A Call to Account
In her early years as CEO of Midmark Corporation, a Dayton, Ohio-based global manufacturer and supplier of medical, dental and veterinary equipment and services, Anne Eiting Klamar would set goals her board considered too ambitious.
“I like big goals. That’s how I challenge myself,” says Klamar, a fourth-generation family owner who is now Midmark’s board chair. But such lofty goals, board members explained, would demoralize the management team, who would likely miss the targets and never receive bonuses.
If she couldn’t come up with a step-by-step plan for achieving her goals, the board “would back me down,” she says. “They held me accountable.”
The relationship between the CEO and the board is multifaceted. On one hand, board members advise and support the chief executive. On the other hand, the board’s role is to hold the CEO accountable, through the compensation package and their candid feedback.
“You can relatively easily move back and forth between supporting and encouraging as well as holding accountable and challenging, if you have respect and you listen to each other,” says Todd Schurz, fifth-generation CEO of Schurz Communications Inc. in Mishawaka, Ind.
Deep dive into the numbers
CEO accountability centers on the budget and the strategic plan, measured through key performance indicators, says Kathleen Shanahan, CEO of Turtle & Hughes Inc., an electrical/industrial distributor based in Linden, N.J. She is also a director of several public and private companies and has served as CEO and chairman of Uretek Holdings Inc. and WRSCompass.
“I’m all about data, transparency and communication,” Shanahan says. “I think it creates a healthy conversation. When you have your quarterly board meetings, you can see very clearly what’s working and what’s not working, and then get board member counsel to add value.” Board members can help the CEO identify root causes of underperformance and suggest course-correction measures, she says. “They can use their expertise to help you get past that hurdle, and also improve for the long term.”
The board adds value not by pointing out where budget goals were missed — everyone can see that on the financial reports — but by discussing why the team fell short, says Kent Johnson, fourth-generation CEO of Highlights for Children Inc., the Columbus, Ohio-based publisher of Highlights and other print and online publications for children, families and educators. “Might they be seeing something different than I’m seeing?”
Schurz gives his board a document setting out the assumptions driving his company’s financials. He also shares with his board his concerns related to the next quarter — things he’ll be watching out for.
“The feedback I’ve gotten from the board is, they can review the financials with the CFO and the operational leadership. What they want to know from me is, what am I concerned about, and what am I excited about? Where are the upside opportunities?”
“Our directors ask us penetrating questions,” says Schurz, who is also lead independent director of Herschend Enterprises, a member of the boards of 1st Source Corporation and 1st Source Bank, and an independent board adviser to EBSCO Industries. “They expect us to be on our game. They’re not looking necessarily for the ‘right’ answers. What they’re doing is probing our thinking.”
A remark made in January 2018 by an independent director sparked a major change at Schurz Communications, which began in 1872 with the founding of the South Bend Tribune.
At that point, the company had divested its broadcasting assets and moved into the managed cloud services industry, but it still held its traditional publishing assets.
“At the executive session at that meeting, one of our independent directors said, ‘I am very concerned about publishing. It is a small portion of the wealth creation of the company, but we spend a disproportionate amount of time talking about it because of the challenges, and I am deeply concerned that the value of the asset has gone down precipitously.’
“She said, ‘You need to really think about this.’ Because she challenged me, I was then able to step back and say, ‘OK, let’s look at this with a new perspective.’ And that began a process where a year later we were out of that industry.”
Exiting a legacy business it had operated for 146 years was a highly emotional decision for the Schurz family. Schurz calls the director’s comments “a great gift.”
“I remember when this independent director left our board, my uncle, who was then chair of the board and spent his entire career in that industry, thanked her for what she had done for the ownership group,” Schurz says.
The key to a productive board meeting is openness from all parties. “They pay me to be honest and helpful on these boards. And that, I feel, is my job,” says JoAnne Brandes, a director of Highlights for Children and other private companies.
In preparing for a board meeting, “One of the frameworks I look through is, how are we going to get the greatest return on our investment in governance?” Johnson says.
“I’m thinking about how to get the most value out of this board meeting, because it’s expensive: the time it takes for all of the executives to prepare, the materials we provide, the stipends. Having a board of directors is a real cost for the company. And so I try to be very transparent when talking about the company performance and my performance and our strategies and our goals, in order to get good feedback on all of those.”
The CEO role “can be very isolating, and your information is quite filtered,” Schurz says. Board members are an important source of constructive criticism and leadership advice.
As a director assessing a CEO’s performance, “You can tell where the culture is when you look at their results and when you hear the presentations from their people,” says Brandes, who retired after a 25-year career at the S.C. Johnson family of companies as executive vice president, chief administrative officer, general counsel and secretary of JohnsonDiversey Inc. (now called simply Diversey Inc.). “There’s a clear mission for each company and a clear culture that supports that mission, and you’ve got to hold them accountable to that.”
Directors also play an important role as counselors, Brandes says. “CEOs may ask you, based upon your experience and knowledge, what you think. They also want you for a sounding board — and that part is very, very important when it’s requested by the CEO.”
While anticipating the board’s critiques can be nerve-wracking, Johnson says, “I try to think about the upside. If the feedback and accountability from the board can make our company more successful, that makes me more successful.”
Johnson says he welcomes board members’ opinions on the amount of time he took to study a particular issue before making a decision or implementing a change.
“We all, as leaders, face this question: How much analysis do you need before you act?” says Johnson, who also serves on Schurz Communications’ board. “With this fast-changing world, we need a balance of urgency and patience.”
In a family business, family directors can offer important insights on areas such as shareholder communications, family employment and how the family values are being expressed in the business. They can provide perspective on the family owners’ thinking. “Their feedback is really valuable on shareholder relations matters,” Johnson says.
The board should hold the CEO accountable for progress on a succession plan. In the boards she serves on, Brandes says, “We talk about that at every meeting.”
If the board and CEO don’t have a good working relationship, the board’s critiques won’t be taken in the right spirit, Johnson says. “If you know the person you’re trying to give feedback to, you’re much more effective in finding the right timing and putting it in the right way and making sure they’re ready to hear it and to understand it.”
Holding the line
Board members must ensure their comments don’t venture into the realm of management. “The role of the board is to provide strategic advice,” Shanahan says. “It’s really up to the chairman of the board to manage that relationship.”
Shanahan, Turtle & Hughes’ first non-family CEO, served for two years as co-CEO with Jayne Millard, fourth-generation family owner of the company. In November 2020, she was named CEO and Millard became executive chairman of the board. Shanahan had served for more than three years as a director of the company before joining the management team.
Midmark’s non-family CEO, John Baumann, joined the company’s board in 2009 and was named board chair in 2013. In 2016, Baumann and Klamar switched roles; he became CEO and she became board chair.
“We have a CEO who knows how to run a business,” Klamar says. “He’s done it, and he’s been extremely successful. He can say to the board, ‘I really appreciate you weighing in on this, but this is something that I think is internal.’”
New board members may need guidance from more senior directors about where the line between oversight and management is drawn.
“We’ve brought on three new board members in the last three years, so we’re still working with expectations and shaping culture,” Klamar says. “The more experienced ones are willing to mentor the newer ones and call these things out in the meeting, for example, ‘That’s not ours to opine on.’
“There are places where it’s clear. There are places where it’s not so clear. And COVID turned everything upside down. We met every two weeks with management to understand what they were facing so that we could be better advisers. We all have one set of experiences, but our 10 board members have 100 years of experience, if you will, and everybody’s managed through some sort of crisis.
“The advisory role of the board in a situation like COVID was really, really important. And I also loved that they knew when to ease off.”
As a CEO, “I think you have to develop an awareness of your own emotions when that line gets close,” Johnson says. “There are times when I have to say to myself, ‘Wait a minute. Let me make sure I understand what they’re saying before I start getting defensive.’”
On the other hand, Johnson says, “No matter how mature and experienced your directors are, there can be times where the board does come over that line or get too close to it. And there’s a role for the CEO to be able to say, ‘This feels like a management issue.’”
Board members provide important perspective on challenges that might lie ahead for the company.
“Jayne and I have a very strong mutual respect for and expectation of our board, as well as how to utilize our board,” Shanahan says. “Jayne has hired board members with expertise that would both challenge the business and educate the business.”
“CEOs have their head down. They’re trying to run the business and keep customers happy and teammates happy and create value for shareholders,” Klamar says. “The board has their heads up, and my expectation is that they will be well-read and bring that knowledge to the boardroom.”
“Board members can be really helpful in adding to and diversifying our views of what possible futures look like — making sure we don’t get stuck in one set of assumptions about the future, making sure we’re anticipating potential surprises,” Johnson says.
“That’s what a lot of the discussion is about. Risk management and compliance, some of the things that can feel a little dry, often are about anticipating risks. If you put it into a strategic context, it’s not, ‘Let’s check the box on information security.’ It’s, ‘Let’s have a conversation about the possible threats that are coming, and have we prepared adequately?’”
Some private company owners are squeamish about the idea of being held accountable to a board of directors.
“I’ve coached a lot of people through that,” says Brandes. “I tell them that if you’ve got the right board, they’re going to do the right thing for the company, and they’re going to be the best advisers and have loyalty. If you hire the right board, you’re going to want that feedback.”
As a CEO in today’s rapidly changing business environment, “You need to be always learning, growing and, in a sense, reinventing yourself,” Schurz says. “No CEO is great at everything. The accountability helps in letting you know where you need to get better and where you have blind spots. That, for me, is where the accountability helps.”
Directors’ questions can provide valuable perspective, Schurz says. “Sometimes we will have one of our directors ask a question, and no one in senior management has thought of that question. Not only do we not have an answer, we’ve never considered the question. And that is so incredibly helpful.
“We don’t try to make up the answer on the fly. The right answer is, ‘We need to think about it and get back to you.’ And we do.”
“The great CEOs are the ones that want to learn,” Klamar says. “A board is an excellent place to get experience and to learn. And if the price for that is being held accountable, then so be it.”
“If you get smart people who are engaged, who can add valuable experience and skills, why wouldn’t you want them helping you out?” Schurz asks.
“If you get it right, it can be the secret sauce,” Shanahan says. “There’s a real opportunity of upside.”