Any research about the dynamics of CEO interactions with board of directors has always been interesting. We recall one major scientific research that found the board structure to be persistent for decades – a board once strengthened or weakened remains that way for many years into the future. More research is needed to unearth the factors behind this phenomenon.
One interesting finding is that despite the persistence structure, there are factors that drive changes, consistent with theoretical models of governance dynamics.
Powerful or successful CEOs can gain the power to drive even more value at their enterprises than others, and the boards seem to have less independence in such cases. A board’s incentive or ability to monitor gets weakened when the corporate performance is increasing, especially when the within-firm CEO tenure is longer.
The independence of boards will be high when the CEO attrition is high or when there is uncertainty about the CEO capability as we have seen in many cases recently all across the globe.
The regulators have clamped down on the dual role of CEO and board chair but India has been resisting this move with the support of the government. Research actually shows that the independence of a board reduces drastically when there is a dual role.
The terms ’emotional intelligence’ and ‘enterprise boardroom’ do not normally go together. Do we visualise the board chair convening a group of hard-charging Type A personalities and suggesting a big group hug, apart from the traditional embraces or nose rubs that were normal before the pandemic?
We have seen successful CEOs exhibiting better ‘board EQ/EI (emotional quotient/emotional intelligence)’ and they are more likely to occupy the board chair with a much higher pay over their tenure. They are less likely to be replaced even if temporary poor performance occurs – as in the pandemic years now.
Emotional intelligence (EI) is a crucial aspect of board effectiveness, and the chairperson who brings EI to the head of the table nurtures powerful governance productivity. What are the secrets of the emotionally wise board leader?
Although Daniel Goleman is being recognised as the guru of EI, it was Micheal Beldoch who brought up this first way back in 1964. EI is the ability to identify and manage one’s emotions and the emotions of others. It includes three sub-skills: emotional awareness; the ability to harness emotions and apply them to tasks like thinking and problem solving; and the ability to manage emotions, which includes regulating one’s own emotions and managing the emotions of others. According to the supporters of EQ, this is the critical factor that separates the wheat from the chaff. Amongst the many skills that were tested in workplaces, EI was the strongest predictor of performance. 90 per cent of top performers have high EI while only 20 per cent of bottom performers have a high EI.
Recently, one retail CEO who was hanging up his boots after a long stint wanted our advice on the succession plan there. His choice was the current CFO who has been with them for several years, and has made a difference to the organisation. However, he says, he seems not comfortable in working with the board and a couple of directors have also raised this point. Is there a way he can improve his EI issues with the board to occupy the CEO seat?
In our opinion, if the CFO has built a team that seems to work well with him, his emotional intelligence is less a problem than his ability to tune into the board. This is not uncommon. There are very complex dynamics in dealing with a board for a newer or less experienced CEO. If the board is made up of retail and sales leaders, it could be that a strong finance quant speaks a different language, making for EQ bumps. Research shows that 89 per cent of C-suite executives view themselves as strong on ‘left-brain’ savvy – balance sheet, numbers oriented. The overall board ‘EQ’ might lean more toward right-brain sales and gut instinct sorts.
In such a case, the current CEO should add emotional intelligence tutoring to his successor. Start with some frank talk with the CFO on the mutual discomfort, and seek his take on the matter. It’s likely he senses this as well, and is career-smart enough to realise that he needs to work on stretching outside his comfort zone. Probe which matters he finds difficulty in communicating with the board, and whether some members seem harder to read than others.
Often, board members have little contact with C-suite execs outside of boardroom presentations. Include the CFO in social events with directors such as dinners before board meetings, and arrange informal briefings and discussions one-on-one. But the board and committee meetings are important as well. The CFO or any CEO candidate from within the firm should be sitting in on these as much as possible to learn the interests, styles and hot buttons of individual directors. Ask him to share his appraisal of these, and compare that with the understanding of the current CEO.
We also advised the CEO that if the chair of audit committee works well with the CFO, he should mention that he’s the succession choice, but that he could use some help building relations with the board. The audit chair likely is numbers-oriented too, and can be an effective relationship mentor for a CFO.
Cap this by having the CFO present more to the board and committees, both to exercise his EQ muscles and to gauge his progress in communicating. Encourage him to go beyond just discussion of numbers, to also share his insights and opinions – skills a CEO in the works will need. Seek feedback from directors on how he’s doing. His ‘grades’ from them should show steady improvement, both for ease and empathy of communication, and the value and completeness of information.
Ralph is a global board advisor, coach and publisher. Dr M Muneer is the co-founder of the non-profit Medici Institute and a stakeholder in Rezonent Corp