A board can make or break a CEO just as weak internal management can take the CEO down “into the weeds” by having to perform the functions of his/her direct reports. Our experience is that in most organizations the CEO must lead the board AND internal management to understand and effectively fulfill their respective roles and responsibilities. However, an effective board adds real value to strategic leadership and frees the CEO to do his/her job with optimal effectiveness.
In discussing CEO’s perceptions of their boards, we hear clients say things like:
“My board is too large – about 18 directors. We have inherited a lot of them through acquisitions, and we can’t seem to find a palatable way to reduce the size”
“We have too many directors who just are not adding value and we don’t seem to be able to get the weak ones off the board. They just take up seats which limits the opportunities to bring in the competencies we need.”
“We’re having difficulty recruiting top caliber directors who can provide the insight, wisdom and competencies we need given the way markets are changing.”
“I don’t get very useful feedback about how the board sees the job I’m doing. They ask me to evaluate my own performance then say – “Good job, here’s your raise”. That doesn’t tell me very much that is useful in helping me improve and sets me up for a “surprise” in the future if earnings start to tumble.”
“My board eats staff time micro-managing and does not appear capable of providing strategic input.”
“My directors are so concerned about their liabilities that I have to drag them into taking proactive steps required for investing in the future.
You’ve Arrived – Now You Are Alone
These challenges with boards are in addition to the other demands that pull on you as CEO.
Pressure is mounting from inside and outside. From the outside investors expect quarterly growth, customers expect greater value, quality and service, regulators are producing more red tape, competition is coming from non-traditional places and self-appointed “watch dogs” raise socio-environmental concerns that are often not in touch with reality.
On the inside your business strategy is complex and challenging, technology is becoming a stretch even to understand, and finding good talent is like looking for hens’ teeth. Your direct reports, especially your key internal succession candidates, indicate they need more coaching and mentoring from the CEO. But you are busy and besides you didn’t get much, if any, feedback along the way in your career and the only mentor YOU ever had was your high school coach. You lean toward thinking, “Anyone worthy of being a successor should not have to have feedback and be coached.” After all, you never got much coaching – right?
Your daily marathon starts with breakfast with a strategic alliance partner, lunch with investment analysts and dinner with a director. When you finally say, “Honey, I’m home,” your family wants to see your ID. Your suitcase looks like it’s been through a war, and you have enough frequent flyer miles to buy a major airline.
Your life would be easier and you could be more effective, if others would just do their job. Right? This includes your board doing its job.
Where’s the Board – Your Partner?
Boards and CEOs each have complementary roles to play. These roles must be defined clearly with interfaces and boundaries specified. The CEO often has to lead the board into developing itself to effectively shape its own role and execute it. This is often the case because the board’s view is “we aren’t broken, so there’s nothing to fix.” This attitude has resulted in many boards being found “asleep at the wheel.” As a result, the legacy left behind by such directors is a corporation under real threat of survival which their collective egos compel them to blame on the CEO.
If the board is to be most effective and leave a legacy of assuring future success, it needs to understand and fulfill its role and responsibilities. To that end boards need a roadmap to guide their development i.e. a clear picture of the information, commitment, processes and competencies required for their work. Most boards and directors have not given much thought to these issues and have no process for evaluating their own effectiveness.
The Value-Add for Board Development
There are six compelling reasons for boards undertaking an ongoing developmental process:
Major institutional investors are looking very favorably upon boards which undertake a board development initiative and are increasingly inclined to invest funds where they find this on-going discipline. Simply forming a token governance committee will not make a difference. Looking at hardside data that confirms this trend, a 1998 Russell Reynolds survey of the best institutional money managers reports that 70% of the fund managers in the US alone have made decisions not to invest in a company because of poor corporate governance practices. A CEO and board needs to have an honest assessment of its governance practices and a developmental agenda to guide continuous improvement in those practices. It is increasingly risky to assume that “our practices are probably okay; after all earnings are good and the stock has appreciated.” This defense is based on a false premise. Whose stock has not appreciated in the bull market that has been under way?
Concerns about Liabilities
Directors’ concerns about liabilities often cause them to make shortsighted decisions which shape a legacy of under-performance in the future. This threatens the long-term survivability of the company and creates a real obstacle for a progressive CEO. The developmental process can build the confidence, competence and commitment the board needs to support forward-thinking action.
Shareholders expect a return on investment on fees and options to directors. In a recent survey of Wall Street’s best analysts only one in ten believes boards in general represent the shareholders’ interests well. Directors are more likely to meet expectations when they have a clear picture of their role and responsibilities relative to various constituencies.
Recruiting Strong Directors
The challenge of recruiting strong directors is made easier when a potential director sees other strong directors and board processes that are progressive and effective. Top drawer directors have little time and want to be on cutting edge boards where they can learn as well as contribute.
The Right CEO
It is easier to attract and retain a good CEO when the board is strong and adds value than when it has to be dragged into the future.
High Exposure, Low Investment
Organizations spend significant resources on developing key managers and very little on the board and individual directors where exposure is significant. This makes very little sense.
Given the high stakes in today’s organization, the CEO can be alone or have some real help in recognizing and seizing opportunities or avoiding threats. Internal management can certainly help. The board may be functioning as a dynamo that adds real strategic value, as a difficult board that takes the CEO’s energy to drag along, or as a detriment that in fact increases liabilities. All three types of boards benefit from an ongoing board development process that enhances the effectiveness of governance. The physician’s credo is, “Heal thyself.” This is what the board must do since the board is accountable for its own development. The effective CEO may need to lead the board into doing what it does not recognize it needs to do, i.e., evaluate and develop itself. What kind of legacy will you and your board leave – one that leads the organization to thrive, merely survive or, worse yet, to its demise.
This is the first in a series of articles on the emerging trends of board development. The most progressive CEOs are pursuing board development because they have a good board and want to keep it that way, because they have problems with certain directors or board processes or because the board actually represents a liability to the company. The purpose of this series is to give CEOs background in the issues to help them determine whether and how to approach the challenge of developing the board.