Irene Rosenfeld said in 2015 that, as CEO of the global snack maker Kraft/Mondelez, she spent a quarter of her time dealing with activist investors Nelson Peltz and William Ackman.
The relationships were contentious, particularly with Peltz, according to various reports. Rosenfeld ultimately encouraged his appointment to the board of directors in 2014 to avoid a proxy fight. As a member of the board, Peltz said he would support a turnaround plan developed by Rosenfeld. Rosenfeld retired in 2018, and Mondelez stock rose 50% in her last five years at the helm. Peltz also stepped down from the board that year.
Since then, experts say, activist investors have become even more demanding of CEO time and attention, while CEOs work to balance the other demands that come with running a company during these challenging times.
“The challenges companies face seem far more prevalent than in the past,” says Edna Morris, compensation committee chair for Tractor Supply Company. “There’s consideration of stakeholders beyond shareholders,” such as employees and communities. Other challenges include environmental concerns, the pace of change and social activism, she adds.
This is where the board can step in to help the CEO prioritize what needs to be focused on when, which benchmarks to worry about and how much weight to give them.
“The board and management need to agree on which metrics and sources they will use consistently — internal engagement surveys done frequently, or the latest Glass Door post?” says Denny Post, a board member with Libbey and Travel + Leisure, and the former CEO of Red Robin.
The key to maintaining a healthy board-CEO relationship, whether you’re dealing with needy shareholders or an external economic shock, is an emphasis on transparency and mutual respect.
“More transparency means more trust between the board and the CEO, and less transparency means less trust,” says William Klepper, author of The CEO’s Boss: Tough Love in the Boardroom and a management professor at Columbia Business School. “You want to trust one another, and that means being transparent, not only on financial matters, but on non-financial matters as well.”
Morris agrees. “Directors can be a great sounding board, asking thoughtful questions or offering suggestions without rushing to judgment, and allowing the CEO to explore alternatives out loud.”
While CEOs have more and more added to their plate, board members need to add more as well. In addition to the information that board members have always received about business operations, they’re now regularly asking for — and getting — information about risk assessment and ESG best practices and using that to consider “what makes sense for this company at this point in time,” says Drew Madsen, a board member of Noodles & Company.
According to a 2020 study by CoreData, nearly every institutional investor believes shareholder activism is going to grow over the next three years. That will mean even greater demands on CEO time.
“When you get activist investors, figuring out how to engage becomes a prime responsibility of the board,” says Aylwin Lewis, a Marriott International board member. “You have to figure out whether or not you’re going to let them in or you’re going to fight them, whether or not they have a point of view that should be considered.”
While management and the investor relations team will serve as the primary contact for investors, there are some instances where board members will also participate in dialogue with institutional investors. Even in the latter case, however, the communication typically comes in coordination with the CEO and the management team to make sure that the message remains consistent.
“That demonstrates a highly functioning company,” Lewis says. “In that situation you get tremendous help from the investor relations team. You know your talking points, and you’re participating in conjunction with management.”
Post says that when board members do engage with shareholders, they should be focused on demonstrating their support for the CEO.
“The board has to be clear to the shareholder that they’re standing behind the CEO’s strategy,” she says. “Shareholder engagement should reinforce that.”
Boards also help the CEO with shareholder communications by playing a key role in crafting communications, such as the proxy statement, the audit report or the compensation report.
“All of these reports are scrutinized much more closely by shareholders than they have been in the past,” says Mary Bush, a board member of Bloom Energy, Discover Financial Services, ManTech International Corporation and T. Rowe Price Group. “Each of those committees has a responsibility for overseeing the preparation of those reports and making sure that there’s substantive information about matters in which shareholders are interested, and that it is presented in a transparent and straightforward way.”
However, she cautions: “Board members do not spend 24 hours a day at a company, so the prime responsibility for detailed knowledge and communications rests with management, even though the lead director or independent chair must be willing to step forward upon occasion when requested by investors.”
Where the business is
Where the company is in its growth and development will also affect the board-CEO relationship.
“You need to understand the stage of the business in order to determine where you can be helpful,” Morris says. “Is it a startup, a turnaround, a mature business? If you’re clear about that, you can bring something in your back pocket to the company.”
Lewis says that when he was CEO of Potbelly, he tried to touch base by phone with each board member at least once every six weeks. These calls lasted 30 minutes to an hour and allowed him to update board members, answer their questions and provide context for his decisions. As a board member, he’ll email a CEO to schedule a phone call to provide feedback when he thinks it’s appropriate.
“I’m big on providing an opportunity for conversations,” he says. “Those conversations, they can be coaching. But it’s helpful to have a structured way to have one-on-one conversations.”
The relationship between the lead director or board chair and the CEO is especially important. That person often serves as the liaison between the board and the CEO, providing a rundown, for example, to the CEO of what was discussed in executive session.
“People talk very frankly in those executive sessions about how they’re viewing things, whether or not they have misgivings, what they might do differently,” Bush says. “Communicating that to the CEO, then, becomes very important.”
Once the CEO hears directly from the chair or other board liaison, they have an opportunity to consider the issues raised and potentially make strategy changes in light of the board’s direction.
“I’ve had the good fortune of working with some excellent lead directors, and they take the message to the CEO in a very balanced way,” Bush says. “They express the views of the board and share which direction the board is leaning. It may be positive or negative or questioning, but it’s a very frank communication.”
Still, while board members may take a larger role in guiding management toward business decisions, it’s not up to them to make the ultimate decision.
Bush says that the ways boards support their CEO has not changed drastically in recent years, but the frequency and depth of interaction have.
“Being on top of the issues facing the CEO helps board members to be better prepared to respond to management proposals regarding competitive threats and disruption and other issues as they come to the fore,” she adds.
Morris prefers using the Socratic method, when possible, in dealing with CEOs, asking questions that can help them land on the best strategy. “As opposed to telling them how to run the company, you want to be a trusted sounding board. It can be lonely at the top.”
Post takes a similar approach.
“You want to understand and help them be better, not to sit in judgment of the last three moves they made,” she says. “But at the same time, you have to be prepared to provide feedback. It’s a fine balance.”
Sometimes listening to the CEO is just as important as talking, if not more so.
“The best board members are often the ones that say the least,” Madsen says. “Rather than filling up the airwaves too much with your point of view, ask questions, listen and probe. But don’t be the person that’s doing all the talking.”
Board members can also help their CEO by learning as much as they can, not only about the business itself, but also about broader industry and potential risks that the company or the CEO could face in the short or the long term.
“One of the things I found most helpful when I was in senior management was when a board member took the time to assess what could go wrong and where the big elements of risk were that we weren’t talking about,” says Madsen, the former president and COO of Panera Bread. “You can’t do it all in one meeting, but you can pressure-test some of the bigger assumptions underlying a plan.”
Now that he’s moved to the board side, Madsen has tried to do this — selectively — in areas where he believes the company’s strategic pillars could benefit from a deeper discussion. For instance, Madsen says he has pushed for further conversations about areas like food safety, accelerated unit growth and the core capabilities or metrics needed for success.
“I think most CEOs would appreciate this, assuming the issue under discussion is substantial and the board member raising the question has an appropriate level of business knowledge and related expertise,” he says.
Beth Braverman is a freelance journalist who writes about corporate diversity, impact investing and personal finance.