Maintaining a High-Value Board-CEO Relationship

Achieving that healthy tension in the boardroom—where the board is advising the CEO and management team while maintaining objectivity, independence, and skepticism—has always been a challenge. Yet, the mounting complexity of the current business environment has placed tremendous pressure on boards and CEOs to deliver results.

Rapid technological change and business model disruption, economic and geopolitical uncertainty, and investor demands to hold CEOs and boards more accountable for performance all place possible strains on the board-CEO relationship. As the authors of “The CEO Life Cycle” note, this intensifying external pressure “raises the odds of adversarial dynamics between CEOs and directors, leaving many CEOs feeling unsupported and misunderstood.”

At our recent KPMG Board Leadership Conference and in subsequent discussions with directors and CEOs on how boards are supporting their CEOs and management teams today, several observations stood out as great guidance for boards to navigate this relationship.

Set clear expectations that the board’s role extends beyond compliance and oversight and that it includes serving as a resource for the CEO. Several directors expressed concern that the emphasis today on the board’s fiduciary and compliance responsibilities has overshadowed its responsibility to serve as a resource to the CEO and senior management team.

As one chair and CEO said, “The real value of a board is to help the CEO meet his or her objectives.” Directors who have a solid understanding of the business and relevant business or professional experience can provide valuable guidance and counsel. The board plays a role in both defense and offense.

Transparency is key to building trust and confidence between the board and the management team. As one director noted,“The starting point for an effective and high-value CEO-board relationship is full, open, transparent communications—both ways.” The CEO sets the tone for management’s engagement with the board and committee leaders, and the board’s expectation is that “there will be no surprises.”

At the same time, management should expect no surprises from the board. If a director has a concern or issue, the lead director and/or committee chairs should communicate the issue to management before the board meeting. That gives management an opportunity to address the issue without feeling that a director is trying to be a “sharpshooter.” Likewise, another director stated, “management needs to have enough trust in the board to bring issues to the board for discussion before management has all the answers.”

The CEO needs to drive the right relationship with the board. It’s the CEO’s responsibility to foster seamless communication with the board and to work with the lead director to find the right level of board engagement, particularly on the issues that are most critical to the long-term success of the company—such as strategy, risk management, talent, management succession, and the culture throughout the organization.

As one CEO stated, “Boards are teams whose members each perform critical functions but who work in concert with one another; the CEO needs to work deliberately with the lead director on building the team of the board.”

The lead director, as the point person for the independent directors, plays a critical role in developing and maintaining a healthy board-CEO relationship. A key role for the lead director is to facilitate transparency and trust among board members and between the board and the CEO and management. To that end, the lead director should:

• Have ongoing communication—both with the CEO and with individual directors—between board meetings. Prior to board meetings, the lead director should solicit input on possible agenda items or issues of concern from other directors and share them with the CEO.
• Encourage board meetings to be a dialogue, with most time devoted to forward-looking issues rather than retrospective items.
• Closely monitor the boardroom culture to ensure everyone’s views are heard.
• Use executive sessions to identify issues and concerns that other directors may not feel comfortable sharing with the CEO during board meetings.
• Instill confidence and trust in fellow board members that the board’s collective views are being heard and considered in the messaging back to the CEO and management team. To maintain the trust of the CEO, management team, and directors, the feedback needs to be clear, timely, and consistent.

As a conduit for the board, the lead director needs to forge a special relationship with the CEO and be viewed by the CEO as a valuable resource.

In the months ahead, pressures on the CEO and board are likely to intensify, particularly with the possibility of an economic downturn on the horizon. These pressures make a healthy relationship between the board and CEO even more important.