Boards have a difficult job. On one hand, they have a fiduciary responsibility to shareholders for oversight. On the other hand, it is not their job to run the company. That falls to the CEO. Boards must walk a tightrope between the two.
Some things a board has a legitimate right to know and be a part of. However, the board has no right or authority to involve itself in most company affairs.
It is critical the board and CEO are clear on what the board should and should not be involved in.
As a CEO, you should facilitate the board’s balancing act with open and transparent communication—and steer clear of these six actions.
1. Letting your board take control of any operating business decision. This is probably the worst thing you can do. Boards are not close enough to the day-to-day issues in the organization. If you let them meddle, chances are they will make things worse. But they will blame you.
2. Surprising them, unless it is a pleasant surprise. Boards do not like nasty surprises. When they get them, they assume you were surprised, too, and therefore you are not in control of the business. Nasty surprises will make your board more inclined to take control of your operation.
If you think something bad is looming on the horizon, warn them well in advance. Most boards can take bad news; they just don’t want it all at once.
Sometimes, such a warning will be years in advance of a possible adverse event. I once warned a board about the potential loss of 40% of our business nearly seven years before it was likely to happen, if it ever did. When you warn them, tell them about your contingency plan. Otherwise, warning them without a plan will only cause angst and an urge to take control. In our case, we averted the problem with actions we took. But in case weren’t able to, it was appropriate to let the board know of the material risk.
3. Misleading the board. Tell them the bone-honest truth, all the time. The first time you mislead them, they will never trust you again and will always question what you say. That will make your job much more difficult. The board must know they can rely on you to be transparent.
4. Allowing the board to talk directly with your subordinates without your knowledge and assent. If you allow this, your subordinates will think they are accountable to the board. That will result in a dilution of the CEO’s authority, which cannot ever happen. You never want them to be confused as to who they report to. They do not report to the board. They report to the CEO. The board should have no authority over a CEO’s subordinates. They should only have authority over the CEO.
5. Assuming you and the board are in alignment on your authority and responsibility. Confusion in this area leads to conflict. Prepare a document called “limits of authority” and submit it to the board for discussion and approval. This document lists everything the CEO can and cannot do without board approval. Areas that should be covered include hiring and firing, limits on spending and expenses, investments in product development, acquisitions, creation and divestment of product lines, etc.
Sometimes, the CEO may have to help the board get clear on what its job is. A board’s job is oversight of the CEO, preparing and monitoring the strategic plan, and approving and monitoring the annual operating budget. That is it. Everything else should be reserved for the CEO.
6. Letting the board shirk its responsibility or push it off on you. A perfect example is CEO succession planning. That is clearly a board responsibility. But some boards don’t do it because it can be uncomfortable, especially if the CEO is doing a great job. It is the board’s responsibility to do this, and then it becomes the CEO’s job to execute it.
Another example is strategic planning. That responsibility falls somewhere between the board and the CEO, but it can’t be done properly without the active participation of both. The board should prepare the strategic plan and then it is the CEO’s job to execute it and report progress to the board.
The delicate balance between a board and CEO is essential for effective governance. By clarifying roles, fostering transparency and upholding mutual trust, boards and CEOs can work harmoniously to drive organizational success and achieve their respective objectives.
Steven L. Blue is president & CEO of global manufacturer Miller Ingenuity. He teaches executives, leaders, entrepreneurs, and anyone seeking to learn how to maximize their company’s growth through fostering company culture and innovation. He serves as CEO-in-Residence at Winona State University.
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