2011 Issue 9
BoardWorks International
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Can Chief Executive Failure Be Attributed To Board Shortcomings?

Over the years my colleagues and I have been involved in many consulting projects involving board concerns about actual or prospective chief executive failure. (1)  Thankfully, in some cases, we have been able to assist both board and chief executive to get back on a satisfactory course. This has not always been possible and in other cases, unfortunately, boards and their chief executives have decided parting was the only option.

A research project we undertook reviewed a number of these ‘departure’ situations. One of the most surprising conclusions was that, in each case, the ultimately culpable party was the board. Various actions (or a lack thereof) on the part of the boards concerned were the key elements that resulted in the supposed ‘failure’ of their chief executives.

Shorter tenure and an increasing rate of turnover in chief executives is a world-wide phenomenon. It is thought to reflect the greater performance pressures on organisations of all types. Studies suggest boards have become far less tolerant of under-performing chief executives than they may have been in the past.

Our firm’s experience suggests, however, that chief executive performance is not always (if ever) the sole explanation of a premature departure. A chief executive’s performance is closely connected to his/her board’s own performance. It is therefore worth considering the extent to which boards’ own underperformance unwittingly contributes to, and perhaps even causes, chief executive downfall. When chief executives are forced from their positions we have observed the close correlation of one or more of the following board shortcomings.

  1. Failure to set a clear strategic and policy direction and priorities

    Ultimately, the ‘buck’ for organisational performance lies with the board. And yet, boards often defer to their chief executives in respect to setting direction and determining priorities. This is a risk for both parties and an abrogation of the board’s responsibility to those on whose behalf they govern.  A board must determine the strategic direction, policy and delegation framework within which its chief executive must operate. Absent this framework the chief executive is effectively operating in a direction and control vacuum. This is risky for both board and chief executive.

  2. Failure to clearly specify chief executive performance expectations

    It follows that the board must have an explicit and shared view of the particular achievements and level of performance it expects from its chief executive. It is not enough to rely on a traditional job description that is seldom more than a loosely worded list of duties or activities. The focus should be on results to be achieved. In the absence of a simple and ‘tight’ annual performance agreement, chief executive performance reviews all too often illustrate that among board members there are different and even conflicting expectations. These are also subject to change without notice.

  3. Failure to make clear (and timely) decisions and adhere to the principle that only the board as a whole, and not individual board members, instruct the chief executive

    Boards that have difficulty reaching (and sticking to) decisions leave the chief executive without direction except in the form of the views or ‘advice’ of individual board members. The problem then is of ‘too many masters’. The chief executive has the constant challenge of trying to make sense of the ad hoc instructions, requests, and ‘advice’ received from different board members. When deciding what to act on, and how, chief executives often have to make judgments about which of their board members they can least afford to ignore.

  4. Failure to refrain from interference in operational decision-making and the direction of the chief executive’s subordinate staff

    Many boards find it difficult to balance control and empowerment in the way they direct their chief executive. Notwithstanding the responsibility they have customarily delegated to the chief executive they interfere in his/her operational decision making. This is done in the belief that this is the way they should control and/or protect the organisation or how they should ‘help’ the chief executive.

    They compound the problem by issuing instructions or requests directly to the chief executive’s staff. In doing so they cut across the chief executive’s authority and make de facto management decisions (e.g. about the deployment of staff resources). Thereby they also undermine their ability to hold the chief executive accountable for the outcome of management decisions.

  5. Failure to provide regular, honest and timely feedback on the chief executive’s performance

    Many boards seem to find it difficult to provide performance feedback to their chief executive. This is especially so in organisations where board members are predominantly ‘laymen’ and consequently feel at a disadvantage relative to the chief executive. A common dimension to this problem is an absence of objectivity and integrity in the process. For example, many chief executives have had ‘positive’ performance assessments only to find within a short space of time that their boards no longer require their services. Their boards were simply unable to ‘front up’ with honest feedback on what they really thought about the chief executive’s performance. If they did, it was often too late for any performance concerns to be rectified.

  6. Failure to have the courage of its convictions in its assessment of the chief executive’s effectiveness

    We have seen some boards that were genuinely satisfied with their chief executive’s performance until the intervention of some outside party. Politically appointed boards are especially susceptible to external influence and never more so than when their own position and performance is brought into question. It is at that point that some boards start looking for ‘sacrificial lambs’. Some boards act on the basis that sacking their chief executive will be perceived by stakeholders as a decisive (and appropriate) action even when, in their heart of hearts they know actual chief executive performance does not justify the action.

  7. A breakdown in the relationship between the chair and chief executive

    This is a vital working relationship. The chair and chief executive are the pinch points in the connection between the governance body and the operational organisation. The way they conduct their working relationship requires mutual trust and confidence and respect for each other’s quite separate roles. Some chairs feel they need to act as the ‘boss’ of the both the organisation and the chief executive. Neither is correct constitutionally. Also, some chairs seem feel that they can do the job much better than the chief executive. There is inevitably tension and sometimes open conflict.

Paradoxically, some chairs are so loyal and supportive of their chief executives that they filter out negative feedback from the rest of the board that might give the chief executive a more realistic picture of how their performance is viewed. When the board’s (collective) concerns finally become apparent it is often too late for the chief executive to overcome any concerns.

This analysis may seem to paint a rather pessimistic picture but these are realities that are regularly acknowledged and drawn to our attention by both chief executives and board members. Good governance requires both board and chief executives to be equally good at their own jobs. In the long term if the board is not good at its job chief executives are unlikely to succeed

(1) Chief executive failure is defined as the involuntary exit of the chief executive including the situation where the chief executive has experienced some form of ‘constructive dismissal’ (i.e. has resigned but under duress).

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