Tom Monahan, chairman and chief executive of corporate research and technology firm CEB, told the Washington Post that increased pressure on boards is changing life in the C-suite. He says that as more investors assert ideas about how companies should be run, they are fueling a shift in directors’ roles from passive governors to engaged advocates.
Monahan says boards no longer simply evaluate the CEO, review succession plans and offer advice. They want more direct involvement in the business and expect the C-suite and corporate managers to help them.
“Increasingly, CEOs have to arm directors with more information at a much deeper level than was common in the past,” says Monahan. “Full executive teams are entering into broader and deeper dialogue with directors.”
Boards are under increasing pressure not only to increase shareholder value, but to reduce CEO turnover. Activist investor groups are also fueling some of the changes. Nasdaq’s Activist Landscape report revealed an 84% increase in activist campaigns targeting industrials in 2015 while financial, technology and healthcare companies saw a 52% risk in activist campaigns.
Korn Ferry research reveals that boards are also using more robust assessment tools in CEO selection and evaluation. In addition, many are taking more active roles in everyday operations, something that could create tension should boards engage in micromanagement.
AgendaWeek reports that many new CEOs find it difficult to work with directors. Board politics, micromanagement and “energy-snapping” requests from directors took up many of their working hours, the article said. Meanwhile, “Expect the Unexpected,” a CEO survey by consulting firm The River Group reports. Many said in interviews that they were “astonished and drained” by the difficulty in satisfying directors.
Boards and C-suite executives will have to be cognizant of the boundaries and balance in their relationships. Russell Reynolds Associates noted in a blog post the essential elements of an effective CEO-board relationship, such as effectively advising the CEO, asking tough questions, acting when necessary and collaborating to establish expectations, agendas, processes and decision rules.
Monahan expects boards to continue to become more engaged and says existing leadership teams need to groom the next generation of C-suite executives to develop the right skills and personality to partner across traditional boundaries.
“The next generation will need to have the business depth, shareholder perspective, and influence skills to bring continuous value to board discussions from day one,” he says.