Securing the Helm

CEM_SONNENFELD_GSIn recent years, CEOs have been replaced by credible, if not always eager, independent directors from their own boards at prominent firms, such as DuPont, United Airlines, Delta Airlines, GM, Citigroup, Starwood Hotels and Saks Fifth Avenue. Investors welcome diligent boards that hold CEOs accountable for chronic performance failings, financial reporting irregularities and ethical or legal misconduct in office.

On occasion, however, there are suspicions that a lone performance issue, such as a single bad quarter or an inquiry from a regulatory authority, has played into the personal, unfulfilled mid-career ambitions of a director or two.

Contrary to past CEO entrenchment, CEO tenure hovers around eight years, with roughly 25% of leadership turnover at major firms due to overt terminations.

These five warning signs can help a CEO detect a diligent board with diminishing confidence:

“CEO tenure hovers around eight
years, with roughly 25% of
leadership turnover at major firms due to overt terminations.”

1. Increased executive sessions by board members that leave the CEO on the sidelines. These sessions are a best practice to ensure candid exchanges. At the same time, board members often run out of genuine current knowledge at these sessions and rely on past information, unsupported hunches and personal biases.

2. Information requests coming from the lead director or non-executive chairman. These appeals distance you from your board members and increase the likelihood that someone is avoiding contact with you and using a more benign messenger.

3. Requests for clarity on the use of your time, your travel, your expenses, etc. This may suggest someone is building a negligence or misconduct case against you.

4. Elevated board consultations with activist investors, regulators, auditors, board counsel and your own management lieutenants—without your involvement or without your knowledge of the nature of their inquiries.

5. Public statement of reassurance that the board is fully supportive of you—raising the idea that your position was even a target of concern. You may recall Jimmy Carter’s reassurance that he was 1,000 percent behind vice presidential running mate Thomas Eagleton, just before he replaced him on the ticket with Sargent Shriver.

When such signs emerge, try to regain confidence of the board by:

1. Maintaining regular one-on-one dialogues with each director to detect any dissension early on, to address emerging concerns before coalitions develop solidified positions and to fortify interpersonal trust.

2. Develop an informal process for updating your board in an ongoing way to keep members informed of your thoughts, hopes, fears and plans during the long gaps between quarterly board meetings.

3. Ask to attend an executive session of the board toward the end of the meeting to shed light on any concerns or to provide additional data, explanations and forecasts to help correct misconceptions or dangerous groupthink biases.

4. Request a written performance review by the compensation, nominating or executive committees of the board.

5. Suggest your own performance improvement plan and schedule. What added focus can you offer? In the past, many active CEOs were on too many outside boards; but now, at most, the norm is just one outside board with half of S&P CEOs sitting on only their own companies’ boards.

Finally, retain your good humor to reduce dysfunctional tensions that hamper openness and future plans. In 1967, Clark Kerr, when dismissed as president of the University of California, announced, “I left the presidency just as I had entered it, fired with enthusiasm!”

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Jeffrey Sonnenfeld
Jeffrey Sonnenfeld is senior associate dean, leadership studies, Lester Crown professor of leadership practice, Yale School of Management, as well as president of the Yale Chief Executive Leadership Institute and author of The Hero’s Farewell and Firing Back.

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