Case study - Tension between Chairman and Chief Executive - NEDworks LinkedIn Group Discussion

The NEDworks LinkedIn group is currently featuring the following Case Study (anonymised but based on a real-life situation)

NED Case Study

You are a non-executive director on the board of a listed company in the financial services sector. 3 years ago the Chairman and non-executive directors had been instrumental in removing the Chief Executive, a colourful, charismatic, character with a big reputation, as he had been unable to revive the company’s fortunes and had lost the confidence of both the shareholders and the regulator.

His replacement, an internal candidate, was seen as a safe pair of hands to steady the ship and implement the strategy which had been agreed by the board, to clean up the company’s operations, to the satisfaction of the regulator, and improve performance to satisfy the restless shareholders.

Unfortunately the new Chief Executive has not managed to make as much progress as either the regulator or shareholders would have wanted. The board has recently appointed a new Chairman who is keen to get the company back on track and there is clearly some tension between him and the Chief Executive.

As a non-executive director, how can you act to help resolve this situation? What is your role and what options should the board explore?

Julie Garland McLellan - Boardroom Expert First step is to look at the role of the board in setting targets and monitoring performance for both the CEOs. It would appear that they haven't been tremendously effective with the safe pair of hands or with the colourful and charismatic CEO. Is there a problem with the way the board sets expectations and commits to a strategic course of action? If the problem is in the boardroom it needs fixing before any new recruit is brought in.
Next step is to review the business and business model. Is the business meeting the current needs of its customers? Is it using the appropriate technology? Does it have the appropriate products and services? How are commissions calculated and paid? What is the culture? This should give some clues about what the new (or current) CEO should focus on to make a change that drives improvements.
Then recruit the CEO you need for the actions you have to take.
Final step is to monitor and guide the CEO so that actions are taken as expected and plans changed to suite

David Doughty Julie - I agree with everything you say but I would be tempted to start even further back with a refresh of the Vision Mission and Values as, in my experience, many business plans and strategies evolve organically and become detached from a coherent Vision.

As you say, it is impossible for the CEOs to succeed without clear expectations and it is the role of the NEDs to support the Chair to produce a clear strategy and objectives in line with the Vision, Mission and Values, which the CEO can then be tasked with delivering.

CEOs are often blamed for the failure of the business when it is more likely that it is a failure of the Board to provide clear direction

Terry Bowman There are surely 2 points here and at least 1 reflects badly on the established NEDs.

The issues with the regulator need to be examined by the Board to identify what they say about the strategy and delivery by the executives. The Board would seem to have been asleep at the wheel if the problems remain after 3 years. It may be that the problems with the regulator are adversely affecting market performance and, again, the Board is culpable for not getting to grips with this problem.

Overall a root and branch review of the business and its senior team would seem to be in order for the Board

David Doughty Terry - yes the NEDs should have been closely monitoring the relationship with the regulator looking to make improvements - as you say they seem to have been asleep at the wheel and it is time for them to wake up before they can think about making any senior appointments

Neil Britten David - a thought provoking case. Many valuable points already made here. As a NED I would be interested to know what the regulators perspective is - if I don't already. If there is a SID on the board I would expect him/her to be on top of this. Second I would like to know what the tension between Chair and CEO is being caused by. I would speak to the Chair about this obviously. Possibly the CEO too.
It is not so clear to me that the Board has been asleep - within the 3 year period both CEO and Chair have changed. Perhaps both changes have been prompted by the Board. Maybe initially the results from the new CEO looked encouraging.
Clearly it is time for the Board to be focusing on reaffirming the purpose of the enterprise, as David suggests, and revisiting the strategy to provide the clear direction sought.
Fundamentally the Board cannot function effectively without an effective relationship between Chair and CEO. I would like to understand the problem there first.

David Doughty Thanks Neil for making some good points. Clearly this has been an unsettling time for the business so in addition to all the actions that have been suggested by contributors to this discussion the NEDs also have a role to try to minimise the disruption caused by changes to CEO and Chair https://www.linkedin.com/pulse/what-should-neds-do-when-ceo-leaves-board-david-doughty

Peter Curnow-Ford MIoD Interesting is that its the shareholders and the regulator that are raising the issues and not the Board. I think the Board should reflect on its own performance and only then look to seek what happens next - why are we here, what is the objective and the strategy to enable the 'why' and then if needed update the board itself and then the CEO if needed - it maybe that a refreshed board is all that's needed as it better supports the existing CEO

David Doughty Peter - I think it has certainly been the case in sectors such as Banking that the board members have been the last people to question their own performance - more often than not it is the shareholders, regulators and analysts who are asking the right questions

You can join in the discussion on LinkedIn at https://www.linkedin.com/groups/87547/