Turmoil in the CEO world has been on the rise in recent years. In 2008, three Fortune 500 CEOs were replaced by members of their respective company boards. Each year since then has seen a threefold increase in that figure. Why are so many CEOs being shown the door? The market’s upheaval is a big piece of the equation—rattling boards and directors and coloring their expectations and perceptions around CEO performance. But while turbulence surely contributed to the bump in CEO oustings, the underlying cause is more likely a longer-standing issue, agreed participants gathered for a Chief Executive roundtable discussion on leadership held in partnership with Heidrick & Struggles.
“The No. 1 reason we get called for replacement of a CEO is a lack of strategic alignment with the board,” asserted John Wood, vice chairman of the executive search firm Heidrick & Struggles, who notes that the choice of a board member as a successor is only fitting in such cases. “If you’ve been sitting in a room with someone for the last few years, discussing the state of the business and where it’s evolving, you probably have a pretty good idea where their head is on strategy. When you reach out to one of your own and put him in the CEO seat you’re automatically getting someone who aligns with you strategically.”
But the idea of boards making a practice of replacing CEOs who don’t embrace their strategic directions with one of their own—as evidenced by recent successions at HP, The Gap and Denny’s—begs the question: Who is charged with forging a corporate strategy, the company’s board or its CEO? Are CEOs merely hired guns charged with executing to the collective vision of the board?
Joe Herring, CEO of the pharmaceutical development company Covance, expressed doubt about that concept. “Let’s say you’re brilliant leader with a lot of energy,” he said. “Would you rather the board paint its strategy and say, ‘This is the playbook. Go do it’? Or would you rather be part of developing and then implementing the strategy? In my experience, the more I engage the team in developing the strategy, the more fired up they are about executing on it; and when things don’t go well they take ownership to fix it.”
Even a collegial environment might be something of a stretch for some CEOs, many of whom are accustomed to a higher degree of control over strategic direction “It’s the CEO’s job to do the vision and the execution,” noted Gayle Estabrooks, CEO of the Canadian optical store chain Greiche and Scaff. “You are immersed in the business, not your board. The board is not there all the time. They’re there for feedback, conversation and support.”
Complication Demands Collaboration
Generally, however, board involvement is on the rise—and rightly so. “Today, every operating blueprint is so complicated; and without an execution strategy it doesn’t mean anything,” asserted Faisal Hoque, founder and CEO of the management solutions provider BTM Corporation. “So unless you have a collaborative way of coming up with a strategy and also the operational executions, the company will fail. You have to create a collaborative management structure and way to execute the operational plan.”
The issue of strategy-setting aside, the days of board members simply showing up quarterly to rubber stamp a CEO’s direction are long gone. At a minimum, both companies and CEOs expect counsel and input from their directors, noted Joe Herring, who overhauled Covance’s board when he took the CEO spot in 2005. “I had a troubled board,” he said. “I had one [director] who was sleeping, one who wanted my job and one who didn’t read the board book. So I said, ‘For this company to go forward we need a board that acts as a business partner—that will actively engage and ask hard questions—but in a respectful, constructive way.’ We changed out 75 percent of the board and the impact to our company was huge.”
At BTM, board members are expected to contribute directly to the company’s growth, said Hoque. “We want our board to be a working board,” he noted. “So we give assignments to our board members to make sure that they can actually help the company to get to the next level and to know who can help if something were to happen to the CEO.”
At the same time, over-involvement of a board can lead to disaster. Sandy Climan, president of media investment firm Entertainment Media Ventures, points to Panavision as an example of a board that brought in a new CEO who controlling investor Ron Perelman hailed as “a visionary,” only to undermine him at every turn. “That vision clashed with what the owners—it was an inside board—wanted and creditors ended up owning the company,” said Climan.
Communication around roles can stave off that sort of implosion, noted Bob Darbee, CEO of the venture capital company Omni Capital. “The relative roles of the CEO and the board have to be defined,” he said. “Nominally, the schoolbook rule is that the board members represent shareholders and are largely overseers, while management is [charged with] execution for the benefit of the shareholders. If the board gets involved with management, you can’t have mixed messages.”
In fact, ultimately, successful strategic leadership may depend more on CEO, board and management team alignment around strategy than exactly who sets strategy. “Whatever the system is, there needs to be alignment,” said Ken Makovsky, CEO of the public relations firm Makovsky & Company. “Whether the board sets strategy or the CEO decides it, there has to be consensus among that entire group in order for it to work.”
However, turbulent times can knock alignment off-track. When CEOs and board members are under pressure to address a disruption and to do so swiftly, a disagreement about the best course of action can all too easily erupt into a crisis of leadership.
But CEOs can generally avoid that unhappy fate by changing their approach to conducting board meetings. The management guru and best-selling business author Ram Charan urges business leaders to focus on building board engagement by using meetings as an opportunity to educate board members on the competitive landscape in their respective industries. “Unless you have somebody who has industry knowledge—and even then that knowledge may be obsolete—your board does not really know the external side of the business,” he points out. “You need to educate them by succinctly presenting the external movement taking place—not what the competition has done, but what you see your competition likely to do. That’s how you’ll get partnership with your board.”