Executive Leadership and Corporate Governance (Part One)

There are four things that can happen in a corporation’s response to its corporate governance requirements – and, unfortunately, three of them are bad. They are – minimal to no governance, poor governance, average governance and good governance. Why are the first three bad? And why do so few corporations have good governance?

This Blog will give an overview answer (writing a book in a Blog is never well received, thus the summary) of the last question first. Having served on numerous private company and NFP Boards and chaired several of them from 1991 to 2008, and having served on two public company Boards during the years 1994 to 2010, I believe there are two major reasons why relatively few corporations {Note – there are over 4,000,000 ‘S’ and ‘C’ corporations in the US} have good corporate governance – (1) a misguided need for “control” {e. g., “no one understands this business better than I do” and “I’ve invested the most capital in the company”} on the part of the CEO and (2) personal insecurity at the executive leadership level {e. g., “what if the Board becomes adversarial?” and “what if I can’t manage (or maybe manipulate?) the Board?”}.

Although most CEOs who are control types, and who are easily spotted as such, won’t readily admit it, the stark reality is their continued grasp at control is a cover for their leadership inadequacies. If a company doesn’t have a well crafted, ever evolving formal business plan that the entire organization is in tune with, and if the CEO and the company are not meeting the metrics that were set in the business plan, the CEO is not really in control of the company. To compensate for the company’s lack of satisfactory performance, there is a tendency for the CEO to grab for more “power”, in an attempt to become an absolute monarch that can never be questioned. This is never synonymous with organizational enriching control and leadership.

As part of the control process, the CEO asserts that no one knows the company’s business better than the CEO, and, therefore outside directors and an outside Chair are not necessary. While it may be true that no outside directors know the company’s business better than the CEO, that fact is irrelevant when it comes to governance. The job of the Board is not to run the company’s business. That truly is the CEO’s job. The job of the Board is to govern the company through the CEO, and it has legal authority to hire and fire the CEO. You can see how well this is received by a control personality! Having said what the CEO’s and the Board’s jobs are, it’s valid to note that the Board and the CEO should look like two Venn diagram circles that overlap and have a significant amount of commonality. In other words, the Board has to be reasonably informed about the company’s business (no small task in my experience) and the CEO should be reasonably informed about the issues of governance.

The CEO’s adversarial concern is borne out of a professional and personal insecurity that says, “I don’t know if I have the right Board”. Therefore the Board could “become adversarial” and, as a result, the CEO may not be able to “manage” the Board. CEOs of this type likely also do not hire good executives, or get the company in relationships with good outside partners or have good relationships with the company’s financiers. And the more they try to substitute power for real control (meeting key objectives in an accountable fashion), the more ineffective the Board becomes, thus creating a self fulfilling prophecy. And, ultimately, the more precarious the company becomes in terms of performance with all measurable metrics spinning out of control.

So “good” CEO control and leadership is managing the company to achieve its agreed upon strategic and operating metrics, while the Board governs the company according to accepted governance metrics.

My next Blog will address the issue of the consequences of poor performing Boards, followed by a Blog that, based on my governance experiences, will suggest ways to achieve optimal governance.

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: