Business leaders have always faced the challenge of satisfying both the demands of an independent board of directors and the needs of their executive team members. But over the past decade that task has become trickier. An increasingly competitive and turbulent landscape is putting pressure on CEOs to ratchet up their involvement in the operational aspects of businesses and functional areas. At the same time, organizations are more complex and operations more global- making it more essential than ever that CEOs build and foster an executive team that can take accountability for broad corporate objectives.
In the meantime, boards have grown steadily more vigilant, scrutinizing leaders more closely on everything from business strategy to CEO compensation and succession. That more vigorous over sight was initially spurred in part by high-profile failures such as Enron and Tyco and the subsequent game changing mandates of Sarbanes-Oxley. More recently, credit crises on Wall Street and the global economic downturn prompted the pendulum to swing even further-to the point, many say, of “hypervigilance.”
The result? CEOs are being pulled in two directions, trying to reassure skittish directors and develop both key talent and an effective, but not intrusive, board. “Nervousness at the board level is impacting the whole governance system,” asserted Tom Saporito, chairman and CEO of RHR International, speaking at a CEO roundtable discussion that RHR held in partnership with Chief Executive. “We’ve all heard the expression ‘nose in, fingers out.’ But we’re in a phase of ‘nose in, fingers in’ because of that overreaction.”
Activists in the Boardroom
“There’s been a change of attitude and approach,” agreed Anupam Narayan, CEO of Red Lion. “It seems to me that right now there’s a certain amount of separation, perhaps mistrust, between boards and the CEO. In fact, my suggesting a new board member may be the kiss of death because [the governance chairman and board are so focused on] independence.”
Safeguard Scientifics CEO Peter Boni echoed the sentiment, recounting a “meltdown on alignment” with his board when the economic downturn hit. The company’s stock dropped from $18 to $2 and the board panicked, he recalled. “They basically said, ‘Let’s look at 16 different business models.’ I said, ‘I have combat experience and I’m steady on my feet under fire. I expect the same from my board, and I’m sorely disappointed.’”
Ensuing discussions eventually brought Boni and the board back into alignment-but only after two board members resigned. “We had some difficult conversations, and at one point I said, ‘I take advice really well, but I don’t take guff and you’re crossing my line,’” said Boni. “Before one meeting I told my wife, ‘I’m not sure I’m going to come home with the same business card that I left with.’”
But an effective board can be just as much of an asset as an overzealous board can be a detriment. The trick is luring the right set of skills into the boardroom and establishing standards that enable directors to contribute effectively without overstepping their boundaries, noted Stephen Light, CEO of Xerium Technologies.
“To be an effective director you have to be qualified; you need some relevant business or industry background, and an independent source of information,” said Light. “I have no issue with my directors calling my senior officers wherever they are in the world. The only caveats are that I would like to know about it and don’t give them work direction. If you want them to do something, tell me.”
Ultimately, it will be up to CEOs to work with their boards to achieve a balance between the lack of oversight of the past and the hypervigilance present today. “CEOs who are in the middle have either caused or allowed themselves to be put there,” notes Robert Bloom, coauthor of The Inside Advantage. “Leaders have to make sure there is alignment of strategy all the way up to the board and down through the company. Alignment isn’t happening because a lot of CEOs don’t recognize it’s necessary.”
However, that may change as roles are redefined. “We’re in the midst of an evolution,” says Saporito. “We went from the CEO managing the board as just another constituency to this hypervigilant stage. Now I think we’ll see the pendulum swing back toward the center, moving from the board as a potential adversary to more of a partner.”
The interaction of executive team members and CEOs is shifting in a similar way, noted Paul Winum, senior partner of RHR International. “The change in the way boards operate is paralleling the way senior executive teams are changing or need to evolve,” he pointed out. “It seems that the old model of a CEO who would have one-on-one relationships with business leaders, the CFO, general counsel and so on has to change so there’s a collective ensemble of executives who take joint accountability and responsibility for corporate objectives.”
That evolution will, in turn, demand a shift in CEO mindset. “It requires that CEOs handle board interaction as more of a partnership,” noted Winum. “And that they engage the senior team to own and accept responsibility for enterprisewide objectives, rather than just their own functional areas of responsibility.”