Cultivating the Board/CEO Relationship

Both directors and the chief executive play a role in ensuring a productive discourse between the board and management.

A private company’s board has numerous important stakeholders to collaborate with to achieve the success of the firm. The owners — whether they be private equity, a family or an ESOP — provide their values, goals, and expectations for the financial and nonfinancial performance of the company. Executives and other employees look to the board for guidance, strategic direction and feedback. But perhaps the most critical relationship the board has is with the company’s CEO.

A constructive relationship between directors and the CEO can be a force multiplier in the effort to drive growth or achieve other goals. Working together, achieving alignment and a clear definition of success, and creating a collaborative relationship can allow both the board and the CEO to focus on exploiting the opportunities available to the company or addressing the challenges confronting the firm.  In contrast, an improper or adversarial relationship can distract the board from their governance role and the CEO from his or her leadership and execution responsibilities. Time spent on internal politics related to such troubled interactions is time better spent on moving the company forward.

This relationship starts when the board is selecting a new CEO. A professional, clear, objective, respectful process sets the stage for this relationship to start off on the right foot. A well-defined selection process, an accurate and updated CEO role job description and polite interviews with two-way conversations contribute to an effective start of the relationship.

There are a number of actions directors can take and behaviors they should exhibit to support a productive board-CEO relationship and help the CEO realize that the board is intent on helping him or her achieve success, including:

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  • Supporting, and not undermining, the CEO. Respect the chain of command by not going around the CEO to other executives unless the CEO has requested or agreed to such discussions or direct mentoring. This shows both the CEO and the other team members that the board has confidence in the CEO. Other members of the C-suite should exhibit that confidence as well, providing the CEO the appropriate authority to develop and execute against strategies. In extreme situations, it is warranted to have such direct conversations even without CEO endorsement.
  • Setting clear, realistic expectations. The board helps convey the values and goals of the owners and uses those to establish the company’s and CEO’s KPIs for success and compensation. Clear communication and precise metrics help ensure that the board and CEO are on the same page. Goals can be aggressive but should be reasonable and achievable to motivate the CEO and other members of the C-suite and reward them for appropriate results. Expectations should include guidelines about what the CEO (and other officers) should present at board meetings, in terms of both subjects and level of detail.
  • Providing constructive feedback. Based on their experiences and unique viewpoints, directors can provide valuable commentary on strategies, budgets and other governance areas that help improve those items. This feedback should be well-intentioned. The relationship should be viewed as a partnership where the CEO does the heavy lifting of preparing proposals and the board adds value by providing improvement suggestions. It is important that the CEO understands that, in some cases, this feedback may be substantial and lead to significant updates.
  • Serving as a resource for the CEO. Directors can serve as an ear, sounding board, mentor and coach for the CEO. They should communicate to the CEO their willingness to help in this way, indicating that he or she should feel comfortable reaching out to directors for their experience, knowledge, connections and experience. For instance, one director’s advice to a CEO concerning the implementation of a sales & operations planning process and the associated change management necessary helped lead to a successful rollout and improved cash flow for the company.  Of course, the frequency of requests should be reasonable and the CEO’s desire for more may indicate the need for an executive coach or mentor.
  • Asking thought-provoking questions. These allow the CEO (and other directors) to think more deeply about issues, enabling him or her to look at them from different perspectives. This is an area where a board with a variety of experience, in terms of previous industries and functional areas of expertise, can provide additional value to the CEO and company. These questions should be well-intended and exploratory, not aimed at proving a point or targeting the CEO. In one case, a director’s constructive questions about the proposed budget prompted the CEO to consider new options, leading to a more cost-efficient execution of the company’s strategy.
  • Helping the CEO grow. The board and CEO should collectively develop a plan to help the CEO grow and learn. This could include consultants, executive coaching, executive peer groups and conferences. For example, CEO peer groups provide the members with a forum outside the company to confidentially share challenges and brainstorm solutions together. This is especially helpful for new CEOs who may not have previous exposure to all aspects of responsibility that a CEO must oversee.

The CEO also has responsibilities for creating a productive relationship with the board, including:

  • Sharing information. The CEO should not withhold information. For the board to properly analyze the situation or proposal, ask the right questions and come to an informed decision, it is essential that the directors receive all relevant information. Hopefully, much of this is provided without the board specifically asking for it, but the CEO should also honor requests for additional information. It should go without saying that distorting information or presenting it in an inaccurate manner creates similar problems. By the same token, making key decisions without the input and approval of the board not only damages the relationship but may also violate the company’s legal formation and operating documents.
  • Listening to the board’s advice. While the board formally votes to approve or reject budgets, strategies and other items, directors also provide advice and guidance. While all of those suggestions may not be useful, a consistent pattern of the CEO ignoring that advice will strain the relationship and likely harm the company.
  • Respecting the board’s time. Board members are normally not paid hourly and have other commitments. They are often eager to assist the CEO and the company both out of interest and a desire to meet their fiduciary and/or advisory responsibilities. This opportunity should be properly used and not taken advantage of in place of consultants or C-level discussions.

Overall, the CEO should feel that the board is on their side and wants them to succeed even while the board’s first priority is the progress the company is making. The board should take a trust-but-verify approach — not doubting every detail of each plan, while still performing good governance and oversight. There are many examples of boards not fulfilling this responsibility — think Theranos — so it is important that they explain this aspect of their role to the CEO so that he or she understands why questions that may seem invasive need to be asked and should be thoroughly and patiently answered. This is not second-guessing; it’s good governance.

Directors have the responsibility to set the CEO up for success. Neither the CEO nor the board that selected him or her wins when the board removes and replaces the CEO. Directors should not jump at the first failure and threaten a CEO change. However, that is an action the board needs to take when appropriate, such as when the board loses confidence in the CEO, the CEO has failed to execute and deliver on commitments over an appropriate period of time or number of opportunities, or the CEO has behaved in a way that creates ethical or legal issues.

Keeping that in mind, along with the possibility of voluntary CEO departures, the board should initiate succession planning for the next CEO when the current CEO begins their service, not later. Normally, the CEO should participate in this process due to the value he or she can add and should consider it part of strategic planning rather than as an attempt to quickly replace them in their role.

With the long list of challenges facing CEOs and boards, the relationship between them should not need to be added to the tally. By understanding the role of both the CEO and the board, supporting the other, and collaborating while also providing leadership and governance, directors and chief executives can work together effectively.

About the Author(s)

Steven Lustig

Steven Lustig is founder and CEO of Lustig Global Consulting and an experienced operations executive. He is a recognized thought leader in supply chain, manufacturing and risk mitigation, and serves on the board of Loh Medical.


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