“MORE PRESSURE ON THE ROLE OF CEOS”
UThe CEO is the lynch pin – the person in the middle of the board and the management team that carries out the board’s strategy and
nfortunately, as a side effect of this general improvement in corporate governance practices and standards, there has been more pressure placed on the role of the CEO. Some of the new governance challenges have been intentional. Others, however, are unintentional consequences and perhaps not even fully recognised, but they do add a significant burden to the CEO’s already challenging role. The best example of an intentional impact on the role of the CEO is the split of the chairman and CEO positions. At one time, it was fairly commonplace for the same person to be both chairman of the board and the CEO. While this was practical and undoubtedly efficient, it obviously did not hold well in a situation of an overzealous CEO, as it gave him/her too much power, while at the same time, the guidance and monitoring role of the board became depleted. It is because of this, that in most jurisdictions, there is a requirement to split the chairman and CEO positions. This is a governance initiative, where even though the CEO’s challenge increases, the benefits are worthwhile. There have been other governance changes, where the impact on the CEO is perhaps unintentional. Chief among these is the gradual introduction of a larger proportion of independent directors on the boards of listed companies. The theory is that the more independent that the directors are, the more likely the board is likely to act in the interests of the shareholders as a whole, rather than in favour of a single or select group of shareholders. There is no argument that the presence of independent directors does bring a more objective mind-set to the scene. However, this has also brought with it a class of directors that is not familiar with the business. In some cases, an independent director is not only unfamiliar with the workings of the company, but also has negligible experience of the industry itself – we have all heard of some of the difficult situations created by, say, medical doctors being on the boards of banks or insurance companies. They put themselves at risk because they do not understand some of the technicalities, and they also put the performance of the company at risk as well for the same reason.
THE CEO IS BY NATURE THE CAPTAIN OF THE SHIP WHO GETS THINGS DONE. HE/SHE IS A LEADER, NOT AN EDUCATOR.
This situation, of a large number of independent directors, has an immediate impact on the role of the CEO. The CEO is the lynch pin – the person in the middle of the board and the management team that carries out the board’s strategy and policies. If a large proportion of board members do not understand the business in detail, a lot of the CEO’s time is taken up in educating them in too much explanation of proposals and “holding the hand” of the non- technical board members. This can greatly impact the performance of a CEO that is by nature the captain of the ship that gets things done. He/She is a leader and not the born educator that he/she suddenly has to act as. If the CEO does not excel at this type of education, the governance impact is that board decisions are slower or worse, and there are no decisions at all in areas where the board is uncomfortable. In order to get around this, board members are usually allowed to engage consultants at the cost of the company – this unfortunately simply adds to cost and