CEO BoD Assessment

Quick Summary: To provide effective guidance, Boards need the CEO’s objective and candid assessment.

Abstract:

Board Members cannot be expected to know and understand the daily and detailed activities within the company.  They cannot see underlying issues that may be building until they become obvious.  It is the CEO’s responsibility to provide the Board with a candid assessment of the “good, bad, and ugly” issues that the company faces.  Armed with this objective information, Boards can do their job – provide guidance to the company to help them be successful.  Without the CEO’s provide insight, the Board cannot be effective.

Probably the hardest challenge that an entrepreneur – turned – CEO faces involves the required shifting of their loyalty from their idea and early supporters to the company’s shareholders.  It is similar to the situation when one has one foot on the dock and one foot on the boat!  Shifting one’s weight, one way or the other can result in falling into the water.  However, maintaining a tenuous position is not an option.  At the highest level the goals of the CEO, employees, and shareholders is the same:  The long-term success of the company.  The disconnects can occur based on the path and timing plans to achieve the goal.  When either revenue or available cash, as discussed in previous articles, falls behind plan, tough decisions made by the CEO are required.  Those decisions can easily put the various groups at odds with one and another and, certainly, with the CEO.

Board Members are well aware of the CEO’s caught-in-the-middle situation.  However, as representatives of the shareholders, they expect the CEO to act prudently in the best interest of the shareholders.  Referring to the first three Principles discussed in Volume Two of this collection will help the CEO and the Board set priorities.  In rank order, those principles are:

  • Principle One: Stay in Business
  • Principle Two:  Treat All Individuals with Dignity and Respect
  • Principle Three:  Provide an Acceptable Return to All Investors (Employees, Business Partners, Customers, Financial Investors)

With the above comments in mind, it should be clear that the CEO and the Board must be in lockstep in selecting the most appropriate plans of action by working closely together.  Board Members are not interested (or able) to run the company’s operations.  Also, they will not have the intimate knowledge of the issues that the company faces on a day-to-day basis.  They can only provide relevant guidance if they are presented with a candid assessment of the issues, their status, and some suggested approaches to move forward.  That information can only be provided by the CEO.

The CEO, with their understandably split loyalties, must provide the Board with an objective view.  That view can be passionate, but it cannot be emotional.  It is easy for the CEO to fall into the trap of “us versus them” when discussing issues with the Board.  Listening to suggestions and maintaining objectivity can be challenging but is essential.

Board Members have seen it all before, either first hand with other companies or through interaction with their colleagues.  They understand the struggle involved in building a successful company. They also know that extension, not survival, is the rule.  The root causes vary, but the fact is that most companies, including mega-companies, often struggle.  They understand bad news and even expect it!

The suggested material in article 7.02031, “What to Cover,” can be used by the CEO to set the stage for their candid assessment to the Board near the end of every Board Meeting.  The CEO’s goal should be to identify potential issues before the Board “accidentally” discovers them during presentations based on what was said, or more commonly, what wasn’t said but was found during probing.  It is critical that Board Members are able to focus on the facts and not constantly trying to discover the hidden flaws that are not being addressed.  A highly successful founder and managing partner of a venture capital firm once explained his cockroach theory: “If you see one cockroach on the floor you can bet that there are thousands in the walls!”  So, if a Board Member sees one obvious error or misstatement in a presentation, the Member’s natural reaction is to assume that there will be other, unspoken issues that are not being shared.  If trust is broken or even damaged, it will be hard to recover.  The CEO’s goal is, therefore, to minimize potential “surprises” discover during the meeting and emphasize that other presenters be equally candid.

The CEO should grade the company in terms of its accomplishments in meeting the established goals.  Sharing the logic behind the grades and the corresponding implications is a critical element in the assessment.  It is equally important to explain the relative importance of any issues to the Board.  The Board needs to be given information, not data to help them draw their own conclusions.  In all cases, the CEO should offer their suggested actions or alternatives to any issues instead of just identifying problems. 

A keep component of the CEO’s assessment is the identification of the weakest link in the company that can have the most significant impact on the company’s success.  The identified weak link may not be impacting the company today but could be a major impediment in the future.  Some examples are the lack of scalability of certain aspects of the business, the need for large future technology investments, the need for a change in distribution methods, or likely disruptive market/competition issues.

An often missing component in a CEO’s assessment is a discussion about company personnel.  As the company matures and evolves, certain key individuals may simply no longer have the required skill sets to keep pace with the new demands.  Again, this will not be new to Board Members; they may be able to suggest approaches to resolve the issue – when the time is right.

Finally, A CEO assessment should be provided by the Board to the CEO.  The CEO should ask the Board Members for their candid assessment of how they are doing.  Everyone grows by learning.  Running a company, especially a new company that is in a constant state of growth and change, is quite challenging.  Daily tactical issues can be overwhelming.  A Board with their experience and only a high level of involvement can provide the CEO with a different, more objective view of the company and themselves.  Ask them!

Article Number : 7.020302   

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