New CEOs typically inherit the boards of their predecessors-boards that today have become far more actively engaged than those of a decade earlier and have little hesitation in making changes in the corner office. The New York Times reports that American companies replaced roughly 1,400 CEOs in 2006, up from 1,322 in 2005 and 663 in 2004. Starting off on the right foot with the board is crucial to a new CEO’s success-and survival. Here are some practical tips for new CEOs who want to try to cultivate a relationship with their boards that is constructive and valuable right off the bat:
Find Another Board to Sit on
The average number of outside boards today’s CEO serves on is down to 0.8-not a healthy sign for one’s boardroom savvy. Most CEOs-particularly those promoted from within the company-have very limited experience working with boards. Quite often, the only corporate board they’ve seen in action is their own, and they’ve learned how to work with boards from watching their predecessors. One of the first things new CEOs should try to do is find another corporate board to sit on. While some directors will protest, saying that new CEOs have enough on their plates, the more savvy will quickly recognize that this is probably one of the most important professional development experiences new CEOs can have. Understanding the perspective from “the other side of the boardroom table” will change and enhance the way CEOs work with their own boards. Moreover, they will get the experience of watching another CEO work with a board, which can be equally valuable.
Finding that board seat, however, won’t be easy. Search firms often consider new CEOs untested as directors and therefore “high risk” in search assignments, preferring those who already have some board experience under their belts. Most new CEOs who have found board seats quickly were introduced to the other company’s nominating committee chair by members of their own board who saw the value in finding the new CEO a good directorship opportunity. Either in a meeting or in informal conversations, a new CEO should talk to his or her board about the idea and enlist both their support and active assistance.
Get Smart on Governance Issues…
Many new CEOs sign up for some of the fine directors’ courses at Harvard, Wharton or Stanford to learn more about governance. This is an excellent start; however, new CEOs are often reluctant-and rightly so-to ask potentially sensitive and difficult questions that may be on their minds about their own boards in these forums. Five years ago, I worked with the incoming CEO of a Fortune 500 company who’d enjoyed the Harvard course but wanted to follow it up with a private session focused specifically on issues he was concerned about with his own board. We assembled a small team of experts in various governance issues that he specified. Beyond a mere tutorial, the session surfaced a thorny issue that he was facing about the addition of another new director who had some obvious conflicts of interest. After discussing his concerns candidly and exploring various approaches that other boards had adopted in similar situations, he dealt with the problem that very afternoon-relieving what could have created a significant chasm between CEO and board right at the outset.
…Including Executive Compensation Issues
Nothing has the potential to embarrass any CEO more than media headlines critiquing his or her compensation. Yet many feel that because their pay is determined by a compensation committee comprised of independent board members, it’s not something they need to worry about too much. Nothing could be further from the truth.
The CEO of a NYSE-listed communications company was shocked to find his name in the business pages for excessive pay along with derisive comments about his bonus program. He contacted a consultant who had not worked with the board or management and learned more about pay practices, why his was under fire, and what might have been a better approach. Thus armed, he approached his own compensation committee and recommended some changes. While CEOs love big compensation packages, they also owe it to themselves to learn enough about this topic to know when to raise red flags.
Get the “Lay of the Land” in Your Boardroom
Many boards and CEOs recognize the value of a board-building process that involves interviews with all directors and members of the executive team who regularly interface with the board on a variety of parameters of board effectiveness. In fact, some conduct their board assessments this way every third or fourth year as a more comprehensive process than the traditional board survey.
When the incoming CEO of a high-tech Fortune 500 company used this approach within weeks of taking office, issues surfaced about the board’s frustrations with his predecessor that he’d never imagined. Armed with this new understanding and a platform to discuss it, he and the board explored what had led to past frustrations and how these problems could be addressed going forward. The new CEO also wanted to work with the board much differently than the former CEO had, and he was able to use this conversation to outline his own expectations and approach. The result was an important “clearing of the air” that enabled both the board and new CEO to directly discuss their working relationship and changes that would enhance it right away. One frustration on both sides had been the ritualism of board meetings and the former CEO’s imperial style. As a tangible means of showing that things had changed in the board/management relationship, the next three board meetings were held in a staff room on a lower floor of the company’s headquarters before resuming again at the mahogany table.
Discuss Your Emergency Succession Plan
Up until the time that a new CEO takes the helm, the company is typically well provided for if their outgoing CEO is hit by a bus: Waiting in the wings is an excellent candidate in the final stages of grooming who can step-almost seamlessly-into the corner office amidst an unforeseen tragedy. McDonald’s is perhaps the best-known example of a CEO candidate being at the ready when a heart attack claimed the life of Jim Cantalupo in 2003, and when his successor, Charlie Bell, was diagnosed with cancer only a few months later.
Once a new CEO is in harness and the outgoing CEO has ridden into the sunset, emergency succession is typically unclear. Discussing this with the board very early on can be extremely helpful to a new CEO for three reasons: First, it demonstrates confidence by the CEO in that he or she is willing to talk about succession and understands its critical importance in the minds of the board members, who are typically thinking about this issue the minute they pass the baton, but reluctant to raise it. Second, this discussion usually gives the new CEO insights into how the executive team members are perceived by the board. Finally, it is an area where the board and new CEO typically become quite engaged and can have a good, open discussion-something critical to establishing their new working relationship.
Secure the Board’s Genuine Understanding and Buy-In on Corporate Strategy
One of the first things any new CEO needs to address is corporate strategy. In some instances, where significant change is needed in corporate direction, this will involve a comprehensive strategy development process. In others, it will be a more modest strategic review with some tweaking. Most CEOs are reluctant to engage their boards properly or effectively on issues of strategy. For new CEOs, in particular, designing a strategy process with the board can be critical.
The new CEO of a troubled consumer goods manufacturer immediately set about developing a radically different strategy for the failing company whose leadership he’d just assumed. When asked how he was engaging with his board in the strategy process, he answered, “The new strategy is Item 3 on the agenda of the May board meeting.” Although the board had no involvement in any aspect of the development of the new strategy up to that point, he wasn’t concerned about getting their approval, noting, “The first thing the board told me is that they wanted me to develop a new strategy to turn this company around. They know it’s coming, and I’m just planning to smoke it right through at the meeting!” He did. With few questions or comments, the board approved the strategy at the May meeting, and the new CEO happily went ahead with his plans to implement it, confident of the board’s support.
At the July meeting, however, things began to unravel. The board blocked the sale of certain businesses the CEO wanted to exit and refused to fund other initiatives that the CEO felt were pivotal to the new strategy. The same thing happened at the September meeting where approval for other major expenditures for strategic initiatives and a major organizational redesign came before the board. By October, the strategy had become piecemeal-strategic issues and the underlying assumptions on which they were founded all came under debate in the context of tactical moves.
The new CEO became frustrated with the directors who, he explained, either “didn’t get the strategy” or were deliberately impeding his ability to execute it. The board-which was never really given the opportunity to understand the rationale for the strategy in the first place, much less become engaged in its development-was now becoming increasingly concerned by the direction the new CEO wanted to take. Secluding themselves away in a suite at a nearby hotel prior to the November board meeting, the directors came to the conclusion that they had picked the wrong leader for this company-and told him so the next day.
New CEOs have a myriad of priorities as they assume corporate leadership. In decades past, their relationship with the board was pretty close to the bottom of that list. But new CEOs who ignore the importance of this issue in today’s boardroom environment do so at their peril. Those who take the time and make the effort to understand the board’s perspective, address their key issues and establish a constructive working relationship with them right from the start not only avoid pitfalls, but can reap significant benefits for years to come.
Beverly Behan is managing director of the board effectiveness practice of the Hay Group, based in