Is Your Board Asserting Its Authority?

No matter how good the board it can only accomplish the organisation’s aims by working effectively with its CEO.

In the past, many boards have been less than explicit in determining how to achieve this. The relationship is commonly fuzzily defined, evolving in different directions overtime, sometimes leading to a breakdown in understanding and trust.

It’s not been unknown for boards to be heavily criticised for apparently allowing their CEO to lead with faint restraint.

This is sometimes the case when the individual is powerful within their industry, perhaps even something of a media star. But in more recent times there have been the signs of some change, at least in some quarters.

The reign of the imperious CEO may be coming to a close.

Board Authority

It may be that we are entering an era of greater board authority.

In fact, in the trail of the global economic crises some enterprises are renewing their governance. In financial services, Bank of America, Citigroup and Goldman Sachs have all taken steps to reconstitute their boards.

Additionally, some governments are legislating for boards to take more control, eg the Dodd-Frank Act in the USA, charges financial services boards with an enhanced duty for monitoring systemic risk.

Markets are also forcing board authority. Big investors, and corporate governance professionals, are urging boards to look more closely when evaluating CEO performance and the operation of the whole organisation. And, it seems, boards are taking heed.

Recent changes at the top of Citigroup is a case in point. It’s reported that the board asserted itself, desiring a change in Citigroup operations. This was against wishes of the CEO. The board apparently lost confidence in the CEO and he was fired by the chairman.

It’s not only at the big institutions that boards are exerting their power, exercising a veto on organisational direction and strategy. As a result, many boards are now reconsidering the relationship with their CEO.

The Power Relationship

So, if it’s necessary, what may be some steps that a chair can take in re-aligning the balance of power in the boardroom?

1. Hold a discussion regarding board-CEO relationship. First, with the independent board directors. Thereafter, as a whole board, with the CEO.

2. In this discussion set out the principles of relationship, include guidance on where the boundaries may be on issues such as roles, authority, process, approvals, reporting, documentation, etc.

3. Seek to build agreement with the CEO. Listen to his/her views and adjust the guidelines if appropriate.

4. Define the relationship between the chair and CEO. Also, do this for the CEO and how s/he relates to the other independent directors. In some cases it may be helpful to do this for the relationship between chair and board members too.

5. Agree to review the working relationship in 12 months time.

These steps, alone, will constitute new work for many boards.

Some may find it awkward in raising the whole issue. Others may, inadvertently, be too strong in their demands and fail to take on-board the CEO’s views.

Most will strike a balance that re-aligns the “centre of gravity” of power towards its rightful position, with the board of directors.

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