To be the CEO of a successful business you can’t be a shrinking violet. You need a big ego and a strong back-bone. You have to be driven, prepared to take risks and fight like an alley cat when cornered. Successful CEOs like being in charge and in a lot of cases define themselves by their job role. In the end they are not afraid to challenge the existing order.

A CEO knows that that they can’t do it all by themselves, however, and that they need a good management team and some great staff to support them. Many will need a Board of Directors and some investors too.

Let’s talk about Boards for a moment.  A Board has four main functions:  to hire (and sometimes fire) the CEO; to approve and monitor the company’s strategic and financial plan; to keep shareholders informed of company performance and to deal with compliance and governance matters.

A good Board can be a big help to a business; conversely a bad one can be disastrous. I have been involved with both types in the past 15 years. The key is to align everybody’s expectations with a common set of outcomes and point all efforts in the same direction. It is also important to apply high performance standards throughout the organisation.

In recent times there have been two trends that have caused problems for Boards and the businesses they represent. One of these is the focus on short term results. The public markets obsession with three and six monthly financial results has influenced, to some degree, the actions that companies take. Boards can be forced to spend a lot of managing the opportunities and fallout from constantly moving share prices, rather than longer term strategic matters. Corporate decline over several successive quarters can result in sometimes drastic action being taken which can have severe long-term consequences for a business. The desire to quickly return the business to previously enjoyed levels of profitability could in fact be the worst thing to do, if it fundamentally damages the business.

What is important during these times is to ensure a balance between the short term pressures and the longer term objectives. A business without a clear 5-10+ year vision will default to short term initiatives and lurch from the “next big thing”, or crisis, to the next. The role of the board is to ensure that this balance is understood and that the initiatives that are taken actually move the business forward to its aspirational market position.

The second problem is the hugely increased focus on corporate governance. Don’t get me wrong – corporate governance is a good thing. But it must have some boundaries. The difficulty at the moment is that it has become such a large part of a director’s job, sometimes at the expense of other more important matters – like increasing long term shareholder value.  This has unfortunately turned directors into corporate policemen. Being a director these days has become, to some extent, a box ticking exercise which amounts to not much more than a high-level internal audit. Do we have an OH&S policy? Yes – tick. Environmental policy? Yes – tick. Do we have the monthly compliance reports on all this stuff? Yes – tick.

Maybe part of the problem lies in the lack of protection afforded to directors to do their job effectively. When you have directors exposed to personal liability claims if things go wrong, they are left with no choice other than to be extremely cautious.

Further, how can a Board that meets for only 12-15 days per year (or less) expect to deal with all these governance issues as well as provide the leadership to keep the business on track?

To get everything done, the responsibilities between management and the Board must be clearly defined and understood. Each plays a complementary role, but not the same role. The Board must have an excellent overview of the business, but preferably from 1,000 metres up, not from the ground. By staying out of the day to day operations, a Board can provide a unique and valuable perspective especially around emerging threats and opportunities. They can also lend their specific expertise and wisdom to areas in which the company needs help.

The best Boards work smoothly and cohesively with management. They supervise and provide some guidance, but don’t undermine the efforts of the management team. They understand their role precisely and don’t over-step the boundaries. They expect high performance standards and take action when it is not forthcoming.

Most good Boards know that a great CEO is a rare breed. They put their egos aside and appreciate that the CEO is more valuable to the business than they are. A good CEO, on the other hand, may view the Board as a nuisance but nevertheless necessary. This tension is what makes for a great relationship. A smart Board will provide the CEO with a lot of rope, but just not enough to hang himself. The CEO will do everything possible to get more rope. The skill is in getting the balance right…

Article By The Bull 

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