What factors permit some Boards to far outperform their peers at other firms? Why do some Boards make a much bigger contribution to company success than others that seem equally distinguished? We will explore many root causes in future Flogs, but one central character holds a powerful key to any Board’s realized value – the Chief Executive Officer.
CEOs no longer choose their firm’s Directors, but usually end up with the Board that they expect
We go further – behind any Board that excels over many years is a CEO who sees his or her Board as a valuable asset to invest in and fully harvest. Our back page unpacks several approaches of such thoughtful CEOs and highlights the practices they follow to equip their Boards to flourish.
But wait a minute! Are we not in the age of the independent Board, where Directors enlist their own members, elect their own Chair, set their own priorities and most of all, select the next CEO that they prefer? Have we not left behind the old ‘best friends forever’ Board, who only told the CEO what he wanted to hear? One of this country’s most revered Directors argues that the Board is now ‘the Boss’. In such an era, how can CEOs still shape how much value a Board can add?
We confront, of course, the largest misconception shared by so many who try to peer in from outside the boardroom door. Directors will always be ill-equipped to undertake any task without the active cooperation of top management. Take, for example, a Board’s most independent role – CEO selection. We all agree that Boards must lead this process from end to end. CEOs must never steer the choice of their successor.
Yet unless CEOs groom a stream of rising stars to be ready in good time, the most self-reliant Boards can find their hands are tied. They may push for faster development programs, but only a CEO can create the opportunities that reveal a candidate’s true potential.
Smart CEOs do more than just allow the Board to do its job – they set high expectations for it. Rather than play defense, they build a close partnership with their Directors, taking risks to capture greater value than any arm’s length approach could ever generate.
What sets these CEOs apart? To their Directors, they radiate the kind of confidence that reveals them to be “unthreatened” and “secure”. To be sure, they know that some Directors lack expertise in their business. They also grant that some Directors – if left unchecked – may stray into giving unhelpful tactical advice. They fully accept that their Board could fire them at any time.
Not one of these risks keeps such leaders up at nights. Talk to them and you soon discover a thirst for the insight their Directors can offer, matched by a quiet trust in their motives and good judgement. Most of the time, these CEOs view their Board as fully committed to helping the company and its top Management succeed.
Agreed, not all CEOs share this view. Some stress their Board’s knowledge gaps or a tendency to overstep its bounds. Still, given the power of CEOs to shape their world, most usually get what they expect. The best CEOs are magnets that attract the most stellar Directors. In boardrooms especially, attitudes can be self-fulfilling.
The ‘X factor’ to emphasize in searching for the next CEO
How many companies, in searching for their next CEO, give enough weight to a candidate’s capacity to partner with their Board? How many probe for this ‘X factor’ – or even value it?
Given the scale of a CEO’s impact on a Board’s performance, however, the significance of this attribute is striking. A Board utterly relies on its Chief Executive to provide, e.g.:
- Visibility into the strategic issues and risks facing the firm
- Completeness and accuracy of all types of information on which the Board depends for its oversight functions
- The equipping of Directors to make the decisions most vital to the company’s future, whether through the timeliness of notice, the quality of internal analysis, or access to sources of relevant expertise
- Genuine interest by Management in the challenging questions and strategic insights offered by the Board
True, finding CEO candidates with deep Board skills may be tough; many will lack the experience. Attitudes can be strong predictors, however, whenever a leader combines openness with unthreatened confidence.
Board Intelligence – a Discipline of Successful CEOs
CEOs who earn top marks from their Directors seem to call upon a rich mix of matching attitudes, intentions, intuition, relationships, and capacity-building. They apply these elements to build a partnership that yields high value for the business and themselves. Board and Management each grow stronger on their parallel tracks.
Some CEOs are highly conscious practitioners of Board Intelligence; others seem to arrive at these approaches out of instinct. The true masters make this discipline a hallmark of their wider Management team, adopted and employed by all their senior leaders.
So what distinguishes the ways these CEOs think about their Boards? What do they do differently?
They start with a set of special attitudes…
…holding and acting on a few closely-linked beliefs, i.e.:
- Boards can be an indispensable strategic asset for any CEO, if cultivated, invested in, and drawn upon
- Boards that struggle if they feel discounted or kept at arm’s length will thrive if held to higher expectations
- Directors risk failure by trying to act as surrogate managers, for which they lack the inside knowledge
- By contrast, Directors that bring outside ideas from diverse sectors and viewpoints often add high value by complementing internal thinking
They convey strategic intentions for their Board…
…homing in on where it can most add value, asking:
- In what fields could Directors’ oversight, probing and testing – beyond the normal due diligence – most enhance company performance?
- What future strategic choices will the company be facing in which the Board could most strengthen the decisions and solutions to be considered?
- What role can Directors play in sharpening the ideas, skills and confidence of the firm’s emerging leaders?
- What bodies of knowledge from ‘outside the bubble’ could best enrich the company’s thinking? Can they push their Boards to recruit heavily in these areas?
They develop intuition into what makes a Director tick…
…applying it to foster trust and full engagement, e.g.:
- Understanding how Directors build their confidence in Management – and how best to reinforce it
- Getting to know them individually – learning how to motivate them to make their best contributions
- Watching for signs of Director discomfort and using those concerns to spark a breakthrough conversation
They cultivate open relationships…
…building on high respect to pursue high performance:
- Partnering with their Chair to promote each other’s success, respect each other’s roles, convey hard truths, and collaborate to serve their common ends
- Consulting with individual Directors who can offer special advice or wisdom on key topics
- Inviting Directors to get to know their top managers and rising stars, without needing special authorization
They invest in Board capacities and resources…
…to maximize the value in each Board interaction, e.g.:
- Crafting personal reports to brief Directors before each meeting, openly explaining the progress, performance, opportunities and risks now facing the business
- Connecting Directors to forums and industry sources that could expand their relevant knowledge
- Framing the right questions of Directors, to instigate the right level of thinking and debate
- Preparing the Board to make the big strategic choices by initiating multiple rounds of discussion and review
To a few CEOs, the discipline of Board Intelligence is now second nature. Where others see a heavy burden or an exam to be passed, they treat their Board as a source of unique advantage. Their success in capturing that advantage comes down to this: in Boards, as elsewhere, high expectations create the oxygen that fuels high performance.