Chairmen and their CEOs

Just don’t go there – that’s my advice to a good chairman. It’s your role to protect your CEO and executives from unnecessary pressure. If you feel your executive team is not up to the job, fine – remove them, but don’t undermine them while they are still in the job. Now, I have often said that the one key job for a chairman is to fine the CEO if the company is underperforming – so I don’t need to expand on that again now.

But a good chairman should really be providing his CEO with some perspective. This may be by making him realise that his performance is not up to scratch compared to the competition or, conversely, counselling him that the loss of a key account might not be so disastrous after all.

The CEO encourages the dynamic
From a CEO’s perspective, and assuming he has a chairman he respects and who is not trying to act as an executive, a really good CEO should respond in a number of different ways. An absolutely crucial point is that he needs to keep his chairman informed ahead of the game about any bad news. It’s the chairman’s role to manage the rest of the non-executive board and he must be seen to be on the inside track.
CEOs should also talk to their chairmen about the critical topics. Requesting introductions to key people from the chairman’s black book has its place, but I am thinking here about difficult decisions where the CEO wants a second opinion on something very confidential. So, for example, the CEO should discuss issues that he has with his senior management team or personal problems that may be affecting the CEO’s ability to work effectively.

Non-executives, not involved in the day-to-day, need to have information in a form that they can understand and quickly assimilate, and it is the CEO’s responsibility to make that happen. Believe it or not this is not so as easy as it looks. Remember that the quality, accuracy and timeliness of a CEO’s board reports are very important in giving all the directors confidence in the management team.

Avoiding strife
Remuneration is often the area where most problems arise between CEOs and chairmen. The CEO often feels underpaid compared to the market – the chairman opines that no one ‘in his day’ got paid that much! The key here is to ensure a thorough discussion occurs before it goes to the board or the remuneration committee. It is vital that the chairman supports the CEO’s package because he thinks it is fair, but also that he can defend it robustly against any challenges from colleagues.

An effective chairman should make sure that aggressive pay, bonus or share schemes are earned by setting sensible, but stretching, targets. Textbook stuff you will say, but it needs some real time and thought to make it work well.

So what is the perfect relationship?

• A chairman who keeps his board happy and does not interfere with the day-to-day.
• A CEO who listens politely but firmly and delivers outstanding results!