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Boards Walk a Tightrope Between Challenging, Supporting CEOs
 

By Jean-Francois Manzoni  5/19/2014
 

Striking a balance between exercising challenge to ensure the CEO and management team are performing at the highest level possible and supporting them through advice and encouragement is particularly important when management must deal with rapidly changing situations—the environment is volatile or the organization is internationalizing rapidly—as is often the case in Asia. The key factor in this is board/CEO interactions that are characterized by mutual confidence, often developed from the outset of their relationship. Board members form impressions of a CEO—on their competence, trustworthiness, openness, communication skills and receptiveness to feedback—that determine how much support they are likely to offer and how much they will challenge them. Meanwhile, CEOs also observe members of their board to assess their individual and collective potential for contribution and/or “nuisance.”

This balance, understandably, can be a difficult one to achieve. Volvo, after being bought by Chinese conglomerate Geely in 2010, experienced problems when the company’s new owners brought in veteran Hans-Olav Olsson as vice-chairman to keep tabs on CEO Stefan Jacoby. Conflict quickly emerged between the two, with Olsson accused of stymying Jacoby’s efforts to revitalize the company’s image in Europe and China. Olsson was also widely seen to be the “middle man” for Geely Chairman Li Shufu. Specific disagreements revolved around key executive appointments and public positions on group strategy, with the two also expressing disconnected views around the roles of executive management and the board.  

This example illustrates how boards begin to exert their control once they lose confidence in the chief executive. In these cases, the reasons why the board selected a chief executive are often the very same reasons why they later fall out with them—the qualities they hired them for (e.g., to bring about change, or to add more rigor) become seen as their faults. Jacoby was removed from his position as chief executive shortly after the internal clash was publicized.

While the Volvo situation suggests a possible board failing, there are also prominent examples of CEOs failing to effectively understand their directors. Much as boards should strive to provide support for their chief executives and give them feedback, CEOs should also learn when to take advice. Two-way communication and effective feedback are vital in avoiding an impasse.

In another example, former Thai Airways CEO Piyasvasti Amranand was fired for what the board described as a “breakdown in communication.” While acknowledging that many aspects of the CEO’s performance were very solid, the board said that “communication problems between [the CEO] and the Board were hampering the company’s effort to meet” its profit target for the year. The CEO obviously disagreed with the board’s assessment, although he did concede that “during my term there was a wall between the board and the management.”

These cases illustrate the challenges boards face in working with CEOs who are not necessarily the best receivers of feedback. Indeed, most CEOs are reasonably forceful people, which is how they got to the top of the corporation in the first place. To be effective change agents, they also need to be able to set aside stakeholder reservations and pushback in order to stay focused and stay the course. CEOs are not paid to preside over the inevitable. They are often called upon to take bold action and to stay firm on their implementation. But of course, there’s a fine line between CEOs being selectively hard-of-hearing and being largely deaf, and one of the board’s roles is to ensure that the CEO remains on the good side of that fine line.

On the positive side, decades of research have shown how to make feedback easier to accept:

  • The receiver of feedback must trust the giver. If CEOs feel that the board is on their side and trusts them, it is easier to accept feedback.
  • The feedback must be well informed, not based on gossip or hearsay.
  • The feedback must be balanced. Talking only of fault will cause the receiver to switch off.
  • The communication process must be respectful and open to the receiver’s point of view.

The problem is that if the relationship between the board and the chief executive has already broken down or is in the process of breaking down, it becomes very difficult to establish these conditions, as seen in the case of Volvo. So it is important to create the right relationship from the start: the chief executive must feel secure enough to listen to what the board is saying; the board must challenge the chief executive when necessary.

Replacing a chief executive is a costly process for businesses, as recent high-profile cases have shown. The chance of avoiding these failures can be enhanced if boards strike the right balance between supporting CEOs and challenging them. The chief executive’s job is one of the loneliest roles in business, so boards must not just evaluate their performance but also help them to avoid mistakes and improve.

Jean-Francois Manzoni is the Shell Chaired Professor of Human Resources and Organizational Development at international graduate business school INSEAD, based in Singapore and the director of INSEAD Executive Education’s International Directors Program and Leadership Excellence through Awareness and Practice program.

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