When a crisis occurs in a company, the finger of blame is often pointed at the Board. To varying degrees this is justified, as when you dig beneath the surface of a corporate failure you tend to find there were gaps between what the Chair and NEDs thought the execs were doing and reality.
It’s not unusual for such companies to have ticked the boxes in terms of compliance, governance and corporate reporting. The intangible element within this, which is nearly impossible to regulate, is the dynamic within the leadership team.
In our research, we asked CEOs and NEDs to identify the primary reason for failure in the management team. For the former, the main cause is a lack of time spent discussing strategy, whereas for the latter it’s an inability to challenge and speak openly. They are, in some ways, two sides of the same coin.
Looking at the research, it’s easy to infer that a fear factor exists in both senior management teams and Boardrooms, where individuals are afraid to voice what they truly think for fear it will leave them exposed and vulnerable.
If that is the case, it’s a cause for concern. It’s an attitude that will cascade down through an organisation and is bound to have a negative impact on business performance. So, who shoulders responsibility for encouraging openness and keeping game playing to a minimum? In terms of the Board, it has to be the Chair who steps up.
Bridget Rosewell, Non-executive Chair of the DVSA, comments: “It requires being able to set the right balance in the agenda and having flexibility so that people have the chance to raise matters. The Chair also has to encourage Board members not to be looking at their watches at the end of meetings but be willing to stay to see a discussion through and regard it as part of their responsibility.
“It takes quite a bit of time for Board members to get to know the execs and have the required openness of conversation. There should be informal sessions where they each get to know where the others are coming from, which then makes it easier to express ideas and share things.”
There are fine lines to tread, however, as the CEO and leadership team understandably want the Board to feel like they have everything under control. Fiona Ross, Chair of Coras Iompair Eireann (CIE), says: “No management team wants to bring a problem to the Board. They often don’t want to admit to a problem –that is human nature – so you have got to create a Board and a context where a management team feels they can bring an issue without risk of sparking a crisis of confidence.
“Having said that, there’s obviously a judgement call. If your CEO is expressing vulnerability at every Board session, it would leave you thinking: ‘If you’re that vulnerable, I may need a new CEO.’ A CEO has to be a chameleon in some respects – strong and invincible to the internal team, while at the same time be able to front-up issues of concern to the Board.”
However, the atmosphere in the Boardroom doesn’t always lend itself to openness and sharing, especially if performance has dipped. Phil Smith, Chair of IQE and a Criticaleye Board Mentor, says: “There can be a sense of the Board environment being a little bit artificial; a place where people are on their best behaviour. They are there to present what the latest thing is and to be judged.
“So, you can imagine the Chair and the NEDs saying: ‘We just want to know what the real story is here, and if you can just give us that we will deal with it.’ If they’re not getting to hear what the real issues are then they can’t add value to them and they would see that as the failure of the management team.”
Fiona makes a similar point: “Board meetings are horrifically formulaic. In my experience, they are too compliance and regulatory focused. You might only have half an hour at a meeting to discuss things that are new, unexpected and possibly really important. There is never enough time for challenge and debate.”
A Pivotal Partnership
Boards, like leadership teams, have their own day job on which they are judged. That’s why the CEO also has a responsibility to make time to sit down with the Chair and discuss the bigger picture, bringing in the other executives and NEDs for their insight and input where necessary. “It is a well-known fact that if you want to know whether a Board is effective or dysfunctional, you look at the relationship between the Chair and CEO. If that’s broken, it’s difficult to know how the Board will ever work well,” says Malcolm McKenzie, Managing Director of Alvarez & Marsal.
He continues: “Both have got to be aware and experienced enough to communicate honestly and in a way that’s straightforward. If the dynamics aren’t working well, one or the other should call it out and discuss how improvements can be made. If the relationship can’t be brought back on track, there needs to be a change on one side or the other.”
When that key pairing is right, the rest should follow. Tom Beedham, Director of Board Mentors and NEDs at Criticaleye, comments: “The structure of the meetings play a large part in facilitating good debate. If the board agenda is very rigid and leans too heavily towards compliance-related discussions, it can feel more like a box-ticking exercise than a chance to share concerns about more strategic issues.
“However, if you are to have authentic debate where gnarly issues are discussed with integrity, then it starts with that relationship between the CEO and Chair. When that relationship becomes too cosy it's vital that NEDs feedback – individually or via the SID – that they're uncomfortable with the quality of discussion in the boardroom. Equally, when the Chair-CEO relationship breaks down, the NEDs must work together to create greater alignment, or consider how best to make a change of personnel so that the interests of all stakeholders are protected.”
The statistics used are from the following Criticaleye research reports:
To find out more about our fast-approaching Non-executive Director Retreat, held in association with Brewin Dolphin and featuring speakers including Michael Roney, Non-executive Chair, Next plc, Rita Clifton CBE, Senior Independent Director, Ascential Plc and David Tyler, Non-executive Chair, Hammerson plc, click here