Board vs. CEO

In last week’s Savvy Director post, I wrote about healthy tension among board members, and the need to prevent it from deteriorating into disruptive conflicts, or resolving the conflicts quickly if they do arise.

But there’s a certain kind of conflict that arises in the boardroom that I didn’t address – one that requires finesse and sensitivity to manage. I’m referring to conflict between the CEO (often called the Executive Director in the non-profit world) and the board.

The relationship between the CEO and the board is crucial, and has a huge influence on organizational success. The CEO and the board play different roles, but they have to pull together on achieving the organization’s goals. If they’re pulling in opposite directions, the organization is at an impasse.

Mutual trust is at the core of a strong board-CEO relationship. Of course, a harmonious relationship doesn’t guarantee success, but it can pave the way, clear out obstacles, and make the journey that much more enjoyable. What does it take for this relationship to work well? And what if it doesn’t? What if trust is absent - what happens then?

It’s complicated …

In the HBR article ‘What CEOs Really Think of Their Boards,’ the authors observe that the CEO–board relationship is far more complicated and nuanced than the rules of corporate governance would lead you to believe.

They talked to dozens of CEOs to understand their views, asking questions like, What keeps a board from being as effective as it could be? Is it just a millstone around the CEO’s neck, or does it have a positive influence on the enterprise? What can a board do to become a true strategic asset?

The CEOs didn’t focus on governance and hierarchy, instead they talked about what goes on in the boardroom at the human level. The article shares three observations that capture the CEOs’ feedback.

1. CEOs don’t want to keep their boards in the dark and they’re not trying to chip away at the board’s power. They recognize that they and their organizations will get more value if the partnership at the top is strong.
2. The interactions between CEOs and their boards may be governed by a complex web of statutes, bylaws and policies, but at their heart these interactions are still personal, and they require honest, direct conversations to ease the tensions that inevitably arise. When there’s a strong relationship, it’s easier for the CEO to speak candidly and for directors to be clear about what they want from management.
3. The best CEO-board partnerships are built on mutual respect, trust, and commitment to the organization’s success. Strong boards don’t consider themselves to be adversaries of management, and they don’t view their power as consisting mainly of checks and balances on their CEOs.

Who’s responsible?

So, if the CEO-board relationship is so important, who exactly is responsible for making sure it remains strong. Is it the board chair, the CEO, or the whole board?

The answer is yes! We’re all responsible.

The Role of Directors

As board members, we all have a responsibility for creating and maintaining a good relationship with the CEO. We fulfill that responsibility when we do the following:

• Provide guidance: Advise and mentor the CEO on strategic decisions and how to translate strategy into action. Maintain an open-door when it comes to being available.
• Ask tough questions: Have the courage to ask probing questions about strategic decisions and organizational performance.
• Act when necessary: With the agreement of the board chair, be willing to intervene when circumstances require a hands-on approach, such as in a crisis or when fiduciary responsibility requires it.
• Be fully engaged: Maintain a deep commitment to the organization, as reflected in our level of engagement on important issues. Bring a spirit of energetic teamwork to board meetings and interactions with the CEO.

The Board Chair’s Role

Of all board members, the chair has the most significant responsibility in fostering a positive relationship with the CEO. In addition to the above responsibilities, the board chair fulfills that responsibility when they:

• Communicate openly: Be available and transparent when communicating with the CEO and directors. Facilitate a positive dialog between the CEO and the board.
• Build relationships with management: Proactively seek to build professional relationships with key members of the management team.
• Respect the CEO’s responsibility for strategy: Lead the board on approving strategy, but refrain from trying to usurp the CEO’s responsibility for developing strategy.
• Own the CEO succession process: Embrace an active leadership role in CEO succession.

The CEO’s Role

It’s definitely in the CEO’s self-interest to ensure they have a good relationship with the board in general, and the board chair in particular. The CEO fulfills that responsibility when they:

• Recognize the value of the board: Acknowledge directors’ skills and perspectives that are distinct from, and complementary to, those of the CEO.
• Balance a strong viewpoint with open mindedness: Communicate a clear, compelling point of view, but be willing to fully consider the board’s views.
• No surprises: Communicate proactively and openly about the impacts and risks of strategic decisions.
• Seek directors’ input: With the knowledge of the board chair, informally seek directors’ input, feedback and guidance. This allows relationships to develop naturally and enables the CEO to predict and prepare for potential disagreements.
• Commit to board independence: Accept the board’s role in choosing the CEO successor and actively support succession management.
• Expose the board to the executive team: Facilitate informal introductions between directors and members of the management team. Bring key managers to board meetings and encourage directors to advise them in their areas of expertise.

Shared Responsibilities

Finally, there are responsibilities that are shared by the CEO, the board chair, and the rest of the board:

• Act in the organization’s best interests: Recognize and embrace the obligation to work in the best interests of the organization and its stakeholders.
• Set clear expectations: Establish expectations and objectives for themselves and for each other.
• Build close but independent relationships: Work on robust professional relationships that support the independence needed for the CEO to do their job and for the board to maintain objectivity.
• Be trustworthy: Build relationships characterized by honesty, openness, and mutual respect. Be fully transparent about opinions, plans and motivation.
• Be humble: Bring intellectual and professional humility to each interaction. Be aware of their own strengths and weaknesses. Be comfortable having their ideas challenged.

Practices that support the CEO-board relationship

Successful organizations make use of certain board practices that help to support and maintain a good CEO-board relationship.

• Board orientation. New board members can seriously disrupt the status quo. A good onboarding program orients them to their role as directors. Understanding their responsibilities, as well as the organization’s mission and operations, helps to avoid conflicts.
• Documented roles. Board and CEO need a common understanding of what governance is, as opposed to management. This might look different from one organization to another, and that’s okay. But organizations need to be clear about their governance, and document it appropriately for future reference.
• CEO evaluation. An annual cycle of goal setting and evaluation should be built into the board calendar, starting with setting clear objectives and culminating in a documented CEO evaluation process – one that is fair and doesn’t allow a vindictive or frustrated board member to hijack the process.
• Focus on strategy. The board needs to explicitly focus on strategy at every meeting. This keeps discussions at an appropriate level, rather than board members focusing on details or obsessing over trivial items.
• Board evaluations. Whether the board assesses itself or uses a third party, the evaluation process should include an assessment of the board-CEO relationship.

There’s tension – it’s natural.

When a board doesn’t make use of these effective board practices, its oversight work is not well supported. Board meetings lack strategic focus. There’s no mechanism for evaluating CEO performance. The board’s priorities and decisions are not communicated clearly to the CEO. This certainly is one source of tension.

And despite many efforts to clarify once and for all where board oversight leaves off, and executive management begins, this question remains a grey area. In many areas, power is actually shared. And when power is shared – surprise, surprise – tension naturally emerges. The tension boils down to a simple question: Who’s in charge here?

Change -sudden or gradual – is another source of tension. Board and CEO roles shift over time. New governance trends emerge that catch the CEO off guard. Regulators impose ever-changing requirements. Organizational needs evolve or become unclear. And so on. As a result, what had been working well becomes a problem.

And sometimes the tension is a result of incompatible styles. Some CEOs don’t want to be held accountable – and it shows. Some directors behave in ways that makes collaboration difficult. And poor interpersonal communication makes things worse.

Conflict emerges when relationships start to deteriorate, and these natural tensions become unhealthy. Board directors might start saying: ‘The CEO gets defensive when I make a comment or ask for something.’ ‘I read about an issue in the news instead of hearing it first from the CEO.’ ‘The CEO doesn’t recognize our authority.’ ‘I’m no longer sure the CEO is right for the job.’

The CEO’s perspective on the situation is different. They might start saying: ‘The board questions everything I do.’ ‘I can’t even order stationery without the board wanting to get involved.’ ‘The board chair doesn’t recognize my authority.’ ‘The board doesn’t trust me.’

When people start thinking that way, trust evaporates and the situation can start to slide downhill fast, with serious consequences – consequences like employment contracts not renewed, terminations with or without cause, lawsuits for wrongful dismissal, and bad publicity.

These consequences can leave in their wake a divided board, split between those who supported the CEO and those who didn’t.

When conflicts arise

When serious conflict arises, the board starts thinking about making a change. What could be done before things get to that level? Quite a bit, actually.

• Individual directors could start by talking to the board chair and working with them to develop a solution.
• A director who is not part of the conflict could talk to the CEO to see how they are experiencing the situation and develop a game plan for addressing what is going on.
• Directors can name what they are seeing at a board meeting to get people to acknowledge the tensions and find a way to work on them.
• If the board chair is part of the conflict, they can assign another independent director to take the lead on the situation and be willing to follow their leadership.
• If the conflict is due to personalities, the board chair could meet individually with the people involved and help to broker a relationship between the CEO and the directors.
• If the conflict is rooted in a poor understanding of roles, a board self-assessment might be useful.
• If CEO evaluation is a source of conflict, the board could work with the CEO on developing a new or improved process, with outside assistance if needed.
• If the conflict is due to disagreement about the organization’s direction, a strategic planning exercise would help to clarify where the organization is headed and what kind of leadership is needed.
• A knowledgeable professional or board member of another organization that has gone through something similar could be of assistance.

Finally, organizations that have successfully dealt with difficult conflict find that it helps to call in external help before a situation really festers. Outside professionals have the skills to change the conversation, defuse tensions, and help people get past their ‘either-or’ thinking. They can assess the situation, facilitate conversations, act as neutral mediators, coach the parties, and help develop plans to address the issues.

Personally, I have been called in to help with these situations many times, often in the guise of conducting a board assessment or helping develop a new strategy. Unfortunately, in my experience, the board has usually waited too long to salvage the situation. With so much water under the bridge, the board and the CEO have often ended up going their separate ways. 

The Savvy Director knows it's better to work on preventing the escalation of trust issues before matters get beyond repair.

Your takeaways:

• A harmonious board-CEO relationship doesn’t guarantee success, but a bad one might lead to failure.
• Everyone has a responsibility to build trust and maintain a productive relationship.
• A little bit of tension is healthy. It arises out of shared power.
• Good board practices help establish trust and prevent significant conflicts.
• If disruptive conflict arises, outside professionals can help – as long as they’re called in before the situation is beyond redemption.

Resources:

• What CEOs Really Think of Their Boards. Jeffrey Sonnenfeld, Melanie Kusin, and Elise Walton. Harvard Business Review. April 2013.
• Together at the Top: The Critical Relationship Between the Chairman and the CEO. Richard Hossack. Ivey Business Journal. January/February 2006.
• Essential Elements of an Effective CEO-Board Relationship. Russell Reynolds Associates. September 2014.
• 12 Actions For Minimising Board & CEO Conflict. Martin J. Cowling. Better Boards. February 2012.
• 10 Question You’ll Hear When There is Conflict Between the Board & The Executive Director. And 20 Things That Can Be Done to Address It. Steven Armstrong. 2015.

Leave a comment below to get in on the conversation.

Thank you.

Scott

Scott Baldwin is a certified corporate director (ICD.D) and co-founder of DirectorPrep.com – an online hub with hundreds of guideline questions and resources to help prepare for your next board meeting.

Share Your Insight: What steps has your board taken when faced with board-CEO conflict?