Chief executives aren’t always upfront about their personal ambitions. And the lack of transparency in their thinking can compromise the relationship they have with their boards.
That is one conclusion Peter Fitzsimmons, chairman of retirement village operator Metlife Care, reached after the surprise resignation of his CEO Gavin Aleksich earlier this year. Aleksich’s untimely departure is, says Fitzsimmons, reminder of just how challenging and important it is to ensure board’s align their organisational objectives with CEO’s personal goals.
The surprise departure of CEO simply shouldn’t happen with best practice governance and good succession planning. But Aleksich’s twitchiness over the Metlife board’s perceived indifference to renewing his contract made him act in what, at least on the face of it, seemed contrary to the company’s best interests. His departure came as complete surprise to his chairman and board.
According to Aleksich, signals that his contract wouldn’t be renewed only crystallised his disillusionment over share options, and longstanding desire he and his partner had to live and work overseas. Whether it did or not, the result was problematic.
Fitzsimmons suspects that had the board handled the matter of Aleksich future with greater insight and understanding, the firm may have saved itself the trouble of having to temporarily trade without CEO at the helm.
In retrospect, Fitzsimmons thinks he should have explained to Aleksich that change agent skills were not those required of their CEO going forward and that Aleksich should have been given the time to structure his exit in mutually advantageous manner.
In other respects he sees Aleksich’s departure as symptomatic of the pressures under which boards and CEOs, of listed companies in particular, must now perform. Whether it’s due to shareholder pressure or the market’s demand for more frequent disclosure, fewer boards are prepared to assume major company objectives are continuum of work-in-progress. Boards are, says Fitzsimmons, “more edgy” about the precision, timing, and delivery of the things CEOs are mandated to deliver.
No surprises
Investment banker, veteran director and Mighty River Power chairman Rob Challinor believes the natural tension between CEOs and boards that Fitzsimmons talks about is both good and desirable. But if board has chosen the right CEO, both parties should operate in “no-surprises” environment, whether CEO is coming off contract or not, he argues. If board is doing its job properly and constantly talking to its CEO about his or her aspirations, there’s no reason why their personal and lifestyle ambitions can’t be reconciled. If CEO’s departure comes as total surprise, or if the CEO is unexpectedly dumped, then clearly the communication channels have broken down. If the board is functioning properly, every board meeting should be revolving review of the CEO’s performance, says Challinor.
“It’s important for boards to understand CEO’s financial position, family and personal goals and lifestyle considerations. Individual directors should get to know their CEO’s spouse by inviting them to regular functions. good chairman will also know how the CEO’s kids are getting on and what schools they go to,” he adds.
Board sensitivity to CEO’s family needs take on added importance when they’re pulling someone into the role from overseas, says professional director Joan Withers. But imported or not, getting the financial and family considerations right for any CEO – given today’s global market for top talent – is just one of the “lumpy” bits boards must work hard to get right. “CEOs have very good idea of what they’re worth and fixing up the financial and personal considerations are, to paraphrase Maslow, the ‘hygiene factors’ that need annual maintenance,” she says.
But how much of the personal stuff should CEO share with board? Withers thinks putting all the cards on the table, including their dreams and ambitions, should “generate upside” for the CEO/board relationship. Any board worth its salt should have an informed opinion about its CEO. And if all the reviews and KPIs are in place, the CEO should be confident about his or her future with the organisation, especially now that fixed-term contracts are no longer popular.Part of chair’s role is to mentor the CEO and create “warm working relationships” with the board. But, warns Withers, there are as many risks associated with CEO and chair becoming too close as there are of them being too aloof. “The CEO/board relationships in the companies I serve are warm ones. But I wouldn’t get to situation where I would see CEOs as personal friends.”
To Withers, the most unforgivable CEO sin is to be caught out not tabling something the board should know. On the other hand, CEOs have the right to expect board members to show them the same respect they accord each other. “Any CEO worth his or her salt must know what issues should be brought to the board,” says Withers, whose board membership includes The Warehouse and Fairfax groups.If board gets the sense CEO is withholding something material, it is time for directors to legitimately ask: what exactly is happening here? But, says Withers, boards have responsibility to ensure they’re feeding back to the CEO any issues they have.
Managing the tensions
When the CEO and board are working in “no surprises” environment, most of the “tension” between them should, according to Withers, revolve around whether or not revenue and profit levels are being attained. It is board’s responsibility to ensure the CEO knows how the organisation is performing. “But they must also realise that there are going to be both good times and bad.”
And given the severity with which negative capital market sentiment can impact share price, CEOs that “over-forecast” on earnings cause boards all sorts of problems. “Probity around auditing and finance is big issue,” says Withers. So nobody likes surprises when it comes to reporting results.
Obviously things can and do go wrong that are outside any CEO’s control. No one can forecast the impact of tsunami or 9/11. But, says Withers, these issues can be smoothed if the right relationship with the board prevails.
“Underpinning the fundamentally important relationship between CEO and board is high degree of trust and respect. If the chips start falling against CEO, personality and style can be heaped on the pile against them,” says Withers, but only for so long.
Boards can, she says, minimise their exposure to unwarranted tensions with CEO by investing more time in recruitment. That means scrutinising the skills, style and compatibility of the individual they appoint to run the business. On the flipside, CEOs need to do similar due diligence on boards to ensure they’re hooking up with the right company in the first place.
Mark Story is an Auckland-based business writer.
