A presumptive “Mission Accomplished”? Here's an all-too-common situation. The board feels good about completing one of its most important duties: selecting the next CEO. Press releases announce the event, and during the first part of their crucial First 100 Days, the new CEO meets customers, employees, regulators, unions, the media and a host of other constituencies in an attempt to get a fast start. The board gives the new CEO space and time to do that important work, and leaves it up to their new chief executive to get to know these various stakeholders.
But then something goes wrong. As the first full board meeting approaches, the CEO feels whiplashed and suddenly overwhelmed by board-related activities — responding to one-off requests from directors, preparing for meetings, burying the executive team in gathering information and assembling presentations, and practicing intense shuttle diplomacy. The new CEO is experiencing the all-too-common symptoms of board-related vertigo — if not at the first board meeting, almost certainly by the second.
Listen to these comments:
⢠“I was least prepared for dealing with the board. There was no way to be prepared. And I had been on the board before I became CEO!”
⢠“I had always reported to one person. At first, I thought of the board as a single entity, then realized I was actually reporting to 11 people.”
Those comments represent a common theme that emerged from a recent study titled “Expect the Unexpected” by The River Group, which captured the reflections of more than 75 CEOs on what it was like to “become the CEO.” Both that study, as well as a similar 2013 report by Heidrick & Struggles involving nearly 60 CEOs, found that one of the biggest surprises encountered by new CEOs — and one of the challenges for which they are least prepared — involves the enormous, time-consuming and generally unstructured task of quickly developing an effective working relationship with the board.
To our continuing surprise, support for this immediate new CEO's need fails to show up in most CEO onboarding plans. Instead, it becomes a hit-or-miss proposition, with the responsibility resting almost exclusively on the shoulders of the new CEO who is simultaneously immersed in learning the organization, its talent, its strategy, its customers, its shareholders and investors, its partners and suppliers . . . the list of initial ‘to do's' is virtually endless.
The importance of addressing this challenge for first-time CEOs is quickly growing in importance, as the promotion of internal candidates becomes more common. Search firm Spencer Stuart recently reported that not one of the 15 executives named to head an S&P 500 firm in the second quarter of 2016 had any CEO experience. Board orientation is particularly critical for those new CEOs, who frequently don't know what they don't know about working with a board.
Our research and experience underscore the importance of carefully and thoughtfully launching the relationship between the board and a new CEO. Indeed, both CEOs and directors tend to view the board/CEO relationship as crucial to the company's success. And yet, most boards stand guilty of “benign neglect” when it comes to developing a formal game plan to help the new CEO swiftly build that all-important relationship.
The mutual benefit of getting it right
While many CEOs may not ask for help, most clearly want and need it. As illustrated by the experiences of the CEOs in the studies by The River Group and Heidrick & Struggles, many CEOs (especially first-timers) experience the board interface in the early days as a daunting, confusing, and intense responsibility that can easily consume 30 percent or more of their time. It's even more complicated in family-owned companies, where there's often a family board or family council in addition to the corporate board, and in private equity portfolio companies, where board members aren't the only key players representing major investors.
The “benign neglect” of this critical process can easily create both risks and opportunity costs to both the board and the new CEO (see sidebar). Specifically:
⢠Creating Clarity versus Cacophony: One of the most disconcerting aspects of the new situation, as we heard from numerous CEOs, was the experience of going overnight from having 10 or 11 bosses instead of just one. While the CEO absolutely has to develop relationships with each director, the board has to find ways to clearly signify to the CEO when it is speaking with one voice and providing clear guidance on behalf of the board and its leadership, which in many cases is the executive committee of the board. The challenge for the board is to provide that clarity without marginalizing those directors who do not sit on the executive committee and can easily feel marginalized and alienated if excluded from all the substantive communication with the CEO.
⢠Optimizing the Board's Value: Beyond the politics of appropriate board engagement is the substance. More and more boards are paying serious attention to improving their composition, assembling a group of directors who each bring strategically important skills and experiences to the table. There's no point in doing that unless each director then plays an active part: raising questions, engaging in discussion, expressing candid opinions. If the new CEO prematurely limits contact to the executive committee, he/she runs the risk not only of alienating directors, but of missing out on potentially useful information and advice.
⢠Accelerating the Transition: The CEO's introduction to the board is by no means an open-ended process. As we heard from CEOs in both of our studies, most boards expect to see a fairly quick and perceptible shift in the new CEO from seeking guidance to providing leadership. Proactive assistance to the CEO early on can dramatically cut down the CEO's time to full value in the role. The faster the start, the sooner the company will reap the benefits of the board's CEO succession.
Five practices for effective board onboarding of the CEO
The bottom line: There's no one-size-fits-all shortcut or magic solution to the onboarding of the CEO with the board, and given the paucity of prior research on this topic, this is somewhat new ground. However, there are existing practices that, when combined, have the potential to accelerate the process. Here are five, for a start:
1. Start well before the baton pass. For CEOs promoted from the inside — the great majority, and growing — the succession process should include explicit plans for ensuring the heir apparent and other near-term successors have the chance to start doing real work between meetings and to develop relationships with board members in a variety of settings, rather than relying on formal presentations and waiting until the baton is formally passed.
2. Gain crystal clarity on leadership roles. The CEO and board should agree at the outset on an explicit statement of expectations — what each expects of the other and specifically, where relevant, differentiating the roles of chairman and CEO. This is one of those cases where the process of discussion and agreement is probably more important than the final agreement itself. This is particularly important when the former CEO is remaining as chair.
3. Provide formal mentoring. Before much time has gone by, a couple of board members — not the retiring CEO — should establish mentoring relationships with the new CEO. Chemistry is as important as credentials, so it's best to give time for the relationships to develop. But there should be an understanding, gently guided by the chair or lead director, to ensure it happens
4. Leverage executive sessions. Use board executive sessions to provide opportunity for candid discussion between the CEO and all board members, without the attendance of the “cast of thousands” that lines the walls of the boardroom at many companies. Boards tend to be all over the map on their use of executive sessions — some do it regularly, some only once or twice a year — but it's particularly important early in the new CEO's tenure.
5. Calendar the expiration date. A potentially huge complicating factor is that with increasing frequency, the departing CEO is remaining as board chairman for at least a year after giving up the CEO role. That's happening now at more than 50% of U.S. public companies, up from 35% just a few years ago; in fact, 10 of the 15 new S&P 500 CEOs mentioned earlier will face a board chaired by their predecessor. If not managed well, that can result in a huge obstacle to the new CEO developing a relationship in which directors view him/her as the real chief rather than as CEO-in-training. Boards should set an explicit time limit of no more than one year on how long the retiring CEO can remain on the board.
Proactively helping the CEO
Historically it has been natural for the board to assume it was the CEO's responsibility to figure out how to get to know them, to understand their respective roles, and to shape their working relationship.
Now, as boards become more active and engaged, their activism can productively extend to their orientation of the CEO. Rather than view their engagement as overreaching, the board has an opportunity to view their intervention as proactively helping the CEO with something that is more difficult than either the board or the CEO tend to appreciate.
The authors can be contacted at mnadler@nadleradvisory.com and peter.thies@trgglobal.com.