Tuesday, May 31, 2011

Why Boards are Reluctant to Replace Themselves

Why Boards are Reluctant to Replace Themselves

Category: Chief Executive Officer & Board of Directors
Tags: board of directors
Reprint from: Heidrick & Struggles

Let me be blunt. At some critical points in their careers, the executive management of many of our largest and most august companies do not have the interests of their organizations at heart.

By this I mean that they, like the rest of us, are subject to that most basic of human characteristics: vested self-interest.

Here are a couple of examples from our experience:

In a multi-billion merger situation, management decided not to embrace the suitor, even though it would have been of benefit to shareholders, because they were all likely to lose their jobs! The buying entity already had a good management team.
A global corporation with a need and desire for a top team succession plan, were just too uncomfortable with the notion of going into the market to identify their own potential replacements.
A fantastic executive with a great job and assured future, simply up and quit, putting his reputation and livelihood at risk, because someone else got the job he wanted. Again, putting it in emotional terms, the issue was jealousy, but there was a big financial cost both to the organisation and to the executive.
Sometimes it’s not clear where the authority really lies in a major enterprise. The BP oil spill disaster is an example, and I commented on this in an article on the BBC website.

When you read the financial press, you are generally reassured that British companies in general are sophisticated, well-oiled and amazingly run machines. But despite the fact that executives running these businesses are smart and well-educated, at the very top, in reality, there is often “hand-to-hand combat.”

Just because the executives have reached a level of well-paid seniority and achievement, this doesn’t mean they don’t care about the things that all the rest of us care about, like losing our jobs, or being overlooked, or finding it tough to open ourselves up to critical evaluation.

In fact it’s very much harder at the top. Less senior executives have little choice – they get succession-planned whether they like it or not. They are basically told: “We're going to look inside and outside our company to check out the talent pool for your job and if we feel we can do better, or you decide to leave us, you are replaceable.”

But when you’re talking about the prestigious, top-level C-suite, the same rules don’t necessarily apply.

The worst examples of leadership failure were seen during the recent global financial crisis, and the backwash of bad behavior is still playing out in some boardrooms and executive suites as we see companies struggling to find their feet after months of economic and emotional devastation.

But as we’ve seen in recent times, it’s not the executives who suffer financially, but the shareholders.

The solution is not only good governance, but also better leadership. The best boards with whom we deal are those with outstanding chairmen who know when to leap in and when to stay back. They are able to interrogate management and give critical feedback while also being supportive..

In big events such as potential acquisitions or mergers, chairmen must step up and take a leading role, as the chief executive is invariably conflicted.

As we say in our publication Purposeful Partners, written after interviews with more than 50 chairmen and CEOs, the role of the chair is changing dramatically. Chairmen can’t be hands-on, but they must be head-on, challenging assumptions and getting more involved than they have been. Intense and strategic working relationships between chairmen and CEOs will become the new norm rather than the exception.

For a print copy of Purposeful Partners, email David Peters.

PRESENTED BY: Executive Leadership, LLC SPECIALIZING IN: Career Transformation/Change and Executive Coaching/Development WEBSITE: http://www.exec-leadershipLLC.com
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