Managing the CEO vs Chairperson vs Director Relationship

In 2019, the co-founder and CEO of WeWork, Adam Neumann, was ousted and the combination of his departure, the company’s failed IPO and a massive devaluation (from $47 billion to $8 billion) shook investor confidence. The conflict between Neumann and the board was one of the key factors in the company's dramatic fall.

WeWork’s ambitious growth, driven by Neumann, eventually led to significant financial instability. His eccentric leadership style, controversial decisions, and failure to manage the company’s finances effectively sparked concerns from investors and board members. His disregard for corporate governance rules and erratic behaviour caused tensions, eventually leading to his ousting as CEO.

A fatal combination?

In 2003, between 40% and 45% of S&P 500 companies had combined CEO/chairperson roles, so one might think that having the CEO serving as the chair of the board is a good thing. And it might be a good thing when things are going well and the CEO is making great strategic choices. However, this combination role can be problematic when they are not going so well (Boeing’s recent story is a good example) because the CEO is the leader of the management team and implements the strategy, while the chairperson is the leader of the board team who sets the strategy and holds the CEO and management team accountable to deliver it.?

If the CEO holds both roles, how does the board hold him/her properly accountable for taking the actions needed to deliver the strategy, or take responsibility for a failure? If the CEO is trusted and perceived to be doing a good job, then the rest of the board is likely to go along with his/her reasoning and back his/her decision, which may not therefore be fully interrogated and not be in the best interests of the organisation.?

Or, as in Boeing’s case when two planes crashed in 2018 and 2019 due to a known error in the flight systems, the reasons for the failure were downplayed, or not admitted to at all, for months largely because the president, chairman and CEO were all the same person!! There was no-one internally in a position to hold him and by extension the company, properly accountable for the deaths of 346 passengers!! (He eventually resigned nine months after the second accident and the company is still embroiled in court cases five years later.)?

Challenging is part of the Challenge?

‘Good’ conflict between the CEO and other board members may be very necessary at times because the CEO needs to be both challenged and supported.

In fact, in order to be truly effective, the board needs to have the power and authority to appoint the CEO and remove them if they are not performing.?

Having an independent, non-executive chairperson therefore makes sense from a governance and leadership perspective. The meetings need to be run in a calm, respectful manner and difficult discussions may need to be had. If the CEO is part of the problem being discussed and is also tasked with managing the meeting (as chairperson), then it is incredibly difficult to be impartial and manage the discussion that you are the subject of and resolve any differences.?

Where Fingers get Pointed

After 10 years’ experience of working with CEOs and directors in Silicon Valley, in her article, ’When Boards and Management Conflict’, Ann Gregg Skeet noted that those speaking from the director's perspective cite arrogance of the CEO as a root cause of runaway management teams in the stories they relate. However, those who are CEOs cite board members who function "out of position" or hold conflicts of interest that prevent effective governance (even when disclosed) as contributing factors to the board's perception that a management team is out of control.?

What directors identify as arrogance can be grouped in three buckets: inexperience, strategic direction differences, and deceit.?

In turn, when CEOs are asked to identify issues that contribute to management and the board being at cross purposes, they point to one of two areas:

1. Directors who are "out of position":?most likely playing the role they have or have had as CEO at another company.
2. Fundamental conflicts of interest: which even if disclosed, prevent the board member from truly placing the interests of the organisation above his/her own personal interests, or the interests of a group he/she represents, such as investors.?

Improving board and management relationships

Ann’s recommendations fall into three areas:?investing in the relationship itself, using tools?available to facilitate the work that boards and management teams need to do together, and?deploying a strong, independent lead director.?

The top five key points of what to manage according to the article are:

1. Relational competence: Strong relational skills are vital to resolving CEO-board conflicts and ensuring effective corporate governance.
2. Common sources of conflict: Issues often arise from CEO arrogance, board members operating out of position, or conflicts of interest.
3. Investing in relationships: CEOs and boards should work collaboratively on meaningful tasks to build trust.
4. Independent lead director: A lead director helps mitigate conflict by focusing on governance and the board-CEO relationship.
5. Strategic alignment: Alignment on strategic direction is critical to preventing and resolving conflicts.?

Avoiding Power Play

In our experience at Sirdar , it is critical that directors, and the chairperson in particular, have high emotional intelligence and that all directors need to leave their ego at the boardroom door.?

In their article ‘CEO Power and Board Dynamics’, John R Graham , Hyunseob Kim , and Mark Leary concluded that conflicts between the CEO and the board can lead to significant issues that affect the company's strategic direction, governance, and overall performance. The key issues that they identified as causes for conflict included:

1. Strategic misalignment: Disagreements over company vision and strategy.
2. Power struggles: Conflicts over decision-making authority.
3. Ineffective governance: Distracted leadership affecting the company's stability.
4. Loss of trust: Breakdown in communication and mutual respect.
5. Decreased shareholder confidence: Public disputes that damage reputation and investor trust.?

The first two points on the list above are borne out by the example of how Steve Jobs ended up leaving Apple in 1985. In his case, there was a power struggle with then-CEO John Sculley and differences over Apple's strategic direction. Despite Steve’s vision for the company's future, the board was concerned about his leadership style and product decisions, leading to his ousting.?

In a meeting only a few days after having read the article, I was given a valuable opportunity to test their recommendations for ways to resolve conflict. The CEO and I were missing each other on a particular point, so I decided to test the idea that we perhaps hadn’t clarified our respective roles clearly enough and it turned out that was a major part of the problem. Being mindful of the second item of the list, I also arranged that we meet with each other more frequently to ensure that we had time for open discussions outside the spotlight of the formal board meetings.?

Reducing Conflict

The top five mechanisms for reducing conflict between the CEO and the board that Graham, Kim and Leary identified are:

• Clear role definition: Ensure mutual understanding of roles and responsibilities.
• Regular communication: Promote transparency and open dialogue between the CEO and the board.
• Independent mediation: Engage third-party conflict resolution mechanisms if needed.
• Performance metrics: Use objective criteria for decision-making and CEO evaluations.
• Succession planning: Have well-structured plans for leadership transitions to avoid tension over control.?

The list looks deceptively simple, but often the simplest solutions are the most effective.