GREAT COMPANIES DESERVE GREAT BOARDS
By Beverly Behan
THE PRIORITIES AND STRATEGY FOR NEW CEOS
BOARDROOM PRIORITIES FOR NEW CEOS
One of the most profound changes for any new CEO is having a board, rather than a boss, to report to. Building a constructive working relationship with that board begins in your first six months as CEO. If your predecessor continues to serve as Chairman for a transitional period, it may feel as if your board relationship truly begins only after he finally exits the boardroom. Nonetheless, there are four steps that you need to take in your first six to nine months, regardless of whether or not he continues to serve as a director. These include:
- Getting comfortable with governance issues: Starting to regularly read board-related trade publications, attending a course, or designing a private tutorial tailored to governance issues you’re particularly interested in will help you become more conversant on governance-related topics.
- Meeting individually with each of your directors: A critical first step in the foundation of your working relationship as CEO and board member, the discussion should focus not only on simply getting to know each other, but also should include questions focused on the CEO/board relationship.
- Establishing the terms of your working relationship with your Lead Director or Nonexecutive Chair: An effective Lead Director or Nonexecutive Chair can be one of a new CEO’s most valuable assets, letting you know about any performance concerns that board is expressing (before they become problems) and serving as a resource for you on a variety of board issue.
- Reviewing the annual CEO evaluation process: One of the most unique facets of a CEO’s job, unlike that of any other executive, is that her evaluation is conducted by a group of people, namely the board, rather than a single individual. This factor alone requires greater communication around this process and management of it. Determine what components should be included in your annual performance review and the steps in the evaluation process.
Two additional steps, which may be uncomfortable to discuss with the board while your predecessor remains as Chairman, should be addressed shortly thereafter:
- Setting board/management expectations: Define what you expect from directors in your working relationship with them, and what the board can and should expect from you and your management team. It may be worthwhile to explore these expectations in your one-on-one director meetings before finalising them.
- Emergency CEO succession planning: During the last stages of the succession plan, you were the emergency solutions if something happened to your predecessor. As Chairman, he was the solution if something happened to you. Now that the leadership transition has been completed, this is an important topic for the board to address. Doing so will also provide you with valuable insights about how the board views the members of your executive team.
STRATEGY – THE FIRST BIG TEST WITH YOUR BOARD
Many boards regard the oversight of company strategy as their most critical governance responsibility. The approach that the CEO adopts in working with the board on strategy is often a defining moment in the board and CEO relationship – and typically one of the first critical tasks for any new CEO in working with the board. CEOs who present their strategy to the board as a “fait accompli” and fail to engage directors in a meaningful way run significant risks, including a lack of genuine board buy-in and alignment on strategic direction and goals. Steps that can avoid these problems include:
- Clarifying the rules of engagement on strategy. Many CEOs tend to limit their directors’ engagement in strategic issues for fear of losing control of the process, leaving management as the implementer, rather than the owner, of strategic decisions. Addressing this issue with the board at the outset of strategy discussions can go a long way to resolving this concern. This involves outlining the respective roles in the strategy process and getting the board’s confirmation that the choice of corporate strategy lies with the CEO, but underscoring your desire to use directors as though partners on strategic issues, thereby leveraging their experience and insight to help you and your team.
- Engaging the board earlier in the strategy process. Get input from your directors to find out how they perceive the company strengths, weaknesses, opportunities, and threats before you start developing strategic alternatives or preparing recommendations. If there are significant differences of opinion between directors and company executives on the very underpinnings of the strategic analysis, it’s better to bring these differences to the surface and address them at the outset.
- Educating the board about the key business issues. Directors cannot engage effectively in strategic discussion if they lack of information relative to the company’s competitive landscape, industry trends, technological change, the regulatory/political environment, and other issues that provide fundamental context to strategy development. Finding where knowledge gaps may exist can help to determine how best to fill them. Consider innovative ways to provide directors with hands-on experience that can heighten their understanding of your business and of those key business issues that will become the focus of strategic discussion and decision making.