My co-founder Malin Lombardi and I were sifting through data the other day—the anonymized board and CEO evaluation data that BoardClic regularly collects from our clients. We stumbled across something surprising.
Non-executive board members are far more critical of CEO performance than chairpersons and senior management. What was the reason for this deviation? We decided to find out.
In most companies, non-executive directors provide independent input on how the CEO is running the company. But their most important task is to hire the CEO. Once they’ve recruited someone, their job is to measure performance against strategy and objectives and speak up if the CEO falls short.
While the other board members provide constructive, challenging input, the chairman has a much closer relationship with the CEO. His or her job is to be a sounding board to the CEO, a kind of mentor.. And the answer to why chairs are more forgiving lies in that connection.
Non-executive directors typically see the CEO at a handful of regular board meetings over the year. But in my experience, a CEO and chairman speak regularly. Sometimes several times a week. This is a critical difference.
That closeness forges a bond that strengthens the chairman’s understanding of the challenges a CEO faces. It’s human nature to be sympathetic to someone you know, even on a professional level. It’s not that the other board members are left out—it’s just that the chair understands the CEOs thinking better.
This is why we see clear evidence in our evaluation data that non-executive directors are far more critical of the CEO than both the chairman and senior management. In our benchmark data, Chairmen score a whopping 96/100 in their answers to the statement “I trust the CEO’s judgement.” Non-executive directors chalk up a lukewarm 79/100 on the same metric.
CONCEPT OF TRUST
There’s more: Our data tracks the scores assigned to various metrics to cast light on different aspects of the board work. Respondents also rate how important a particular issue is compared with others. The runner-up measured by how often it’s rated “important” by respondents in our evaluations is “I feel confident concerning the CEO’s execution capability.”
This is a central concept of trust in a CEO’s abilities. Considering how critical this issue is and remembering that hiring and firing a CEO is one of the board’s key tasks, the benchmark score in our data of 84/100 shows there’s a lot of room for improvement.
One thing is clear: the more often you track your board’s decision-making and performance with an effectiveness platform like BoardClic, the more transparency you achieve. A healthy multi-year evaluation regiment is the best way to sound corporate governance and ultimately better stakeholder value.
Finally, I wanted to let you know it’s not a one-way street. Our experience and data show that CEOs are often as critical of the non-executive board members and their contribution to strategy as they are of him or her.
11 January 2024
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