CEOs are under immense pressure to lead, manage and deliver all-important growth in the current climate.
As a result, it’s vital that boards work closely with and support the CEO with various governance processes to ensure they are adding value and delivering business growth.
A good place to start is with role clarity – defining where the role of the board stops and that of the CEO begins. Suppose there is any ambiguity and confusion over the roles of the CEO and board directors, particularly in turbulent times. In that case, this will have a negative impact on decision making and board effectiveness. It’s the role of the chair and the wider board to provide clarity in this area and facilitate the discussion where the boundaries between the board and CEO are unclear.
Relationship between the board and the CEO
Having a relationship that’s fit for purpose is vital for the board and CEO. To achieve this the board’s rules of engagement that demand trust, respect and honesty – the three fundamental currencies that enable an effective and productive relationship between the two – must be adhered to.
Both the board and CEO need to make time to reflect on how this relationship is working and, where appropriate, recalibrate it to ensure that the way the board works with the CEO, and vice versa, brings value to the board, CEO and the organisation.
Ensure time for the board and CEO without the rest of the management team
Having time together without management present is very important. It presents an opportunity for the CEO to share what’s on their mind with directors, cover what has gone well and less well since the last board meeting and for the CEO to bring the board up to date with the planned activities and initiatives in the next reporting period.
With the CEO’s position being a lonely one, the board can add significant value to the CEO as a forum for advice, testing ideas and validating assumptions. This way the CEO can access the collective wisdom of the board in a psychologically safe space.
With the interplay between the three critical elements of risk, strategy and return often based on assumptions at board-level, the board must ensure that any assumptions from the CEO, or indeed any director, are challenged to validate their relevance. Only once this has taken place is it possible to have assurance that the right path is being taken – something that is particularly important when quick decisions are required during uncertain times.
Today, the board must make sure that future strategy is live in the boardroom. As part of their role in supporting the CEO, this requires the board to ensure the leader keeps their focus on future strategy – how the organisation can achieve its purpose – by looking at new opportunities, rewards, as well as risks.
Regular reviews of the CEO
One of the most important roles of the board involves putting in place and implementing a review process for the CEO.
Regular, well run reviews enable the board to reflect on how the CEO has performed and, significantly, provides an opportunity to move beyond basic compliance to pose the important question ‘how fit is the CEO for the future?’. It’s best practice governance in action.
The issue is too many reviews of the CEO are undertaken as a tick box exercise, largely because they are viewed as another task to remove from the governance to-do list. These assessments do not power performance.
Only reviews that prompt a periodic re-examination of how fit for the future the CEO is, enables a culture which is performance focused. It’s because the data collected from the evaluation supports improvements in the CEO’s performance, enabling them to refine their approach.
The first step for the board to deliver an effective, performance focused review of the CEO is to examine relevant documentation regarding their appointment, induction and development. Other documents reviewed should also include the strategic plan, business plan and budget of the organisation, plus data gathered in any previous reviews, cultural assessment or third-party evaluations, along with key performance indicators. Access to this information enables directors to gain a better understanding of the review history of the CEO and consider how the board has handled the recommendations from previous evaluations.
Then, online surveys need to be created and sent to all on the board and any direct reports to the CEO. These must be tailored, reflecting the purpose and strategic objectives of the business and an assessment of the behaviours, skills, knowledge and impact of the CEO.
When completing the online survey, participants should confidentially rate every area of the CEO’s performance and additionally raise any development needs.
Interviews are the next step because of the critical quality assurance and insight they can deliver. It’s vital that they are conducted by a trusted interviewer who is experienced in board dynamics and effectiveness.
Interviews offer an opportunity for an objective review of achievements, behaviours, development needs and deliverables, which helps to power the performance of the CEO. Also, by taking this approach, you reduce the risk of an emotional, personality direct assessment, by infusing rationality and objectivity. After all, the ‘psychological safety’ of the CEO is paramount.
Once data gathering is complete, it’s time to present the findings to the board. The resulting report should identify any divergence between the directors and the CEO regarding their performance. This enables the board to spot strengths and opportunities for performance improvement and personal development.
Credible actions with clear ownership then need to be reviewed, however, these should not take place formally twelve months later. Instead, regular ‘pulse checks’ based on the feedback from the assessment must be undertaken throughout the year by the board to guarantee progress and a strong CEO performance.
While any assessment will help the board to clarify how to better support the CEO, it may also prompt them to source a new one, which therefore requires an exit strategy that avoids disruption to the business. This could lead, for example, to the chief operating officer (COO) becoming the acting CEO prior to the appointment of a new CEO.
While CEO succession planning is time consuming and takes a lot of effort, it’s always better to have one than to be caught without a plan or a clear leader. It’s those boards that plan for the succession of the CEO that ensure a smooth transition in the leadership of the organisation, with minimal disruption and business continuity. This is why having a succession plan for the CEO is such a key governance process.
During the planning stage boards should think about the role of the CEO and the personal, technical and behavioural characteristics that leadership of the next stage of the organisation’s evolution will demand.
Succession planning is particularly important where the existing CEO has unique skills, experience or connections with critical stakeholders, which are vital to the organisation’s growth and future success, which means they cannot easily be replaced.
CEO succession plans should be reviewed by the board at least once a year, and they should always be ready to act on it at short notice. Unfortunately, for many boards the default option is ‘go to market’ and succession planning is not something they contemplate until time is not on their side. For example, when the current CEO comes towards the planned end of their term, reaches retirement age or is no longer seen as the right person to lead the company.
Finding a suitable replacement can take many months, possibly more than a year, particularly if looking for someone external to the organisation. Lacking a leader for a significant length of time could have a major impact on the effectiveness of the organisation and board.
Journey of learning (induction)
Having an induction or ‘journey of learning’ in place over 18-24 months is the best way to ensure the new CEO is able to quickly gain familiarity with the organisation, make a meaningful contribution to board deliberations and effectively lead from the start of their tenures.
Regrettably, too many boards assume the onboarding process involves dumping a wealth of reading material on the new CEO, including documents such as codes of conduct, strategic plans, annual reports, etc, or emailing a link to the online board portal for them to peruse, and expect them to quickly get on with the job in hand.
When the new CEO has important responsibilities and liabilities from day one, this approach of throwing them in the deep end is not helpful to them, the board or the organisation.
A successful journey of learning includes a programme of visits and experiences that sees the CEO getting out and about within the organisation and speaking to staff. This is essential to gain a thorough understanding of the business and how it operates. Also, there must be a buddy system, which ideally sees the CEO have an experienced director as a buddy. They can brief the CEO on how things work, the background of the board and why certain decisions have been made in the past. It’s much quicker to learn this way than from reading briefing notes. Finally, there must be the opportunity for training, either formal governance training depending on their level of knowledge and experience, and bespoke in-house governance training, because governance processes often differ slightly differently between organisations. All this activity should be supported by an in-depth induction pack for the new CEO.
By taking this approach, it’s possible for the new CEO to hit the ground running and make a valuable contribution as soon as possible. The board must take the lead on planning and putting together the ‘journey of learning’ for the new CEO.
Leaders need all the help they can get, particularly in these volatile times. As a result, those boards that are serious about engendering long term growth for their business, and being effective, must have governance processes in place that support the CEO to ensure they perform well and add value.
For more information on how we can support CEOs, chairmen and directors with their boardroom and governance challenges, please contact one of our highly experienced governance consultants.