By John Harte, Managing Partner at Integrity Governance
As we enter 2023 expect volatility and uncertainty to be the ‘new normal’. High inflation, possibly in the teens, and increasing interest rates are creating economic headwinds that will probably lead to a recession in many markets. On top of this there will be ongoing supply chain issues, a potential resurgence of Covid, along with the continuing conflict in Ukraine, which looks set to escalate.
This challenging environment heaps significant pressure on organisations, particularly the CEO, to manage, lead and deliver growth.
However, the CEO should not be left alone to formulate all the answers. In 2023 it will be more important than ever that the board effectively supports the CEO during these uncertain times, to secure the long-term success of their organisation.
For an effective CEO, and board, it is vital that there is clarity about where the role of the board stops and where the role of the CEO begins. Ambiguity and confusion over the roles of the CEO and board directors, particularly in an unpredictable world, will have a negative impact on board effectiveness and decision making. It’s the responsibility of the chair to provide clarity here and facilitate the discussion where the boundaries between board and CEO are unclear.
Effective boards have a culture where bad news comes to the board more quickly than good news, where there is constructive challenge and where the boardroom is a safe place for a CEO to say ‘they don’t know’. This can only happen when boards foster an enabling culture.
With the role of the CEO being one of the loneliest in the world, it’s important to create the time and space for dialogue between the board and the CEO, with no other management present. It’s a tremendous opportunity for the CEO to share what’s on their mind and access the collective wisdom of the board. They can cover the successes since the last board meeting, the issues that are developing, what’s keeping them awake at night and canvass areas where they need advice, challenge or validation. This needs to be a regular board meeting agenda item. However, for the best advice, the board must comprise of a diverse group of directors.
There’s near universal recognition that diverse boards are more effective than those that aren’t. Therefore, the board needs to consider whether its current composition is the right one to support the CEO and take the organisation forward. They should look at their board through the prism of the five drivers of diversity – demographics, skills, experience, thinking styles and circles of influence – and contemplate how well the current line up matches up. True board diversity is broader than any one of the five drivers and delivers wider perspectives, improved decision making and outcomes.
Effective relationships between the leader of the management team, the CEO, and the board of directors, are enabled by three fundamental currencies – trust, respect and honesty.
These currencies are vital when it comes to the most important relationship in the boardroom, between the chair and the CEO, because of the enormous impact it has on the performance of the organisation. As well as having role clarity at the foundation of the relationship – that the chair is the leader of the board and the CEO is the leader of the business – to be a value adding one it must be built on trust and respect, where there’s candour and honesty on both sides. Smart chairs need to reflect on how well this relationship is working and take the opportunity to recalibrate where required to ensure that the rapport between themselves and the CEO is an asset to the board and the business.
The pandemic highlighted the importance of boards being agile. In these new uncertain times agility and adaptably remain key for those boards that are serious about supporting the CEO in responding to new challenges in a way that will ensure the long-term success of their organisation.
With the interplay between the three critical elements of risk, strategy and return often based on assumptions at board-level, the board must ensure that any assumptions, from the CEO or any director, are challenged to validate their relevance. Only then is it possible to have assurance that the right path is being taken – something that is particularly important when quick decisions are required during periods of volatility.
The board must keep the focus of the CEO on future strategy – how the organisation can achieve its purpose during these volatile times – by looking at new opportunities, rewards, as well as the risks. They need to make sure future strategy is live in the boardroom, and not something they focus on once a year.
One of the most important roles of the board is in ensuring the CEO has the right skills and mindset to lead the business forward. Therefore, at the start of 2023 it’s critical to have in place a CEO who is fit for the future. To effectively achieve this they must regularly evaluate the CEO – a basic board hygiene process. Reviewing the CEO was something many directors felt was ‘nice to have’ rather than ‘need to have’ during the Covid health emergency.
At the conclusion of any review process there must be clarity, not only on the performance, but on the next steps in personal development for the CEO, with deliverables agreed by all parties. These can then be revisited and reviewed regularly to check on progress.
After the Covid health emergency boards need to step up again in supporting the CEO during a new period of volatility. Only then can they effectively assist the CEO in ensuring their organisation successfully navigates its way through a turbulent 2023 and experiences long-term growth.