Roles & Responsibilities

Best Practice for CEO-Board Relationships

In Australia, the importance of mutual trust between the CEO and the board is highlighted recently with the departure of ANZ Bank’s CEO David HISCO, who stepped down on May 30 HISCO fell out with the bank’s board after concerns arose over Mr HISCO’s personal spending, which triggered an internal review, resulting in his departure and the forfeiture of $ 6 million worth of equity holdings

ANZ chairman John Key comments:

David did say he did not meet the standards he sets for the rest of our staff and himself. ‘

Building a Relationship of Trust among the Board, the CEO and the Chair only happens at one time or another. “The relationship depends on the open flow of relevant and timely information in both directions,” writes the Australian Institute for Company Directors (AICD).

These are the words of good communication and regular communication.

Chair and CEO: Always danger of conflict

Although the board chooses the CEO, the chair often finds it hard to act as a CEO at the same time. Very often the chair is a former CEO, and so is to be too hands-on with the day-to-day operations that should be in the hands of the CEO.

But if both CEO and Chair stick to their roles, the danger of conflict is greatly reduced.

The Chair’s role is to define the company strategy, working with the entire board, and to lead the board in monitoring the company’s performance. The Chair expects the CEO to accept his / her role as a consultant and question, sample issues, seek clarification, offer insight and share his / her knowledge, as the AICD points out. The Chair expects the CEO to share hands-on know-how from day-to-day operations, and to raise issues about how well strategy is working, and there are ways to boost performance.

The CEO, on the other hand, expects the chair to deliver the freedom of action, and to provide advice on the board about the evolution of the company, and to trust the CEO to deliver outcomes, subject to the board’s eventual review. The CEO should encourage the Chair to lead the objectives and to provide clear expectations. The Chair, along with the board, should monitor the CEO’s performance and be very close to it – and the CEO should welcome this scrutiny.

When they have a good relationship with the Chair and the Board, the CEO should be useful. This provides a chance for the board to get acquainted with a top-level manager, as well as a chance to open channels of communication with another top manager.

The CEO and other managers should therefore be prepared for the board on strategic issues, because this kind of dialogue leads directly to improved performance. A well-composed board, with a variety of skills and backgrounds, should emerge in a free exchange of ideas with managers.

With the free exchange of ideas, a relationship of healthy trust should be created between the chair and the CEO. Helping to build this relationship, the non-executive chair provides a child of buffer between the chair and the CEO, helping to ensure that the communication is good. The non-executive chair gives the CEO a child of sounding board for ideas, that can be discussed later with the chair as well.

The CEO should therefore take part in discussions of financial reports. Much can be learned by extrapolating from the CEO’s direct experience to the narrative and numbers of results. When there is evidence of poor performance, having the CEO put it in context

As we’ve seen, it’s all about communication – among the CEO, other managers, the board and the chair. Shareholders may be integrated into this loop.

Diligent: The Only Modern Governance Solution

To achieve secure communication at this high level, a carefully engineered tool is needed, one in which real-time collaboration can take place without concerns. Modern Governance provides board management software with both secure tools for communication and document storage made safe by the highest level of encryption.Diligent Messengeris a secure messaging tool that is designed for secure board and CEO communications. Messenger enables real-time collaboration wherever the board and the CEO happen to be. Board directors can set up their own groups and contact to ensure privacy. Messenger gives boards and CEOs the ability to disable search features as the “copy and paste” function as well as the ability to retrieve messages. In addition, boards and CEOs can set the system up to receive notifications when they send and receive messages. Diligent Messenger, along with the other fully integrated tools that provide Governance Cloud , work together to support and enhance the CEO-board relationship. 

But good governance is not just one thing – so why buy software that only manages your board documents ? At Diligent, we empower leading organizations around the world to make good business decisions. In the ever-changing landscape of the world, governance has not kept up with the fast pace of change. Infrequent meetings, the use of paper for records and materials, and the use of secure communication tools for sensitive data. Today, threats come fast and furious, from a hacker attack in Belarus to breaking news about boardroom malfeasance. Issues, events, and calls for regulation in the blink of an eye. In this environment, opportunities will not wait.

Modern governance tools built to support leaders in making smarter decisions faster in this new landscape.

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