Strong Boards Need Strong Executives
from
September/October 2006
by John Carver
No single relationship in the organization is as important as that between the board and its CEO. The relationship, well conceived, can set the stage for effective governance and management. However, probably no single relationship is as easily misconstrued or has such dire potential consequences.
It is often said that the most important task of a board is the choice of a CEO. In fact, establishing an effective relationship is just as important. Many good CEOs have been rendered ineffective as a result of poor relationships with their boards. Many poor CEOs have been allowed to remain because of inadequately designed relationships with their boards. The relationship I mean is not the interpersonal, social sort, but the structured affiliation of related jobs.
Except for a few unique functions of the board, staff performs almost all organizational activities. Boards ordinarily choose to coordinate these intricate parts by employing a CEO to put all the pieces in place. The board is then able to govern by dealing conceptually only with the whole, and officially only with the CEO. A powerfully designed CEO position is a key to board excellence. It enables a board to avoid the intricacies and short-term focus of staff management and to work exclusively on the holistic, long-term focus of governance.
For the board’s and the CEO’s peace of mind, it is important to define CEO and board functions as simply as possible. The CEO’s only accountability should be to the board as a body, rather than to officers of the board or to board committees. This prescription does not prevent interaction between the CEO and committees or individuals, as long as the CEO is instructed and judged only by the board as a whole.
The board need not be concerned with what job responsibilities fall to the CEO. The board’s concern is confined to what it holds the CEO accountable for. The CEO’s only job is to make everything come out right. That translates into achieving what I define as the board’s Ends policies––what did we charge the organization to accomplish?––and not violating its Executive Limitations policies––what did we prohibit the organization from doing?
For most official purposes, the board has only one employee, the CEO. The CEO has all the rest. The CEO is no less accountable to the board for the actions of the most distantly removed staff member than for his or her own direct actions. Everything is part of the CEO’s accountability package. The CEO is accountable for seeing that the entire enterprise meets board expectations. His or her personal work is only a single component of that performance. What tasks the CEO actually performs personally is not for the board to decide, and certainly not for the board to use in evaluating CEO performance.
The relationship between the CEO and any individual board member is collegial, not hierarchical. Because the CEO is accountable only to the full board and because no board member has individual authority, the CEO and board members are equals. The relationship between the CEO and the board chairperson should be one of supportive peers as well. They are not hierarchically related, because to be so would shift the CEO function to the chairperson. If the board delegates less authority, it must constantly forsake strategic leadership to make tactical decisions.
Monitoring Executive Performance
With the board operating at arm’s length from operations and delegating so much authority to the CEO, how can it know that its directives are being followed? Boards receive much information, but only some is for monitoring purposes. It is helpful to separate information into three types:
Decision information.
Decision information is information the board receives to aid it in making decisions—for example, in selecting a budget policy from among alternative positions or in deciding on an approach to use for the governing process itself. This type of information is used solely to make board decisions. It is not judgmental. It is prospective in that it looks to the future.
Monitoring information.
Monitoring information is used to gauge whether previous board directives in achieving Ends policies and not violating Executive Limitations policies have been satisfied. It is judgmental. It is retrospective in that it always looks to the past. Good monitoring information is a systematic survey of performance against criteria. In being aimed at specific criteria, it is more like a rifle shot than a shotgun blast. It does not demand, “Tell us everything,” but requests, “Tell us this, this, and that.”
Incidental information.
Information that is used neither to make decisions nor to monitor falls into the incidental-information category because it has no governance utility. Boards may hear staff reports, read lengthy documents on activities, or even scrutinize performance, but still lack the criteria against which to judge the information gathered. I have found that the majority of information received by boards is of this type. A common board-member folly is to want to “know everything that is going on.” The grave trap in incidental information is that the board may delude itself that the need to do rigorous monitoring has thus been satisfied.
Good monitoring is necessary if a board is to relax about the present and get on with the future. If there is no stated expectation, there can be no monitoring. Preestablished criteria save board time. Each act of judging will take more people and more time if the criteria are unclear. Boards can rush through the process with little real inspection, of course, but if rubber-stamping is to be avoided, each judging action will consume material board time. The real work is at the front end; savings accrue thereafter. The board avoids the continuing start-from-scratch approval struggle that exists when criteria are unstated.
Also, board judgment of managerial performance is simply not fair without criteria. Many CEOs have received harsh judgment from boards whose values became clear only after executive action had been taken. Such boards find it easier and safer to shoot down staff initiatives than to struggle with and declare their own expectations at the outset.
A board does a far more creditable job of judging staff performance if it does so in two distinct steps. Board members debate and decide at the outset the group values that will be codified in Ends and Executive Limitations policies. The only judgment that takes place in monitoring is whether actual performance matches a reasonable interpretation of the preestablished criteria. Each board judgment is no longer a new ballgame, but a continuation of a clarifying process in which board values are increasingly well represented in policy language. Monitoring is simpler because the value issues have already been resolved in the creation of the policy.
The CEO must demonstrate to the board that he or she has used a reasonable interpretation of the board’s policies—and must provide evidence that the interpretation has been fulfilled. If the board adopts the discipline of monitoring only what it has already addressed in policy, its anxiety will drive it to develop all the policies needed. The board can then monitor each policy as frequently as it desires, using one or more of three methods:
Executive report.
The CEO makes available a report that directly addresses the policy being monitored. Unlike the common type of staff report, it is geared to a specific board policy. Monitoring the financial condition of an organization, for example, would not manifest itself as the standard balance sheet and income statement. It would instead go point by point through the actions and circumstances spelled out in the board’s policy on financial condition. Because the report relates so directly to policy language, no additional explanation is needed. Staff compliance or violation should be evident at a glance. It is the CEO’s responsibility to produce data that enable a majority of the board to feel reasonably assured of adequate performance.
External audit.
The board selects an external professional to measure staff compliance with a specific policy. It is important that the external party assess performance against the CEO’s interpretation of the board’s policy. If the external person judges against his or her own standards, the resulting assessment confounds monitoring and decision information. External audits need not be confined to financial issues.
Direct inspection.
The board assigns one or more board members to check compliance with a specific policy. Infrequently, the board as a whole might perform this inspection. Direct inspection might require an on-site visit or the inspection of a staff document. This monitoring method should not be used unless the board role and discipline are in excellent order, lest it deteriorate into meddling. Board members involved have no authority to direct anyone, nor may they make judgments on any basis but the literal policy.
Evaluating the CEO
Organizational performance and CEO performance are the same. Evaluation of one is evaluation of the other. Accountability can be gravely damaged when the two are viewed differently. Monitoring organizational and executive performance is a continual process. The board may wish to punctuate this continuity with an annual CEO performance appraisal, even though a case can be made that the regular monitoring system is the CEO’s evaluation. Periodic evaluations are no more than summaries of the ongoing evaluation, since adding other criteria at the annual appraisal would be both unfair and managerially sloppy.
There are three common ways in which boards add superfluous evaluative criteria. First, some boards allow unstated expectations to be part of the evaluation. These are criteria that the board might have chosen to include in its policies but did not. If a single board member is doing the evaluation, these unstated expectations might well be those of that board member alone. Second, one of the many generic personnel evaluation forms might be used. Third, CEO performance might be compared against personal objectives that the CEO himself or herself originally proposed. In this case, the board is inappropriately judging its CEO against his or her criteria rather than the board’s. The only relevant questions are the following: What did we charge the organization to accomplish? What did we prohibit the organization from doing? How did the organization do against only those criteria? The answers to these questions constitute the CEO’s evaluation.
Keeping the Roles Separate
The effective board relationship with an executive recognizes that the jobs of board and executive are truly separate. Either party’s trying to do the other’s job interferes with effective operation. It is not the board’s task to save the CEO from the responsibilities of that job, nor is it the CEO’s task to save the board from the responsibilities of governing. Further, it must always remain clear who works for whom.
When it comes to the long-term, visionary, strategic direction of an organization, asking the CEO, “What do you want us to decide?” is not the language of leaders. To help the board develop more integrity in leading, the CEO would do better not to bring the board any executive decisions. And for governance decisions, he or she can assist the board most not by making recommendations but by helping to develop policy options.
The board and its CEO constitute a leadership team. As in sports, the team functions only as long as the positions are clearly defined at the outset. Teamwork is not the blurring of responsibilities into an undifferentiated mass. The foremost expectation of mutual support is that each person will remain true to his or her peculiar responsibility. The CEO must be able to rely on the board to confront and resolve issues of governance while respectfully staying out of management. The board must be able to rely on the CEO to confront and resolve issues of management while respectfully staying out of governance. Making staff decisions trivializes the board’s job, disempowers staff and interferes with their investment in their work, and reduces the degree to which the CEO can be held accountable for outcomes.
The CEO’s leadership has two components. The CEO must influence an organizational culture in which the organization’s impact on the world is at least up to board expectations. In addition, though it should not be a requirement of his or her job, the CEO has the opportunity to influence the board toward greater integrity—i.e., make sure that it carries out its obligations responsibly and with true independence. Pressing, cajoling, and even embarrassing a board toward greater integrity is a far larger gift than pressing, cajoling, and embarrassing it toward specific recommendations—that is, getting the board to give the CEO what he or she wants.
The board has the right to expect performance, honesty, and straightforwardness from its CEO. Boards can at times be understanding about performance deficiencies, but they should never bend an inch on integrity. The CEO has the right to expect the board to make clear rules and then play by them. He or she has the right to expect the board to speak with one voice, despite the massive currents that flow within the board’s constituencies.
CEOs’ careers have been damaged by their failure to please a board that does not speak with one voice. They have been subject to criticism—sometimes public—from board members based on individual members’ criteria that were never agreed to by the board as a whole. They have been unfairly evaluated on expectations that the whole board agrees on but has never actually stated. They have been abandoned to condemnation by stockholders, even though the board’s position should be between the ownership and the CEO. The managerial skills of CEOs have frequently been stultified by boards determined to have committees on every important managerial issue.
When great authority is wielded with an inadequate process, good people can cause much injury. Boards composed of kind and generous individuals can, as official groups, be unkind and hurtful.
Excerpted with permission of the publisher John Wiley & Sons, Inc., from
Boards that Make a Difference: A New Design for Leadership in Nonprofit and Public Organizations, Third Edition
, by John Carver. Copyright © 2006 by John Wiley & Sons, Inc. This book is available at all bookstores, online booksellers and from the Wiley website at www.wiley.com, or call 1-800-225-5945.
