As an independent board director and advisor, I often consider my interactions with the CEO and how to balance engaging in the workings of the company with staying appropriately out of the way of management. Having also served as the CEO on a board, I especially appreciate this challenge.
The CEO is essential to running the business and has critical experience and knowledge, yet we all have seen some situations where excessive CEO influence has its risks. I decided to put my CEO hat back on and share some of my learnings as I juggled CEO leadership and board value.
As a CEO board director, I learned that board culture and trusting board members is key to having open and constructive dialogue, which in turn is key to an effective board. My relationship with other directors required quite a bit of sensitivity. After all, I was in charge of the company strategy and operations, while the board had power over my job and the goals that defined my and my team’s success measures and compensation.
Often, I did not want board directors telling me how to operate the day-to-day business or discounting the strategic direction put forward by the management team. That said, I still wanted and needed the directors to understand the business and to have well-informed discussions on complex issues that impacted critical decisions.
The make-up of the board membership impacts how the directors engage, the level of involvement with decisions, and the overall culture in the boardroom. It also impacts whether the board is an anchor around the CEO’s neck or a positive influence on company success. To work together effectively, it is important for the CEO (as well as other directors) to understand the profile of the board.
If the answers to these questions reflect an ineffective board, one might say it is time to restructure and replace. I agree, however, that is often an exceptionally difficult and longer-term solution. It is certainly worthwhile looking into the considerable research available on this topic. Here, we will focus on some approaches that can help a CEO or even other board directors interact with each other in a way that produces positive outcomes.
In my case, the board was made up primarily of corporate investors who were risk-averse and looking for short-term gains needed to meet expectations from Wall Street. These talented and successful directors came primarily from business, IT, and legal roles, but had no experience with the company’s industry or expertise with the subscription-based business model. I discovered that when I needed investment backing for a new strategic initiative or product, with a return outside of the current year, I had little to no support.
It was a career accelerator for the directors appointed to this board and there were interdependencies between the board members. As a result, there were a few influential board members who could count on the remaining directors to follow their lead. Normally, one would think that the board is looking out for longer-term initiatives and ready to provide the CEO “air cover” when looking beyond short-term results. Yet, boards and their members are driven by a range of priorities and motives, so I learned the hard way the importance of understanding what these are and addressing them accordingly.
As CEO, I wanted the freedom to manage and operate without interference from the board. So when the board did not show interest in the day-to-day, it initially served my agenda. There truly are dangers in having board directors overly involved in management business, especially if they do not understand the more subtle nuances of operations and can inadvertently undermine the credibility the management team has in their leaders.
I also found a downside to this. When presenting to the board on key initiatives, the CFO and I needed the directors to understand enough about the business to engage in constructive discussions. We wanted to be asked challenging questions; we hoped to learn from the expertise of the board within the context of the company, as well as relevant industry trends and developments. Just counting on the directors listening to our presentation and reading the brief we had put into the board book was rarely enough. Some strategies we implemented to inform the board, without having them overly involved or taking too much of their time, included:
Change is inevitable and none of us are protected, as much as we might like to believe differently. Over my career, I have seen top-notch executives blind-sided for good and bad reasons or just because they were no longer the best fit. The risk of boardroom intrigue should not prevent creating an orderly CEO succession process that engages the current CEO.
The CEO is invaluable in identifying strong internal candidates. For example, I mentioned above bringing in executives and subject-matter expert managers to present to the board on important topics. This is an excellent way to introduce key players to the board and reward top performers with visibility and insights into board workings. The CEO also should be proactive in contributing to the successor job description, especially since boards are often excited about external candidates. No one knows better than the CEO what is required to operate the business. And, if you are a CEO, what better way to show that you understand the company strategy and future than to help define the next-gen CEO?
Despite my efforts to create an informed board, the culture of my boardroom was still one where groupthink dominated. Frequently, members were hesitant to contradict each other and one director could close down a discussion. This is not uncommon, since it is important in the boardroom to get along and often that means being collegial and not to overwhelm or hurt feelings. There is no easy answer to finding the right balance between the need for collegiality and functioning effectively as a team that can handle multiple points of view. Some thoughts are:
Boards often act as a check on CEOs who might be viewed as excessively daring when they want to make their mark. As a CEO who did at times believe in pushing the boundaries, I struggled when the board appeared to be just protecting the status quo. It seemed that the more successful we were with existing strategies and programs, the more conservative the board became on introducing transformational initiatives.
There are many reasons for risk aversion, including that a significant change in strategy or recapitalization or a merger/acquisition, can impact board composition and put director seats at risk. What is expected from boards is evolving from a focus on company success to shareholder value to stakeholder value. To deliver on a broader set of values, the board requires less groupthink and more willingness to consider new initiatives and innovative approaches.
An open-minded board that is able to have a healthy debate is best positioned to properly assess risk and determine whether the time is right to break the status quo. A diverse board brings different experiences and world views that significantly improve the quality of such decisions.
Learnings that help CEOs and independent (non-executive/investor) directors work together to create an effective board, will also create a culture where a board can adapt and benefit from change. It helps to:
Every board and every CEO are different. There are by-laws and regulations that guide these relationships; however, we are all people and relationships are still personal. Stepping up to honest and difficult conversations can break the ice, and allows CEOs to speak openly about problems, thus enabling a move away from a judgmental boardroom to one that addresses challenges with wise counsel and smart entrepreneurial risk-taking.
Great CEOs recognize that keeping directors in the dark can come back to haunt you. If good governance is not in place, it is everyone’s responsibility to fix it.
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