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Improving board-management relations

If we could offer only one piece of advice, it would be to strive for open communication among board members and between the board and management.

Source: Colin B. Carter and Jay W. Lorsch, 2004, Back to the drawing board, p. 194

The relations between the board and management is critical to an organisation’s long-term success. However, where I regularly see problems arise is when the different interests of the board and management are not defined. Some common problems include:

  • Interference by board members in operational matters;
  • Managers hesitate to make decisions;
  • Managers delegate difficult decisions upward, which leads to a risk averse or conservative culture; and
  • Boards spend too much time on minor matters and thus overlook the major ones that can severely impact the organisation.

To be effective, boards and management, in particular the CEO, have to work as a team. Board-management teamwork is characterised by:

  • A two-way flow of information; information sharing;
  • Constructive debate; and
  • Commitment to strategic direction.

An effective board-management relations require an understanding of:

  • Organisation’s mission and vision;
  • Strategic and business plans;
  • Capabilities;
  • Implementation plans;
  • Probability of achieving outcomes;
  • Each other’s expectations; and
  • Boundaries.

Understanding the board’s role

A starting point is to ensure the board as a whole has a clear understanding of just what its role is in the organisation, i.e. distinguishing governance from management, and its role with regard to the CEO (Table 1).

Table 1: The board’s CEO role

Elements of the board-CEO relationship
Selection Selecting a new CEO is the time when the board has the greatest opportunity to influence the future direction and performance of the board, and the basis of the working relationship between the board and CEO with a first-class selection process
CEO assessment The aim of performance evaluation is to align the long-term interests of the CEO with the long-term interests of the board
Remuneration As another key function of the board, the most important issue for the board is to determine the most effective way of linking payment with performance
Mentoring The board adds value to the corporation when it acts as a sounding board for the CEO or can offer him advice, or recommends sources of outside expertise or counsel
Succession CEO succession planning requires:
  • A long-term vision
  • A breadth of knowledge about candidates both inside and outside the commission
  • In-depth knowledge of the organisation’s resources, goals and personnel
Deselection/dismissal In spite of the best remuneration and selection processes there may be times when it is necessary to replace the CEO: whatever the circumstances, implementing a smooth transition between CEOs is another important role of board

Source: Kiel, G., Nicholson, G., Tunny, J.A., & Beck, J. (2012). Directors at Work: A Practical Guide for Boards. Sydney: Thomson Reuters.

CEO-chair relations

A good working relationship between the chair and CEO is vital. The chair is the key link between the board and management via the CEO. The chair and the CEO need to agree about how they will work together.

In summary:

  • The chair is the link between the board and management between meetings and should be aware of any developments that may require him or her to take action on behalf of the board or to summon an emergency board meeting.
  • It is often valuable for the chair to guide the CEO about matters of concern to the board so that confrontation is avoided and time is not wasted.

It is important that the chair and the CEO have frequent substantial conversations between board meetings — probably at least once a week, lasting perhaps an hour on each occasion. It is better if these are face-to-face meetings. Either party should feel able to raise any matters of concern on a confidential basis, such as:

  • “What happens if…?”
  • “How will the shareholders benefit if we do that?”
  • “Do you really think that the board will wear that?”

The chair cannot give instructions to the CEO. Chief executive officers report to boards, not to chairs. But the chair can, and should, guide the CEO on matters of board concern and should warn the CEO if trouble is likely to arise. The chair may even be required to reinforce the CEO’s position with the board in certain circumstances, especially where the chair has more knowledge than the board about the CEO’s actions.

Establishing working relations

The chair/CEO relationship requires respect for differences in roles, responsibilities and personal styles. It requires clarity of mutual expectations and regular communication. The frequency and form should be discussed and negotiated by the chair and the CEO. Focus on common goals and accept the fact this is simply the way the other person operates and the issue is not personal. Even if they have personality types that put them at odds with each other, this does not mean they cannot establish a good working relationship. The key is to establish trust. Trust is a two-way street – to develop and maintain trust on both sides:

  • Be truthful. Things are what they are, so tell it as it is
  • Be forthcoming. Deliver bad news as well as good news
  • Communicate frequently. Frequent contacts should be a high priority
  • Socialise. Attending social events provides the opportunity for casual conversation and the chance to display more of a person’s self
  • Show respect. For example, thinking through the other person’s point of view shows respect and respect builds trust
  • Be responsive to the other person’s requests, ideas etc.; e.g. a positive response to ideas builds mutual respect

If worse comes to worst? The ultimate outcome of a situation in which the chair and CEO cannot establish professional working relations, because they simply do not get along, should be either the removal of the CEO or resignation of the chair for the benefit of the organisation. From experience, it is usually the CEO who will go and the organisation will be left to face the costs of another CEO search and appointment process due to a poor board-management relationship.