Leadership

Elephants in the Boardroom

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An elephant almost always joins the festivities when the CEO and the Board gather.

This is not an elephant that stomps around and trumpets trouble.

It’s a pachyderm who is very subtle but big enough to complicate the dynamics in the relationship between a CEO and the Board of Directors.

The “elephants” are the big issues that can put a divide between the CEO and the Board if they are not resolved. They are often so big that everyone sees them, but no one wants to address them.

But sometimes they can be so large that no one even sees them.

The tricky relationship between management and the Board is fueled by business issues, style, decision making power, and all the stakeholders involved. The rigors of corporate governance compound the dynamic with committee charters, proper policies and procedures, independent directors and plenty of counsel. Compliance cloned the elephant in the room into a herd.

By recognizing the common challenges in management-Board relations, companies can follow three basic principles to overcome most of them and greatly improve the productivity of the relationship.

Tracking the elephants

Sometimes I feel like I am wearing special glasses that allow me to see elephants where no one else can.

If I can see them, every CEO and Board member should be able to see them too.

To see the elephants in your boardroom you don’t need special glasses, you just need to be honest and ask the hard questions.

Here are some of the questions to ask yourself to see if there are elephants thundering into the dynamics between the CEO and the Board.

  • Are there too many people on the Board and no one is sure who should go or how?
  • Is the CEO under-performing but thinks he/she is doing a good job?
  • Is there that one “special” person that just can’t get along with the CEO?
  • Does the founder or former executive on the Board create issues because “the old days” were better?

And consider these additional questions.

  • Do back channels of communication make some Board members more informed than others?
  • Is there a Board member who is not doing their fair share but no one will discuss it?
  • Do some Board members feel underpaid while others are afraid to address Board compensation?
  • Is there is a feeling that the Executive Committee is too powerful and doesn’t share?
  • Does the Executive Committee feel under appreciated and over worked?
  • Does the Audit Committee have low confidence in the CFO but…

    • Too much pain is involved to switch

    • The auditors like the CFO

    • A 10K is delayed and needs to go out

    • The CEO supports him/her

    • The analysts like him/her

  • Do some Board Members preach about “When I was at GE, Intel, Wells Fargo…(fill in the blank)”
  • Are there plenty of consultants (and bills) but no visible signs of progress?
  • Do some Board members always need more data in order to make a decision?
  • Do Board retreats waste time and duplicate management efforts?
  • Do Board members “wordsmith” and want to review too many documents and reports before released?
  • Are succession plans dodged by the CEO so that no one ever quite gets to them?
  • Is recruiting new Board members always botched?
  • When Directors go off into minutiae, does any one pull them back to the meeting at hand?
  • Do Directors talk about each other disparagingly in private conversations?
  • Is every Board meeting a dog and pony show that “shuts down the plant” in PowerPoint prep work?

If the answer to any of these questions is “Yes,” there are elephants lurking that can make your organization less than effective.

The first step is for the Board and the CEO to acknowledge the elephants so they can be addressed.

Bagging the elephants

As a venture capitalist, I have seen issues emerge between Boards and CEOs that can determine whether or not an early stage company is successful.

When the Board is full of investors and entrepreneurs are developing their “baby”, the dynamics are as complex as a marriage.

In a more mature company, there are other issues. The life of the company may not be at stake but the career life of the CEO may well be at stake.

It is never the case where a batch of well meaning people get together for a casual meeting and make some decisions about the future of the company.

It is always the case that over time, the dynamics between the Board and the CEO will change and may alter the effectiveness of both.

But there are solutions. Here are three simple principles that might help:

1. Pay attention to group dynamics.

If you have a dysfunctional relationship between the board and the CEO, it permeates the company and transcends the four walls of the office. It is better to keep the elephants in the zoo or to let them run wild in Africa and Asia. Do you dread a Board meeting as much as a root canal? Get counseling, see a rabbi or priest, do something!

Think about the kind of team you are trying to develop.

Too many Boards and CEOs are disappointed if they don’t cooperate like a high-performing basketball team.

Instead, consider operating like a track team where a group of highly talented people work independently, most of the time, but come together for the success of the team.

2. Treat information as a tool, not a nuisance.

Anticipate your Board’s needs and know what will be asked. Company operations should be transparent to the Board. Dog and pony shows are not required, but do expect ad hoc or special requests from the Board when they don’t see that level of transparency.

Know that measures for the CEO must be clear and consistently reviewed. Information should be regular, digestible and tell the company story – both the Board and CEO should always be able to answer the question, “How are we doing?”

3. Put the big issues (the elephants) front and center and speak truthfully about them.

The agenda should not be set by compliance but rather by how to make the company successful. Boards too often meet for eight hours and never get to the meaty issues.

If the intent of the company is clear, the Board should know how it should act to help achieve that intent. So whether you are the CEO or on the Board, ask yourself if there is an elephant in the room.

Addressing the elephant will make for a better dynamic and progress will ensue.

Remember, the relationship between the CEO and the Board of Directors sets a tone and permeates throughout the company. The very success of the company is at stake based on how the relationship develops. It is critical to keep the elephants out of the boardroom in order to maintain a productive partnership.

Richard A. Moran, Ph.D. is a Partner at Venrock Associates in Menlo Park, Calif. He is the author of five books; his latest is “Nuts, Bolts and Jolts.”

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