In our work, we advise many boards and hear their most pressing challenges. Recently, the trend is clearly focused on leadership.
When we are asked to recruit a new CEO, we ask, how the situation evolved to the point where the board lost confidence in their leader. And, we ask at what point, did the board reach its conclusion to replace the CEO?
Inevitably, the answers we receive are; we, as a board, waited too long to make a decision that as board members we knew, needed to be made. We didn’t act on the leadership tipping point. As a board, we failed our shareholders. Taking a decision to change leaders should not be taken lightly but when a decision must be must made, a board can not shy away from their duty.
Given uncertainty, directors today are rightfully asking, “Really, where should we be focusing our attention…Strategy…operating structure and results…competition and technological risks…global challenges…financial matters such as balance sheet matters, shareholder communications, et al?”
Regardless of these pressing priorities, it all comes down to one factor… corporate leadership. And selecting, evaluating, and making their CEO and senior team open and accountable is “THE” most important role of the board.
Today, this priority is even more important when one considers the views of Bill George, the former CEO of Medtronic and now at Harvard Business School. “What’s the new normal for CEOs? You don’t need to hire, because if you are only going to grow 1 to 2 percent in the U.S. anyway, we’re going to focus on productivity gains.”
If George is correct, it translates to CEOs navigating their companies in different ways in order to assure the flexibility to take advantage of evolving market conditions and challenges. For boards, this means a heightened vigilance on how to select and govern their leadership as it transforms the processes, the velocity and impact of their decisions. If directors don’t address this challenge effectively, in our view, the board risks becoming less effective and will not be in a position to perform its governance duties.
So, here is what we prescribe.
First, directors must assume/ accept that their CEO is an enterprise risk and, accordingly, set accountability for assuring leadership depth and succession as its highest priority. Even if the current CEO is performing well, there are no guarantees that he/she or their team will do so in the future. Nor is there any guarantees that the CEO or any of their key managers won’t face personal/health issues (think, Sara Lee and the Brenda Barnes health matter or HP dealing with their now former, CEO, Mark Hurd, among many other examples). In the end, the only thing that matters is sustainable and effective leadership!
Secondly, boards must consistently review leadership priorities… strategic and operational…of their CEOs, reach a consensus on those priorities and application of resources, and continually monitor, monitor, monitor! Accountability is an essential aspect of moving beyond the “smoke and mirrors” between the CEO and the board and should assure an open dialogue and transparency with respect for the duties and responsibilities of leaders and directors.
Thirdly, the board must be prepared to have tough and direct conversations among themselves and their leadership expectations speaking with one voice with their CEO. Mid course corrections on leadership depth is expected. Speaking to a CEO with one voice will create a positive environment, limiting confusion and without splitting the board or making effective governance difficult. Important issue should be fully resolved by consensus without hidden agendas or back room dealing.
Lastly, boards must realize that changing the CEO is inevitable. CEOs are not leaders under any and all conditions. Be prepared to evaluate and accept the responsibility to change leaders when it becomes apparent that the current leader is failing to meet expectations, those negotiated between the board and it’s CEO. And, be clear and confident about the roadmap and the process for a successful change in leadership. Too many boards change CEOs out of frustration and without full confidence that a better solution can be recruited or elevated from within your leadership ranks.
As a director, if that is the case, you have waited too long to make the change you know that you must make. Time to move forward!