For better or worse
Hay Group’s Helen Scotts and David Southall explore the
dynamics of the most important relationship in many
organisations – that between the chair and CEO – and discuss
the factors that will determine if it is a marriage made in
heaven or hell.
I
t has been said that ‘marriage is a commitment of one imperfect person to another
imperfect person’ and as such, each person in the relationship should not expect
perfection from their partner but instead take responsibility for their own behaviour.1
This might equally apply in corporate relationships, where unrealistic expectations
can breakdown an effective relationship between the chair and CEO and lead to the
corporate equivalent of divorce. This can derail any organisation trying to recover from
an economic downturn.
For
better
or
worse
Is the relationship between chair and CEO more or less difficult to get right than a
marriage? What are the signs that this relationship is beginning to deteriorate? What
things need to change to get the relationship back on track? And what is the business
cost of a poor relationship?
While both roles bring decision-making clout
and authority to their activities, a great chair/CEO
relationship will demonstrate willingness for
power-sharing.
“
”
Thankfully, these questions are becoming part of board dialogues on organisational
performance. While the impact of the global financial crisis has heightened media
interest in how boards manage the immediate operational issues of change, the reality
is that organisations will always face situations where the effort put into building and
maintaining strong, productive relationships between the roles of chair and CEO, will
either build or block performance in a recovery.
A declining share price and profit downgrades may create the obvious need for an
organisation to revisit its chair and CEO relationship, but any business transition or
change can challenge a previously sound relationship. Business transition or change
situations usually generate considered transformation programs (often sponsored by
the board) at employee and manager level, which just as often ignore any need for
adjustment at the chair/CEO level. For example, when an organisation is shifting its
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business strategy from being a single to
a multiple product/service company,
different views can develop at board and
executive level about the rationale, benefits
and need for the change. In developing
a strategy for the new organisation,
attention can remain focused at the level
of executive leadership and on how the
business units will work together. This
situation can also put the chair/CEO
relationship under stress.
So what are the symptoms which indicate
to boards and the executive top team that
the chair/CEO relationship is under threat?
A relationship under stress
Hay Group’s dealings with boards have
made it easy to spot the characteristics
which suggest a strong and productive
chair/CEO relationship. In the
boardroom there is a sense that board
members are able to ask the tough
questions, to challenge executive
management and themselves, by offering
and effectively debating different points
of view prior to reaching consensus. It
is clear that board members care about
the company and they demonstrate their
passion and drive for success.
It is just as easy to spot the signs of
a relationship under stress. Meetings
become less effective and often express
conflicting opinions and declarations
without reaching agreement.
Internationally renowned author on
management Peter Drucker believes that
60 per cent of management problems
result from faulty communication.2
These symptoms may signal the time
for this relationship to seek the business
equivalent of a ‘marriage guidance
counsellor’.
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Even when the chair/CEO relationship appears strong, there are two tough questions
boards can ask to ensure stress may be diagnosed before symptoms appear. Boards
should consider ‘are we looking at a great partnership?’ and then ask ‘do we have role
clarity?’
1. Are we looking at a great partnership?
A truly constructive working relationship at the top has some visible characteristics.
While both roles bring decision-making clout and authority to their activities, a great
chair/CEO relationship will demonstrate willingness for power-sharing. This means a
respect for boundaries and a strong capacity to work collaboratively. The CEO will see
it as a key part of his/her role to build and maintain alignment on key business issues
with the chair by seeking regular dialogue aimed at briefing, exchanging ideas, seeking
advice and on occasions, preparing the chair for forthcoming challenges or risks,
ensuring that there are no surprises.
A healthy relationship between these two key roles is also characterised by each seeing
the other as a valued sounding-board, where there is a genuine eagerness to hear
the other’s point of view. In a great chair/CEO partnership there is a willingness to
challenge each other, to express disagreement and an ability to work through issues in a
constructive manner. The ease and quality of communication has the effect of building
trust and respect, which is visible and empowering to the leadership team and to the
board as a whole. These are indicators of a sound partnership and platform on which
the CEO and chair can shape the culture of the organisation.
The signs of a relationship breakdown are equally visible. Communication and one-onone dialogue outside formal meetings may be guarded or infrequent. Board members
become aware of growing tension in the chair/CEO relationship when they see and
hear two separate individuals rather than a partnership that ‘speaks with one voice’.
Unhealthy power plays may become evident and disagreements may be played out in
front of the full board, or worse, in public situations. This is unsettling and creates
tension. Both chair and CEO will experience frustration, and performance at the top
of the organisation is inevitably affected.
2. Do we have role clarity?
Key to the performance of both CEO and chair is the clear delineation of respective
roles and responsibilities, which will maximise the effectiveness of both. Effective
boards establish clarity around the unique contribution that each role can make. For
example, the chair runs board meetings, sets the agenda and oversees information
sent to board members. The chair assumes leadership and has clear responsibility for
keeping the focus of the board on setting strategic direction, while the role of the
CEO is to lead the development and execution of the strategic plan in the context
of that direction. The CEO and the executive leadership team lead the operations of
the organisation. The board has no role in operations and the chair is accountable for
ensuring that the inappropriate crossing of boundaries does not occur.
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Role clarity is so important that if boundaries are unclear or not respected by either
party, this will be the key contributing factor to the breakdown of the chair/CEO
relationship.
CEO checklist:
When does a strong chair/CEO relationship matter most?
How strong is your relationship with the chair?
A strong chair/CEO relationship will really benefit your organisation in support
of the transition of directors or the members of the executive leadership. The CEO
succession exercise is a basic principle of effective board governance and a true test
of the relationship. Do the CEO and the chair share the same views of the current
performance of executive team members? Is there agreement on the capability of
internal candidates for CEO succession? Do board members have the framework
needed to respond even in the crisis of a sudden departure?
I am clear about the boundaries of the roles of CEO and chair and our
accountabilities are clear;
Over the past few years, reasons for the departure of business leaders have been
varied. We have seen departures due to sudden death (McDonald’s), being led away
in handcuffs (HIH), termination by the board (Fosters), or simply recruited away by
the competition (St George Bank). A 2007 study of governance practices at 150 of the
world’s largest companies conducted by Hay Group, found that of those on Fortune
magazine’s ‘World’s Most Admired Companies’ list, 90 per cent have an emergency
CEO succession plan in place, which is reviewed (at least) annually and discussed at
board level.
The chair avoids stepping into areas that should be left to me to manage;
Our experience is that often boards start the discussion on CEO succession by
considering which members of the executive team could potentially step into the role
but this approach misses the critical issue of alignment between the CEO role and the
talent assessment process. To ensure this alignment, chair and CEO need to be able to
agree and articulate the top three to five requirements that will ensure the successful
leadership of the company now and most importantly, into the future and to align each
internal candidate against these attributes.
Board continuity also relies heavily on strong chair/CEO relationships. How effectively
and how fast can the board respond to the imperative of replacing board members
should the need arise?
Many organisations, such as membership-based companies and family-owned and
run businesses, need to factor director turnover into the assessment of potential risks
to business continuity and to the ongoing effectiveness of the current chair/CEO
relationship. Hay Group’s experience is that the most effective boards have clearly
defined plans to assist new directors come to grips with the processes, procedures and
role of the board quickly and as a result, can maintain momentum in their debate and
decision-making.
In contrast, where boards struggle with director turnover, there is often an assumption
that the new director will already know what to do and will be able to operate
effectively. However, as the HIH Royal Commission tellingly reported in 2003,
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I never end up in a power struggle with the chair;
We often have lively debate and constructive disagreement;
I feel a sense of energy and engagement at board meetings rather than dread;
The chair and I talk and meet informally on a regular basis;
The chair helps me perform at my best.
‘identification of the background, skills and expertise of the people who walk into the
boardroom is a good start, but it is what they do when they get there that is critical.’3
The first step towards the effective management of director turnover is for the chair
and CEO to agree the key elements required to select and induct new board members.
These key elements should outline the responsibilities of a new director, including the
way in which directors can engage with the executive team.
Induction of new board members should identify any need to challenge or manage
individual director behaviour. Chair and CEO need to have agreed the boardroom
norms and behaviours, and be able to communicate these to the new director quickly.
Clarity on norms and behaviours becomes critical to ongoing board continuity, as
it will enable new directors to align previous board models they have experienced
with their new organisation. This will ensure that past experience does not result in
behaviour that is inappropriate or adversarial to the new model.
Hay Group has found that where the chair and CEO are unable to reach agreement
on director induction, new directors can struggle to differentiate governance from
management.
For better or worse
From time to time, the chair/CEO relationship will show some signs of stress. This is
a reality (even in the best of marriages) but is not necessarily a symptom that requires
either relationship counselling or separation. Tolstoy claimed: “What counts in making
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a happy marriage is not so much how compatible you are, but how you deal with
incompatibility”4. Similarly, the strength of the chair/CEO partnership will be evident
in how quickly and effectively both ‘imperfect’ individuals can identify and rectify the
signs of stress in their relationship.
There is no relationship within an organisation with a greater impact on performance
than that of the chair and CEO. Without a strong relationship, performance at both
board and executive levels will suffer and the effects will cascade throughout the
organisation. The best leaders do not expect a perfect corporate ‘marriage’ of chair
and CEO roles. Instead, each takes responsibility for the partnership, understanding
that building and sustaining a strong, productive chair/CEO relationship requires the
ongoing commitment of both to work.
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Australia’s
most
1. Richard Innes, ‘Seven Secrets for a Successful Marriage’, ACTS International, 2001.
2. Peter Drucker, ‘What Makes an Effective Executive,’ Harvard Business Review. 82:6 (2004).
3. The Hon Justice Neville Owen, ‘The failure of HIH Insurance’, HIH Royal Commission. ©
Commonwealth of Australia (2003).
4. Leo Nikolaevich Tolstoy, Russian philosopher, novelist.
Hay Group has partnered with BRW to bring you Australia’s
Most Respected Companies.
This is a survey of peer perception and respect in the overall
business community and within individual industries.
The word respect was deliberately chosen as we believe
it is reflective of the Australian culture. You may not think
an organisation does everything right, you may not revere
them, but you may still respect them for doing some things
really well.
The 2009 research surveyed over 400 companies and
included a series of interviews with CEOs to rank the most
respected companies in Australia.
To find out more about the results of the survey or to
participate in the 2010 study please contact us.
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