A Director’s Responsibility to the CEO
Today’s unprecedented pace of disruptive innovation in the market and conflicting demands of multiple stakeholders are creating relentless pressure on the CEO. Is the board contributing to the CEO’s performance and ability to function?
A recent survey of 3,000 CEOs and senior executives sheds further light on the increasing complexity these business leaders face. Three out of four CEOs report that their companies face significant disruption. Seven in 10 are concerned that their executive teams lack the agility to deal with this disruption. Almost all CEOs (98 percent) recognize they need to change their business models within the next three years in response to internal and external disruption. In addition, a strong majority of CEOs (85 percent) aren’t sure where to begin, as it’s become increasingly challenging to prioritize the executive team’s agenda.
The above findings resonate in light of the results of another recent global survey of the most significant risks that companies face. That study indicates that resistance to change is the fourth-rated risk overall for both 2023 and the next 10 years.
So, what should board members do to fulfill their responsibilities to shareholders as they assist the CEO in facing the business realities of today and tomorrow? Below are seven suggestions.
Facilitate straight talk in the boardroom. Effective CEOs offer optimism and purpose to the organization to create focus and direction. However, their message must also acknowledge the headwinds and uncertainty in the marketplace. This requires respectful relationships, trust, and authenticity in the boardroom, as the board sets the tone for such strategic communications.
Help the CEO prioritize through discussions connected to the strategy. Pressure can be alleviated through effective prioritization. One of the CEO’s most important tasks is identifying mission-critical priorities and designing a strategy to address them. Directors should immerse themselves in the CEO’s world so they can engage in strategic conversations around allocating resources to address the issues that truly matter.
Review, consult, advise, and approve—don’t direct. Being a director doesn’t mean being directive. Board members’ role in relation to the CEO isn’t to make decisions unilaterally or immerse themselves into the business as de facto managers but to advise the CEO and management team in a manner consistent with their fiduciary duties. Directors review, consult on, approve, and support specifically designated decisions and empower the CEO to carry out those decisions. They inculcate a relationship with the CEO based on trust, shared values, and transparency. Metrics and standards of CEO performance are developed in consultation with the CEO in alignment with the strategy and are used to hold the CEO accountable for results.
Encourage a relentless focus on markets and the customer experience. Being connected to market signs of potential impacts on critical assumptions underpinning the strategy and business model engenders confidence in knowing when change is occurring so necessary adjustments can be made. Directors should ensure that the CEO uses an external, outward-looking lens that emphasizes customer value creation and customer experiences as keys to success.
Connectivity to customer fulfillment processes sharpens the focus on improving them continuously. Infatuation with internal process performance without understanding the needs of end users doesn’t turn out well in a rapidly changing environment. That is why the CEO should foster an environment where metrics, advanced data analytics, and employees provide insights to leaders about markets, customers, process performance, and other matters, including news and contrarian information they may not want to hear.
Be aware of the importance of culture. A trust-based, diverse, and inclusive culture fostered by a CEO and leadership team that is authentic, connected, and transparent is needed to break down barriers of resistance and enhance organizational preparedness, agility, and decisiveness. The board chair or lead director sets the tone for a constructively engaged culture by working with and through the CEO to develop and sustain a productive working relationship in which differences are valued. The dynamics driving this relationship are complex in a rapidly changing environment.
Board members should set reporting protocols and controls and work with the CEO to develop an appropriate dashboard of key metrics and measures.
Ensure the board’s collective experiences and skill sets enable each director to participate in supporting the CEO. A recent survey noted that 48 percent of directors are of the view that one or more directors on their board should be replaced. Almost one in five directors (19 percent) would replace two or more of their fellow directors. This suggests that more discussion is warranted around thoughtful, reasoned departures from boards to maintain the board’s overall currency with market developments and the ability to provide value to the CEO.
Is the board aligned with the times while remaining knowledgeable of the business? If not, that’s a problem. Interestingly, a recent study of the skills profile of Russell 3000 boards found that the incoming director skill sets with the largest increases in prevalence over the last four years were marketing and sales, technology, and global experience. A shift in emphasis in boardroom skills is not surprising. CEOs are searching for practical solutions, ideas, and advice. They need critical thinking. That’s why board composition and individual director contribution should be periodically reviewed.
Don’t neglect succession planning and CEO well-being. Succession planning is a dynamic conversation. The CEO’s job takes a toll and, with the average CEO tenure lasting approximately five years, a strategy for identifying and developing future leaders is a priority for the board. Developing a workable succession plan takes time.
Updating candidate selection criteria and choosing an executive search advisor with a proven methodology and successful track record facilitate the preparatory process. A strong executive bench of exceptional leaders breeds qualified candidates.
It’s also important to ensure the CEO is focused on well-being. A healthy CEO is best positioned to look after the health of others and the business. Directors should watch for signs of unrealistic demands and expectations of how long key change and transformation initiatives will take to implement. Goals and targets based on forecasts and assumptions that are not grounded in reality can impose unnecessary stress, drive burnout, lower morale, and encourage inappropriate shortcuts and unacceptable risk-taking.
CEOs need collaborative, on-point sharing of ideas from their boards to be successful. They need value-added guidance and advice. They need empowerment. They don’t need theory that isn’t actionable. They don’t need extraneous agendas that drain energy and focus from the core strategies and challenges they and their boards have chosen to take on. The board’s challenge is to stay focused and position itself to engage in productive strategic conversations with the CEO in these challenging, disruptive times. In summary, directors should set the tone for an environment that encourages transparency, trust, and candor.
Jim DeLoach is managing director of Protiviti. DeLoach is the author of several books and a frequent contributor to NACD BoardTalk.