Should The Board Be Involved In Second Tier Appointments?
Life is challenging for governing boards. Dilemmas and paradoxes abound. For example, a board typically employs one person – the chief executive – but organisational performance also depends on others whom the board does not employ. Respecting the ‘chain of command’ (board-chief executive-managers-staff) causes many boards to feel anxious and vulnerable. The capability and performance of, in particular, second tier managers, is almost as important to many boards as that of their chief executive.
Not surprisingly, therefore, some boards seek direct involvement in the appointment and performance management of second tier staff. The common explanation is that this is simply good practice – an application of the so-called ‘one-over-one’ principle. That principle is that all staff appointments (and dismissals) are approved by the superior of the manager proposing the decision. It has long been applied within the management structures of many organisations. The case for its escalation to the board level is, however, more questionable.
In a strict (and direct) sense it is not a good idea for the board to have an active role in the appointment (and even performance management) of second tier staff. It is not the board’s job to help the chief executive do his/her job. A fully competent chief executive should be expected to be fully accountable to the board for the management of the organisation’s resources (including staff) and its consequent operational performance. Taking this view to its logical conclusion is stark. If second tier managers are not up to the job the chief executive has to suffer the consequences. Ultimately the chief executive’s job could be at stake.
Many boards prefer to take a more nuanced and proactive approach than this than this ‘strict’ view would suggest. They do not wish to stand by and watch their chief executives fail. In this article I explore how both boards and their chief executives might clarify the accountability issues involved and successfully tackle the natural tension in the situation.
The stimulus for this article was a recent consulting assignment. The board was asserting that the one-over-one principle justified it having a representative on senior staff appointments panels. The organisation operated under legislation that explicitly stated that the chief executive was the employer of all other staff. The chief executive was concerned that if board members were directly involved in employment decisions the board would be acting illegally as well as undermining his autonomy and authority.
Even where the chief executive’s authority is unequivocal, as it was in this case, there is a constant governance challenge. That is to recognise and align the interests – and prerogatives - of both board and chief executive. Firstly, there was a need to agree what the board’s governance interest in second tier staff appointments was. Secondly, there was a need to try to accommodate that interest without compromising the chief executive’s statutory independence.
The following considerations emerged from the discussion between board and senior executives. These have much wider application.
- Executive performance from the board’s perspective is not down to one person but to the executive team as a whole. No chief executive is the complete package. The board’s risk management must take into account the collective capability of the top team to drive the performance of the organisation. The board’s natural anxiety about the performance of the wider management group is, therefore, something that every chief executive needs to find a way of acknowledging.
- The board is a direct consumer of the services provided by second tier managers. Under-performance (e.g. in relation to the quality of advice, reporting, financial management, etc.) impacts directly on the board. The board cannot turn a blind eye if it has reservations about the capabilities of those in key second tier roles. Any shortcomings have a direct impact on the board’s ability to fulfill its own responsibilities.
- Boards notice the toll it takes on their chief executives when second tier managers are not up to the job. Boards are delighted when they feel that their chief executive is well supported by a high performing second tier team.
- Ultimately, a board’s assessment of the chief executive’s direct reports has a big impact on its confidence in the chief executive. A US study has identified a lack of board confidence in the chief executive’s handling of staff performance issues as one of the key reasons for chief executive dismissals.(1)
There is no question, therefore, that the board does have an interest in the capabilities of the second tier. Board and organisation alike are affected by poor personnel decisions. The board's confidence in its chief executive is directly correlated with its confidence in other key staff. The problem the board faces, however, is that any attempt to insert itself in the personnel management process weakens its ability to hold the chief executive accountable for organisational performance. A likely scenario is easy to imagine. Chief executive to board: “It was you who convinced me to hire this person. I had reservations and you talked me out of them. We wouldn’t be in this position if I had followed my own judgement.”
So how should a board deal with its understandable anxieties? How might its interests be expressed – and acknowledged - without undermining the chief executive’s authority and accountability? One way is for both board and chief executive to apply a series of questions to clarify their interests and how these interact.
Clarifying questions for the board
There is a range of questions the board might ask itself to clarify the nature (and appropriateness) of its interest in being involved in second tier appointments.
- What is the nature of the board’s interest in the appointment of second tier managers? Is the board clear that there is a valid governance dimension to its interest? Is there a policy that provides legitimacy and a frame of reference for the board’s interest? If there is none, is the board’s interest just a matter of idle curiosity? As with many other gnarly boardroom issues it is helpful to ask, ‘what is the policy relevance of this?’ Lacking a good answer to this question is likely to mean that the board has not predetermined a legitimate governance interest.
- How does the board’s interest in the second tier appointments link with the chief executive’s interests in the same matter? For example, are their interests complementary (ie do the two perspectives create a natural whole?) or are they potentially in conflict? Who has the right to make the ultimate staffing decision?
- Is the board’s interest being expressed in the right sequence? The board’s first job is to create a suitable policy framework. The chief executive can then be empowered and held accountable for making operational decisions which achieve board defined policy objectives. The development of such a policy framework must start from the highest, most abstract or general level. Then, if necessary, it can cascade into progressively more specific policy determinations.
- What are the implications for the board’s ability to hold the chief executive accountable if it is directly involved in staffing decisions? For example, a performance failure when there has been a ‘joint’ decision can compromise the chief executive’s subsequent actions. For example, the chief executive may not feel able to address the problem as expeditiously as if she/he felt fully accountable for the original decision. Is there also a risk of incentivising the chief executive to delegate accountability upwards – leaving the board ‘holding the baby’ completely?
Clarifying questions for the chief executive
The chief executives who seem to handle these inherent tensions best are those that find proactive ways of acknowledging their board’s interests in the performance of second tier managers. They engage them proactively but in a controlled manner that does not compromise their accountability for operational decision making. Questions that might help chief executives to develop effective approaches might include the following.
- What is the board's interest in my second tier managers? How does the quality of my staffing decisions impact on the board? How does the board’s perception of the appointments I make impact on me and my relationship with the board?
- How might I keep the board informed when a new appointment is pending and ensure that I understand how the board’s expectations relate to the position I am seeking to fill? Am I confident that I have addressed those expectations in the recruitment process and appointment criteria? Have I taken the board into my confidence about the challenges I face in making this appointment?
- Is the board aware of and does it has confidence in, the process I am following (ditto the people that I am using to assist me in the selection process)?
- Have I tapped into any particular professional expertise or market intelligence that exists among board members that might help inform my search and appointment process? Are there board members who think they have a contribution to make and who would feel disrespected if not invited to contribute?
- Before I make a final appointment is there an opportunity to let the board know how things are progressing and to test any board sensitivities around particular candidates? (This may be relatively straightforward (and desirable) in respect of internal candidates but may not be possible for external candidates when preserving confidentiality is important).
Another set of questions is likely to be useful once appointees are in their roles. The chief executive might usefully ask, for example:
- How might I obtain board feedback on my second tier managers’ performance? This question acknowledges that it is better that a chief executive knows explicitly what judgements the board is making of managers’ performance.
- How might I ensure that the board has a balanced picture of the performance of my senior staff? There is a real risk that as board members’ engagement with senior staff is usually fleeting and episodic their evaluation will be incomplete and inaccurate.
The theory is that boards are not involved in making management (including staffing) decisions. Notwithstanding the desirability of applying theory strictly I have tried to show in this article that the board has a very real interest in the outcome of the chief executive’s personnel management decisions. Successful handling of the tensions that accompany this situation is likely to come from a combination of:
- open acknowledgment of the board’s interests in the appointment and performance of second tier managers;
- board awareness and understanding of the risks of inappropriate ‘interference’ in management decisions;
- effective design of a governance policy framework within which the chief executive will be empowered (and possibly constrained) to make his/her decisions; and
- clarity of decision making rights (in the end, whose decision is it?).