In corporate governance, there is a failure to clarify roles and responsibilities. A lack of clarity drives many directors to two very expensive extremes. Some directors over-play their roles, stepping on management’s toes, creating confusion and hampering the company’s ability to execute in response to market opportunity. Other directors fail to fully engage, taking up precious seats at the table that could be filled by someone whose ideas and efforts could really help the company move forward. In addition, the under-engaged director can tacitly support the ill-advised efforts of the over-engaged, or of activist investors who may not have the company’s best interests at heart.
Directors who don’t fully understand the ‘how’ of their board work cost precious time and money as they over or under contribute. Boards who figure this out, who are clear on the how of their work together create significant competitive advantage. CEOs must do three things to help them get there.
CEOs must work with their boards to draw a line between what they are expected to do versus what management does. In very large companies, CEOs usually subscribe to the NIFO rule for board participation—Nose In, Fingers Out. For instance, CEOs seek active participation in the development of strategy—ideas, market intel and perspective, but not involvement on execution. CEOs must articulate that distinction.
Small- or early-stage-company CEOs often prefer directors be Nose In, Elbows In, and to roll up their sleeves to fill resource gaps. For example, a small company with a growth strategy that depends on increasing capital may look to its board to make key introductions to targeted clients as well as to potential investors. The best directors are respectful of their CEOs terrain and truly want to help. Clarifying responsibilities ensures potential board members can do both.
CEOs must also lead the development of clear and aligned relationships between the players. Leadership teams often utilize responsibility-tracking tools, such as a RACI matrix, so executives know when they are to drive an initiative, advise on it or just stay informed. Boards need the same specificity. There are times when they need to lead, perhaps in a strategy discussion, advise, as in areas where they have particular expertise, or just stay informed when management is driving and board members with more relevant experience or expertise are advising. CEOs should give thought to what methods will work for their boards. Implementing an approach such as the RACI matrix will get directors functioning just as efficiently as the management team.
Finally, CEOs must revisit the line between, and the specifics of, leadership and governance roles as often as needed to respond to change. In today’s fast-paced, dynamic environments, what is required of all the players in the leadership and governance game can change quickly. When the requirements change, they must be discussed openly to reframe expectations and reset role specifics as needed. Management teams need boards to make recommendations and decisions efficiently so they can execute with all due speed. Clear and aligned relationships between the players that are tuned to market conditions will help CEOs create effective and competitive board/management partnerships.
Boards that work seamlessly and quickly with their CEOs and management teams enable their companies to find, evaluate and take advantage of market opportunities. They can do this when they know where the line between what they do and what management does is drawn, and understand specifically how they are to contribute, and are given regular guidance on how their roles must flex and contract in response to change.
The rapid evolution of the how of the work in the boardroom has led to misunderstanding and confusion in many companies. These guidelines create an opportunity for true competitive advantage for the CEO leading clarity in governance.