How can boards of directors and chief executives build better working relationships? In this post-Enron world, that is the $64,000 question. With everyone from the Securities and Exchange Commission to individual investors scrutinizing corporate behavior, businesses are under tremendous pressure to improve both board and executive performance.
Jon J. Masters, WJM Associates' corporate
governance practice leader, is both a corporate governance consultant and a senior management advisor. As a corporate lawyer with training in mediation and over 30 years of practice experience, he has counseled CEOs and directors in a variety of contexts and on a wide range of personal and organizational matters. A graduate of Princeton University and Harvard Law School, he is chairman of Masters Governance Consulting, LLC.
Masters: Many chief executive officers believe their directors lack the knowledge and expertise to be helpful and thus ignore them to the extent they can. A board that does not add value to a CEO is not likely to be a very effective overseer of management performance, because there is little incentive for the CEO to bring issues to the board or provide the board with more than the minimum required information
If CEOs and boards are to work well together, there must be something in it for both of them, and there can be. Given the complexities of businesses today, many CEOs can benefit from the counsel and support of a board that fully understands the company's business and has skills and experience that add value to its governance. Such a board, in turn, will function better because the CEO will be more likely to bring it issues before they become problems and thus enable the board to carry out its oversight more effectively.
Masters: Getting from here to there requires a focus not only on board structural issues, like directors' independence and the frequency and format of meetings and reports, but also on the "people" issues. Therein lies the rub. CEOs like to do things their own way without interference from the board, and the realities of the boardroom often make it difficult for directors to express their real concerns.
It is hard for a director to challenge the CEO, especially when the company appears to be doing well. Objectors are not seen as team players, and boards typically value collegiality over candor. Some issues are also so sensitive that no one wants to take the heat for raising them, such as the CEO who wants to stay forever and refuses to do succession planning.
Masters: To help the CEO and the board develop a shared understanding of each party's desires and concerns, a skilled independent third party is often needed to create neutral ground. As a confidential adviser, this person would be able to interview each board member on a not-for-attribution basis to surface hidden concerns and help communicate them positively to all parties.
Bringing board members and CEO together, the adviser might then facilitate the development of an action plan to deal with key issues. Periodic review meetings would keep the process in motion as the company faces the usual changes and challenges of doing business. All of this requires sensitivity, commitment and time, but the resulting constructive atmosphere would increase the company's credibility and performance as well as its accountability.