Six Simple Rules for Strengthening CEO-Board Relations
June 28, 2010
When it comes to board communications, “KITT” is the key: Keep It Transparent and Trustworthy
By Tom Wajnert and Stephen A. Miles
Perhaps nothing is more vital in your role as a CEO than how you present to, and communicate with, your board. In this age of transparency, and with new federal laws that lay the foundation for active board involvement, CEO-board communication is no longer a “soft” function. It is a major driver of business performance.
We all know the acronym KISS: Keep It Simple, Stupid. That certainly applies to all board communications, in the boardroom and outside of it. But it takes more than KISS to connect effectively with your board. A new watchword has emerged, KITT: Keep it Transparent and Trustworthy. These six principles of KITT can strengthen your communications, improve board cohesiveness, and raise the overall effectiveness of your leadership.
1. Simplify and refresh your story
One of the easiest ways to be transparent is to keep your reports and other communications simple and focused on the lowest common denominator of understanding. Most CEOs and senior management teams assume board members know more than they do. But, typically, directors have varying levels of knowledge. Appealing to all levels requires telling the story from beginning to end, clearly, concisely, and candidly.
Given the everyday intensity of their leadership roles, many CEOs miss the episodic nature of their board and the understandable difficulty directors have in retaining information from one quarterly meeting to the next. As a result, they forget to refresh key topics at each board meeting before moving forward. For example, we recently witnessed a modest tuck-in acquisition proposal by a CEO go awry when the board was not “refreshed” on the strategic context. Management neglected to revisit important elements of the competitive environment because, as they said later, when we discussed the negative outcome, “we covered it just a few months ago at the strategic retreat.” Refreshing the story at the beginning of a follow-on meeting helps to ensure that you have appropriate understanding and alignment among board members before introducing something new.
Find the right balance between strategy, tactics, and a high-level overview versus drilled-down details. Put numbers in context so that non-financial experts can understand them. Use a strategic framework with some accompanying detail when needed, but reserve the granularity for answering specific questions or discussing the topic in committee. The best boards have staffed their committees properly and have given them the authority to do the granular work. As a result, when the topic is brought before the full board, the maturity level of the discussion goes up exponentially. Without this discipline, the full board can quickly move into irrelevant conversations and lose its focus.
CEOs should create a foundational strategy or organizational change document at the beginning of the year. This document can be used as a guide each time they revisit and update their company’s course. It enables all in the boardroom to track developments continuously versus episodically. With a continuous perspective, you and the board have a shared point of reference as questions arise on past events. You’ll spend less time debating the past and more time considering and deciding the desired future state.
2. Go one-on-one
Trust and transparency are reinforced through personal relationships. For example, many CEOs today spend time on board members’ home turf once, and sometimes twice, a year. This enables deeper relationships to form.
As you get to know your board members individually, strive to understand their diversity of personal styles. Who is most interested in data and who in people issues? Who wants details, and who looks for the “big picture”? Find out, too, how each director likes to be communicated with—email, phone, or face-to-face? Customize your communications to their personal preferences.
By getting inside your board members’ heads, you can relate to them in an empowered and non-defensive way. When they disagree on an issue or react in doubt or anger, you can validate their perspective because you understand their unique point of view, which serves to enhance your overall effectiveness with your board.
For all of the newly appointed CEOs we coach, we build this one-on-one type of engagement into their first-year transition plan to ensure they are building the informal relationship capital they will need when things get tough (and they will get tough). In these one-on-ones, CEOs must move beyond talking about themselves and the company. Instead, they need to be Socratic, asking questions so they can understand at a much deeper level each board member’s drivers and passions. This knowledge can help shape how and what CEOs present when they are back in the boardroom.
3. Never make board members look dumb
In our work with CEOs, we often see new CEOs in the boardroom trying to answer questions as fast as they can to show that they are “all over it” and to prove to the board that they made the correct choice in executive leadership. It’s an approach, however, that results in just the opposite outcome. Board members who have tried to think of two or three smart questions may end up looking dumb in front of their peers.
Much of our coaching of new CEOs in the boardroom focuses on how to field a question in a way that is affirming—so that the board member asking it feels good while the CEO can still demonstrate that he or she knows the topic. For example, we recently observed a newly appointed CEO fall flat in the boardroom. He thought he was demonstrating his command of the subject matter by quickly and decisively answering every question brought to the table. In fact, he was alienating himself by making individual directors feel like idiots every time they wanted to ask a question. The new CEO quickly learned that he needed to take a few moments to reflect on each question and provide a slower, more thoughtful, response.
Remember that board members have signed on for the job to perform an informed advisory role. They want to be meaningfully engaged. Let them be just that—and recognize them for their contributions.
4. Assume nothing
Avoid coming into board meetings with assumptions on specific topics. You may think you are correct, but this does not equate to the board’s full acceptance of your perspective. Assumptions can lead to a lack of preparation on a key topic, which when challenged can yield the wrong outcome.
We have observed situations where CEOs believed they had alignment around a particular acquisition, for example. And, indeed, they may have had alignment at the philosophical level. But when individual directors were pushed, their views differed radically on how the deal should unfold and what their individual BATNA (“best alternative to a negotiated agreement”) was on how much they were willing to pay.
Assumptions can be a problem for new CEOs in particular. One of the CEOs we coach, a youthful and aggressive leader, is often the “smartest person in the room.” He and his team had identified a target company for acquisition and began the early stages of negotiations. In a board meeting he mentioned the deal in passing and asked for approval to proceed. His request was shot down instantly by the chairman. In fact, the board said it was too early to even discuss the proposal because they had not been briefed on it. The CEO was visibly distressed and became emotional in the meeting, to the point that he had to excuse himself for a time before reentering. The company ended up losing the acquisition to a competitor.
Instead of assuming, take your board on a journey that paints the full picture. Remind the board of previous conversations on the topic. Drill down at the individual director level to make sure you understand the views of all board members. Keep an open mind. Take notes. Always leave time for questions and answers in board presentations. Follow up on suggestions and report the results at the next board meeting.
5. Spring no surprises
The number one mistake CEOs make with their board is surprising them with information or time-based decisions without giving them the full background and preparation. One board member put it this way: “There’s nothing worse than when a CEO ‘works things under the radar.’ When the issue doesn’t get resolved, we hear about it and it becomes a huge problem.”
For example, a CEO we work with had a tremendous acquisition opportunity come available and started down the due diligence path with his team. In a passing conversation with his lead director, he mentioned that they were working on this opportunity, which was in an adjacent space but potentially strategic for the future. He mentioned that he would “inform the board” on a scheduled call. The lead director went ballistic. He told the CEO he would not jam something of this significance through without the board coming together to discuss all the options. They ended up calling an emergency in-person meeting. After three hours of dialogue, and full inclusion in decision-making, the board voiced unanimous support.
Again, make no assumptions about what is known or not known. Don’t assume that because you have briefed a specific director, everything is fine and everyone is in line. Pick up the phone between meetings to brief directors on key issues. Send background points to ensure that they are aware of the upcoming discussion. Learn how to manage to desired outcomes versus trying to force them in the moment.
Share the good news and the bad, unadulterated. If your board gets bad news about the company before you tell them, you have killed their confidence. And no doubt your job.
6. Tell the whole truth—and nothing but
It might seem easy to work around the board, but it will cost you in the long run. In some instances, we have seen CEOs answer a specific question on an issue instead of telling the board member the question they really should have asked was “X”. Some have addressed a significant issue in pieces, allowing only some of the information to come forward rather than the full story.
For example, we observed a key executive behaving badly and pushing ethical boundaries. The CEO wanted to retain this person because she was difficult to replace. Because many of the circumstances leading up to this event were fuzzy and open to interpretation, the CEO tried to fudge the details and minimize the extent of the executive’s bad behavior. As the truth came to light, the CEO’s ethics were equally compromised.
Always come clean, and come clean early. Asymmetries in information erode trust and can eventually lead to your downfall. KITT is the key to keeping your board fully informed, avoiding gaps, and building relationships that are grounded in integrity. In all board interactions, transparency is the grease and trust is the glue. Without them, little will run smoothly—and all may fall apart.
This article was originally published in Chief Executive Magazine (www.chiefexecutive.net)
Reynolds CEO and Lead Director to Present On Board-Level Communications Styles That Work
June 16, 2010
Tom Wajnert, an advisor to boards and CEOs and the lead director of the board of Reynolds American Inc., will join the tobacco products company’s CEO, Susan Ivey, in a forum to be held June 22–23 at the New York Stock Exchange.
Wajnert, a frequent writer and speaker on CEO-board relations, will be participating in the “Chairman & CEO Peer Forum” sponsored by Corporate Board Member magazine on June 22. The conference is designed for CEOs, independent chairs, and lead directors to discuss critical and sometimes sensitive issues.
Ivey and Wajnert will be leading discussion about the most important characteristics of a successful working relationship between the CEO and the board’s lead director. They will discuss their management roles; common challenges, how they communicate effectively, and the ways previous experience has contributed to their productive relationship today.
They also will discuss the pros and cons of splitting the roles of CEO and chair, a timely topic given the Securities and Exchange Commission’s recent expansion of leadership structure disclosure rules. Under those rules, companies now need to disclose why they have chosen to combine or separate the CEO and chair positions. Wajnert has written on this subject for another magazine, Directorship, at http://www.directorship.com/separation-anxiety.
The June conference details are at Chairman & CEO Peer Forum (www.boardmember.com).
Separation Anxiety: Splitting the Chair, CEO Roles
May 28, 2010
Tom’s article “Separation Anxiety: Splitting the Chair, CEO Roles” was published in the magazine Directorship Magazine on July 21, 2009.
The article is available on the Directorship Magazine web site.
NACD Directorship Forum
April 2, 2010
Tom Wajnert will be a presenter at the NACD Directorship Forum to be held in New York City, June 7-8. His “Meeting the Challenge: Recruitment and Motivation” panel is scheduled for 2:30pm on Tuesday, June 8th. For more information on the event, visit the NACD Directorship Forum website.
Tom Wajnert Quoted in Wall Street Journal Article
March 30, 2010
As an independent director on the board of Reynolds American, Inc., Tom Wajnert is quoted in the article “Smokeless Products are Tough Test for Reynolds”which was published in The Wall Street Journal on Friday, March 26, 2010.
“Tom Wajnert, Reynolds’ lead independent director, says some board members were “a little skeptical.” Eventually, he says, they agreed it was a “natural next step.” Global industry sales of over-the-counter smoking-cessation products are about $2.1 billion a year, according to Euromonitor International.”
The article addresses the tobacco company’s new direction into smokeless tobacco products, and it is available in full online.
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We Have Met the Enemy…and They Is Us
February 24, 2010
Tom’s latest article which was published in the January 13, 2010 issue of Directorship Magazine is titled “We Have Met the Enemy… and They is Us.”
Download the article as a PDF file.
Why Your Board of Directors Matters Now More than Ever
December 17, 2009
Tom Wajnert spoke at the Ernst & Young Strategic Growth Forum in Palm Desert, CA, Nov. 12 on Why Your Board of Directors Matters Now More than Ever. For more information, contact Tom@twaj.com.
Advice to a New CEO: How to Handle Your Board
December 17, 2009
Five strategies for making the board relationship succeed, article by Tom Wajnert and Stephen A. Miles, published in Forbes, Nov. 11, 2009. For complete article, click here:
http://www.forbes.com/2009/11/12/ceo-board-relations-leadership-ceonetwork-managing.html
Press Release: TWAJ.com Offers Free Advice, Actions Plans for Corporate Leaders Grappling With Credit Crisis Fallout
October 6, 2009
CALISTOGA, CA, OCT. 6—How can executives and boards of directors best navigate the global credit crisis—and survive in the wake of today’s corporate scandals, government bailouts, and heightened shareholder activism? A new website, TWAJ.com, offers free advice and action plans from Tom Wajnert, a veteran advisor to private and public corporations.
Wajnert currently serves on the boards of Reynolds American (NYSE), UDR, Inc. (NYSE), and NYFIX (Nasdaq), and has been a retained advisor to many leading companies, including American Express and UPS. In a series of articles at http://www. twaj.com, he addresses the top issues of corporate executives and boards.
One way to succeed in financially tumultuous times is to reexamine board composition, recruit new directors with solid governance experience in tough situations or adjust roles and responsibilities. He wrote about splitting the roles of CEO and board chair for Directorship magazine to be published this fall. It appeared on the magazine’s website in August. The topic of board composition was also covered by Wajnert in the July/August Executive Counsel.
Wajnert is also a sought-after speaker. He will be a key presenter at Ernst & Young’s, “Strategic Growth Forum,” in Palm Springs, Calif. next month. He also presented recently on risk management in a roundtable hosted by Directorship and the National Association of Corporate Directors.
In his 40-year career, Wajnert has served a variety of industries, including financial services, commercial real estate, insurance, technology, manufacturing, business services, and consumer products. Typical engagements have involved succession planning, workouts, restructurings, and conflict management.
Early in his career, he founded AT&T Credit Corporation to assist AT&T in the sale of its products to business customers. The company developed quickly and evolved into AT&T Capital Corporation, a NYSE-listed, full-service equipment leasing and commercial finance company that operated in 23 countries. With $14 billion in assets, $2 billion in revenue, and over 3,000 employees, AT&T Capital was one of the largest finance companies in the world. Wajnert served as chairman and CEO of AT&T Capital from 1985 to 1997, growing the company to more than $13 billion in assets before taking the company public, then private. He later sold the company and completed the largest management-led buyout in the financial services industry.
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Tom’s article in Directorship Magazine
September 6, 2009
The Directorship magazine website this summer featured an article by Tom called ” Splitting the roles of CEO and board chair: How to get ahead of the trend and avoid separation anxiety”. This same article will be featured in the Oct/Nov issue of the magazine.