How The Board Can Help CEOs Avoid Pitfalls
The Crucial Role of Honesty and Transparency on Boards
Boardrooms of the past were known for their exclusive cliques, filled with individuals who gained access through personal connections. Boards operated in a more insular fashion, relying heavily on recruitment from established networks. Their primary focus was to support management and avoid governance glitches.
Today’s business environment, however, demands a higher level of accountability and transparency. Directors are under constant public scrutiny, and their decisions can have far-reaching consequences. To meet these challenges, directors must approach their responsibilities with an unwavering commitment to independence and a heightened level of rigor in their discussions. They must consider the needs of all stakeholders and make decisions that are in the company’s best interest, even if they are not the most popular or expedient. Failure to do so in today’s demanding external environment is not an option.
At Board Director, we believe in adapting to the ever-evolving landscape of board leadership. We know that establishing a solid foundation of trust with the CEO is paramount. As a board member, you must acknowledge that you won’t be privy to every intricate detail of the company’s operations – nor should you be. However, it would be best if you believed the CEO’s perception of the board as an indispensable ally in tackling obstacles and pursuing common objectives.
II. CEO and Board Trust
As a board member, it’s essential to understand the role of directors, often described as “noses in, fingers out”. Building trust with the CEO is critical, and you must recognize that you won’t have access to all the details of the company’s inner workings. However, it would be best to have confidence that the CEO views the board as a valuable partner in navigating challenges and working towards shared goals. To ask questions, pick the right moments, and sometimes a one-on-one conversation is best.
CEOs can miss out on opportunities for growth and success due to a lack of honest feedback and overconfidence. Moving up the organizational ladder, they may receive less candid feedback, but seeking and encouraging critical feedback is essential for their development. Unfortunately, some CEOs fail to foster a culture of transparency, which can be detrimental to their leadership and decision-making.
An excellent board of directors can be a powerful ally for CEOs by creating a culture of transparency and open communication. The board can provide critical feedback to identify blind spots and anticipate future challenges. A strong lead director can play a significant role in this process, providing a sounding board for the CEO and ensuring the board is aware of any potential issues on the horizon. By working together, the CEO and the board can develop a shared vision and ensure everyone aligns around common goals. As a result, improved performance and success for the organization will benefit all stakeholders, including employees, customers, and shareholders.
III. CEO Performance Assessment
A best practice is to have a robust conversation every year about the CEO’s critical priorities for the year. Of course, there will be some financial metrics, but in any given year, there will be other priorities, such as the development of the executive team. So it’s essential to discuss a scorecard that reflects initiatives beyond our total shareholder return or EBITDA for the year.
Evaluating the performance of the CEO is just as critical as any other aspect of board oversight. For a thorough evaluation, we recommend having candid discussions that go beyond the confines of financial metrics. Prioritizing initiatives like developing the executive team and reflecting them on a scorecard can be helpful.
IV. Deciding Factors Before Joining A Corporate Board
How to make sure the CEO is trustworthy before joining a board? Ask questions about how they like to work with the board and give examples of formative experiences with the board or a board member. Ask for an example of an incident they felt was not helpful. And indeed, ask for their point of view on the long-term strategy and the risks the company faces. You can also learn a lot by talking to other board members and ensuring alignment with what you’re hearing.
V. Getting Trained Before Joining the Corporate Board
BDI’s Corporate Board Fundamentals Course equips individuals with the knowledge, tools, and skills required to become effective board members. This comprehensive online course covers topics such as corporate governance, financial oversight, strategic planning, and risk management, to name a few.
By completing this course, you’ll receive a certification from BDI that will give you a competitive edge in the boardroom and set you apart from other candidates. With the Corporate Board Fundamentals Course, you’ll confidently contribute to board discussions and decisions, enabling you to drive your organization’s long-term success.
Investing in board education is crucial to your career as a director or board member. Enroll in BDI’s Corporate Board Fundamentals Course today and take the first step towards becoming a powerhouse director.
Lastly, practicing honesty and transparency is key to avoiding common pitfalls and improving company performance. Additionally, certified board members can significantly enhance the effectiveness of the entire board and ultimately benefit the CEO and the bottom line. Implement this advice today and visit www.boarddirectorinstitute.com/corporate-board-fundamentals-course for more information on our course.
Thank you. See you next time!