The relationship between the CEO and the Chair

These are the speech notes I used for a panel discussion, along with Steve Tew (CEO NZ Rugby Union) and Liz Coutts (President, NZ Institute of Directors), on the Chair-Chief Executive relationship at the Aktive - Auckland Sport & Recreation Chairs' Roundtable on 4 March.

Introduction

These are the personal conclusions I have drawn over the past 20 years.

They are the results of my own experience.  They aren’t taken from a text book and I’m not saying I’m right.

My views represent a 20 year journey and a development – and I’d like to think a maturing - in my thinking and approach to governance of societies, small to medium sized companies, Council-controlled organisations and public entities.

I’ve been a board member on boards dominated by the Chair and CEO to the exclusion of other board members, been on boards dominated by the CEO, I’ve chaired a dysfunctional board - thankfully only for a year, I’ve seen a couple of brilliant Chairs in action, I’ve been a chair of an audit and risk subcommittee, been a chair of a health safety and risk subcommittee, chaired multiple CEO recruitment subcommittees, and been a deputy Chair and Chair.

I’ve also either provided governance advice or served in governance roles across the country: Northland, Auckland, Tauranga, Rotorua, Hamilton, Wellington, Christchurch, West Coast and Dunedin. I’ve learned that while geography might change, the general principles do not.

All that leads to these thoughts about the relationship between a Chair and the CEO

I’ve divided my thoughts into four areas:

1.     What outcomes does a successful CEO-Chair relationship produce?

2.     My description of the nature of the relationship itself

3.     Some thoughts on communications between the Chair and CEO

4.     The importance of a common view about key relationships

 Firstly, what outcomes does a successful CEO-Chair relationship produce?

I’m outcomes focussed so I try to keep this in mind all the time.

During their time with the company or the society I want the CEO to feel valued, motivated and challenged, to experience success, good health and much happiness and fulfilment for them and their family.

Secondly, I want to describe the nature of the relationship between the CEO and the Chair

It’s a very important relationship to get right if the organisation is to perform well

The relationship has to be balanced.

One should not dominate the other.

They should not be friends – friendly yes.  Friends, no.

Why? Friends can’t objectively performance review, friends 

Instead there should be what I call a constructive tension in the relationship 

I liken it to a fine grade sandpaper.  There is a little heat. But the effect is to polish and refine.  Not scour.

Complete honesty and openness is essential.  I promise my CE’s that they will receive my 100% backing.  If I am not happy about something, I will tell them.  Equally if they are not happy about something I expect them to tell me:  after all, a problem shared is a problem halved

Trust and confidence is also essential.  I’ve seen a CEO hang on too long, under a weak contract and create real difficulties with stakeholders and the Board.  That is why every contract of every CEO I’ve ever been involved in recruiting has a face don’t fit clause which allows no-fault termination - on plenty of notice – of a CEO’s contract if there is breakdown in the relationship between the CEO and the Board.  Regardless of performance.

Thirdly, communications with the CEO

Again, this is what I do.  I’m not saying it’s right in every case.

I have a scheduled call of up to an hour once a week. There is no fixed agenda.

Instead, I:

·       act as a sounding board

·       press the priorities of the Board where I think it is required

·       offer advice, when asked, on operational matters – but always make it clear those decisions are for the CEO.

Well planned annual performance reviews are absolutely essential

I seek input from every board member

I ensure there is at least one other board member in the room during the review.

I schedule about 2 hours.  I use a fixed agenda I’ve developed over time. Usually the performance review of the CEO might take 45 mins (including their take on how the Board could be more helpful). That leaves time for the CEO to roam freely, and I encourage talk about their view of the key risks and opportunities, direct reports and their own future.

Finally it’s important for the CEO and Chair to have a common view on key relationships

It’s important that the CEO and Chair have a common view on the relationship between the CEO, the company, the shareholder(s) or society members and other members of the Board.

First and most important, the CEO is an employee of the company.  They are not an employee of the shareholders.  That has 7 very important consequences.

 1.     The CEO reports to the board via the Chair.  They are accountable to the board.

 2.     The shareholders/members cannot fire the CEO; only the board can.

 3.     The CEO does not report to the shareholders/members:  the board does.

 4.     The CEO is not accountable to the shareholders/members; the board is.

 5.     The CEO’s staff report to the CEO and take instructions only from the CEO.

 6.     No shareholder/member, or representative of a shareholder/member, can tell the CEO – or their staff - what to do.  The CEO should treat any “instructions” from such a person as in the nature of a suggestion only.  If the shareholder/member insists, have them call the Chair.

 7.     No Board member can tell the CEO - or their staff - what to do. The CEO should treat any “instructions” as in the nature of a suggestion only. If there are Board instructions they will come only via the Chair or by Board resolution. If a Board member insists otherwise, have them call the Chair.

Question: How do you manage information flows to Board? So they feel comfortable?

This again demonstrates the importance of the role of Chair.  Because in my experience there are Board members who prefer to operate on a need to know basis and others who want to know everything.  It is very hard for the CEO to compile board papers with such opposite views.  Instead it is up to the Chair to forge a consensus on what is enough, in terms of base board papers.  Of course, there is always the option to add additional information as attachments to board papers, where appropriate.

Between meetings it’s also up to the Chair to keep important information flowing – whether by email or phone calls.  The Chair needs to decide what Board members need to know, respecting the fact that they almost always have other jobs.

If you have other (non-legal) questions on this topic, simply email me at peter@peterstubbs.co.nz. I’m happy to answer them, free of charge.

 

 

Peter StubbsComment