Inside the Tent

Board Effectiveness

A respected colleague was recently appointed CEO of a significant organisation and had been invited onto the board. While delighted with the CEO role she was apprehensive about the directorship. With the humbleness that holds many a talented person back, she was questioning if she could really add value to what is a high profile board.

In my view she undoubtedly could and would.

She had the skills and experience that were critical to the organisation’s mission which, importantly, were lacking in the boardroom. This, of course, was the reason the Chairman had extended the offer of directorship. It all made eminent sense.

But this story was playing out at two levels: personal and organisational.

My colleague had never served on a board in the CEO role and was understandably nervous, like many of us when confronted with a new and challenging assignment.

Perhaps she was consumed with Imposter Syndrome, that paranoid condition that makes even the most accomplished professional question whether their achievements are only through good luck or good timing rather than pure talent. Particularly prominent among high-achievers, the condition arises from an inability to accept our accomplishments and recognise our own talent. Often characterised as a nagging fear of being exposed as a ‘fraud’, it is estimated that 70% of people will experience at least once in their lives[1]. Three ways to overcome this limitation are to work with mentors, make lists of achievements and to consciously seek out positive feedback.

I suggested my well-credentialed colleague seek out a mentor who had Managing Director experience and also to consider taking an appropriate governance course, such as those offered by the Australian Institute of Company Directors.

The other level at which this conundrum was playing out was organisational. Specifically, the governance of the organisation. There are two schools of thought about CEOs on boards: one is that the CEO should only report to the board; the other is that the CEO should be a director with full voting rights.

The first viewpoint is argued by governance expert Dr John Carver, who has advised corporate and non-profit organisations globally and published over 200 articles on governance. Carver believes having the CEO on the board is a conflict of interest. His view: “That conflict may cause only a small problem or can be a major impediment to the integrity of governance. But having the CEO on the board must eventually damage governance in some way[2]. When the CEO speaks in the boardroom there may be confusion as to whether they are speaking as a director or as the CEO. Similarly when the CEO is speaking to staff, is he speaking as a director or as their manager? Furthermore, board members are obligated to represent the interests of the owners – not staff or their own personal interests. Making the CEO a board member creates confusion, argues Carver.

This view sees the CEO only attending board meetings to report on, and be accountable for, organisational performance but not play a role in the board’s ultimate decision-making process.

The alternative view is that the CEO is a full member of the board with voting rights. This is commonplace in corporate Australia, where the title ‘Managing Director’ is used in addition to ‘CEO’. Decision-making in this setting becomes a team effort, removing the ‘them-and-us’ paradigm that can arise when boards and executive teams are vexed. Being a part of the decision-making team generates the high levels of commitment required for effective implementation.

As one experienced director said, “I’d rather have the CEO inside the tent than out”.

Prominent director Colin Carter, author of Back to the Drawing Board, argues that the CEO “must be on the board unless laws preclude it…she should be on the board because she is the driver of the board’s agenda and the key informant to the board about the company”[3].

This view sees the board-CEO relationship as a partnership and recognises that a CEO has a number of means at their disposal to influence the effectiveness of the board. Without the CEO’s active assistance, most boards will struggle to identify the real issues to be addressed. The premise is that it is better to work in partnership rather than a hierarchical master-servant relationship.

As an executive director, the CEO is held to account for developing an effective strategy and delivering performance in accord with the board’s wishes. The board retains its absolute authority to hire and fire the CEO and its right to hold non-executive only meetings. These in-camera sessions are an important part of good governance practice that allows non-executive directors to speak freely about CEO and organisational performance. When instituted regularly, they are neither concerning nor confronting to the CEO and enable a board to maintain the independence necessary to fulfil its non-executive function.

A board that operates as a team can meet not just its conformance obligations but, importantly, deliver on its performance commitment.

 

 

 

 

[1] Gravois, 2007

[2] Carver, 2002

[3] Carter & Lorsch, 2004

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