Dr. Eugene Fram, professor emeritus in the Saunders College of Business at the Rochester Institute of Technology, said if the board and its CEO are bickering over boundaries, there are likely issues with trust in areas such as these:
- Each party may occasionally step on the other’s toes. Fram cites an example where he was chairman of a board. The CEO made a five-year lease contract for additional office space because the money for it was in the budget. There wasn’t a great deal of money involved, but it was a long-term contract. “I said this should have gone through the board, while the CEO argued that he had signed contracts for larger amounts of money,” Fram said. “My point was that this lease was for a long-term fixed asset, and the board agreed. So we formally set this as a boundary for the CEO.”
- Overaggressive directors can go too far. An example of this might be a director who bypasses the CEO and contacts the HR director and tells her to put a specific system in place to avoid liability. “In that case, the CEO has the responsibility to go to the board chair, and the chair can take care of that issue or take it to the full board so it can say ‘OK, you are the manager and we have to abide by your judgments,’” Fram said.
“There is some play back and forth between the CEO and the board over each other’s boundaries,” he said. It should take about a year or a year and a half to develop trust in these areas when a new executive director is hired, Fram said. The CEO should be sophisticated enough to know board thinking on issues.
This culture is the responsibility of the board to maintain. So when the board installs new trustees because of board turnover, the trust that has been established remains in place. For instance, if new members wish to direct social workers or feel they have a responsibility to evaluate staff, the board will say no, Fram said.
In this type of culture, the board also should accept the fact that the CEO will always have more information on operations than the board can have, Fram said. “The board should realize that any attempt to micromanage in this area is disrupting to the organization, because the CEO needs to be viewed as a professional manager,” he said.
This is not as much of a problem in the business arena as it is in the nonprofit sector, Fram said. “An attorney may join a nonprofit board and think ‘this CEO was originally a social worker, so we may have to teach him about the real world.’ In reality, the CEO may have acquired far more managerial experience than the attorney,” Fram said.
- There must be a fair but robust CEO evaluation process. Fram said this should be primarily related to compliance areas and the audit, but the executive should also be evaluated on hard-to-measure topics—such as staff performance, advocacy and impacts. “The audit committee has to ask questions and probe deeply,” he said. Whistleblower comments must be taken seriously and reviewed immediately, he said.
The CEO can’t just dismiss these by saying, “Oh, that’s just a dispute in the XYZ department,” Fram said. “The board should verify what the CEO is reporting,” Fram said, because it’s part of the board’s overview responsibility.
The CEO can’t be insecure about executive committee meetings where he is not present, either, Fram said. “She has to understand that these take place from time to time or are regularly scheduled,” he said.
Ten years ago, the only time the board met without the management was to meet with the external auditor. “This is the 21st century,” Fram said. There have been huge board scandals in the business and nonprofit sectors. Executive sessions should occur on an ongoing basis as part of the board meeting, he said.
The CEO should be a member of all board committees, with the exception of compensation, when her salary is being considered and when any conflicts of interest involving her might arise, Fram said.
The CEO and chair should work well together to create this type of culture between the executive and the board, Fram said. “They need to be on the same page,” he said.
- The board should provide growth opportunities for the CEO. Fram worked recently with one board member who pointed out that while their CEO was a great person and works well with the board, he needed to be more aggressive or entrepreneurial, he said.
“I asked if the board had ever thought of engaging a coach to work with him for a year or two,” Fram said. That’s the type of idea the board can use to support its CEO, he said.
Other options include providing educational opportunities or supporting the CEO’s outside work in his mission’s arena, so that he has opportunities to grow, Fram said.
Fram’s governance blog can be found at http://bit.ly/yfRZpz.