3 must-haves for a good board-CEO relationship

Risk, succession talks, being too involved or not involved enough – navigating the dynamic and natural tension that exists between an organisation’s board and CEO can be difficult. We share three ways to ensure a successful relationship.

If governance is an art, then the relationship between an organisation’s board and its CEO is a delicate dance. There is a natural tension, a push and pull; the board and its chair have the power to hire and fire the CEO, while the CEO is tasked with implementing the organisations strategy, for which the board is ultimately responsible.

The ideal dynamic can often be difficult to articulate, but when the partnership between a board and CEO – and in particular, between chair and CEO – is dysfunctional, it is only a matter of time before it affects the organisation’s overall performance.

“Tell us what you really think”

In 2013, in light of several (very) public corporate missteps involving board and CEO misconduct, Professor Jeffery Sonnenfeld, founder and president of the Chief Executive Leadership Institute at Yale University, asked dozens of well-regarded veteran CEOs of Fortune 500 companies, what do you really think of your board?

In an attempt to come at the issue from the perspective of a CEO reporting into the board, Sonnenfeld asked those he interviewed to share their causes for concerns about boards and the board-CEO dynamic, as well as their thoughts on what is keeping boards from being as effective as they ought to be.

“Clearly, CEOs believe it is important to address problems and opportunities [with the board] they’re uniquely positioned to observe,” writes Sonnenfeld. “They do not want to keep their boards in the dark or to chip away at a directors’ power. They recognised that their shareholders will get more value if the partnership at the top is strong.”

There were five key findings from these conversations: that boards can focus too heavily on risk, boards often don’t take the time to learn about the business beyond the board papers, that there should be more active CEOs sitting as directors on boards, there is a lack of energetic debate at board meetings and that discussions about succession planning are always awkward – but they don’t need to be.

Sonnenfeld’s findings helped to set the scene at a recent roundtable discussion hosted by the Australian Institute of Company Directors and the Trans-Tasman Business Circle featuring CEOs and chairs from some of the country’s largest companies.

What ensued was a wide ranging discussion covering the importance of managing risks and expectations, leaders’ inherent fear of failure, diversity as the antidote to groupthink, succession planning and what happens when the relationship is not working.

Ultimately, the ideal board-CEO relationship is professional, respectful and based on a strong foundation of trust. A vision and objectives for the organisation should be aligned, so that the relationship is more of a partnership based on mutual understanding as opposed to a boss/subordinate relationship.

Top tips from directors and CEOs for boards and CEOs

1. A clear understanding of roles

Directors and CEOs alike should come to the table with a very clear understanding of their own, as well as each other’s role. Clarity about where one’s role ends and another begins is critical to a well-functioning partnership between board and management. It also helps to set clear expectations, particularly (in most cases) when the chair and the CEO are different people.

A first point of reference for the board and the CEO should be the organisation’s board charter. The purpose of the charter is to outline the important functions, responsibilities and legal frameworks within which the board and its directors operate.

2. A good flow of information

CEOs are obliged to ensure that the board receives a timely and relevant flow of information to ensure that there are “no surprises”. This includes providing both good and bad news, responding to issues raised by the board and assisting the board in analysing and considering these issues. It is important for boards to be explicit about the type of information they expect from the CEO and the rest of the management team.

Likewise, it is important for the board to take the time and listen to the perspective of the CEO and management when being presented to in board meetings. Communication is a two-way street.

3. A relationship that’s ‘not too close’ but ‘close enough’

“Noses in, fingers out” is the recommended board modus operandi and is something that all company directors are taught. The relationship between the board – and in particular, the chair – and the CEO should be a professional and a constructive one. It isn’t a friendship, it is a working relationship.

This relationship should be positive, be built on a good culture driven by the partnership and should accommodate frank and open discussion.

by Theodora Turnbull

The AICD regularly runs courses and events for directors, aspiring directors and executives, covering governance and business best practice. Click here to see our upcoming courses in Western Australia.