Noses In, Fingers Out
Avoiding micro-management by boards of directors
Consider these words of a former CEO regarding the board’s role.
"The responsibility of our board — a responsibility which I expect them to fulfill — is to ensure legal and ethical conduct by the company and everyone in the company... What a CEO really expects from a board is good advice and counsel, both of which will make the company stronger and more successful; support for those investments and decisions that serve the interest of the company and its shareholders; and warnings in those cases in which investments and decisions are not beneficial to the company and its shareholders."
This description sounds reasonable. However, its validity is entirely undermined because of the fact that this was part of a speech made by Kenneth Lay in April, 1999, to the Center for Business Ethics. He was then the darling CEO and Chairman of Enron. Since that time, it has become obvious that the Enron board was not coming close to fulfilling the role Lay outlined.
Likewise, in 2001, CEO Dennis Kozlowski presented the board of Tyco with an employment contract which they signed. Surprisingly, that contact stipulated that conviction of a felony was not grounds for termination. Clearly, that board was not “ensuring legal and ethical conduct by the company and everyone in the company.”
Perhaps in reaction to the horrific examples of boards NOT fulfilling their role, there are directors of corporations who are so intent on holding everything in check that they lead the board to micro-manage the CEO.
Unequivocally, we can declare that neither of these extremes is acceptable. The board’s role, as discussed previously in this column, is to Direct and Protect in the interests of the owners. But how is a board to maintain adequate control without meddling?
Jim Estill, CEO of EMJ Data Systems, articulates the answer in simple terms: “The best boards keep their noses in the business and their fingers out.” This takes discipline and planning.
The fact is, any scenario of a board micro-managing betrays problems.
It is often a sign that the board has lost its confidence in the CEO. Fairly or unfairly, dynamics of the relationships between board members and the CEO may have caused this. Worse yet, a director may be pushing an agenda to edge the CEO out without justification. Regardless, this tension in the relationship is a time bomb waiting to explode unless the board accepts responsibility to address it in one way or another.
Micro-managing by the board may even happen because the CEO is genuinely unable to fulfill the duties of that post. This could be a result of poor selection or of the company evolving to the point that its needs are beyond the skills of this person. Consider the recent removal of Carly Fiorina as CEO of Hewlett-Packard. A couple of weeks before the announcement of her departure, the Wall Street Journal reported that her job was not on the line, but the board wanted to spread some of Carly’s responsibilities to three other executives of the company. With great respect to Carly and her leadership ability, the fact that HP’s stock was down 55% since she took the job is a sign that something was not working. However, micro-management is no solution. To be blunt, the board must replace the CEO. The slower it acts on this need, the more damage is done to the company. Thankfully, HP’s board saw the light and chose to make a change rather than stick their fingers in and put on band-aids.
Alternately, micro-managing by the board may illustrate that the board just does not understand its true role or lacks the skills to fulfill it. If the board persists to micro-manage, any worthwhile CEO will eventually walk away from the misery and find a company where his or her talent can be fully employed. Now the board has the costly responsibility of searching for a new CEO. And unless it changes its behaviour, the story will repeat itself all too quickly.
Rather than micro-managing, an effective board will work in collaboration with the CEO and management team to chart out a strategic plan for the company and then activate a system of monitoring the progress toward fulfilling that plan and complying with legal and corporate requirements. Together, board members will certainly stick their noses in. However, they will keep their fingers out of the details, empowering management to lead the operations of the company.
While the board is where most of the change will need to happen to overcome micro-management, no one will feel the brunt of this need more than the CEO. The CEO can work to strengthen the relationship she has with the board. The CEO can be diligent to communicate unfiltered information to the board and involve directors in high-level discussion rather than inviting them to cogitate about operational details.
Ever the pragmatist, Estill’s advice to CEOs is “Always earn a profit and the board will give you some space to run.” Having recently celebrated the milestone of 100 consecutive quarters of profitability, it is easy to see that he follows his own advice.
Search
Login
In Stores Now
