When should boards circle the wagons to support their CEO during public attacks, and when should they keep their distance? Courageous boards at AT&T, Novartis, P&G, ADP and GM justifiably stood by honorable CEOs attacked by the media or activist investors. But boards have also run to the defense of CEOs when a healthy dose of skepticism was warranted.
Take Facebook. The company failed to stem—or even timely acknowledge—Russian intervention in the U.S. presidential election. It alienated users by sharing their personal information with third parties and failing to audit compliance with privacy protections by known abusers.
Instead of calling out CEO Mark Zuckerberg for these failures and his tepid and tardy response to them, Facebook’s board backed their erring CEO with a generic statement of support: “Mark and [COO] Sheryl [Sandberg] know how serious this situation is and are working with the rest of Facebook leadership to build stronger user protections. They have built the company and our business and are instrumental to its future.”
In a similar fashion, Theranos directors continued to defend its wunderkind CEO Elizabeth Holmes as the firm’s value fell from $9 billion to zero under her leadership. That the pinprick blood analysis invention Holmes billed as the “iPod of healthcare” was a dud came to light when an employee’s report of questionable lab practices triggered a New York State Department of Health investigation and The Wall Street Journal got wind of the fraudulent practices.
“Ultimately, good governance is neither blind loyalty nor an always-adversarial mentality.”
This spring, Holmes and Theranos’s former president, Ramesh “Sunny” Balwani, settled charges that management made numerous false and misleading statements in investor presentations, product demonstrations and media articles about the company’s key product. Yet, throughout the gradual unveiling of Holmes as a fraudster, prominent board members, such as Gen. James Mattis, Richard Kovacevich, George Schultz and Henry Kissinger, lined up out of loyalty to a charismatic leader instead of doing their duty. Venture capital investor Tim Draper joined the defensive line, complaining that the reporter who helped unveil the massive fraud “was like a hyena going after her.”
How can boards know whether support or scrutiny is in order? Directors should watch for these red flags:
- Inconsistent messaging. The absence of clear, consistent communications indicates internal confusion, poor mastery of the facts and possible integrity failure.
- Dismissive or derogatory treatment of critics and whistleblowers. Leaders with integrity respond to allegations—even unfounded ones—professionally and respectfully, as Randall Stephenson did when AT&T came under fire for hiring Trump’s former lawyer, Michael Cohen.
- Secrecy and shrouds. Stonewalling, denials and delays during a period of scandal—anything short of timely, comprehensive reports to constituents—should warrant alarm.
- Repeated patterns of misconduct or misinformation. Leaders make mistakes, but failure to learn from and correct them (i.e., Facebook suffering parallel privacy issues for years) indicates an endemic issue that calls for action.
Ultimately, good governance is neither blind loyalty nor an always-adversarial mentality. Between these polarities lies the balance a strong board needs to conduct an independent assessment—and have the courage to support or reprimand a CEO under scrutiny.