Produced by Julie Garland-McLellan, Consultant at AltoPartners Australia and non-executive director and board consultant based in Sydney, Australia.

Contribution by Harry Friend, is Partner of the Inzito Partnership / AltoPartners UK. He has over 20 years of global search experience including numerous CEO and board roles. He is based in London, UK.

This edition of the newsletter was first published on The Director’s Dilemma website and the full newsletter is available for viewing here. To subscribe to future editions of the newsletter, click here

The Director’s Dilemma - June 2022

This month we look at the conflicts that arise when chair and CEO relationships become entangled and conflicts are not well managed.

Sonja chairs the audit committee of a large not for profit organisation that is building a major asset and has a strategic plan with a pipeline of more large developments. Although the organisation has large budgets and complex operations, the board are all passionate volunteers.

Recently the CEO, who is well paid for the NFP sector but not remunerated at the level of commercial companies with similar scope and developments, announced that he had been headhunted and intended to accept an offer of employment elsewhere. The board were sad to lose him but wished him great success in his future and started work briefing a search consultant to find a replacement.

To the board’s consternation, the board chair announced that he wished to apply for the role. He also wished to remain on the board and, if successful, become a Managing Director.

The board removed the Chair from the nominations committee and proceeded with the search process. The consultant put together a very strong shortlist of skilled people with a passion for the cause and recent relevant industry experience. The Chair didn’t make the shortlist and immediately demanded to be reinstated on the nominations committee to ‘resume good governance of the recruitment process’. The board agreed and an excellent candidate was soon appointed.

The new CEO has settled in well and is doing a good job but his relationship with the chair is fraught. The chair is overly critical in meetings. The chair claims the CEO is less experienced and should submit to firm guidance.

Yesterday the CEO told Sonja, informally, that he was considering looking for another role because he was finding the chair too invasive and feeling unsupported. He hasn’t started looking yet, but he doesn’t want to continue like this.

How should Sonja handle this news?

Harry’s Answer

The CEO is in a difficult dilemma being accountable to the Board but feeling that the Chair is not being supportive.

High performing Boards tend to focus on the following:

• Strategy - contributing to and monitoring company strategy, and managing resources;

• Accountability - understanding of role and focus, maintaining an effective governance framework and ensuring compliance;

• Relationship building - developing a constructive partnership with the Chief Executive and the Board and implementing internal practices such as thinking about the Board structure, make up, and meetings;

• Dynamics - creating a culture that encourages contribution, challenge, independent-mindedness, trust and respect, and continuous learning and self-improvement.

Sonja’s Board is falling short in Relationship Building. We assume the Chair is behaving this way because they feel they could perform the CEO role better than the incumbent. It is the responsibility of the whole Board to ensure that proper behaviours are adhered to.

Certain tenets are recognised as a mark of a good Chair, including:

• achieve openness and transparency at the Board and work continuously to improve Board performance as well as running a flexible process;

• be personally accountable for the Board performance but balance regulation with strategy;

• they should not previously be the Chief Executive, have broad-based rather than sector specific experience and work well with the Chief Executive.

Sonja should encourage the CEO to continue to try and build a constructive relationship with the Chair.

At the same time, if the Audit Chair and the other Non-Executive Directors agree the Chair’s behaviour is not acceptable, they should address this with the Chair. In the UK, the Senior Independent Director is responsible for leading the other Non-Executive Directors in holding the Chair to account. The Financial Reporting Council UK Corporate Governance Code suggests she “…serve as a sounding board for the Chair and act as an intermediary for other directors”. Annual meetings of non-executives, without the Chair present, to appraise the Chair’s performance may help. As Audit Committee Chair Sonja is likely the Senior Independent Director and should lead this process.

Julie’s Answer

Oh dear, poor Sonja! Okay, enough sympathy, now get to work.

This is an important piece of information that the CEO shared for a reason. There is a real risk of losing a good CEO and Sonja can’t ignore that.

First, she needs to talk to her fellow directors and verify her feeling that the chair is overly critical of the CEO. This is likely best done in a series of coffees or one on one zoom meetings. If that can’t be arranged she should convene a meeting of the audit committee and invite the other directors, but not the chair, to attend.

If other directors feel that the chair is overstepping the mark, then someone should talk with him and give him an option to improve his behaviour. Ideally that should be his closest friend on the board.

If the chair, who seems to have been okay until recently, wants to improve then the board should insist on external coaching support for him and on some measurables that will be monitored to ensure the behaviours do change.

If the chair doesn’t want to change then the board will need to remove him from the chair position. The constitution will say if that can be done by the other directors or if it needs to go to a members’ vote at an EGM. If the directors can remove the chair it is likely that he will remain as a director and, again, the board must insist on decent behaviour or take further steps.