The Board/CEO Relationship: Clear communication and transitions are board responsibilities.
For publicly traded companies, the board’s primary responsibility is often defined as the hiring and firing of the CEO. In privately held companies, the CEO is often a major shareholder, a family member or perhaps the founder of the business, which makes the relationship with the board more complicated. But in each case, communication is vital in cultivating a healthy and productive relationship between the board and the CEO.
Gary Trujillo, the chair of Standard Printing Company, suggests that private companies consider an executive committee, composed of the board’s other committee chairs, as a way to facilitate effective communication that allows the CEO to feel safe enough to be vulnerable with the board.
“Through an executive committee, you actually have a forum which allows the CEO to talk with and engage board members both in a formal manner, where they actually sit and talk quarterly about the collective views of the board and the company, and where it's going. And by having each committee chairperson involved, with their own unique qualifying information from their committees, they can create a very supportive environment that helps the CEO with detailed feedback.
“But informal communication is also important. For example, a CEO I work with actually took the executive committee to a quarterly luncheon with no agenda other than making sure that people were gathering in an open forum to talk without having to focus on and deal with any critical issues. This executive committee structure can really act as a formal mannerism, but also an informal platform to allow the CEO to get comfortable with not only each chairperson, but also with them collectively.”
Another area where the board and CEO relationship can be tested is in the area of CEO succession.
Alan Aldworth says that if a retiring CEO is the founder or a family owner of the company, the board should be prepared to facilitate that retirement. Aldworth is president and CEO of the Private Director Association and serves as vice chair of E.A. Renfroe & Company and a board member of GSP and board trustee of Leopardo Companies.
“That process often goes badly because it’s difficult to let go, especially for the founder,” Aldworth says. “So that CEO needs help from the board to ensure that transition happens smoothly.”
If the outgoing CEO remains on the board of directors, Aldworth says there must be clear roles, responsibilities and authority. The organizational chart should outline who reports to whom, and accountabilities should be specific in order to be sure the incoming CEO is not undermined by the outgoing one.
Trujillo says he saw such a case firsthand and it consumed valuable board time.
“The CEO decided that it was important that he stay on the board even though we had picked a successor. And that was a very challenging experience because the new CEO felt like he had somebody looking over his shoulders and questioning his decisions.
“At one point, we actually had to create a special committee, an ad hoc committee of three senior board members who were well-respected and had a good relationship with the former CEO. We literally had to manage the relationship between the retired CEO and the new one.”
That issue of control lies at the root of many board and CEO relationship issues. Adding truly independent directors or bringing in outside private equity investors who take board seats, can cause an entrepreneurial CEO to feel helpless and criticized. Aldworth believes the directors are simply holding the CEO and other family executives accountable. But it can make for a difficult relationship that must be carefully navigated.