Alcohol problems, drug use, sexual misconduct, financial misconduct, defensiveness, denial, berating of other senior management and directors, litigation, loss of key employees, toxicity and bulling. There is not much I have not seen when I am called in to coach the CEO. And CEO misbehavior happens in the highest level of corporate Canada. You may be surprised, but I am not.
Here are ten recent examples, disguised for confidentiality purposes: The CEO called a CFO a “moron” in front of the board and finance staff. Another CEO went silent, not talking to the Board Chair for a month. A CEO sat, arms folded, and did not say a word during an entire board meeting. A fourth CEO coaching regime occurred after a major failure, involving death and property destruction. A fifth CEO coaching was of a large manufacturing company, where the CEO’s effect on board colleagues was highly disruptive. In a seventh example, the CEO’s behavior was so disruptive that a major board rift occurred. An eighth example involved loss of key staff and an investigation into CEO conduct. A ninth example involved a CEO deliberately blocking board access to a potential successor and silencing of other senior management, from the board. A tenth example was a CEO of an iconic Canadian company shielding his compensation and expense arrangements from all directors, until I was called in by a regulator to investigate.
By the time I am called in, much of the damage has been done. But it doesn’t need to be this way.
The board’s most important job is hiring, paying and firing the CEO. Boards can get all of corporate governance wrong, but hire the right CEO, and be successful. Boards can hire the wrong CEO, and the company will fail even if the board has high governance scores.
The question that boards, prior to my coaching, often have for me is “Can the CEO change?” There are two things that are needed to change: awareness of the deficiency, and a willingness to change. I am optimistic, and usually have coaching success, but in a few instances, the CEO would not or could not change and I recommended firing the CEO.
Here are lessons for CEO coaching for any board:
The CEO’s coach is always hired by, and accountable to, the Board Chair and the Governance Committee, not the CEO.
For CEO coaching to work, the coach should understand board dynamics and report directly to the Board Chair, not the CEO. The Coach reports on coaching sessions, developmental plans, deliverables and progress, candidly and thoroughly, without the CEO present.
Prospective CEOs should be thoroughly vetted.
Normally, people’s personalities are stable, and the warning signs were visible long before the CEO was hired. A wrong CEO hire is always the board’s fault. Proper vetting now includes detailed resume checks, reference checks, professional background checks, social media and profile checks, personality testing against culture, exposure to all Directors, and multiple interviews in different settings, using external assistance. Put rigor and independence behind the CEO hire, base it on the strategic plan, and conduct an external search if only to test the market. Boards then make the mistake of not working closely with the new CEO after hire, and not onboarding them.
Collect your data and listen to employees.
CEO evaluation should always be 360 degrees, and include a board line of sight to views of direct reports in an anonymous fashion. Employee surveys should not be funneled by management, but should occur anonymously, reporting right into the boardroom. There are even software programs now that will collect employee meta-data for boards so bad news rises.
Link CEO behavior to pay incentives.
Frequently, I find the CEO has little incentive to change, as most of the pay metrics are financial and short-term in nature. In CEO coaching assignments, I normally restructure the CEO’s pay package to include non-financial metrics such as leadership, employee engagement, customer satisfaction, company culture, CEO succession planning, and/or board relations, or a combination of the above. Indeed, now, 75% of the value of a company are leading intangible measurements, such as the ones I mention, so pay metrics should reflect this. People behave the way you pay them. Boards often make the mistake of incentivizing aggressive, even unethical behavior. CEO pay should be tied explicitly, unambiguously, to ethical conduct.
Have the tough conversation with the CEO early on.
In two recent board meetings, I had to ask both CEOs to leave the room. The conversation completely changes when this happens. A board talks about CEO performance openly. When the CEO is called back into the meeting, there is a message delivered to the CEO by the Board Chair. The message is that the Board wants the CEO to succeed, and that behavioural and leadership issues need to be addressed. The CEO has to receive this message, the board needs to be aligned, and the executive session without management is the first step. Executive sessions should occur at each and every single board and committee meeting. To this day, remarkably, there are still CEOs who do not leave board meetings. The last thing a dominant or misbehaving CEO wants to do (and many CEOs are type As) is to leave the room.
Craft the CEO contract properly.
The person advising on the CEO contract should not be the company lawyer, nor the law firm that advises management. These people have a vested interest in not making the CEO contract hard-hitting. Firing a CEO “for cause” should be defined and broader than fraud. Just as athletes and entertainers have morals clauses in their contracts, CEOs should as well. The reputational, morale, talent and financial damage from CEO misconduct, to the company and to Directors, can be significant. Misconduct should be properly drafted to include ethical and professional conduct, with a defined process to determine whether a CEO is ever offside, with which the Board and CEO agree.
Engage in CEO succession planning and be prepared to fire the CEO.
There is a direct relationship between CEO leverage over a board and the lack of CEO succession planning by that board. CEO behaviours can get worse when the Board has no immediate or near-ready CEO successor.
In one major company, I detected defensiveness by the CEO and disrespect of certain directors. I found out that the CEO refused coaching, and that the board was four years out from an internal candidate being CEO-ready. “This is your failure as a board,” I said. The CEO is taking advantage of you because you have no options.
Some of the country’s best CEOs have had personal coaching, and that has contributed directly to their and the company’s success. No one is perfect, and we all benefit from one-on-one feedback, peer assessment, mentoring, and motivating coaches and trainers. Boards should see CEO coaching as a wise investment, and in the longer-term so old habits do not return.
Richard Leblanc is a governance consultant, lawyer, academic, speaker and advisor to leading boards of directors. His recent book is entitled The Handbook of Board Governance. Dr. Leblanc can be reached at firstname.lastname@example.org or followed on Twitter @drrleblanc.