Forging a partnership

Business | Thu 5 Nov | Author – Business & Finance chair

Many businesses are underestimating the importance of the CEO/chair relationship, writes John Harty.

The role of the CEO carries with it a certain degree of isolation to which only those who have held the position can relate. Managing the many challenges that come from every direction, while overseeing the day-to-day running of the business, can be burdensome and having someone to turn to – whether it’s to voice a concern or bounce an idea off of – is invaluable.

Increased regulation and the expansion of corporate governance codes have brought this dynamic to the fore, and with good reason.

Some months back we conducted research concluding in a white paper entitled ‘The Role of the Chairman’. One item that became apparent almost immediately was the quality of the relationship between the chairman and CEO. This has evolved to a level of immense importance and it is something that can have a profound impact on the success of the board.

FIT FOR PURPOSE

In our consultancy role to plcs and their subsidiaries, we are fully aware of the importance of having the appropriate skills. However, this is only part of the puzzle. Organisations must ensure that they get the right fit in terms of the individual personalities of candidates and the full dynamic of the board.

So what makes for a strong CEO/chairman relationship? Certainly, getting the chemistry right is important. There must be mutual respect between both parties and it is vital to recognise one another’s strengths and how each may be of benefit to the company.

With this acting as the foundation, there are three key measures we identified in establishing a winning relationship between CEO and chair.

EFFECTIVE COMMUNICATION

Clear and open channels of communication between the chair and CEO are a must, and they need to go beyond the boardroom table. Both individuals should engage in formal and informal settings, be it over a cup of coffee or whatever they feel is most appropriate, to discuss matters most pertinent to the board and those that are less so. It is through these regular catch-ups that relationships are forged and many issues can be addressed before they ever reach the board.

If the chairman and the CEO find themselves constantly at odds, then the issue may be that there has been a breakdown in communication somewhere along the way; that perhaps they have different assumptions about what they want to achieve and the context in which they are attempting to fulfil their strategic goals.

CONSTRUCTIVE LEADERSHIP

In order for a constructive relationship to exist it makes sense that the CEO and chairman should both clearly understand the ins and outs of the company: what its strategic vision and goals are, the environment in which the business is operating, and how they may impact on the company’s growth and performance in the future.

Ideally, they will take the time to understand each other’s interpretation of such matters from the outset, potentially avoiding more serious problems down the road.

SUPPORT AND CHALLENGE

As highlighted earlier, the position of CEO can be a lonely place. Understanding the isolation that many CEOs feel, today’s chairman must be supportive, acting as a mentor and a confidant to the CEO, while maintaining a level of independence that allows him/her to critique the decisions and suggestions of the CEO.

This point leads on from the last, as without clear communications, built on trust and respect, such a balance cannot be achieved. The dangers of failing to strike this balance are grave.

Such distance is necessary if both the CEO and the chair are to remain credible among their peers

In some situations an overly dominant chair may inadvertently end up micro-managing or meddling in the day-to-day operations of the company. A weak chair poses just as much danger, as contentious issues may be swept under the carpet.

The balance lies where the CEO and chair can have candid discussions, where ideas are listened to but challenge is given when appropriate – collaborative criticism, if you will.

ROLES AND FAMILIARITY

There are two separate but related elements that must be considered here. Firstly, the nature of the CEO/chair dynamic requires that both individuals work closely together. They may be required to travel together and make appearances or presentations together and so forth.

However, it is crucial that this consociation does not step over into the territory of a personal friendship.

Maintaining a certain degree of distance and professionalism is essential to retaining an objective focus, where the needs of the company and its shareholders are not sacrificed for fear of damaging their personal friendship.

Such distance is necessary if both the CEO and the chair are to remain credible among their peers.

For example, should the relationship between the chair and the CEO be perceived as overly personal when an issue is brought forward by a fellow board member, that may question the chairman’s ability to speak objectively and independently on the matter – leading to further issues at board level.

Laying down some ground rules for the working of the relationship is important. Things like the setting for their meetings, the tone of their meetings and an awareness of their positions are key elements to establish at an early stage to ensure a balance is retained.

BALANCE AND TRANSPARENCY

John Harty

John Harty, MD, Harty International

The roles of the chairman and the CEO have changed somewhat since the economic downturn. Today, with increased regulation, the compliance function within organisations is very much a direct responsibility of the board.

Historically, executives or the CEO might have tried to ‘manage’ the board. That doesn’t work any more. It is paramount that there is a lot more frankness and openness between the CEO and chairman and this can be a challenging concept for some CEOs.

It’s not the CEO’s responsibility to manage the chairman, and the board and most chairmen do not want to be managed in that way.

Equally, the chairman must remember that they are there to provide oversight and to facilitate a functional relationship between the board and the executive team. Should the CEO stray away from doing the job properly, the chairman must be able to recognise that and then intervene if necessary.

Drawing a clear line in the sand, where both parties clearly know what to expect of one another, can be especially helpful in creating a strong relationship.

CLARITY AND ACCOUNTABILITY

Again, a number of those interviewed in our research recommended that the CEO and chairman take the time to sit down and clearly identify what each expects of the other, outlining the accountability and boundaries of their roles and the most suitable means of engaging with one another.

This can be beneficial to establish a benchmark for both parties and can lessen the risk of either the CEO or chairman stepping over the line.

Like any relationship, the CEO/chair relationship is one that is ever-evolving. Trust is something that is built over time and so one would expect both parties to become more adept at addressing difficult topics and improving their working relationship as they get to know each other.

Investing the time and effort into building a constructive relationship can yield a host of benefits, not just for the CEO, but also to the board and the entire organisation.