By Kerryn Newton CEO
As discussed in Part 1 of this article, of all the functions of a board, arguably the most critical is appointing the right person as CEO and monitoring the performance of that person.
In Part 1 we discussed board expectations of a CEO in terms of delivering the company’s strategic and business objectives, and CEO performance frameworks.
In this Part we discuss the board and CEO relationship, and CEO expectations of a board.
A relationship of trust
Critical to an effective governance framework is an effective board and management relationship.
In our experience, an effective relationship is based on open communication and trust. Directors require information regarding the company’s operations and performance in order to fulfill their duties at law. Given the CEO is a key information source for the board, the board is heavily reliant on the CEO to be open, accountable and transparent in this regard.
This entails the CEO reporting to the board good and bad news in a timely and full way – the so-called ‘no surprises’ approach. Conversely, the CEO expects that ‘bad’ news is received in a constructive way. A CEO that has had received a whipping from a board for delivering disappointing news is likely to think twice about how and when such news will be reported to the board in the future – a potentially dangerous downward spiral.
Increasingly, we are seeing high performing boards view their relationship with the CEO and management as one of constructive challenge and collaboration aimed at achieving company purpose – rather than an adversarial relationship where the board seeks to question and ‘catch out’ management. In this context, CEOs should be accepting of, and indeed embrace, the board’s role to question, test and clarify information provided.
CEO expectations of boards
In the spirit of a respectful and transparent relationship, CEOs also have expectations of their board. Perhaps it goes without saying that CEOs expect directors to be committed and diligent in their role which includes attending all board meetings and events, and coming to board meetings fully prepared.
Other expectations that CEOs have of their board typically include:
- clear direction on strategy and performance expectations
- requisite resources to deliver on expectations
- appropriate and clear delegated authority to implement the board-approved strategic plan and run the business on a day to day basis (without board interference into operations)
- appropriate and timely feedback regarding their performance not just at the time of the formal review but in a continual, informal way
- collective board clarity on what information it requires from management in terms of reports and papers
- support for decisions properly made, and
- recognition and reward for achieving results.
CEOs should also be able to draw on the skills and expertise around the board room table. Directors are appointed to boards because they have skills and depth of experience to lead and govern the company. This collective wealth of knowledge can be a tremendous asset for the CEO.
Directors can also play an important mentoring role for the CEO and executive management team.
Continual development is key
Like any relationship, that of board and CEO requires on-going review and development.
Apart from the CEO performance review process, regular board performance evaluations provide a mechanism to identify and address any issues with this important relationship at an early stage.
Using an independent expert to facilitate these reviews can be useful to address matters including clarity of respective roles, authority, communication channels and mutual expectations. In particular, it is important to ensure an acceptable clarity regarding the distinction between governing and managing – which if not addressed is often manifested by the CEO feeling that the board is ‘micro-managing’.
Shareholder and stakeholder expectations of both boards and CEOs are increasing across many facets – delivering on purpose, growing shareholder value, accountability for results, and a clear link between CEO remuneration and the company’s financial and non-financial performance across the short and long term.
Boards and CEOs that work in a constructive partnership are more likely to meet these expectations.
Directors Australia facilitates board and management workshops, and facilitates board performance evaluations which, among other matters, consider the board and management relationship.