Agenda / How Boards Learned to Think Beyond the CEO

Over the past two decades, I’ve served on more than 25 corporate boards for U.S. and international companies, from health care and financial services to technology and retail. During this time, I’ve seen enormous change in corporate governance and the role of the board. This change has been so broad, radical and fast-moving that it’s hard to pick out the high points.

However, if I had to choose one area that has seen the most change, with the widest repercussions, it would be the relationship between the board and the chief executive. For decades the board, and especially its independent directors, had a dependency relationship with the CEO: The board saw the company through the CEO’s eyes. Boards were expected to stay quiet and back the CEO.

Today, boards have more independent directors, and they think and act accordingly. They increasingly make their voices heard to the CEO, and wise CEOs listen to them. In 2000, when I joined the board of Lucent, there was very little communication outside of the board meeting. Now, in 2017 as lead director at Home Depot, I’m in touch with my CEO an average of two or three times a week, including calls on weekends as needed. What brought about this shift in the relationship between the CEO and board?

— Executive sessions of the board’s independent directors. Closed-door sessions of a board’s non-executive directors with no managers present are not a new phenomenon. Historically, they were limited to times of company crisis, but corporate governance reforms after the Sarbanes–Oxley Act required these sessions for exchange-listed companies. Making executive sessions “business as usual” not only removed the stigma, but they forced boards to work as an independent team. Yes, they could discuss leadership in private, but they could (and do) also discuss strategic opportunities, challenges and concerns. With no CEO to drive the discussion, directors have learned to nurture their own ideas, and how to drive the process themselves.

— Most of my boards now hold a major off-site board strategy retreat, often annually, and preferably multi-day. This is a strategic deep dive with the board, the CEO and the company leadership that digs into both short-term operating plans and longer-term, three-to-five-year strategy. Strategy is too easily skipped over in regular board meetings, and benefits from a dedicated focus. What strategic choices are managers pursuing, or choosing not to pursue, and why? How is technology challenging the business model, and how can we exploit it? This intense approach to strategy, drawing both the directors and CEO away from distractions, improves focus and helps management and the board become a more cohesive team.

— The technology element is such a crucial topic that it deserves its own agenda item. Digital change from social media, mobile commerce, big data, AI and cyber-crime threats can upend any business. Boards are evolving to meet these shifts that management must hear. Tech has also changed the chemistry between the CEO and board through growing use of online board portals. The greater volume of fresh company information that is easily accessible online lessens the CEO’s gatekeeper role.

— A foundational shift in investor activism is shaking up the board and chief executive entente. A decade or so ago, activist investors pursued their various agendas for company change pretty much on their own, with huge index funds looking on. Now, the funds have seen activists gain results by targeting governance and management, and they are pouring their billions in stock holdings into activist campaigns. Back in the day, boards and CEOs would respond by jointly raising the drawbridge to fend off the barbarians. Now, activists have learned to raise wedge issues between the CEO and board. This increasingly prompts directors to give management a closer look, taking the activists’ outsider perspective.

In the past two decades, I’ve seen the relationship between CEO and boards go through a healthy evolution. What was once a mutual dependency has evolved into stronger, more independent boards that are better able to think and act for themselves. I find that smart chief executives view these new boards as a valued resource. In a time of massive change, CEOs need all the good counsel they can get.


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