unity board who have joint and several responsibilities for everything that happens. They’re close to the action, and I think the challenge for non-execs is to guide, steer and support the executives, and occasionally challenge them.

It’s not intended to be confrontational, it’s about building a cohesive team and to help ensure the ship doesn’t go off in the wrong direction.

It’s quite a subtle thing, where non-execs have many interpersonal skills to be able to do this.

Who owns the strategy of an organisation?

There isn’t one size fits all.

What works best in my experience is where a management team, led by a CEO come up with a strategy, or alternative strategies, where the board as a whole debates it, refines it and buys into, for the management team to them execute it.

The board is more to review, if necessary modify it and endorse it with full hearted supported.

What skills do you think a NED needs to have and how do you know you are Chairing a board that is functioning well?

The skills and attitude of mind an NED needs is the ability to influence and not throw their toys out of the pram when things don’t go their way at the board meeting. They can’t order the executives to do anything, but to persuade them to move in a certain direction.

The other is communication skills, this isn’t just about speaking but the ability to listen carefully and form conclusions.

They’ve got to be willing to work hard and get to know the business. Non-execs who really understand the business, the board is likely to be more effective than just sitting on a meeting, participating and dropping out. They may be talented people but are less effective than those who know the business.

I believe an induction programmes are important and getting them involved so they can make intelligent, insightful comments that will have an impact. I think it’s quite a challenging role and in my opinion they are underpaid for what they need to do in a through and full hearted way.

How hard is it to let go of the reins of implementation of a strategy when you become a NED?

If you select good NED’s, and part of the Chair is to construct a board with others that implements a mix of skills to work together.

If you have good people, they will be able to understand the distinction between signing off on a strategy, with suggestions than sitting back and letting them get on with it.

It can be debilitating for management if the NED’s are all over them and a Chairman’s job is to ensure that doesn’t happen.

How important is it to have diversity to a board?

If you use diversity in the broader sense, not just gender or ethnicity, but also diversity of thought and experience, I think right across the board it is vital.

I think a diverse board is better at making decisions and less likely to get into group think where everyone thinks the same and comes to the same conclusion.

So I genuinely believe diversity on boards, isn’t just a moral imperative but makes boards more effective and I have never found it difficult to find candidates from diverse backgrounds, who are superbly talented.

You just have to be willing to look in the right direction to find them, you don’t need to compromise on the standards for recruiting.

From NED to Chair is a big step. In today’s market, the activist shareholder is quite aggressive in what they want? Is that more of a NED role or Chair?

It depends on the company and the stakeholder. I think in many cases the right people are involved with stakeholders when you’re having detailed conversations with government around policy and legislation.

In terms of investor relationship the CEO and the head of investor relations should lead the charge.

As a Chair I make myself available to talk about strategy, management or ESG but I would be hesitant to get in between the investors and management.

My role is secondary to the management and most stakeholders, so I’d be reluctant to get involved. I’d be wary of a Chairman who thinks it’s their responsibility to go out and represent the company to everyone.

It is company specific, so some sectors and geographies where the Chairman is very visible as a visible manifestation of the company, is important. It isn’t one size fits all.

You referred to ESG, can you clarify what that is for those who don’t know?

It’s the environmental social and governance aspect of the board and increasingly investors are interested in that. In the old days it used to be they were only interested in are you making enough money and are you generating enough cash to stay solvent. These have been replaced by ESG on top of that.

We want businesses that conduct themselves appropriately and recognise they have responsibilities to stakeholders which has been formalised by law.

All it has done, is make law what good companies were already doing around employees, suppliers, customers and local communities. Investors now have people within their organisation that focus on these issues, as they’re convinced and invested further in those who are looking at ESG.

Before the pandemic there was a real surge in those issues, do you think that has now changed, where business resilience is the major issue rather than ESG, irrespective of the crisis?

I believe it’s the latter, but it’s in additional to these other responsibilities. It doesn’t license us to do things that are not sensible for long term sensibility. The pandemic has made businesses think about resilience and how to make decisions.

For instance Tesco, took an almost instantaneous decision to take 26,000 staff who had pre-existing medical conditions and therefore thought to be potentially vulnerable home for to shield for 12 weeks on full pay. We believed this was the right thing to do for our colleagues.

This decision was taken in hours we didn’t linger over it, a decision taken largely by the management. They weren’t distracted by the short term issues, it was the long term interest in terms of our workforce.

How would any business benefit from having a NED on the board, what sort of skills would they bring?

It depends on the non-exec.

If you’ve constructed the board properly and thought about what are the skills we need to have on the board that are relevant to our future, and then find those people who bring that expertise to fill a gap in the board.

Increasingly, now there is a concern about the ESG issues. So having some expertise on sustainability may be relevant. If there is a focus on customer, then someone with a marketing background would be great for that.

In the boards I’m on we look at what are the attributes we need, we go out to find out those missing ingredients that we need to fill.

We’re also doing that in terms of diversity as well. It’s not mechanical because you don’t necessarily found the exact skills mix you need, but it does stop you from recruiting people just because they are good people but bring no experience or add to what the board has already in terms of skill.

With a competitive environment, do you think the skills of NED are changing going forward, as we go into a digital age?

I think there is a change, for example digital is important for every company. So NED’s who have experience in that environment are highly desirable. We were looking for a number of NED’s for Tesco because some of our colleagues retire next year and we have ear marked someone with a digital background to fill one of the gaps we had.

It won’t be the same for everyone company, but you need to find the serious lack of experience and find someone who fills that gap and ticks several boxes for the gaps your board needs.

Often CEO’s and bonuses are in headlines when a business is seen as failing. What sort of steps do you take to avoid being lambasted by the press, which can be difficult?

It is, particularly, remuneration schemes are agreed, implemented and then mature years later and live with the consequences of decisions that were made some years ago.

But I think it’s important to try to get it right, which isn’t easy as your forecasting for the future and setting targets etc.

I then think the remuneration committee Chair has to have fortitude and strength of character to be able to deal with the outside world and management who may not think its right.

They’re trying to walk a difficult tightrope between that. I think it’s a tough gig, a lot of people thought the audit committee Chair was demanding but I think that’s been replaced by the remuneration Chair.

You need that strength of fortitude do stand by your decision without getting too depressed over it.

When a board is in the middle of crisis, like the furlough and COVID19 situation this year, how does the board function during this?

Again I don’t think its one size fits all for all organisations.

First of all I think it’s vital, in these situations that the board doesn’t attempt to exert the role of management in this.

Management have to make a lot of decisions very quickly without consulting the board especially when they have to make them urgently, during a crisis. The board need to give management enough room to do this.

On the other hand the board would need to know what’s going on, so it’s devising a mechanism for being informed. It could be shorter calls to keep the board informed, and what you don’t need is the board to get all over everything, which would frustrate management and slow the decision making process.

Part of the role of Chair is to assess, giving management enough head room and the board sufficient information, it’s about satisfying both those needs.

As ex-president of the CBI, do you think businesses are resilient enough for Brexit?

I think it’s been very difficult for business, who are often criticised by politicians for not preparing quick enough, but we don’t’ actually know what we’re preparing for. Negotiations on Brexit are still going to the wire, one hopes there will be positive but businesses are preparing for both the prospect for a no-deal Brexit during a difficult time of year on the back of the COVID crisis. Or the possibility there is a deal and relatively normal life will continue.

Those I speak to are doing their damn best to get ready, whilst not knowing what the outcome is going to be and I think they deserve sympathy and support from the government.

The best support they can give us to get a deal quickly and I struggle to understand why reasonable people are unable to bridge that gap in negotiations. A no deal Brexit is a lose, lose situation for both the UK and the EU, you would have thought that would propel people to find a solution. So fingers crossed.

You’re incredibly busy, but you’ve managed to find time to squeeze in a role with the government to help with COVID19, how are you helping them?

Well, we’re trying to help the country rather than the government frankly. A bunch of large businesses have got to together, to fund a commission to come up with a post-COVID plan. Government are aware of what we’re doing, but we’re not working for them.

We’re talking to national politicians of all parties and trying to put together a programme that once we can see some light at the end of the tunnel. It will address the fact the economy has suffered enormously, jobs and many people have suffered. How do we put some energy and growth back into the economy, particularly for new jobs?

We’ll come up with the best ideas we can in early spring 2021, but it will be up to the government and other parties to decide whether we have any ideas that are wroth implement, but we’re trying very hard.

You were recently awarded Non-exec director of the year and held some of the most high profile jobs in the city. What advice would you give to other business leaders during these testing times?

You know, I think one of the characteristics that Chairs and non-execs need is the ability to keep calm and not panic.

There is nothing more de-moralising for management that the rest of the board are in blind panic.

Our responsibility is to keep calm, think about the best solutions and support management who have a very difficult task. I was much less calmer when I was younger but as I’ve got older, definitely to support management by keeping calm and carrying on.

To be available to management but don’t overcrowd them as they’re incredibly busy. I could go one but two things, keep calm and be available as much as they need but not more than they want.

Interview by Ninder Johal DL, CEO of The Business Influencer (https://thebusinessinfluencer.co.uk/), The Signature Awards (https://nachural.co.uk/the-signature-awards-birmingham/) and The Nachural Group (https://nachural.co.uk/).

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