Benefits of CEO-Chair Relationship
The CEO-Chair dynamic is one of the biggest challenges that a Board can face. When the dynamic works the company excels, when it fails the negative consequences for shareholders are substantial.
In the best case, the CEO manages and the Chair oversees management. When the CEO-chair relationship is strong, the company benefits from having twice as much talent at the top, each playing a distinct leadership role, and each supporting the other.
When the relationship between Chair and CEO is not good it manifests itself in the worst ways:
- The Chair seeks a public voice and contradicts the CEO.
- There is Management confusion on which direction to follow to the point the business stagnates.
- The Chair micromanages the business and the CEO.
- A weak Chair allows issues to be swept under the carpet.
- Shareholders are given the false sense that there are strong governance structures.
The easiest way to understand the issues that arise in the CEO-Chair relationship is to understand the negative aspects when the roles are combined.
When the CEO is also the Board Chair
While more prevalent in the USA, it is often encountered in tech companies where the founder is both the CEO and Chair. We use this as an example of the importance of the separation of these two roles.
A Harvard Business Review article looked at three examples of companies where the CEO was also the Chair.
Example 1:
When Dennis Muilenburg retired as both Chair and CEO of Boeing he was responsible for overseeing the outfitting of the 737 Max an airliner with a flawed flight control system. The company lobbied successfully to ease regulatory review of the new aeroplane designs and then failed to tell pilots and the FAA about the control system’s flaws. The failure of corporate governance and oversight within is one of America’s largest corporations’ cost – 346 lives lost and losses over US$18bn.
Example 2:
Mark Zuckerberg continues as Facebook’s CEO and board chair, while lawmakers continue to raise concerns about his organisation’s collection and sharing of data and lack of policing of interference in Federal elections. Facebooks growing revenues and global influence will continue to be a challenge for lawmakers while Facebook appears unable to monitor itself as a good corporate citizen.
Example 3:
In WeWork’s case, Adam Neumann’s tenure as both board chair and CEO, of the office leasing start-up was spending US$2 for every dollar earned. He also founded a meat-free New York City elementary school and took a stake in a surf lagoon manufacturer in Spain. The corporation’s vision conflicted with its other management decisions resulting in operating losses exceeding US$4bn.
In these three situations a separate chair would have created:
- an oversight of CEO strategy and a check and balance of management direction as it evolves; and
- a risk management assessment through Board discussion could have identified the risks.
ASIC Corporate Governance Taskforce
In 2019 ASIC started sending psychologists into the boardrooms of the ASX200 to attain a temperature check of boardroom culture. While the programme is supposed to focus on process and behaviour, there remain questions as to whether or not an outsider can get a true view of the culture within a boardroom – there needs to be an acceptance that decision making is imperfect.
Whether the programme improves corporate governance in the board reducing groupthink, or whether their presence stifles debate as directors become self-conscious “better to say nothing” rather than open their mouths remains to be seen.
Independent Chair
The role of the Chair is to provide strong governance and ethical controls across the organisation but most importantly to provide counsel to the CEO.
The best Chairs are those that have had CEO experience and thus understand the challenges of managing a business. The conflict often however arises when the Chair seeks to manage the business.
The Chair and CEO must have a good relationship and shared values. There are three key points to a positive Chair-CEO relationship.
- Shared Strategy
Conflict arises when the Chair and CEO don’t share the same assumptions or strategy. They need to share an understanding of the strategy of the business and the economic environment and future events.
- Values and Ethical Standards
While diverse opinions and background can lead to a stronger organisation, the Chair and CEO should have similar values and ethical standards. They need to see the world through the same lens.
- Roles
Both the Chair and CEO need to understand the responsibilities of each others roles. It is this understanding that ensures that there is no overlap on responsibilities and therefore conflict is minimised.
I believe a good board should be seen and not heard (by the public) until it is necessary. The Chair needs to remain above the management team to be able to provide an independent view to challenge management, but most importantly a good Chair knows when its time for the CEO to establish their legacy and move on from the company.
The most progressive Chairs have moved their boards beyond pro forma annual assessments of overall Board effectiveness, to embrace the practice of formal external reviews this would include ASIC taskforce oversight.
