The board’s mission on behalf of shareholders is to oversee and guide management’s efforts to create long-term value.
Research shows that sound corporate governance practices are linked with better performance, including higher market valuations. An effective board can also repel activist investors.
Despite these upsides, many CEOs regard their companies’ boards in the way one CEO described his company’s board to us: as a “necessary evil.” The chairperson leads the board, and even in cases where that role is held by the CEO (as is common in North American companies), the board’s independence is essential. Nevertheless, excellent CEOs can take useful steps to boost the quality of the board’s advice to management such as the following:
Effectiveness: Promote a forward-looking agenda
To get the most from their time with the board, excellent CEOs collaborate with board chairs on developing a forward-looking board agenda.
Such an agenda calls for the board to go beyond its traditional fiduciary responsibilities (legal, regulatory, audit, compliance, risk, and performance reporting) and provide input on a broad range of topics, such as strategy, M&A, technology, culture, talent, resilience, and external communications. Board members’ outside views on these topics can help management without compromising executives’ authority.
In addition, the CEO should make sure that the board and management take up related activities, such as reviewing talent and refreshing the strategy, at the same times of year.
Relationships: Think beyond the meeting
Excellent CEOs develop and maintain a strong relationship with the chair (or lead independent director) and hold purposeful meetings with individual board members.
Establishing good relationships and a tone of transparency early on enables the CEO to build trust and to clearly delineate responsibilities between management and the board.
Building relationships with individual board members positions the CEO to benefit from their perspectives and abilities, and privately discuss topics that may be difficult for the larger group to address.
Excellent CEOs also promote connections and collaboration between the board and top executives, which keeps the board informed about the business and engaged in supporting its priorities.
Capabilities: Seek balance and development
Excellent CEOs also help their boards help the business by providing input on the board’s composition.
For example, the CEO might suggest that certain types of expertise or experience—be they related to industries, functions, geographies, growth phases, or demographics—would enable the board to better assess and support the business.
Source: McKinsey - The mindsets and practices of excellent CEOs