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Can your board challenge your CEO?

Oct 26, 2009 Business Daily, Leadership

“Jack Welch’s tenure as CEO of GE was, by any measure, phenomenally successful. But even the most remarkable CEOS are mere mortals, and bound to err from time to time. In Welch’s case, one notable blunder was his ill-fated attempt to acquire Honeywell in 2001. It was a deal fraught with risk, undertaken with little regard for the unyielding opposition it would encounter from the European Commission. It was a classic situation where a fully engaged, high-performing board would have stepped in and cooled the CEO’s acquisitive ardor. But that’s not what happened.
“Jack came in with this plan”, one director later told us, “and a number of us had real concerns. But we thought, ‘Hell, he’s Jack Welch, who are we to raise these issues?’ So we didn’t. There was real discomfort with his plan, but no acceptance of the idea that it was OK to challenge Jack.””

DAVID A. NADLER, from Building Better Boards (2006)

David Nadler is Vice Chairman of Marsh and McLennan Companies and a renowned expert on teams and organisations. In this excerpt from his co-written book, he is putting his finger on a sore spot. If you sit on a board, you may well have winced as you read it.

Well? Can your board say “no” to your CEO? If your CEO is a no-mark or a board stooge, then the answer is clearly “yes we can”. Those kinds of chief executives are at the beck and call of the board anyway, and the real power usually lies elsewhere: in a too-powerful chairman or shareholder.

But what do you do with the CEO who is an acknowledged star? One who has grown numbers dramatically, who has taken the company to new heights and given great reward to shareholders? Can your board actually offer any meaningful challenge to such a person – and should it?

Typical board culture suggests a highly successful CEO will receive little meaningful challenge, even if he comes up with proposals that fly in the face of common sense. Nadler tells us that “the typical gentlemen’s club culture” still gets in the way of boards doing their job well. And this culture, still prevalent on most boards around the world (and certainly here in Kenya) simply does not encourage the active and independent participation of every director.

This is highly dangerous. No matter how sensationally successful your CEO, he or she remains a mere mortal who will make mistakes. In fact, a track record of success will almost ensure that the mistakes, when they come, will be huge ones – because the leader will by then be blind to the possibility of failure. And that is why the relationship between board and CEO is so important: the board must provide a necessary counterweight and the ability to counsel chief executives away from potentially disastrous decisions.

Don’t get me wrong: I am not advocating adversarial relationships or a pugnacious or querulous culture on boards. A board where everything is opposed or challenged would soon implode. A board that is routinely ill-tempered is the worst of all worlds. The point is that the board-CEO relationship should be as healthy, harmonious and open as possible. The CEO must view directors as respected peers with a wealth of experience and knowledge who can offer wise insights. A culture of constructive challenge must thrive – and be seen as something that makes the CEO and the company stronger, not weaker.

Sadly, that is not often the case. Shooting-star CEOs often make a point of collecting lapdogs for their boards. They want people who are so grateful to be offered a directorship that they will never, ever offer anything other than applause in a board meeting. Such a board is courting disaster.

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