Mastering the Shift
When board chair leadership is in transition, how do you fill the seat for optimum impact? Is there an ideal hire? What does it take to be ready for such a significant changeover?
While the succession spotlight is often focused on the CEO seat, it is imperative to bestow equal foresight upon the leadership role of the board of directors. In this issue of LBI’s Board & CEO Purview, we explore best practices for board chair succession. We begin by shining a penetrating light on an area of board affairs that deserves our stricter attention.
Much of a company’s health and longevity derives from effective board leadership so it is a tactical advantage to employ energy and focus on sustainable board management. Having a forward-looking board composed of the right individuals with a variety of knowledge, experience, and skill sets that align with the company’s long-term strategy is critical. Shareholders, activists, and other stakeholders are increasingly scrutinizing board composition, tenure, performance, succession planning, and refreshment practices. Boards will need to innovate with more rigorous processes and practices to improve effectiveness and performance, as well as enhance disclosure as many shareholders have heightened expectations to better understand the board’s approach to these activities.
A strategic methodology to board refreshment and succession planning requires highly effective leadership from the board chair and the Governance & Nominating Committee chair. Board culture also has a role to play, and with intentional fostering of candid dialogue of sensitive topics such as director performance, ways to exit under-performing directors or those who no longer have relevant skill sets; purposeful and conscious leadership becomes all the more essential.
Positioning board expectations around tenure, refreshment, and re-nomination mechanisms sets the right tone for directors to understand that consecutive appointments are not assured. Succession planning and board refreshment is an iterative process that should be based upon the changing governance landscape, the evolving needs of the business, ongoing recalibration of the skills matrix, and sustained agility and performance of the board.
Governance specialist John Carver¹ underscores the essential role of a board as being “the link between owners and management, directing and controlling the company on the owners’ behalf.” Carver further observes that “owners grant this authority to enable the board to act as the ownership in microcosm” and that good governance occurs when “leadership is not just over others but on others’ behalf.”
Clearly an adept chairperson is a major contributor to the overall strength of an organization. How you select a chair of the board ultimately reflects on how successfully the board will operate. In turn, how well a chair manages board affairs has great bearing upon the board’s effectiveness and influence, as well as its relationship with the executive arm of the corporation. It is therefore incumbent upon the board to optimize the chair position through a rigorous and strategic succession plan. To achieve optimal selection of your next leader of the board, we begin an exploration into various aspects of chair succession.
Role of Chair of the Board
A crucial aspect of the chair of the board role is to ensure stability. This corresponds with how effectively the board chair can manage strategic priorities and navigate complex challenges. There are innumerable ways in which the board chair can cultivate an efficacious communication channel between board and management, as well as to elevate board performance through judicious and perceptive leadership.
The chair is responsible for leading the board in executing its primary responsibilities which include:
Governance & Strategy:
- Oversee the board and ensure effectiveness in approving and overseeing the organization’s strategic direction, overseeing the organization’s business and the environment in which it operates, and implementing high governance standards.
- Make decisions in the best interest of the organization and safeguard the interests of shareholders and principal stakeholders.
- Conduct board meetings effectively, accept motions and amendments, and rule on points of order when required.
- Work with governance chair on board renewal, and to annually review board composition and skills matrices.
- Hire and evaluate the performance of the CEO.
- Interface with CEO and other members of management.
- Consult with CEO to drive strategic agenda and oversee executive performance.
- Work with committee chairs and focus the board on critical tasks ensuring sufficient time is allowed for complex or contentious issues and encourage active engagement by all board members.
- Ensure an appropriate board and director evaluation process is in place.
- Pursue ongoing stakeholder engagement ensuring the views of principal investors and other key stakeholders are communicated to the whole board.
- Ensure effective communication with principal shareholders on matters relating to governance, and executive and director remuneration.
Financial & Regulatory Oversight:
- Monitor financial performance metrics such as revenue, profit margins, growth, and stock price if publicly listed.
- Work closely with CEO/CFO/CRO to ensure financial health, appropriate risk management, and compliance.
- Monitor and accurately report on profitability, performance, and investor relations.
- Lead, develop, and supervise strong corporate governance policy and practices.
- Ensure compliance with regulatory guidelines.
Lead Independent Director
While the lead independent director (LID) role is not a requirement for all boards, it is prevalent in organizations where there is a non-independent chair, or when the CEO and Chair roles are combined, which today constitutes a high percentage of U.S. companies. The LID plays a pivotal role on the board when the board chair is not independent or when the CEO and Chair positions are coupled; where the LID role is indispensable in ensuring there is an independent counterbalance to the chair.
The primary role of the LID is as an intermediary between the chair, the board of directors, and the organization’s primary stakeholders. They act as a point of contact for principal shareholders and other key stakeholders, an alternate communication channel for non-executive directors, a monitor and counterpoise to the non-independent chair or the dual role of Chair – CEO. The LID is typically a member of the Governance & Nominating Committee, and they are the lead in the chair’s performance evaluation and a key participant in the selection process for chair succession.
The LID must maintain complete independence and be free of conflicts throughout their tenure. It’s very important for the LID to possess a complementary skill set to the board chair to be able to act as a valuable sounding board. They must have very strong interpersonal and problem-solving skills, sound and independent judgement, a strategic mindset, and possess deep domain knowledge and expertise about the organization’s business, it’s therefore preferred and beneficial for the LID to be selected from within the existing board.
Fundamentals of Chair Succession
Every board needs a robust renewal plan for its members and a succession plan for the chair and committee chairs. It is vital that chair succession be included in the overall board development strategy which is integral for publicly listed corporations. By creating a comprehensive plan for succession, the board is ready for an expected departure or sudden destabilization of chair leadership. Succession planning establishes a foundation of trust, smooth transition, and continuity of board stability.
The risk of selecting the wrong person is well-known;
the risk of overlooking the right person is invisible.
Having the right balance of experience, skills, perspectives, and leadership competencies is the most important factor in assuring the overall effectiveness and performance of the board. This leads to the all-important question of chair succession — how board chairs should be selected.
Choosing the chair shouldn’t be based on seniority, relationships, share-ownership, the halo effect of being a high-profile board member, or who is more liked. Rather, the focus should be on whether the individual has the ‘right’ combination of skills, experience, and leadership competencies to effectively lead the board and work closely with the CEO. This requires the chair to not only have the skills to execute the more basic aspects of board leadership such as setting agendas and ensuring directors receive accurate, timely, and clear information, but more importantly, to set the tone and culture of the board. This entails facilitating effective board relations, ensuring all perspectives are heard and validated, communicating persuasively, listening intently, encouraging and managing constructive dissent, building consensus, maintaining independence of thought, demonstrating strong and objective judgement, and managing and advising the CEO.
An ongoing, well-defined, and robust process for board chair succession allows for the identification of candidates who will meet the board’s evolving needs. Adopting a structured approach ensures that the selection process for board chair renewal is thorough, transparent, competency-focused, and aligned with organizational needs.
The Way Forward to a Suitable Successor
Board succession should be a multi-pronged and integrated process that includes the following key elements:
- Director, committee chair, and board chair succession planning.
- A skills matrix that is regularly recalibrated in alignment with the strategic needs of the business.
- Term limits and board renewal mechanisms that effectively facilitate director turnover.
- New director recruitment aligned to the skills matrix.
- A vigorous selection process for the board chair and committee chairs.
- Board development activities focused on improving skills, effectiveness, and performance.
- Individual director performance, committee chair and board chair performance evaluation and management.
While boards have clarity that the above core responsibilities are under the purview of the Governance & Nominating Committee (GNC), when it comes to who should lead the actual selection of a new chair; it is woefully ill-defined, which can lead to problematic practices and outcomes.
The GNC most often leads the board chair selection, however this practice should be rethought. Two critical considerations are that members of the GNC may themselves be potential chair contenders, in which case they would be precluded from leading the selection. Secondly, the selection of a new chair should be executed by those board members who possess the most knowledge of the chair role — the incumbent chair, any member around the table who has been a board chair previously, which may or may not be members of the GNC, as well as the lead independent director. A modern and effective practice is for the GNC to lead the development of the policies, processes, and practices that govern how the new chair will be selected, which is discussed with, and agreed upon, by the full board.
When there is an active board chair search, the GNC should strike a special selection committee composed of the incumbent board chair who will lead the selection process, along with one or two trusted board members who will not be chair contenders, and who are not aligned or predisposed to any aspiring candidate. It is quite common for a candidate to emerge from among existing independent directors, however, caution is needed to manage tension and ensure a level playing field. Be meticulous in search methodology, and, if feasible, avoid an overly long selection process to minimize awkward undercurrents in board dynamics.
Often candidates are culled from the body of experienced board committee chairs. Also, there may be instances where a committee chair candidate is recruited to the board with a view to becoming the next board chair within a specific period of time — a strategy that can ensure an orderly and timely process. In the best scenario, the board will make certain that there are at least two potential board chair candidates among the current membership. If internal candidates do not have the necessary experience and leadership competencies, the board must be prepared for recruitment from outside the current board.
Chair replacement options include primarily three methods:
- Internal process: Only existing board members are considered.
- External process: An outside hire is being considered.
- Combined process: External search is conducted along with an assessment of interested directors from within the existing board.
Chair succession should be an ongoing process that involves several key steps:
- Recalibrate board skills matrix: The GNC must annually review and update the skills matrix and identify areas where additional expertise may be needed. Alignment between the board’s collective capabilities with the needs of the organization, and between each director’s capabilities, with the board’s competency requirements, is increasingly being scrutinized by institutional and activist investors during director nominations, and it is being investigated in board oversight failures, and in shareholder litigation and activism. The GNC must ensure that it is regularly reviewing these alignments ensuring agility and forward-looking capabilities.
- Develop a succession matrix: Map current board members’ terms, expiries, and leadership potential as well as aspirations, including directors whose skills have become less relevant to help visualize potential vacancies.
- Appointing committee chairs: Set term limits for committee chairs with the objective of moving them around to further develop possible leadership competencies.
- Annual board evaluation: Independently conduct annual board and director evaluations and incorporate into the board refreshment process.
- Role description: Maintain an up-to-date role description and key requirements for the chair role.
- An active vacancy: When there is an active vacancy, form a special chair selection committee: The selection committee should be composed of the incumbent chair, and one or two members who are not chair candidates. The committee prepares a draft role profile and includes the entire board in finalizing the requirements.
- When to secure a search firm: In a scenario where the board does not have right candidates from within the board, or where the board is composed of multi-stakeholder seats with a requirement for an independent chair, it will be necessary to engage an external search firm to assist in a comprehensive recruitment process.
- Robust selection framework: Being a board chair is not suited to everyone. To objectively and vigorously assess an individual’s capability to be an effective chair, there must be complete alignment between the requirements sought, the assessment criterion for how candidates will be measured, the focus of interview questions, and the interview rating scorecard, which ensures an objective and competency-based process. It is essential to eliminate the personal judgements that lead to impression-based selection, and instead keep the focus on the needed core competences and characteristics which avoids backing candidates who are personally better liked or ‘appear’ to ‘fit’ well — regardless of their true ability. Without integrating all these components, a real picture of a candidate’s true capability to be a board chair cannot be rendered.
An integrated selection framework includes:
- Developing a role specification: Draft a profile of what is needed in the new chair. Detail the expected time commitment and key responsibilities for the role. Invite all board members and the CEO to share their views on what is needed, which must consider the strategic needs of the business and the challenges of the organization, as well as the board.
- Prioritization: Review the profile of what is needed in the new chair and translate it into core skills, competencies, experience, and personal attributes. Prioritize these into critical, very important, and important to have. Apply a weighted criterion to the critical and very important, which provides the framework for how candidates should be measured, and the focus for interviews.
- Interview preparation: Develop the interview guide and scorecard focused on the prioritized and weighted requirements.
- Conduct interviews: Assess candidate background, experience, skills, board leadership potential, and strategic thinking as well as the ability to constructively and objectively oversee the CEO.
- Leadership assessment: While psychometric leadership assessment is a gold standard practice when hiring a new CEO or members of the executive team, it is not used when hiring board members or selecting a new board chair – but it should be. A full evaluation of executive functioning, intellectual style and approach; behavioral characteristics; social and interpersonal style; management style; cognitive agility; and the potential for successfully performing as chair is highly beneficial in helping to ensure the right person is selected to the board chair seat.
- The chair builds consensus among selection committee members as to the chosen succession candidate to be put forward to the board for approval.
- Ratification: The selection committee presents its findings to board members who vote to approve following formal procedures outlined in the company’s bylaws or governance policy structure.
- Announcement: The board will formally announce the appointee to shareholders, employees, and the public. The current chair’s exit date will also be announced.
- Transition: Once the appointment is made public, the new chair transitions into the role. Typically, the existing chair will help usher in the new chair and share agenda-setting processes and advise on various aspects of the role.
Blueprint Pointers for Chair Succession
Best practices in board chair succession involve a considered and strategic approach to selection and transition to a new chair of the board. Here are LBI’s suggested tips to work into your succession roadmap:
Be at the ready:
- Define a fixed term limit for both the board chair, and committee chairs.
- Plan appropriately to avoid having to do a chair search at the same time as a CEO search.
- Strategically use committee chair opportunities within the board as leadership development, and rotate committee chairs to broaden exposure and knowledge.
- The use of psychometric assessment can be invaluable in helping to evaluate leadership competencies for potential chair succession.
- When designing the board and director performance evaluation process, incorporate key leadership competencies to help identify current directors as potential chair successors.
- Identify multiple candidates: Aim to have at least two potential chair successor candidates among the board membership at any given time. If you don’t have the bench strength, recruit new board members with the leadership capability.
- Develop a two-prong plan: 1) Implement an ongoing succession plan. 2) Prepare for an integrated selection process for when the search is active.
Know what you need:
- Review current company strategic goals.
- Identify existing and potential business challenges.
- Evaluate board composition and needs and isolate gaps.
- Assess future chair skill sets and competencies to complement existing board capabilities.
- Define roles of the chair and directors and ensure clarity of accountabilities.
- Formalize selection criteria.
- Conduct a thorough and accurate analysis of the time commitment required to serve as chair, an area that is widely misunderstood and vastly under-estimated.
Hone the search:
- Adhere to a fair and transparent process, ensuring selection methodologies are objective, rigorous, and competency based.
- Where necessary or required, utilize external advisors to maintain impartiality.
- Avoid the formation of cliques on the board who are proponents of certain candidates, as it can be difficult for the new chair to unify segregated and partisan directors into a cohesive working unit following the transition.
- The incumbent board chair should solicit the current CEO to provide insights on potential chair seat contenders. This is a delicate discussion, but one that must be had. The board chair has two primary responsibilities – running the board and managing the CEO relationship. The CEO has the most important role in the organization; thus, it is imperative to understand their perspectives on any potential chair successor.
- Retiring CEOs are in high demand for board roles. A common practice is for boards to dangle the potential of a chair role to entice these particularly sought-after CEOs to their boards. This practice is highly problematic when they are not selected as the next chair, as these CEOs can become disenchanted and feel they were misled. When recruiting CEOs to your board, avoid this pitfall by being realistic and upfront in communicating the process to become chair, and refrain from any “confidential” promises of chair ascension.
Due to evolving corporate priorities, it’s imperative to be forward-thinking. It takes a concerted effort to prepare directors for a change in leadership of the board so do consider integrating the above tips to ensure a successful succession of the chair.
Requirements & Preferred Quality Traits
The board chair serves as a multi-directional caretaker overseeing multiple relationships with the CEO, C-suite, individual board directors, the board as a cohesive unit, as well as investors, other key stakeholders and constituents. An effective chair is a reliable sounding board and counsel for the CEO. At the same time, the chair is custodian of the board of directors which is a balancing act of leading and facilitating. Unlike the CEO, it should not be a spotlight role. Rather it’s creating conditions for others to shine.
The role could be compared to an orchestra conductor who creates a song sheet to manage many players and moving parts to work to achieve cohesion within the group. Engaging in board discussion while also running the meeting is not the easiest of duties. A nimble chair knows when to call for a conclusion and when to delay in order for directors to better process information and conduct a solid discussion. Deft timing is also critical to not overwork a topic once consensus is reached. Chairs are expected to make judgments and decisions, often in difficult circumstances, with policy and regulations top of mind. They make countless, significant choices in the company’s best interest while protecting the needs of various stakeholders – no small task! All the more reason to be exceedingly thorough in your search and selection.
Zero in on specific criteria to fully qualify your chair prospects:
- Absolutely no desire for the CEO role.
- Should not be a full-time executive of a public company.
- Should not be the chair of more than two public companies.
- Should not also be the chair of the governance committee as it concentrates too much influence in one role — a very ‘old-school ‘practice.
- Review each contender’s other board roles to assess their realistic capacity to serve as board chair and avoid being over-boarded.
- Effective leadership competencies:
- Soft skills include ability to frame issues, ask difficult questions, provide non-judgmental feedback, and flexibility in decision-making. Using emotional intelligence via active listening, open communication, being adaptable to change, accepting criticism as a growth opportunity, and problem-solving for solutions that benefit the whole. Applying emotional regulation and reflecting self-awareness.
- Hard skills include talent for planning, organizing, and setting goals. Meeting facilitation prowess to inspire board participation and achieve unanimity. Highly developed capabilities to synthesize information and relay messaging to various groups in distinctive settings and situations. Financial acumen and understanding of advancing investment models such as crypto currency markets. Risk management expertise to ensure vigilance against financial, legal, and security threats. Broad industry knowledge to stay abreast of organizational opportunities and challenges.
- High skill capacity to build consensus and manage conflicts.
- Independent-minded and free from conflicts of interest.
Aptitudes, abilities & attributes:
- Communicator & Disseminator: Acumen in relaying board decisions to shareholders, stakeholders, and the public.
- Astute: Knowing what to prioritize, how and when to take action, and ability to critically evaluate post-meeting.
- Facilitation finesse: Meetings are the foundational work of a board so unquestionably a chair must excel at leading meetings. The chair is responsible for setting the agenda, prioritizing discussion points, and summarizing key takeaways.
- Delegator: Govern in collaborative spirit, request contributions and encourage participation of directors, strategically assign tasks to gain the best of director capabilities and hold directors accountable.
- Deft Moderator: Setting the tone for board interaction by displaying a positive, invigorated, focused disposition. Guiding discussion to fit agenda.
- Active Listener: Inviting director input, paying attention to all information explicit and implicit. Staying calm and withholding emotional reactions. And, conveying interest in what you are hearing.
- Proponent of transparency: Open-book approach to the board activities to provide shareholders visibility into corporate governance practices.
- Intuitive: Instinct for spotting directors with strong leadership ability. To maintain continuity of governance, the chair, in tandem with the G&N Chair, is also responsible for growing the talent pool of future chairs. Identifying those directors with the capacity to chair and further developing their knowledge and skill sets to help secure the line of succession.
- Inclusive: Inviting diverse opinions and providing space for all voices. Creating an open-door environment to inspire trust.
- Confident: Possessing an assured governing style with ability to guide the group to stay firmly on track of objectives and goals while inviting input.
- Committed: Chairing a board can be time-consuming, often far more than anticipated. The chair’s available capacity needs to be considerable to achieve what is expected of an exacting role.
- Courageous: Displaying determination and resolve in leading and decision-making.
- Modest: Holding your own while operating with a sense of humility.
- Inquisitive: Having curiosity to deepen engagement in the boardroom and delve into unconventional thinking and new trends.
- Cheerleader: Act as a guide and coach to bring directors into collaboration. Bolster interaction with directors through informal meet ups to foster relationships.
- Mentor: Serving as a guide to committee chairs and brokering strong relationships.
- Transformative: Must be an implementer and advocator of innovation. For example, tech has swept through the business world leaving little unchanged. As author Pearl Zhu² observes, “In a world of well-defined problems, directors are required to exercise influence over volatility, manage uncertainty, simplify complexity, and resolve ambiguity in the 21st-century digital environment.” In that regard, an astute chair helps lead directors towards emerging trends to guide the company through both seismic internal and external shifts.
The Chair & CEO Relationship
The Chair-CEO relationship is unique, complex, and challenging. Both parties are cojoined in the mission, values, and the long-term success of the organization, working together to solve problems, and create value for shareholders and other key stakeholders. But, in doing so, they have two strikingly different roles and accountabilities — the CEO’s mission is to oversee and run the company, and the board’s mandate is to set policy, implement governance structures, and oversee management in executing its duty. Having clarity on the separation of roles and authority, with clear expectations of interactions, channels of communication, and agreed upon norms of behaviour, are a perquisite for an objective and transparent relationship that builds trust, while also keeping the relationship on the appropriate footing of objective, constructive, and healthy tension.
There’s a lot on the line. For those aspiring to the chair role, self-assessment is critical. Be realistic and sincere in why you are pursuing the seat. Do you have necessary skills and competencies for the role? Can you truly balance the workload, personalities, and timetable? Gains are real: increased status, network, and impact. But the challenges are just as genuine: dealing at times with healthy egos, weighty decisions, and a pressurized environment. It’s extremely important to sincerely want the position for the right reasons as any reluctance for the chair seat can be detrimental long-term for all concerned.
Taking the chair seat means working in close partnership with the CEO. Having respect for the CEO’s ideas, ways of communicating, and personality traits will help to create a shared vision for the betterment of the company. In reality, dealing with the CEO and multiple parties who all have unique needs and concerns can be a challenge. It’s a push and pull to reach consensus. In the face of opposition, can you stand firm in your point of view and maintain your integrity? Can you ask the tough questions? Have the judgement to know when the answers are sub-standard? It’s important for the chair to recognize when to be more demanding of the executive and board. A successful chair has the facility to elicit high standards of professionalism, challenge less than adequate performance, and acknowledge outstanding service to encourage the very best of those who govern.
Changing Rules of Order
It’s important to understand the obligation as board chair. Not only are you juggling agendas and relationships, increasingly policy and regulations are becoming more strident and consuming. A chair must be fully informed to address unfolding issues affecting corporations today. According to an article³ posted by the Harvard Law School Forum on Corporate Governance, there are key hot spots that boards need to be keenly aware of in order to manage risks. As head of the board, here are certain contentious areas a chair will likely need to navigate within the evolving corporate governance landscape:
- Environmental, Social & Governance (ESG) Reporting: Increased scrutiny brings growing pressure for companies to enhance ESG disclosures. Regulatory bodies are implementing stricter reporting requirements which can be a challenge due to the costs and complexities involved. As well, ‘greenwashing’ concerns have led to an increase in regulatory actions to ensure ESG claims are accurate and not misleading.
- Cybersecurity & Data Privacy: New regulations are being introduced to enhance cybersecurity measures and protect data privacy tied to mandatory reporting of data breaches and stricter compliance requirements. The push for increased board accountability in overseeing cybersecurity risks is challenging given the technical nature of these issues.
- Executive Compensation: Shareholders are intensifying demands in having a say on executive compensation packages which can lead to debates over alignment of pay with performance and shareholder interests. Potential claw back policies to recover executive compensation in the case of misconduct or financial restatements may bring about new regulations.
- Board Diversity: Companies may be required to disclose specific board diversity policy and composition targets leading to increased scrutiny and potential challenges of implementation. The need to avoid a “tick-the-box” mentality is ever more important.
- External Forces vs. Financial Performance: In the U.S., the Task Force on Climate-related Financial Disclosures (TCFD) recommendations are being adopted by regulators, requiring companies to disclose climate-related risks and opportunities. This may be contentious due to complexity and potential impact on financial performance.
- Shareholder Activism: A rise in investor crusading/politicking/advocacy and the push for change in corporate governance, strategy, and ESG practices can prompt remonstration resulting in boardroom battles and public disputes.
- AI & Technology Regulation: Emerging regulations are focused on AI ethics, transparency, and accountability as boards are pressed to sort through regulations to avoid legal and reputational risks.
Overlapping Leadership: 2-in-1 Model
Governance can also come in a paired role in the form of CEO-Chair. In the aftermath of corporate scandals and financial “too big to fail” misconduct of the early 2000s, there were calls for clearer division between the C-suite and boardroom. In the U.S., the Dodd-Frank Act was introduced outlining new areas of legislation in regard to accountability, requiring that public companies have some manner of independent board leadership and disclose whether the CEO and chair positions are combined.
Canada’s system of corporate governance has roots in British common law but is also influenced by other jurisdictions such as the United States. Relating to shared CEO-Chair roles, Canada’s practices differ greatly compared to its American counterpart with the vast majority of Canadian corporations having a CEO separate of the chair. In comparison, almost half of U.S. corporations are led by a fused role model.
Given the vastly different roles of board chair and CEO and the leadership competencies needed for each, there are few merits and significant detractions to having the combined role of CEO-Chair such as:
Pros of CEO-Chair:
- Greater agency to direct corporate policy.
- Flexible management approach.
- May take risks/make decisions during periods of uncertainty while competitors remain risk adverse.
- Quicker decisions if handling both roles.
- Faster adaptation to market conditions.
Cons of CEO-Chair:
- System of checks and balances are hindered.
- Lack of chair’s wise counsel.
- Without an independent board chair, the CEO is self-monitoring.
- Too much power and influence which can limit constructive dissent.
- Lack of independent thinking and decision-making.
- Hiring and firing of CEO is encumbered.
- CEO may have biased views regarding executive performance and compensation.
- Time and effort for each role spread too thin, with less focus on core area of expertise.
- Monopolizing both roles may stifle the board’s ability to challenge or provide alternatives in strategic direction.
- No primary liaison with board members.
- Murky authoritative voice representing board.
- In times of crisis, a singular chair is better at addressing stakeholders and media.
- Stakeholders may have higher or unrealistic performance expectations.
- Increased risk for board members.
Further hazards of a merged CEO-Chair position must be underscored such as the higher potential for conflicts of interest. The board makes decisions on executive and CEO compensation and monitors how the CEO runs the company. When the board chair is also the CEO, it increases the likelihood of competing intentions and pursuits as well as compromising of judgements, decisions, and actions in the workplace.
When the board chair is also the CEO, it may limit the effectiveness of the audit committee. This is especially relevant to the whistleblower clause, which requires the audit committee to have a procedure for employees and other connected individuals to report fraud, abuse, or other inappropriate behaviour directly to the committee, without fear of reprisal and in complete anonymity. Having a CEO-Chair in leadership may stymie how a robust whistle-blowing process is managed by hampering the reporting of such activities – particularly if they involve the CEO, and the audit committee may be hesitant to act on such reports.
Very few leaders can effectively manage a dual role, as holding both the CEO and chair positions requires different skill sets and takes a certain balance that is often unattainable. The modern era has created many founder-led start-up companies which often embrace a fused leadership title. However, once the company hits a certain growth level, a founder may lack the capacity to lead a more complex organization and simultaneously direct the board in broadening oversight and policy, further degrading matters by not inviting a knowledgeable partner to help with governance.
There have been several notable controversies involving combined CEO-Chairs of major companies. Harvard Business Review⁴ compiled a list of leaders acting as both CEO and chair who encountered negative outcomes due to the overlapping roles. Here’s a brief rundown:
- Boeing: Dennis Muilenburg, the aerospace company’s former CEO and chair of the board, faced intense scrutiny following the crash of two Boeing 737 Max jets. Detractors argued that his combined role of CEO and board chair had contributed to failures in oversight and created conflicts of interest.
- Facebook: Mark Zuckerberg currently serves as both CEO and board chair at Meta (formerly Facebook). His leadership style, decision-making, and scandals involving data privacy, misinformation, and election interference, has prompted considerable blowback and questions over the board’s ability to effectively govern.
- Theranos: Founder and former CEO Elizabeth Holmes also served as board chair of the healthcare tech start-up. Holmes’ leadership was marred by claims of fraudulent actions relating to the company’s blood-testing technology. The board, despite being composed of high-profile names, lacked the collective skills to understand the company’s business. As such, it failed to implement an appropriate governance structure, manage risks, or be a strong counterbalance to the influential CEO-Chair, which ultimately led to her fraud conviction, imprisonment, and total collapse of the company.
- Uber: Travis Kalanick is Co-founder, former CEO, and board chair of the ride-sharing company. Kalanick’s tenure was fraught with numerous controversies as well as allegations of a toxic workplace culture resulting in his resignation under pressure from investors. Today Uber has separated the board chair and CEO roles.
Yet another controversy involved Carlos Ghosn, former CEO-Chair of Renault SA who was arrested for misreporting financial information relating to partner company Nissan, resulting in Renault SA’s decision to separate the combined leadership position.
These cases highlight the potential risks and conflicts of interest that can arise when merging the roles of CEO and board chair. The fallout when leaders take on more than is reasonable, ethical, or in the best interest of the company underscores the importance of strong, independent board leadership to ensure effective oversight and governance.
In Closing
“The key to successful leadership today is influence, not authority,” is the oft-repeated quote attributed to Ken Blanchard, renowned author and management expert. There’s wisdom in his words which reflect situational leadership and the power to persuade, inspire, and motivate.
We are rapidly moving away from a rigid, overly procedural and authoritative approach to leading others. To that end, it’s important when seeking a board chair replacement to grant special attention to competence, character, curiosity, courage, humility, and calling as hallmarks of effective board leadership. Giving way to a more malleable method of influencing and encouraging a culture of questioning within the board can bring forth original thinking and creative opportunities. Indeed, chair prospects who are resourceful, collaborative, equitable, and possess high EQ may generate an invigorating influence and positive impact upon an organization.
Without question, board governance in a time of shifting political and economic landscapes, omnipresent technology, and heightened oversight demands bold, intuitive, and agile leadership. A prime upshot in selecting the right chair is that you have the means to establish a pliant, forward-looking board framework. Seek those who keep their wits in times of turmoil and who aspire to keep the collective buoyed in any circumstance. Find the leader who can scan the horizon with optimism, discernment, and a touch of bravado, and you have all the makings of a transformative chair. May the journey ahead be rewarding.
About Lansdowne Board Intelligence
The demands placed upon boards of directors and executive leaders have never been greater. More than ever, the value of diverse experiences, knowledge, skills and perspectives has become vital to an organization’s growth, competitiveness, and survival — in effect, to its very relevance. That’s where Lansdowne Board Intelligence comes in. We are uniquely dedicated to helping your organization with:
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For a deeper dive into new methods to enhance board practices to improve governance, check out our complimentary publication, Forward-Thinking Boards: Why it’s Time for Reinvention.
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