What CEOs Need To Know About Emerging Trends in C-Suite Board Relationships.
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Episode 20 Transcript:
Chris Curran: Growth Igniters Radio Episode 20: What CEOs Need To Know About Emerging Trends in C-Suite Board Relationships.
This episode is brought to you by Business Advancement Inc, enabling successful leaders and companies to accelerate to their next level of growth. On the web at www.businessadvance.com. Now, here’s Pam and Scott.
Pam Harper: Thanks, Chris. I’m Pam Harper, Founding Partner and CEO of Business Advancement Incorporated, and with me is my business partner and husband, Scott Harper.
Scott Harper: Hi, Pam. It’s wonderful to be here with you today. If this is your first time listening out there, the purpose of Growth Igniters Radio is to spark new insights, inspiration, and immediately useful ideas for leaders to take themselves and their companies to the next level of success. So Pam, what’s our topic for today?
Pam Harper: As you know, we’ve been seeing substantial changes occurring in the role of boards over the years, especially regarding strategy, and with the increasing complexity and uncertainty in the business environment, there are a number of forces driving what is really becoming a necessary shift in the relationship between CEOs, C-Suite executives and their boards of directors.
Scott Harper: That’s right. You know, the more that all of us who lead companies, large or small, understand these issues from the board perspective, the more power we’ll be able to have to build the most effective working relationship with the board and raise the performance of our own companies.
Pam Harper: Exactly. So today we’re speaking about these emerging trends with Peter R. Gleason, President of the National Association of Corporate Directors. Peter also oversees NACD’s research department, which produces guidance on leading practices to enhance board performance. He has served as a commissioner on every NACD blue ribbon commission report issued over the past fourteen years, including the most recent releases on strategy development, talent development, and board diversity. Peter is a recognized expert on board leadership and corporate governance, is regularly quoted in the national media and is a frequent presenter on the subjects of corporate governance, executive and director compensation, risk, strategic planning, board/share owner relations, and board evaluation. You can see his full bio on the page for episode 20.
Peter Gleason: Thanks, Pam. Thanks, Scott. It’s great to be with you.
Pam Harper: Now, you’ve said that CEOs and their executive teams need to engage differently with their corporate boards. Can you tell us what you mean by that?
Peter Gleason: Well, sure. A lot of this goes back to your introductory comment in terms of strategy, and we look very carefully at how boards can be leveraged for their experience, the talents and the individual skills that each of the directors bring to the board, and particularly when you’re talking about strategy − for so many years we’ve gone through the methodology of basically review and concur. If you think about how the CEO and the management team bring strategies to the board, usually there’s some off-site meeting, and they tend to bring that strategy somewhat fully baked to the board, and the board’s job is to kind of poke holes in it − try to figure out where the gaps are or what needs to change. Eventually, they approve that strategy that the team works off of for the remainder of that year, or however long that plan has been set in place.
What we looked at over the last year or so in our Blue Ribbon Commission Report on strategy development was how do we change that engagement? How do we make this a little bit different than the review and concur, and it was specifically with the idea that our environment is changing so fast and the pace of that change is moving at such an unbelievable pace that in order to change anything, you really have to almost start the process over with this former review and concur methodology, because directors were presented with basically one option. So what we started looking at was, given the disruptions that are in the marketplace − and those could be environmental, they could be geopolitical, they could be technology related, It could be any of a variety of things − they may cause us to stop and not be able to execute on the strategy for some reason that’s out there in the future. Any of these disrupters may change how we approach strategy.
Our vision was, well, let’s rethink how we go through this strategy development process and really start to move towards an earlier and more frequent engagement where maybe the management team brings several options to the board in terms of the strategy and discusses them in detail. So you’re looking at all the alternatives that are out there. You’re looking at what are the assumptions that underlie those alternatives, and yes, the board and the management team are going to decide on one, and that’s going to be choice A − but should a disrupter happen in the future, should something change and force them to alter that strategy, they will have already discussed the various alternatives and what path may be an easier transition to take.
Scott Harper: So you’ve talked about the board and the C-Suite taking on a more collaborative rather than a confrontational relationship. What are the benefits of this new type of relationship, away from the traditional “review and concur”?
Peter Gleason: I do think it’s very collaborative in it’s approach, but the benefit is to be able to review the various alternatives, to think about what are the underlying assumptions and be able to understand what are the different alternatives that are available to us should something happen to the strategy that we’ve chosen. And, it allows for more nimble decision making; it allows for the board to collaborate differently with the management team to pursue and to keep the company on track, and I think that’s what the biggest difference is in terms of engaging earlier and more often.
I think one of the biggest benefits of moving into this type of relationship is, if you think about governance in general and corporate governance in general, it’s really a system. It’s many moving parts. So you’ve got the internal mechanisms within the management team, you’ve got risk oversight. You’ve got strategy. You’ve got all these things. You’ve got talent, but then you’ve got the board who is lending their experience, lending those skill sets into that dialogue. So with these many moving parts, the goal is to make the system work more efficiently and more effectively as possible. The benefit is to have that more fulsome dialogue.
One of the things that we often talk about here at NACD is asymmetric information risk; the idea behind that is the management has, and should have, more information about the company than the board will ever have. They’re in it day-to-day; the board is there on a periodic basis, but it’s not their full-time job like it is with management. So the problem is you develop gaps in the information flow, and the gaps can become as wide as … They can become too wide, and there’s a definite risk there − and how does the board understand or know about as much information as they should? Now you can have bad situations where the management team is intentionally manipulating that information to not supply the board with the correct information to help them do their jobs, but you can also just have the natural tendency of “We’ve got this covered, and it’s not a big issue that the board needs to know about.” So this information flow and dialogue is really designed to lessen those gaps or to shorten those gaps and the board has more information to work with when making decisions.
Pam Harper: Yes. This is especially an issue with cyber risk these days. I know certainly that there are more considerations than there ever have been. We hear about all of these attacks, and the management has much more information oftentimes than the board could possibly have. So that communication you’re talking about becomes very critical.
Peter Gleason: Absolutely.
Pam Harper: So summarizing − in this increasingly uncertain and complex operating environment, the relationship and involvement between the C-Suite and the board really does need to be reconsidered and addressed on an ongoing basis.
And I think that’s a really good place for us to take a quick break. When we come back, we’ll talk more with Peter Gleason about trends between C-Suite and board relationships and about using the board more effectively as a strategic asset. Stay with us…
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Pam Harper: Welcome back to Growth Igniters Radio with Pam Harper − that me − and Scott Harper. We’re talking with Peter Gleason, President of the National Association of Corporate Directors, about emerging trends in how CEOs, the C-Suite, and the board are forging new types of relationships to more effectively address the new challenges of the business environment.
Peter, how can people reach you or find out more information about the National Association of Corporate Directors?
Peter Gleason: Well, I think the easiest way, Pam, is through our website, which is www.NACDonline.org; all the information about not only the company and the issues that we’re digging into, but about joining as members as well is available right there.
Pam Harper: Excellent. So let’s go a little bit deeper on this. How can CEOs and the C-Suite make better use of their board as a strategic asset?
Peter Gleason: Well, that’s a great question, because it really goes back to who is on the board in the first place, and most companies bring on directors for their diverse experience and skill sets. Many companies use skills matrices to really look at who’s on our board. When we look at our strategy going out two to three to five years, what are we going to need in terms of the skills that will help us go from point A to point B as we look at our strategy, and then looking at the current composition and finding where they gaps are. So it’s a traditional gap analysis, but it’s really based on the skills and the potential skills that the board can use.
So when you think about how do we leverage that, it is how do you bring those diverse perspectives into this dialogue that helps us set this strategy that helps us identify the risks, that helps us move the company forward in the direction that the strategy has laid out.
Pam Harper: Can you give examples of some of the new roles for management in this capacity?
Peter Gleason: Well, it’s funny. I look at this as there’s so much information. Just to go back to the asymmetric information piece − there are so many new roles in management alone that have to be in front of the board that traditionally probably haven’t been. So if you think about the CISO − the Chief Information Security Officer, the Chief Technology Officer, the Chief Human Resources Officer, maybe the Chief Compliance Officer or the Chief Audit Executive, all these positions are fairly new, we’ll say in the last decade. Chief Auditing Executive may be a little bit more traditional, but all of them are coming to the board now and presenting on various pieces of information that are relevant to their jobs.
Many of the board members may never have run into a CISO before, and may not even know what questions to ask. Same with the Chief Human Resources Officer. We’ve always known that there’s somebody who’s the head of human resources within a company, especially a large company. It may not be that’s a regular person that comes to the board to present. So the board really has to dig in, understand what these people do on a day to day basis, what their reporting responsibilities are and what are their chief accountability issues, and then be able to ask relevant questions about those. So it’s a preparation issue from the board’s standpoint to try to get them ready to engage in the dialogue, to glean the information that they can around these specific areas of management.
Scott Harper: So it sounds, Peter, like not only is there more engagement for the board − especially as you’re talking about having them collaborate interactively − not just approving strategy, but developing it as well. It also is going to take a real mindset shift for the C-Suite, especially the CEO. How can C-Suite Executives take on this new engagement with the board without feeling like they’re giving something away, that they’re undermining their jobs?
Peter Gleason: That’s a great question, Scott, and that’s one that we addressed head on in the Blue Ribbon Commission Report on strategy development. This is going to be a give and take. Not only is it going to be more work from the board’s perspective of having this engagement, having this dialogue and looking at all the alternatives and the assumptions, but very often boards expect the C-Suite or the CEO to come with the strategy fully baked. They may think less of the CEO if they come without a fully baked strategy. So there’s going to be a little bit of a cultural shift and an understanding that’s going to have to happen so that they’re more open to having that dialogue, and the CEO is more open to coming to the board for their advice and their input or around the strategy and having that back and forth that will allow them to discuss the alternatives and the assumptions and eventually decide on, “Hey, we’re going to go down path A as opposed to path B or C.”
Scott Harper: Challenging, but it sounds like there’s a real payoff there.
Peter Gleason: I really think there is.
Pam Harper: That’s true. So Peter, can you give us an example − not necessarily with names − but an example of how this new relationship has really come to life and that you’ve seen this…
Peter Gleason: Well, we’ve seen it at a couple of companies, and again I can’t use names because we’re not supposed to, but …
Pam Harper: That’s all right. That’s all right.
Peter Gleason: … I think what I’ve heard from the directors is that it really brings new light to the dialogue, and a better understanding of not just what the strategy is, but why that strategy has been chosen and given the assumptions underneath it − what we have to look for as we go forward, should anything change in our operating environment. Again, as this pace of changes is happening so rapidly, it’s important for all the directors to be aware of what’s going on in the environment, not only the competitive but in the worldwide geopolitical environment, anything that may impact our ability to execute on that strategy. So now you’ve got a team working on a strategy that’s broader than just the C-Suite and the executive team, when it goes to the full board and you bring all those diverse perspectives into this dialogue.
Again, it’s not that the board is managing the strategy they’re overseeing, but they can add that insight, and they can participate in that dialogue at a different level.
Pam Harper: So what I hear you saying is that when everybody recognizes that they have different roles − it’s not the traditional roles that people are used to thinking about but that there’s a real partnering with different perspectives − that everybody can work together to create a more powerful strategy that takes full advantage of this. Would that be right?
Peter Gleason: Absolutely. When in your career have you ever had ten to twelve advisors who are there to help you succeed? That’s the way the management team has to look at the board, is they’re there, they bring incredible skills, they bring incredible experience, and you can now leverage them and use those skills, use that talent that’s sitting around that table to help you succeed. And I think that boards are looking to have that engagement. I think management teams are now looking to leverage that engagement as well.
Pam Harper: We’re going to take a quick break, and when we come back, we’ll continue our conversation with Peter Gleason about actionable steps you can take in leading the transformation of the C-Suite and board relationship in your own company. Stay with us.
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Pam Harper: Welcome back to Growth Igniters Radio with Pam Harper and Scott Harper. Over the last two segments we’ve been talking with Peter Gleason, president of the National Association of Corporate Directors, about emerging trends in how CEOs and the C-Suite are forging new types of relationships with their boards, and how the board can become a more powerful strategic asset to both private and public companies.
Peter, how can listeners contact you and find out more about NACD?
Peter Gleason: Well, Pam, they can look not only at our website, which is NACDonline.org, but there’s also the phone that they can pick up and call at any time and ask to speak to any of our member services representatives which is 202-775-0509.
Pam Harper: Excellent. Okay. So let’s talk about more specifically how CEOs, C-Suite executives and boards can work together. What is one actionable thing that they can all start doing right now to improve communication for this new, more productive relationship?
Peter Gleason: Well, when you narrow it down to one, that’s a great question because …
Pam Harper: Well, one at a time.
Scott Harper: We’ll start with one.
Peter Gleason: We’ll start with one. I think the communication … As we’ve been talking all along, this different approach to strategy and opening the lines of communication between the management team − and again, there are multiple members of that management team. So managing all the different levels that may need to be engaged in this dialogue and the board is one [thing to work on].
[The communication that comes] out of that dialogue also helps identify the risks that are inherent in the strategy. Companies are always focused on risk. It’s always one of the top issues when we ask any company what they’re looking at. That strategy discussion − and especially as you get into the underlying assumptions − start to identify all the key risks that we need to look at, and that communication back and forth is critical.
If I can go to the second one, because I think this is also important, and we touched on it a little bit … If you think about the strategy that gets chosen − whatever that may be of your top three choices − all of them have a human resources element to the execution, and it’s critical to start thinking about [things like] “It’s great that we say we want to be at a thirty percent market share within the next two years if that’s your strategy, but do we have the talent within the organization to get there?” I think that dialogue is critical to the success, because it goes to every business unit within the organization − “do we have the resources available to us to execute on the strategy that we’re discussing and/or adopting?” Then looking at what’s in the pipeline for the future, and how that will tie into the board’s succession planning, which should be an ongoing dialogue as well between the board and the C-Suite….
Pam Harper: Yes, it should. In fact, I see oftentimes that there’s a tendency to underestimate the amount of time it takes to bring that talent pipeline up to speed and have it coincide with whatever the strategy is.
Scott Harper: It really needs to be an ongoing effort all the time.
Pam Harper: So your points about the assumptions are so powerful, and I think having this group dialogue is going to do a lot to make sure that people do have realistic expectations.
Scott Harper: Really focusing on the critical success factors of not just what is our strategy, but do we have what it really takes to pull that strategy off, and how are we going to raise our whole capacity up of our entire enterprise so that we can really do that?
Peter Gleason: Absolutely. That’s critical − just making that choice, and which strategy you’re going to go after and execute on. Do we have the talent? We may have the talent to do one but not the other, and if we choose to do the other do we have to go out and recruit that talent? Because as you said, Pam, it takes a long time to develop a talent. So if our talent pipeline is not where it needs to be, it may be time to go out and start recruiting in.
Pam Harper: What is another step that people could take?
Peter Gleason: Well, I think I’m going to focus on that engagement side again, and here’s a step that the CEOs can use − because I think what gets overlooked a lot of time is getting to know the C-Suite itself, and the people there. We’ve been talking a lot about this dialogue back and forth, but everybody’s a human, so there’s a social side to this, there’s a human side to this. One thing we tell boards to do all the time is really get to know each member of the C-Suite on a personal basis. Now it’s not that you’re going to spend all your waking time with the COO, but at the same time, have a chance to interact with them in an off-business setting. So if it’s dinner − boards typically have dinners the night before board meetings − invite one of the C-Suite officers to participate, or a couple of the C-Suite officers to participate in that board dinner, and you can rotate through as necessary.
So you get to know them in a social setting. You get to see them when they’re a little bit more relaxed in a different business setting than sitting around a board room table answering questions, which is typically how you engage. You were talking about cyber a few minutes ago, Pam. We just held a cyber event here in Washington where we invited not only board members, but we invited them to invite their CISO with them so that they had a two-day session where they were learning about all the latest trends in cyber and what companies are doing and how there are different approaches. You had a board member and a management team member together hearing the same information, and a lot of that changed the dynamic from what we heard from some of the participants because not only did it allow the CISO to see the board member in action and understand the key concerns there, but it allowed the CISO to spend some time with the board member outside of the business walls at a learning event where they could share ideas and share messages and understand the key concerns that both had in terms of an issue that is so large, something like cyber and cyber threats.
Scott Harper: Peter, there’s one last practical question I have. As the board becomes more actively engaged in this give-and-take with the C-Suite, formulating strategy, how can the board and the C-Suite get a more regular dialogue going that doesn’t over-burden them on either side?
Peter Gleason: Right. Well, the annual board meeting is usually the annual shareholders meeting. Boards typically meet multiple times during the year and that’s becoming more frequent, and they’re meeting for longer periods of time. So the time factor from a director’s standpoint has gone up dramatically over the last five to ten years where we’re now seeing 280 plus hours at public companies, and that’s if everything is going smoothly. So there’s a lot of time for interaction. There’s a lot of time for engagement.
One of the things we do see to add to this dialogue that’s regular, is either weekly or biweekly phone calls between the chair of the board and the CEO to discuss any issues that may be coming up, or some things that maybe the chair heard in a conference or at another board meeting, because usually they sit on one or two boards, and that just raises that awareness. It keeps that dialogue going and lets the board member understand − or the chair in this case − understand some of the key concerns that the CEO is dealing with. Also, it lets that reverse exchange of information go − of, “Here’s something that the board may have discussed outside of the board meeting.” It may have been a phone call between the lead director and the chair of the board − actually, that’s becoming more common than it used to be − or between one of the directors and the chair that the CEO ought to know about, that they just heard this, or there’s a concern here that ought to be addressed. That frequent dialogue can help fortify that communication on a regular basis.
Pam Harper: So having the communication in it’s various forms, not just in-person and quarterly, but having it on an ongoing basis and investing in the relationship from both sides is the key to really making this come alive.
Peter Gleason: It is, and the one caveat I’ll put on all of that is that the management team still has to do its job. They still have to execute, and run the company. So there has to be an element of moderation in this too. You don’t want to go overboard and have every board member calling every member of management every other day to tell them the latest thing they know about widgets. It really has to be a thought out and discussed communication plan, where the CEO is aware of the time that it may be taking from the C-Suite officers to run the company and communicating with the board. You do have to realize that there’s an operational issue to this as well, and that the team still has to run the company and execute on that strategy that’s been so thoroughly discussed, but you do want to keep those lines of communications open.
Pam Harper: Absolutely. Well, Peter, do you have any last thoughts that you’d like to leave with us?
Peter Gleason: Sure. It probably goes without saying, but we’re in an incredibly dynamic environment where the pace of change is increasing every single day − whether that’s technology or geopolitical events, whatever it may be − companies have to be nimble. They have to be flexible. If I can say one thing that I think really is critical for everyone to think about, it’s board composition, and having the right skills on that board to really help the management team out and bring that diverse perspective of experience and skills and backgrounds. It is critical that the board have that, so that the management team can leverage that board to get the most out of them as possible.
Pam Harper: Okay. Well, thank you so much for being our guest.
Peter Gleason: You’re very welcome. It’s great to be with you.
Pam Harper: If you out there have any questions related to today’s episode, or any episode, go to “Open a conversation with us” at the bottom of the episode 20 page. To find out who our guest will be next Wednesday, go to www.growthignitersradio.com and look in the sidebar for a schedule of upcoming episodes over the next few weeks.
Scott Harper: Thanks for listening to Growth Igniters Radio with Pam Harper and Scott Harper. To check out resources related to today’s conversation, share on social media or open a conversation with us, go to www.growthigitersradio.com and select episode 20.
Pam Harper: Until next time, this is Pam Harper …
Scott Harper: … and Scott Harper …
Pam Harper: … wishing you continued success, and leaving you with this question:
Scott Harper: How can we start today to realize the full potential of the relationship between our C-Suite and our board?