All relationships require some investment, and arguably, none is more crucial than the relationship between a chair and CEO. As this widely experienced leadership observer and consultant writes, the payoff for the individuals and for the company can be substantial. After all, two heads together at the top really can be better than one.
We Canadians have a habit of defining ourselves by looking at how we differ from Americans. Asked by our Mercer Delta Consulting colleagues in the U.S. to write a chapter for an upcoming book on “Special Issues in Corporate Governance in Canada,” we, in the Canadian practice of Mercer Delta, decided to interview directors and CEOs of major Canadian companies to find out what they see as the major challenges facing boards here. Those who had served on both Canadian and American boards offered some interesting opinions on cultural differences. They suggested that Canadian Boards are less confrontational, more genteel and collegial, and more likely to try to solve problems before they come into the boardroom. The more litigious environment in the U.S. has made American boards less diplomatic – everybody expects tough questions. One person stated flatly: “Everything is driven by the lawyers and the accountants in the U.S.”
Whether or not the perceptions of our small sample would hold true in a broader study is an open question. One thing we do know, however, is that there is a key structural difference between Canadian and U.S. companies. In the U.S., most CEOs also serve as chair of the board. Over 70 percent of Canadian companies have chosen to separate these roles, and put an independent, outside director in the role of non-executive chair. The minority group of companies that have executive chairs are most likely to be private or family-dominated. In these companies, a lead director plays the non-executive chair role. But the public company directors we interviewed are strongly of the opinion that lead directors are not appropriate to publicly traded companies, saying, “You’re just not as engaged or accountable as a lead director.”
We asked our interviewees why it was important to have both a CEO and a non-executive Chair, and what they thought were the keys to making this critical relationship at the top work. This article reflects both what we heard from them, and what we have found from extensive experience helping CEOs and non-executive chairs forge an effective working relationship.
Two complementary roles
The directors of public Canadian companies we spoke to told us the roles must be separated because they are different: The CEO manages; the chair oversees management. As one director put it, “You cannot oversee yourself.” Having the chair removed from day-to-day politics and operations helps the Board maintain a longer-term and more objective view, and make wise stewardship decisions.
When the CEO-chair relationship is strong, the company benefits from having twice as much talent at the top, each playing a distinct leadership role, and each supporting the other. The board benefits by having a leader whose primary focus is on governance, maintaining ethical standards, and building the board into an effective team capable of managing everything from routine business to major crises. At meetings, the chair can focus on managing the agenda rather than defending management actions. While the CEO focuses on getting decisions and guidance, the chair can ensure that all views are being heard and considered, that the debate is healthy, and that unproductive conversations are brought to a close quickly. A nonexecutive chair is also more likely to take corrective action when a director is not performing to expected standards.
The CEO benefits from having a source of wise counsel, and an ally who may devote many hours outside of formal board or committee meetings to consultation with the other directors in service of the CEO’s agenda. In meetings, the chair can create a buffer for the CEO – making sure the tough questions are put in a constructive rather than confrontational way, giving the CEO time to reflect by making some remarks before directing the question on to the CEO. While the CEO’s performance evaluation is likely to be led by a board committee, the chair can take the lead in making it more than a simple compliance exercise. When we work with boards on the design and management of CEO evaluation processes, we make it a priority to ensure that the CEO’s personal development objectives are built into the process. We then coach the chair on techniques for helping the CEO hear, learn from, and grow as a result of the feedback.
In our experience in working with boards on CEO succession planning, we’ve found that an important role for the chair is to help the CEO recognize and deal with the inevitable emotional dynamics attached to decisions around when to depart and to whom to trust the legacy. He or she can facilitate both the difficult personal and professional transition for the departing CEO and the smooth and successful introduction of the incoming CEO.
Profile of a good non-executive chair
All of the potential benefits described above assume both that the chair has what it takes to perform the role well, and that both the Chair and the CEO are ready to invest in making the relationship work. We look first at the profile of an effective non-executive Chair.
He or she is likely to have been a CEO, and hence a source of credible advice based on many years of personal experience. A good chair devotes considerable time to developing specific knowledge of the company’s business, and understanding both the issues and the players. The best chairs are able to disagree without being disagreeable, guide without leading, support without taking over. They create an environment in which the right things get done without doing them themselves, and they get their satisfaction from seeing others succeed.
Effective chairs also understand and are equipped to play their role in building the board into a high-performing team working in the service of the company and its stakeholders. They’re strong communicators and they make sure directors are kept informed between meetings. They both articulate expectations clearly and hold directors accountable for delivering. One director described the role this way: “He or she must make it clear that a Board is no place for people who just want to show up and collect their cheques, but who don’t carry their weight. That means stepping up and discussing performance issues.” The most progressive chairs we work with have moved their boards beyond pro forma annual assessments of overall Board effectiveness, to embrace the practice of formal external reviews (sometimes involving peer feedback) of individual directors.
When the chair is too dominant or too weak
The danger in having a chair who was once a strong CEO is the temptation to micro-manage or meddle in the day-to-day operation of the company. We’ve seen chairs who are too present in their on-site offices, establishing their own relationships and actively engaging with the CEO’s executive team. They get into public disputes with the CEO, challenging him or her on fundamental matters of policy. They manipulate other board members to get their own agenda through.
This is a particular danger in start-up companies where the chair is a majority shareholder who may have overseen the IPO. In Canada, we have a lot of these companies, many of them in the resource and high tech sectors. Losing sight of the fact that he or she no longer owns the company, the chair may allow his or her personal shareholder interests to conflict with the strategy of the executive team or the longer-term stewardship accountability of the board. Similarly, a chair who is also a stakeholder in a pension or hedge fund (particularly the latter) might seek to monetize in the short term at the expense of the longer-term interests of all shareholders.
When we’re asked to help a CEO deal with the issue of a too dominant chair, we counsel a careful review of the CEO’s expectations and perceptions of the current issues, and his or her views of the chair’s expectations and perceptions. Where possible, we conduct a similar review with the chair and then work to bridge any gaps between the two through joint discussion.
At the other end of the spectrum, a passive and weak chair can be equally dangerous. Contentious issues are swept under the carpet and left unresolved. As one Director put it: “A weak non-executive chair has the potential to beguile the shareholders into thinking they have an independent structure, when in fact the CEO has too much authority.” This is a more challenging issue to address. While a weak chair can seem to make the CEO’s life easier, in the end it leaves the CEO to deal with the many different views and factions on the board, ultimately consuming time and making closure on decisions more difficult. The solution here is a board and chair assessment that creates an environment in which the chair can receive forthright feedback from many sources. Based on this feedback, we work with the chair on strengthening his or her execution of the role.
The making of an effective relationship
The chair-CEO relationship is quite unique: an interdependent relationship of equals at the top. The chair has oversight responsibility for the CEO and exerts considerable influence over the financial resources the CEO has to work with and the CEO’s personal compensation. But on the other hand, the CEO shapes the agenda for the organization and controls the people resources. He or she can have a tremendous impact on the Chair’s workload and the Chair’s external credibility and reputation. Both people have achieved their position because they’ve got credible experience and are perceived as leaders. What makes this relationship work?
It certainly helps if the chemistry is right – if the two just “click” and mutual trust and respect is instant. Even if the chemistry is strong – and critically if it is not – the two must recognize that learning how they can best use each other’s strengths to the benefit of themselves and the company takes deliberate effort. We believe that strong chair-CEO relationships are built through conscious attention to three tasks: developing a shared context, agreeing on fundamental values and ethical standards, understanding the accountability and boundaries of their roles.
When two people find themselves constantly or frequently at odds, it’s often a signal that they’re working from different unspoken assumptions about what they really want to accomplish and the context in which they are striving to meet those goals. Sometimes these assumptions are so central to their being that they don’t even recognize them as personal perceptions or biases: They just think “that’s the way the world is.” Investing in a systematic effort of surfacing and aligning these assumptions can avoid hours of irresolvable conflict.
When we begin work on a chair-CEO relationship, we start by having them work through a disciplined process to create a shared view of:
- Strategic intent: what the company is intended to do – its mandate, vision, goals, objectives
- The company: business and operating model, capacity, strengths and weaknesses
- The world in which the company is operating: business environment, competitors, customers, current external forces
- The future: expected (or possible) forces and events, and how these will impact the future path of the company
We are constantly surprised by the view that this will somehow happen casually, in the normal course of working together. It may, eventually, but developing a shared context at the outset of the relationship immediately opens the lines of communication, enables the Chair and CEO to get things done faster, and strengthens the likelihood of successfully wrestling with difficult issues.
Values and ethical standards
Diverse perspectives are a source of strength for the company – ensuring that all angles are considered before a decision is made, and often leading to the creation of innovative ideas. On some fundamental issues, however, such as the values of the organization and the ethical framework in which it will operate, it is dangerous to have substantial differences between the CEO and the Chair. If they are seeing the world and the company through fundamentally different ethical and value lenses, they will forever feel they are speaking two different languages. One of the critical steps the two must take is to go beyond agreeing on the “official” company values and standards published in codes of business conduct, to share and discuss how their personal values and ethics will shape how they lead the company and respond to possible crises.
Many CEOs come into the position with only a general understanding of the Board’s role, and even less familiarity with its operating practices. Many chairs base their view of their role on what they observed in their predecessor, adding their own flavour as they see fit. While the start of a new CEO-chair relationship is normally marked by some type of “get to know you” meeting, it’s rarer for the two to work through a structured process of clarifying their roles and agreeing on how they intend to work together. We believe there’s value in making this a formal process of dialogue on the accountability and boundaries of each role, what each person expects from the other and commits to the other, and the operating principles that will govern the working relationship. This typically takes more than one meeting and can often benefit from some expert facilitation.
Evolving the relationship
While investing up front in these three steps sets the groundwork for an effective working relationship, both Chair and CEO should expect to continue consciously working on it over time. The Chair cannot expect to instantly become a mentor to a near stranger. Coaching relationships develop in the crucible of shared experience and as comfort and trust levels rise. As trust deepens, they will become more comfortable addressing difficult topics and stretching their working relationship.
Some chairs and CEOs who have been working together for a while bring us in to gather feedback from the people most closely impacted by their working relationship, polling the board and senior management team in a process similar to a 360. The chair and CEO also provide their views on what’s working well and what could be improved, and then we engage them in dialogue on how they can most effectively use this input to evolve the relationship. This can be as formal or informal a process as suits the individuals and the circumstances. If the relationship is generally accepted to be strong, it may be as simple as some informal sensing. If the relationship is seen to be dysfunctional, a much more rigorous process may be required to break the cycle of non-productive behaviour.
All relationships require some investment, and some people are more prepared than others to make a conscious commitment to relationship-building. But we believe the payoff in satisfaction for the individuals and effectiveness for the company can be substantial. Two heads together at the top really can be better than one.