Seven Ways to Build the Board-CEO Connection
Two of Five CEOs fail in three years¹
The success of your Chief Executive Officer (CEO) comes down to having a solid connection between the board and the CEO. But how does a board do that while avoiding the common mistakes that destroy this critical relationship? Firstly, it starts with the Board understanding their overall purpose and role within the organisation and cascading that down through the CEO position and relationship using proactive and practical methods to ensure organisation success. To support this, here are seven things that every board can do to have a positive and productive relationship with their CEO.
1. Have a robust and clear employment Contract
The employment contract with your CEO is a critical document to invest the time, energy, and money into to get right. This may be an area where the Board invests money in professional advice and preparation of the contract. This contract may need to be relied on in the future, so it is worthwhile having a document that is properly prepared and sound. The Board must decide what it and the organisation needs and wants from the CEO role and ensure it is incorporated into the contract. Contract negotiation with the potential new CEO must be done with these essential contract elements in mind to ensure they are retained in the final version.
2. Have a clear, co-created strategy with milestones and KPIs
Knowing what success looks like for the organisation is critical for everyone to know the role they play in achieving that outcome; particularly for the CEO. This will help to increase the likelihood of the strategy being achieved and for the board to ensure the appropriate resources have been allocated to achieve success. From the strategy flows milestones and key performance outcomes that have been deemed necessary. These measures help to focus the Board, CEO, and organisation on their decisions and actions, and provide a basis for CEO performance evaluations.
3. Have a robust process for CEO performance evaluation and delivery of feedback to the CEO
CEO performance evaluation and feedback is one of the Board’s role in relation to the CEO. Schedule it onto your annual Board calendar and develop a process for the CEO annual evaluation and feedback. It may help the Board to delegate the process development and evaluation activities to a Board Committee, with feedback of the evaluation given to the CEO by the Chair and Deputy/Vice Chair together. Setting clear annual milestones and KPIs helps the CEO and Board to know what success looks like and provides a basis for performance evaluation.
4. Remunerate them fairly and reasonably given the organisation’s resources
Every organisation has finite resources. The CEO must always be remunerated fairly and reasonably given each organisation’s resources. It may help to benchmark the CEO role to get a clear picture of what is fair and reasonable at a particular point in time (this may be where you invest in external expertise). Beyond remuneration, consider non-monetary ways to increase the CEO’s ‘package’. For example, an additional week of annual leave could be incorporated into the remuneration package, rather than an increase in base pay. Incentives and bonuses are often included for the achievement of certain goals and to support the retention of great CEOs. A combination of short-term and long-term outcomes can be used as a basis for bonus payments, to avoid overly focusing on short-term goal achievement (at the expense of long-term organisation sustainability).²
5. Invest in their growth and development (in relevant areas)
Continuous learning and development is something that is beneficial across all levels of the organisation. Part of the annual budget and/or CEO remuneration package must include resources dedicated to continual growth, usually into predetermined areas (based on prior year performance evaluation results or strategic needs of the organisation). These resources can go towards courses, seminars, programs, books, or any other learning resource. Importantly, investing (through time and/or money) into the CEO having a mentor outside of the board can be extremely valuable.
6. Educate the Board members on the role of the CEO and the Board-CEO relationship, and the role of the CEO and Chair of the Board
Having clarity on the role of the Board, the role of Board Members, the role of the Board Chair, and the role of the CEO, and how all of these roles interact is important to ensure they function smoothly together. Without role clarity, each individual comes up with their own version of their role and acts towards that version, leading to dysfunction. Clarity and understanding of everyone’s roles leads to creating effective infrastructure to execute on those roles and increases Board effectiveness.
7. Take swift action when things start to break down / become dysfunctional with the CEO
Dysfunction with the CEO (either the person or the role) happens on a spectrum. Essentially it is manifest through the CEO not operating optimally or not performing as required. At the first signs of dysfunction, action must be taken to course-correct before the relationship gets beyond repair. It helps for the Board to have a regular in-camera session at each of their Board meetings to provide opportunity to bring up any CEO-related concerns to the Chair without the CEO present. The Chair usually has the responsibility to work with the CEO to address the concerns and work with the CEO to move towards optimal performance.
The Board-CEO relationship is one that requires ongoing work to maintain optimal dynamics and results. It is an activity that will return dividends to the CEO, Board, and organisation. For more on this critical relationship, watch the replay of my webinar with BoardPro ‘Why Every Board Needs a Solid Connection with their CEO’ (available for free).