Boards to the rescue – preventing dysfunctional teams at the top
May 2015 | SPECIAL REPORT: OPERATING AN EFFECTIVE BOARD
Financier Worldwide Magazine
A number of top executives at globally renowned firms have lost their jobs in the past year. These sudden and often unexpected departures highlight a growing need in the boardroom, namely that of boards of directors taking a closer look at the executive office team as a whole and assessing whether they have not only a high performing chief executive officer (CEO), but a high performing top team as well. When the answer is ‘no’, the risk to organisations is high and board directors are more likely than ever to take swift action to remedy the situation.
Boards are increasingly playing an active role in the process of ensuring companies have a well functioning top team in place. Historically, many boards have not been closely involved in the functioning of the executive office team, preferring to leave this aspect of corporate governance in the hands of CEOs. Though some boards provided oversight of the C-suite executive selection process, this often consisted of little more than a rubber stamp of the CEO’s selection. As long as the candidate passed muster on their individual qualifications, there was little further thought given to how they might fare as an enterprise leader and a top team member.
But the tides are turning. The past 10 years have brought many changes to the boardroom that have highlighted the negative impact dysfunctional top teams can have on an organisation, and how swiftly these problems can erode value. Today’s boards have more skin in the game than their predecessors of even a few years ago, and they are taking a more active role to ensure the executive office is staffed by an aligned top team that has an enterprise-wide focus.
What are the warning signs boards should be on the lookout for that indicate a top team isn’t truly high performing and thinking broadly across the business?
Keep a close eye on communications both between the board and executive office, and among executive team members themselves. The board should have direct access, and channels of communication to all members of the executive team to ensure end-to-end visibility across the organisation’s operations and a complete picture of overall company performance. Boards that are stymied by interference from the executive team in seeking out clear information should see this as a strong warning that all is not right within the top team.
Selective knowledge sharing
Watch how the CEO interacts with the team. A healthy team should have a mix of one-on-one interactions and full team meetings paired with a collegial flow of information among top team members. A CEO who chooses to conduct business with his or her colleagues one-on-one might be filtering information between team members that can create silos and prevent executive team members from seeing a full picture of the company. Limiting team members to one-off discussions has haunted other top teams, leading to sub-optimised organisational performance and the premature departure of talented senior executives. Top team members need to come together. They need an environment in which they can deliberate and debate material issues from their varying perspectives, have access to key information and address the reality that they are collectively responsible for the full company portfolio; not just their function or business unit. The board must ensure that the CEO is creating the conditions for the top team to operate in this way.
Listen to how the CEO and other members of the executive team talk about the organisation’s strategy, staying alert for disconnects in their messages. This lack of alignment can point to a poorly functioning top team and may even indicate outright disagreement or conflict within the upper ranks – situations which must be dealt with quickly and decisively to prevent damage to the firm from an operational and reputational perspective.
In our experience, however, the most effective boards exercise their responsibility to oversee executive team functioning from the start. These boards take proactive steps to ensure a clear line of sight to the executive team which enables them to identify troubles right off the bat. Of course, having a healthy and open relationship with the CEO will enable the board to address issues and work with the CEO to rectify them. What are these best-practice, preventive measures?
Hold CEOs accountable
The process begins with holding the chief executive accountable for having a high performing team. Business performance measures for the team should be factored in to CEO performance evaluations. This is often a cascade of the CEO dashboard, established by the board and the CEO, and executed through the top team.
Secure succession plans
Boards need to make sure that there are top team succession plans in place to provide leadership and business continuity – especially critical in the event of an emergency. There are numerous examples of sudden CEO departures where a board member has been required to step in and take the reins. There are also examples of other C-suite departures in which organisations are either unprepared or identified successors have not received the developmental experiences necessary to succeed. Board members are a wonderful source of insight and should provide consultation and oversight to key executive succession plans, ensuring not only that the top team has a chance to continue to function smoothly in the face of a sudden vacancy, but is generally positioned for seamless transitions as a matter of course.
Boards need to be proactive about getting to know top team members. Directors should make a habit of visiting the corporate headquarters and field locations frequently, and build in the opportunity for candid, face-to-face interactions with executive team members. Developing and maintaining direct lines of communication when times are good is critical to ensuring that there is open communication when times are turbulent.
It’s clear that the ways in which boards interface with the executive team is evolving. Boards that have historically viewed executive team functioning through the lens of the CEO alone are changing their focus. The ramp up of frequent, sudden executive turnovers, coupled with the realisation that it’s the entire top team, not just the CEO that creates enterprise value, makes awareness of the warning signs of dysfunction especially important. Proactive approaches to ensuring strong top teams are more important than ever. Expect the ongoing evolution toward greater board oversight of top team performance to continue as directors increasingly recognise the impact of the top team on organisational performance.
Christine Rivers and Connie Schroyer are vice presidents at Hay Group. Ms Rivers can be contacted on +1 (617) 425 4500 or by email: email@example.com. Ms Schroyer can be contacted on +1 (703) 841 3100 or by email: firstname.lastname@example.org.
© Financier Worldwide
Christine Rivers and Connie Schroyer