A recent survey by the McKinsey consulting firm revealed that many CEOs judge themselves harshly on their ability to operate efficiently with their board of directors. Although the survey involved CEOs primarily from Asia, the insights raise key questions about the relationship between CEOs and boards that directors in the U.S. should consider—especially since positive interaction between the board and CEO is vital to the successful operation of any publicly traded company. It might be time for corporate board members to assess the relationship they have with their CEO and find ways to improve it before any negative outcomes result from less than harmonious interactions.
According to McKinsey’s research:
“CEOs tend to be least confident in their ability to tap into the wisdom of their board members (average score of 3.2 out of 5.0). They are less comfortable to objectively allocate resources as an outsider would, especially when it comes to removing or shutting down initiatives (average score of 3.3 out of 5.0); and they are tentative in their judgment to prioritize and develop engagement strategies for their priority stakeholders (average score of 3.4 out of 5.0).”
Additionally, the research revealed that:
“On average, respondents say they are able to have good relationships with their board but are less confident in their ability to put good behaviors into practice when tapping into the board’s capabilities and focusing board meetings on the future. Board members often agree with this assessment: only 30 percent of respondents to a 2019 McKinsey survey of global boards reported that they serve on boards whose processes are effective. And board effectiveness is an important determinant of value creation: research shows that it’s strongly correlated with higher market valuation and better performance.”
Members of the boards of directors in any country should be able to find value in these findings. Based on this information, board members have many questions to ask themselves.
Can your board honestly assess whether there is effective interaction with the CEO? Effective communication between the board and CEO doesn’t mean that there will be no friction. There will be disagreements, but are there mechanisms in place to work through the rough patches? Do directors and the CEO agree on how an effective board should operate?Is there respect for differing opinions? Is there tolerance and acceptance when additional convincing (or research) is required to gain consensus? Most of the time, board members and the CEO know when there are problems in the boardroom. However, is there sufficient resolve on the part of directors to fix any problems so that the board can be most effective in its efforts to improve shareholder value?
Are the CEO and board in agreement about how the board’s skills and experience can help the CEO? If the CEO isn’t fully aware of or doesn’t respect how board members’ knowledge and experience can support the company’s business model the board’s effectiveness will be diminished. Directors may consider exploring ways to gently remind the CEO that the board can be a resource to help the company avoid risks and generate solutions to problems that may occur. Understanding the value that certain board members can bring to the table may inspire more communication about the potential of business plans before they are implemented—saving time and money.
Do the CEO and board agree on the level of accountability they both have to shareholders and stakeholders? How has the CEO and board decided to hold themselves accountable? If the CEO accepts a board recommendation that flops, who is held accountable—and how? These are extremely difficult conversations to have, but if there is no accountability shown, the shareholders will decide who is accountable through the filing of lawsuits or by making attempts to remove the CEO and board. If handled in an honest and ethical manner, conversations about how success and failure will be dealt with should, at the very least, increase the trust between the board and CEO. Hopefully, that will lead to more successful outcomes in the long run.
