Board Effectiveness: A CEO’s Crucial Responsibility
Board effectiveness is one of the six things that only the CEO can do! Yet, many CEOs overlook this critical area, leading to underperformance. Recognizing the signs of a low-performing board is the first step to improving it.
Common symptoms of an ineffective board include disengagement, a narrow focus on operations and financials, and a lack of structured processes, which can result in meetings that feel ad-hoc, tactical, and dysfunctional. Unfortunately, this is not an isolated issue. According to PwC, a staggering 70% of CEOs rate their board’s overall performance as poor. Even more concerning, 40% of executives say their boards don’t fully understand the distinction between the board’s role and that of management.
Given these statistics, the natural question is: why isn’t more being done to address these shortcomings? In many cases, CEOs either lack the knowledge to correct the problem or are reluctant to invest the necessary time. However, neglecting the board can lead to long-term issues.
The Primary Functions of a Board
At its core, the board of directors has three primary functions:
1. Hire (and fire) the CEO
2. Approve the company’s strategy
3. Manage risk through governance committees (e.g., audit, compensation, and risk committees)
While these seem straightforward, the boundaries between roles can become blurred. For example, approving versus designing the strategy is often a gray area. Inexperienced board members—especially those who are current or former CEOs—may find it difficult to step back from operational decision-making. This overreach can create tension, particularly when the board feels the urge to direct rather than guide.
In my experience as a CEO Coach, I recommend that boards approve the strategy, not set it. When boards overstep and attempt to dictate strategy, it can lead to friction and undermine the CEO’s leadership.
The Hidden Time Commitment
CEOs are often surprised by how much time managing the board requires. On average, CEOs spend 25% of their time working with their board, according to RRA. It’s a substantial investment, but it pays off when the board is seen as a strategic asset rather than an oversight burden. Unfortunately, many CEOs regret not engaging their boards earlier and more effectively.
GREAT CEOs – Key Focus Areas
To make the most of your board, successful CEOs follow these practices according to RRA:
1. Engage Your Board Early
The board is a powerful strategic asset, but only if the CEO engages them early and often. CEOs who view their board as a partner in driving strategy and growth, rather than just a governance body, reap significant rewards. It’s easy for CEOs to get bogged down in the day-to-day noise of the organization, but it’s crucial to prioritize engagement with the board.
2. Clarity Matters
From the beginning, clarify the board’s expectations of you. Misaligned expectations can create challenges down the road. Take the time to align around a shared vision for the company’s future, and regularly revisit these discussions to ensure everyone stays on the same page.
3. Build Deep Relationships
A strong relationship with the board chair is essential for any CEO’s success, but don’t overlook the individual relationships with each board member. Invest the time to understand their perspectives and leverage their unique expertise to support the company’s goals.
4. Establish Transparency
Transparency with the board fosters trust and enhances their ability to serve as a strategic asset. When in doubt, err on the side of sharing more rather than less. This transparency leads to more informed decision-making and builds credibility between the CEO and the board.
Characteristics of High-Performing Boards
As you consider the effectiveness of your board—or one you may serve on—here are key characteristics of a high-performing board (Advisory Board Architects):
• Highly Engaged: Active participation and engagement in discussions and decisions, not just attendance at meetings.
• Objective: A clear, unbiased approach to decision-making, with a focus on what’s best for the company, not personal interests.
• Proactively Focused on Growth and Strategy: Instead of reactive problem-solving, high-performing boards are future-oriented, constantly thinking about how the company can grow and adapt.
• Results-Oriented: Board members are committed to achieving measurable outcomes and hold themselves accountable for their contributions.
• Guide the CEO and Company to Success: A high-performing board provides valuable advice, helps navigate challenges, and supports the CEO in achieving the company’s strategic objectives.
Improving board performance starts with recognizing its value and investing the necessary time. A high-performing board isn’t just a governance requirement; it’s a competitive advantage that helps CEOs and companies achieve long-term success.