Home > Risk > Boards should be concerned about their CEOs

Boards should be concerned about their CEOs

A recent post on the Harvard Business Review site, What CEOs Really Think of Their Boards, makes interesting reading.

While the author’s early message is that boards need to tone down their oversight and “not adopt an adversarial, ‘show me’ posture toward management and its plans”, I think the real lesson to be learned from hearing what CEOs have to say is that careful, skeptical, oversight by the board is an absolute necessity more often than not!

But, before going further I should pay homage to some of the fine CEO’s I have worked with, including Tom O’Malley (Tosco), C.S. Park (Maxtor), and John Schwarz (Business Objects). Each was a fine balance of vision, leadership, entrepreneurship, and integrity.

Boards should tune their skepticism to each situation. When an executive has built and earned their trust, they will dial it down. Yet, when a proven executive floats an ambitious idea, they should exercise their oversight responsibilities with care and diligence.

What was it that rang some alarm bells for me? First, let’s consider that the great majority of board members are former or active CEOs themselves, followed by CFOs and others highly experienced in executive leadership. Any criticism of these people for being overly cautious, when their backgrounds and experiences are similar to the CEOs delivering the criticism, does not ring true. In fact, when natural risk-takers become cautious, I have to believe they have good reason.

Some quotes:

  • In theory, a board should serve as a check on a “cowboy CEO,” as one executive puts it. In reality, it can rein in boldness too tightly.
  • CEOs complain that boards often lack the intestinal fortitude for the level of risk taking that healthy growth requires. “Board members are supposed to bring long-term prudence to a company,” as one CEO says, but this often translates to protecting the status quo and suppressing the bold thinking about reinvention that enterprises need when strategic contexts shift.
  • CEOs are especially frustrated when directors’ risk aversion is driven by fears of bad press. They note that the rise in stakeholder and proxy-analyst pressures has made directors sensitive to any decision that might provoke a negative reaction from the media, proxy-advisory firms, institutional analysts, or activist investors.

Later in the paper, the author covers some important, but well-known, points about feeding the board with relevant and timely information, diversity, constructive and open dialogue, and the need for mutual respect. On balance, this is an interesting and useful read.

I welcome your views and comments.

  1. April 6, 2013 at 11:50 AM

    I would say, it isn’t one size fits all. The dynamic between each CEO and board will be different. Each needs to be able to reasonably compliment or work together with the other, strategize, and agree and disagree about things. The CEO is responsible for running things, of course, and the board does not manage day-to-day. But the board is overall responsible for hiring the CEO, and the board is responsible to the shareholders. And the board members have tremendous experience, connections, ideas and insight. It is said that board members need to act more like owners. Yes, on significant issues, but just not in the day-to-day management oversight sense. Although board members also don’t just look long-term – significant-level business, opportunities, and problems can occur quickly. Ask, are the CEO and the board members the right people for the company now? Can they sufficiently work together? Do they have the right mix of experience, approach, leadership and insight? Are they (the CEO and the board members) willing and able to strategize and talk about issues, risks and uncertainty, and disagree and voice differing viewpoints, and still get along, maybe be friends, make decisions, and move forward to the lead? Some thoughts.

  2. April 7, 2013 at 7:44 AM

    Norman, I am reminded of the G30 statement (which you featured here) that “A very good CEO is preferable to a “star” CEO” — a “star” CEO in that context meaning a narcissistic one or what’s referred to in the HBR piece as a “cowboy” CEO. My guess here is that boards and the CEOs they supervise have somewhat different views as to where the line is between “very good” and “cowboy.” To a CEO, a “cowboy” is that other guy, the irresponsible one.

    You know how there are two kinds of “other” drivers on the road — idiots and maniacs? An idiot is anyone who is driving slower than you, and a maniac is anyone who is driving faster? My guess is that at any given level of risk, or “speed,” many CEOs would see the board as being actual or honorary members of the “idiot” group while many board members would consider the CEO as tending towards the maniacal.

    As you point out, this phenomenon occurs even with directors who are active or former CEOs. That’s because it derives from role differentiation more than from persoanlities. The one who is responsible for getting to the destination doesn’t want the brakes applied unless absolutely necessary, and the ones whose reponsibility it is to apply the brakes are naturally always checking on the speed.

  3. Jerome Morasko
    April 7, 2013 at 7:28 PM

    The Board/CEO problems you describe occur everywhere and I have found the problem is the Board/CEO relationship is not well organized or defined. First, the board is responsible to the ownership about everything and the CEO works for the Board. Second, the board should be the final say in strategy and should work with the CEO and others so it competent enough to understand strategic alternatives and choose what appears to be best. Then it should have an approach to organize the organization’s operational resources to attain the strategic plan. The board determines what operational issues it does and which are delegated to the CEO and others. Boards need to be great delegators to be effective and need to develop monitoring benchmarks so they don’t waste resources by micro-manage what they delegate. Most boards are not pure governing boards, they are hybrid boards and thus need a written policy governance system to keep it organized. Disorganized governance creates organizational role conflict, power struggles and wastes a lot of resources. How many times have you seen an organization take forever to make a decision? This is due to poor delegation at the board level or at the CEO level in delegated operational authority. Last, it’s important to remember that boards cannot delegate responsibility, only authority.

  1. April 9, 2013 at 5:16 AM

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