The role of the CEO within the boardroom has not featured very much in corporate governance discussions over the years and yet the CEO has a pivotal position in contributing to the effectiveness of the board as a whole.
The testimony of numerous board effectiveness reviews is that the CEO provides a critical bridge between non-executive board members and the organisation as a whole. How the CEO provides that link can have a significant impact on the ability of the non-executive directors to understand what is going on in the business and therefore their ability to provide effective challenge to the executive team. The emerging focus on the quality of engagement between the board and the company’s key stakeholders is adding further to the importance of the CEO’s role as a contributor to board effectiveness.
Peter Drucker once reflected on the role of the CEO within large companies commenting that the CEO is the link between the Inside and the Outside.1 In Drucker’s analysis, the Inside is the organisation itself and the Outside is society, economy, technology, markets and customers. However, it could also be argued that the Outside should include the board itself because the CEO is usually the primary link between the board as a whole and the organisation. As a consequence, the CEO is the conduit through which non-executive directors gain much of their understanding about what is happening in the organisation as well as being the primary communicator of the board’s decisions to the organisation. Consequently, the CEO has an important and pivotal role in supporting the effectiveness of the Board.
It is perhaps surprising that this crucial role of the CEO has not attracted much attention in the corporate governance narrative before now. The latest version of the UK Corporate Governance Code reserves most of its attention on board roles and responsibilities for the Chair and non-executive directors and it has more to say about the role of the senior independent director than the CEO. That said, there is supporting guidance to the Code which acknowledges the pivotal role of the CEO in the dialogue between the executive team and the non-executive directors2 Given the crucial nature of the role that the CEO plays in the boardroom, it follows that the CEO’s attitude to the board will affect the quality of the communication that he or she provides to and from the board. It would be wrong to suggest that CEOs are generally disdainful of board colleagues but as Jeffrey Sonnenfeld and others have highlighted3, there are plenty of reasons for there to be faultlines in the relationship between the CEO and board colleagues. This would certainly explain why this relationship is a regular theme of board effectiveness reviews.
The importance of this relationship is being heightened further by two factors – the increasing expectations that boards engage with key stakeholders and the changing nature of business.
Much has been written in recent months about the need for boards to demonstrate how they engage with stakeholders in their decision-making in order to fulfil their duties under company law (section 172 of the Companies Act 2006 in particular (Section 172)). Much of the commentary suggests that this is a collective effort whereas many boards are finding, when they sit down to think about it, that they continue to be reliant on the executive team, and particularly the CEO, to provide those engagement mechanisms. Even where non-executive directors are specifically tasked with stakeholder engagement, most notably the workforce4, such engagement will need to be facilitated by, and will invariably be dependent on the support of the executive team. It is no coincidence that Drucker’s definition of the Outside overlaps so closely with the stakeholder categories listed in Section 172 thus reinforcing the importance of the CEO’s role in the board’s collective ability to fulfil its duties.
This also points to a further challenge for boards and CEOs alike, the increasing complexity of the business environment which is making both the leadership role of the CEO and the role of the Board in overseeing management performance so much more challenging.5,6 This ‘new reality’ has many implications for boards and CEOs alike. For those of us involved in reviewing the effectiveness of boards, it reinforces the imperative of ensuring that the relationship between the CEO and the rest of the board is a healthy and mutually respectful one – supportive and challenging in equal measure.
- Quoted in What Only the CEO Can Do, AG Lafley, in Harvard Business Review, May 20091.
- Paras 71-73, Guidance on Board Effectiveness, Financial Reporting Council, July 2018.
- What CEOs Really Think of Their Boards, Jeffrey Sonnenfeld, Melanie Kusin and Elise Walton, in Harvard Business Review, April 2013
- Code Provision 5, The UK Corporate Governance Code, Financial Reporting Council, July 2018
- Meet the New Boss, The Economist, 8 February 2020
- What are company boards for now? Bob Garrett, published by the RSA on 26 June 2020