Welcome to The Heidrick & Struggles Leadership Podcast. Heidrick is the premier global provider of diversified solutions across senior-level executive search, leadership, assessment and development, team and organizational effectiveness, and culture shaping. Every day, we speak with leaders around the world about how they're meeting rising expectations and managing through volatile times, thinking about individual leaders, teams, organizations, and society. Thank you for joining the conversation.

Kati Najipoor-Smith: Hi, I'm Kati Najipoor-Smith, a partner in Heidrick and Struggles Frankfurt office and the regional co-managing partner of the CEO and Board of Directors Practice in Europe and Africa. Today, I'm delighted to be joined by Mark Garrett, who is a multiple CEO in many different companies, an experienced chair and a nonexecutive director leading a European business but also experienced in other countries outside of Europe. Mark has spent his career driving performance, transformation, and governance at the highest levels, and brings deep perspectives on how boards can maximize their impact. Most importantly, he has seen many different jurisdictions, many different corporate governances, and many different types of shareholding companies across industries. This is very unique, I think, not very many leaders have that. He has seen public companies. He has seen joint ventures. He has seen family companies, private equity companies, state-owned companies, sovereign wealth, and they are all very, very different. So thank you, Mark. Welcome. Thank you for taking the time to speak with us.

Mark Garrett: Thank you, and thanks for having me. I'm very happy to be here.

Kati Najipoor-Smith: Excellent. So I think, Mark, we all know the world feels not only more complex but [more] contested, I would say, than ever. It's not getting any better, all the way from geopolitics to geoeconomics, technology, and social pressure everywhere. If we think about the role of the board, and you put it a little bit in time perspective and, you know, today's requirements, how would you say the role has been reshaped? How has the board's purpose changed?

Mark Garrett: So I think really the role of the board, what the board has to do, hasn't changed, but the demands on the board have changed, and I've seen this in lots of different jurisdictions, as you said in the introduction. Whether you're in Switzerland, Austria, Germany, America, or Australia, you still have four things that you have to do. The first thing that a board has to do is decide who runs the company. They appoint the CEO and, in some jurisdictions, the whole executive management. The second thing they have to do is approve the strategy and stand behind the strategy. The third thing is they approve the budget and major capital projects, you know, above certain thresholds. And the last thing is that the board has to monitor execution and performance and ensure good governance.

And they had to do these things 20 years ago, but these things become more and more important in a world that changes so rapidly and where geopolitics is driving decision making sometimes in very strange directions. So you still have to hold yourself accountable to standards that are not being held up in the political world anymore. So you have a lot of pressure and a lot of demand on your time. I mean, when I was Chairman of OMV, and I walked in and bang, we had Covid; and then bang, we had the war in the Ukraine, and we had a pipeline going through the Ukraine; we had the Nord Stream pipelines from Russia to Germany, and we had a gas field in Russia that got confiscated. So all of a sudden, you're in the middle of it, and these demands on the board I think are increasing.

So I think there's sort of two aspects then, apart from what we've talked about, and one is, let's call it the short term, and then the other is let's say the mid- to longer- term. [For] short-term, in a world that's changing dramatically, you have to be prepared if a crisis comes up, as I said, it's all hands on deck and you do whatever you can to support the management team and to support the CEO, and if that means that you have to take on a little bit more active role, or a more active role for a period of time, then you do that.

But then there's also not losing sight of what you're trying to develop. Because the most important thing in a world like we have today is that the company has resilience built into its balance sheet. I always say you should never underestimate the value of a large and strong balance sheet, because when we went into the global financial crisis at Borealis, we were actually the only petrochemical company, I think, in 2009 that made money in the West. And we only made a little bit of money. But people always ask me, you know, when was your best year? And I said the year that we made 38 million, not the year that we made 1.3 billion. Because in the year we made 38 million, LyondellBasell went bankrupt. Dow wrote off billions on their purchase from, I think, Rohm and Haas. SABIC had to write off billions on the purchase of GE Plastics, and we were the lone little beacon there with the 38 million because we'd built resilience into the company. We had a very, very strong balance sheet and we continued to do that over time—build this resilience—by developing Borouge that served the Middle East and Asia, by continuing to develop our plants in Europe that served the European place. So we sort of proved that we could a) if everything went well, make a lot of money, but b) if one geography went down, the other one would still make money, or if the price of oil changed so that it made one disadvantageous, the other one was advantageous. And we could build that resilience in, but that takes time. For us, it took six years to build resilience into the balance sheet like that.

Kati Najipoor-Smith: And exactly, you're mentioning crisis over crisis. Some people call it polycrisis—at the same time, not one after the other, at the same time. So how do you feel about the boards, and we'll talk later about the role of the chairs specifically, are they getting closer to the business? You know, before it was like oh, you know, you're not running the company, don't be so close, just give guidance and oversight. How's that changed?

Mark Garrett: Well I think if you're—look, I was a CEO for 18 years and I've been chairman of public companies for six or so years. If you're a good CEO, you build, but also manage, the relationship to your board, right? So you don't try to block or put up barriers to the board, but you try to build the relationship, manage the relationship to the board, and leverage the board to help you in certain circumstances. I can give you one example, when I was Chairman of Axalta, and, at the same time, we had Covid and we had very, very aggressive New York activists come into the stock, you know, it was very opportunistic. I mean when Covid hit, everyone's prices went down. The New York guys just saw a wonderful opportunity to make money and came in and they were extremely aggressive. And I sat down with the CEO, Robert and I said Robert, you got enough with Covid, trying to make sure that the business runs and that we get the product to the customers, and that we get all of the people all safe and looked after—you take care of all of that, and I'll take care of the activists. So we decided that we would do it that way. And you step up, you're like a spare set of hands that the CEO can call on if he sees the need or if he's, you know, got too many things all going on at the same time.

Kati Najipoor-Smith: So you're really pointing to a very important point: the role of the chair, but also the role of the chair in relation to the management, specifically with the CEO. From all of what you have seen, can you comment on the different experiences you have had and what is really important, from your point of view, and when it can really go south, and therefore [lead to] a company not creating the best value it can? Further, how could that relationship and the role of the chair help there?

Mark Garrett: Well I think first of all, it goes south when people start putting up barriers and those barriers are senseless. If the CEO starts to use law firms to reinforce the barriers, then you know that there's a problem. It can't work like that, right, and doesn't make any sense. And I think that's the fine line, when you're the CEO. Yes, you want to run the company. I understand that that's what I wanted to do, too. But you've also got to accept that managing the relationship and building the relationship with the board, who also have a role to play in corporate governance, is part of your job. They're not an unnecessary nuisance to you. They can actually add value if you leverage them. And I think that that's very important, and that depends a lot on the relationship between the CEO and the Chair, you know, they have to have a solid relationship. I was thinking, actually, as I was coming up here on the train, that sometimes it's not dissimilar to the manager of a football team and the captain of the team. The captain of the team is the boss on the field and he's got to deliver the results for sure, and the manager can't play, he can't do it. He's normally too old, or whatever, but he still carries some responsibility for the final result.

Kati Najipoor-Smith: And when you think about just how boards can add value and have impact on the business, what's missing, from your point of view? The four things that you say are really simple; the role of the board is very simple.  When things get very complicated—we talked about that and there's a lot there—but what is, from your point of view, missing?

Mark Garrett: Well, you know, there's been a lot of academic work done on board performance and most of it seems to indicate that private equity boards actually perform better than public company boards, and I think there's a couple of reasons for that. The first, they tend to be smaller, so six to eight people. Some of the big public boards have 15 or more people on them, so it becomes much more difficult to build a spirit that's going in the same direction because instead of having a meeting with six or eight people in the room, you're having a conference; you have 15 people in the room and then you have your lawyers, and then you have the management team, and then you have someone taking the minutes, etc. You end up with over 20 people in the room, and it's a completely different dynamic than when you have six or eight people in the room. So smaller, and then secondly, those boards tend to have very good knowledge of the business, and they tend to be highly motivated and incentivized to do the right things for the business. Now, that doesn't mean that you can't have that in a public board. I mean, when we took Axalta from being owned by Carlyle to being public, we intentionally kept the board smaller. So we went from six to eight, but didn't go past that, because you have certain committees that you have to work with when you're dealing with a public company. And the selection of the people on the board was very, very important, and I think we ended up with a really, really strong public company board group. So you have to pay attention to the same things, and you have to make sure that people are joining your board for the right reasons. They should be joining the board to act in their shareholders’ interest, to act in the best interest of the company, to try and help to develop and make things better. They shouldn't be joining the board for prestige reasons. Then you often find, you know, you talked about crises before. I have a theory that when you stay long enough on a board, you're always going to experience a crisis. So if you spend 10 years on a board, it's guaranteed you're going to have at least one crisis. You've got to think, you know, you had the 2008-9 global financial crisis.

So you always have something, right? You never have only plain sailing. And then you find out which members of the board are there to really help, and they stand up and they sometimes completely surprise you. And then there's other members of the board who [say]: ‘Oh, I didn't sign up for this, I'm only here because it looks good on my resume.’ And they disappear in the middle of a crisis. That's not a lot of help. So you need to really invest a lot of time in the selection of the people who are going on to the board.

Kati Najipoor-Smith: I'm going to pick up on that—and you mentioned it already—they should understand the business. How would you consider the best board composition? As you know, there are trends right now; a lot of boards are hiring AI experts, and rightly they want to make sure that there's somebody on the board that understands this world [and] the trends. And then others hire people that have geopolitical experience, some others ESG. What's your view on that? How should chairs really build a strong board?

Mark Garrett: You do need people with some specific competences. I mean, you need somebody who can head the audit committee, so they need to have financial acumen and appropriate qualifications to be able to head the audit committee. You probably need somebody who has a strong corporate legal background, but the most important thing is that you have people who understand the business and the industry that the company is in. And the real expertise, in my opinion, for something like AI, needs to lie actually in the business, and then the board needs to understand the business well enough to see the potential that AI can bring to the business. And I can give you an example there as well. I sit on the board, as you know, of Orica in Australia and they do a fantastic job with AI. We have people with experience, general experience in IT and general experience in the whole area of Silicon Valley and these things on the board, but they're not specifically AI specialists. But then you start to see how that technology can drive improvements. We have a series of reports that have to get prepared after each major blast—Orica is a blasting services company—and these reports used to take 30 or 40 days to prepare. Today, it takes three or four days to get these things knocked out. So it's driving productivity and efficiency very quickly, and you need to, as a board, understand why that's adding value to the company, but you don't need to be an expert in large language models or something like that.

Kati Najipoor-Smith: How would you comment on having CEOs on the board?

Mark Garrett: Well obviously, as a former CEO, I might be somewhat biased, but I think it's really important because they can understand much better than anybody else can, what it's actually like to be a CEO. The important thing is that they don't think that they are the CEO. The problem sometimes with CEOs is that they have quite significant egos and they're always right. And I'm sure if you ask my wife or my sons, they'll tell you that that probably describes me. But you're not the CEO, and that's got to be 100% clear. You’ve been part of the selection process to select the CEO, but you're there to make sure he or she is successful. That's why you're there. It's like when you bring somebody up through the ranks of the football team and they finally make it to the first team, you want them to be successful, you don't want them to fail. So I think that that's absolutely vital, and some of those CEOs have to just realize that. They need to be better grounded. Not all CEOs are well grounded.

Kati Najipoor-Smith: But if you look across the board, with people with different expertise or different backgrounds, how do you make this group of people who actually have one purpose, and that they all really contribute? On the one hand there is, are they motivated to contribute, [while on] the other hand, do they have the opportunity to contribute? I think there's something about the culture of the board, how the chair leads the board, so that we get the most out of these professionals sitting here, experienced people.

Mark Garrett: Exactly. I think a large part of it comes back to the chairman. And when I’ve observed chairmen, especially in the European context, I observed that there's two different types of chairman. One is the one who makes sure that all of the boxes get ticked according to the legal requirements and the governance requirements, and that's what they do and that's how they see the role. And of course, then they don't really bring the people on board onboard, because they're just making sure that every box is ticked. So the role of the chairman becomes very important, and the chairman has to be accessible to all of the members and also the representatives of the unions. You have to value their opinions and you have to talk to them and invest the time to understand where they're coming from. And you have to make sure that the board understands what it's responsible for. For example, the board is not responsible for a particular plant in a particular part of Germany. It's responsible for, what I said before, deciding who runs the company, approving the strategy, the budget, the major capital projects, and the execution, the performance, and the governance. And you've got to make sure that everybody understands that and works towards that, and not towards representing an own interest at the board level.

Kati Najipoor-Smith: Let's talk about succession on all levels, both on board, if you will, member succession, so refreshing the board—if you would comment on that—and then on CEO succession.

Mark Garrett: You know something about the CEO succession because you watched us do that at Borealis. Firstly, it's very important that you have a process that develops people over time, so that when it does come to the CEO succession, there's multiple choices. And then you have to be very rigorous in evaluating the different candidates, including—I'm a big fan of some of the work that we did, you know, sending people away for evaluation, sort of stress-testing, if you will; I think it's also very valuable for the people because they get to know themselves much better—before you make a choice. And you don't make a choice because one is more friendly to you than the other one, you make a choice because you believe it's the best person for the job, regardless of anything. I always say, you know, you're looking for commitment, capability, and creativity. These are the sorts of things you're looking for, and everything else is behind that. You want people who are going to really be able to do the job, regardless of where they come from and what their background is. You need to know the people; you look for people who have honesty, who have integrity, and [who] are trustworthy. And I know that these are all like clichés or whatever, but these are the most important things, because you carry a huge responsibility and if the person that you're looking for doesn't have those characteristics, you get yourself into all sorts of trouble.

And then in the board, I actually believe in some respects it's a little bit easier because you know it's all scheduled when people join, when people leave, you know. If you're voted on for four years, you've got a maximum term of eight years, or whatever it is in the jurisdiction that you're working in. So you know in advance what's going to happen. A CEO can stay a lot longer, he doesn't have to leave after eight years. Especially if you've got a good one, you want to keep them as long as possible. So there, you know you're scheduling and then it's really important to have your feelers out in the community, looking for people who are capable and building relationships and understanding what's in the broader area. Because you're not going to be recruiting from within for the board and if you don't have a broad network, it's going to be very difficult for you to do that.

Kati Najipoor-Smith: So, as a chair, one should really look at this as a long-term plan, proactively know the market, build relationships with people, and watch how people are doing?

Mark Garrett: Absolutely.

Kati Najipoor-Smith: And would you then change the competencies, the metrics, you know, what business needs do we have and what competencies we have—does that change over time?

Mark Garrett: Some of it does and some of it doesn't. So, you know, as an example, you do still need to have someone qualified to run the audit committee, of course.

And I think it's the human qualities that I was talking to before. The creativity, the capability, the commitment—you need those human elements, and you want to know that the person, or you want to at least believe that person. has a moral compass that sets it in a certain direction, that they can differentiate between what's right and what's wrong. And only then, do you look at more specific competencies, like you want someone who has experience with Silicon Valley, or do you want someone who knows how to or has experience with drilling in the Arabian Desert? Or, you know, the specific competencies that you may need at certain points in time are very, very important, but the human qualities, the things that really lead, you need to make sure that whoever you choose has those qualities.

Kati Najipoor-Smith: Very good. Maybe a little bit of a controversial question. What is your view on CEOs becoming chair of their companies?

Mark Garrett: Well, then we come back again to the—I'm biased so, you know, we come back again. I think if the CEO has been able to make the transition to the next stage of life successfully, then a former CEO can be a very good chair. It doesn't mean that they have to be and I think we've got enough examples of lawyers who have turned into bad chairs, and lawyers who've been good chairs, and former CEOs who've been bad chairs, and former CEOs have been good chairs. It's really about how they made that transition, and they've really decided for themselves that they're doing something else, and they're not making a grab for a last-ditch show of glory, or power, or something like that.

Kati Najipoor-Smith: We watch companies that just about perform, and the performance goes down, and down, and down—for years, there is a very obvious trend. What is happening there?

Mark Garrett: I think sometimes people get stuck in certain ways, and they're not willing to acknowledge that the world around them has changed and that they need to change with it. So they continue along a certain path and that leads to this spiraling downwards. So you're trying to make incremental improvements, but you're actually not really making incremental improvements, all you're doing is treading water and slowly actually going down. I think that's what happens and they're not willing to really have the hard discussions with each other to understand this is what we have to do. And if you don't do that, if you don't look at the issues and have difficult discussions with each other, then you're all going to go down together. It's as simple as that. And sometimes people just don't want to. I mean, if you're on a board and you say something once, you say it twice, you say it three times; if the people are still not listening to you, I mean then maybe there's something wrong with you and how you're failing to get the message across.

Kati Najipoor-Smith: Well, that's the part where you see that it can be cultural, leadership, and strategic issues and performance—all of the above.

Mark Garrett: Yes, and you get trapped. Many European companies are trapped today, and they look at it and they blame the overregulation in Europe, or they blame Brussels or whatever. And yes, Brussels is definitely an issue and yes, there's too much regulation, but your job is not to run the EU. Your job is to run your company in the best interests of the shareholders. So if you're going to do that, and Europe is not attractive, then you need to go and invest somewhere else. You can't just sit there and slowly sink and not be proactive in what it is that you're going to do. Your job is to run the company in the best interests of the shareholders of the company. And of course, you want to look after all of the stakeholders and you want to treat employees fairly, all of that, absolutely 100%. But at the end of the day, a business is an enterprise that needs to have a return on the capital that's employed.

Kati Najipoor-Smith: Let me ask you then finally: we'll look ahead, what's the biggest challenge and opportunity for European boards over the next decade?

Mark Garrett:  When I first arrived in Europe; I think that people listening to the podcast could probably still vaguely hear an Australian accent. But when I first came here, Europe was about 30% of the world's GDP. Today, Europe is 14% of world GDP. What that means is that the world has grown a lot quicker than Europe, or maybe Europe didn't grow at all, but certainly the world has grown away from Europe. And why is that an issue? Well, it means that you become less and less relevant in world affairs. If you represent less than 10% of world GDP or 5% of world GDP, if the trend continues, at some point in time, you're no longer relevant. So I think boards and chairpeople have to enhance the discourse, so that people understand why a vibrant economy is actually necessary and why jobs are necessary. 100% of jobs in the public sector—that doesn't work in any economy. It just doesn't work. We've proven that that doesn't work—the Soviet Union proved that that didn't work. So, you need to have a vibrant economy, and part of the board's role is to voice that vis-à-vis the European authorities. But again, as I said before, first and foremost, we represent the shareholders. We're voted in by the shareholders and we have to ensure that their companies—because the shareholders at the end of the day are the owners of the company—flourish regardless of the European context. Brussels and the governments provide the framework, and regardless of the framework, we have to make sure that the companies flourish.

Kati Najipoor-Smith: Fantastic. Well, Mark, thank you so much, as always, for your amazing views, because you have seen so much over the years in different roles, and speaking and sharing this with our listeners.

Mark Garrett: Thank you, Kati, I appreciate it. Thank you.

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About the interviewer

Kati Najipoor-Smith (knajipoorsmith@heidrick.com) is the regional co-managing partner of the CEO & Board of Directors Practice in Europe and Africa; she is based in the Frankfurt office.