Executive Leadership and Corporate Governance (Part Four)

This Blog explains how to get any company’s Board leadership configured to optimize the Board’s effectiveness.

In an earlier Blog on company leadership and effective governance, I noted the inherent and unresolvable conflict of interest created when the Board Chair and the CEO of the company are the same individual. This conflict arises because the CEO, when also acting as the company’s Board Chair, is controlling the very governing body that he/she reports to.

Think for a moment how many dysfunctional outcomes are likely to and do occur because of such a structure! And try to recall where else in your company a structure exists where a manager controls an organizational group within the company that he/she reports to. I submit the only place that dynamic occurs in the great majority of cases is at the CEO/Board Chair level. The message that sends to the rest of the company is “manage/lead as I say, not as I do”. Can you see how that type of “leadership” sows dysfunctional seeds in terms of culture and performance assessment within the company?

The pragmatic, ethical solution that exemplifies positive leadership is for the company’s CEO and Board Chair responsibilities to be discharged by separate individuals. (Note that some companies attempt to solve the “dilemma of separation” by creating the role of Lead Director. Following that path in no way resolves the inherent conflict, because the Lead Director still reports to the CEO who also serves as the Board Chair. The result is that the Lead Director “solution” is only a mask for separation, and governance is usually conducted in a fashion very similar to the way it was before the Lead Director was appointed.)

The “how to” of separation is fairly straightforward, and is a process that has become unmercifully complicated (in an effort to discredit the need for separation). As noted in an earlier Blog, the non management members of a company’s Board should be Directors who meet every criterion of independence (e.g., not relatives). Those independent Directors then elect one of their peers to serve as Board Chair. Can’t get any easier than that! Obviously the Chair should be an individual with extensive governance and operational experience.

The Board Chair then establishes functioning committees, appoints a Chair for each committee and charges the committees to develop charters that define each committee’s actions and accountabilities. The Board Chair then “manages” the Board’s governance activities on behalf of the company’s shareholders (the group to whom the Board reports and the group that elects the Directors) – whether in a privately held company or a publicly held company.

The CEO manages the company’s activities (strategies and operations) and reports to the Board on behalf of the shareholders in a non conflicted manner, meaning the CEO does not control the Board’s governance process.

As mentioned above, this process really is straightforward, but the strategies and the activities behind the process are complex and must be well thought out in order to arrive at the desired end point. For instance, there’s the key issue of Chair compensation and Director compensation (an issue that’s been poorly addressed to date by most companies), and my next Blog will delve into those issues, their resolution and how that resolution enhances both governance and company performance.

If you are a CEO who is willing to make the behavioral changes required in order to realize the benefits (read “competitive advantage”) of constructing a Board now for the upcoming post recession economy that is led by an independent Chair, and want to do so by benefiting from my 20 years of public and private company governance experience, I’m available to help you evaluate your current situation and to guide you through the steps required to achieve your governance goals.

 

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