Episode Transcript
[00:00:01] Speaker A: So welcome Steve and Rich. Steve, as many of you know, was formerly Chro of Eli Lilly and Rich was formerly Chro of McDonald's and they are both on the Chro association team now.
So just looking at this study, I think one of the key findings we want to talk about today, only 22% of CEOs agree that their boards are supporting them in, you know, whatever it is they need to address complex and evolving business environments.
Surprisingly low number. But what was even more surprising is that twice that number, I think about 43% of boards said that they felt they were providing effective support to CEOs. So that's a pretty big gap. I mean, Rich and Steve, what do you guys make of that?
[00:00:48] Speaker B: Well, I'll kick it off. I mean, I was surprised, you know, the 22%, that's a pretty low number. But when I started thinking about it, I was like, okay, okay. Is there something around what that means? You know, could have a broad interpretation of what support means. So there could be a lot of different factors, right? It could be, does the board challenge the team when they're going through business reviews and long range plans, or is it more of a rubber stamp?
Does the board have the right level of expertise, particularly for some of these emerging technology areas?
You know, that's always been, I think, a challenge to kind of stay a little bit ahead of the curve. And maybe some CEOs don't think the board is got the right expertise for those kinds of conversations.
Does the CEO have issues or are there perceptions from the management team that are maybe different than the CEO?
And then are the concerns by the CEO that the board would not have their, his, his or her back if all of a sudden the performance took a downturn. So I just think there's a lot there that I think you need to kind of understand. But the most important thing is that the chair and the CEO or lead director engage in conversations to talk about what that support should look like.
Because we saw from the research that when the working relationship is strong, the performance of the company is strong.
[00:02:26] Speaker C: Yeah, I agree with everything that Rich said. Ani. It was interesting when I saw the results because at first I was a little surprised as well. But then I, on second reflection, I thought, we know when we actually survey our own employees, both through employee surveys and through kind of leadership360, we often see results where employees don't feel like they're supported by their supervisors, but supervisors think they're providing all the support they could possibly provide.
So we have that disconnect in other parts of the organization. So in some ways, we probably shouldn't be surprised that there's a disconnect even at the most senior levels in the organization.
But I do think the way to get around this, we spend a lot of time thinking about how to onboard this employee supervisor relationship through the organization.
I think it's the same as what Rich just said. One of the first things I think is important for a CEO is to clearly communicate with the board and certainly the chair or the lead director, what kind of support they need, and then for the board to have a conversation to make sure they believe they can actually provide that kind of support.
[00:03:32] Speaker A: Yeah, it strikes me that that would be a singularly difficult conversation for many CEOs to have. So. So we'll discuss a little later maybe how the CHRO can help them out with that.
[00:03:42] Speaker C: I think the CHRO actually plays a very important role with that.
[00:03:47] Speaker A: So maybe. Steve, sticking with you, I also thought it was interesting that the study seemed to be saying that the board CEO relationship is like the critical factor for business success. And you've just said that it certainly is important, but in your experience at Eli Lilly going through significant transformation, I mean, did you think that that relationship, in fact was the critical factor for success? Were there other factors like the overall team dynamics or company culture that might have a mitigating impact, even if the relationship between the CEO and the board is not what it should be?
[00:04:23] Speaker C: I think there's no question that the CEO board relationship is paramount. I mean, it's so important to have that working properly. Is it more important than having having a management team collectively that is all sort of pulling and pushing in the. In the same direction? Or is it more important than having a culture that, you know, supports the strategy that you're trying to implement as a company? I. I can't say it's more important.
I think there are many factors that, you know, really do drive overall business success, and I think the CEO board relationship is one of them for sure. But I couldn't myself place it higher than those other items that you rightly mentioned. I think what's important, again, is just to have an alignment between the CEO and the board and have clear expectations and how they're going to help each other and also how they're going to communicate, which I think is. Which I think is key.
[00:05:23] Speaker B: Yeah, I mean, Steve, spot on. I mean, I was just thinking through, you know, what. What could be some of those situations where you could have a disconnect. Could it be the fact that It's a new CEO and the onboarding process wasn't very robust.
You know, as you mentioned, is it a situation where the CEO is running a company that's struggling and doesn't want to kind of reach out for help, wants to kind of take it upon themselves, which sometimes it's just human nature?
I also think, I was thinking about this earlier today. I mean, I'm just wondering if the combination, the fact that we have almost half CEOs are also chairs of their board, you know, that I don't know if that allows for the same kind of level setting or dialogue around support that might exist if you've got a chair who's not a operating person within the organization.
So I just, I question that particular situation.
But great opportunity during the onboarding process.
Have those conversations, one on one with your board members and begin to ask the question, what type of support would you like to see as the CEO, the new CEO and what are we doing that we need to do differently and then not do that as a one time event. Do that on kind of a continual basis to make sure that you kind of get a temperature check from the board and just open that opportunity for dialogue.
[00:06:58] Speaker A: Have either of you, without naming names, ever experienced anything like this? I guess A, where the CEO doesn't feel supported and then B, where not only does the CEO not feel supported, the board somehow doesn't know that or thinks that everything's going great.
[00:07:13] Speaker B: Yeah, I mean, I've got one in particular, you know, which I'll talk about and first thing I'll say it was fair. It was pretty rare within the 12 years that I was at McDonald's because we were fortunate enough to have a really strong non exec chair who was very influential with the board. And there was a clear line of sight between governance of the board and kind of running the business.
But we did have a situation where for a fairly long period of time we had very strong business results and we hit a wall. You know, the growth was not there, the subpar operating performance, not meeting our targets or plans.
And I guess at the time there were two paths forward, right? There was, okay, we're going to keep the same strategies, but we just need to execute better or we just need new strategies. We need just a rethink about our long range plans and even maybe think about some of our talent.
And unfortunately, and again, this might be more human nature than anything else, the CEO adopted a hunker down syndrome, you know, and really just I think wanted to try and figure things out. Himself.
And I think in retrospect, it was a huge mistake because instead of leveraging the collective insights and maybe even maybe not working with the full board, but maybe a subset of the board on ideas as to, you know, what they could be doing different, you know, what we could be doing differently.
But maybe it wasn't. He didn't want to feel vulnerable at that time to ask for help, but at the end of the day, I'm pretty sure that it would have been a better outcome if there was stronger engagement and bringing the board members in to kind of own the path forward.
[00:09:10] Speaker C: Yeah, Ani, I didn't have a situation like this when I was a chro, but I know of a situation prior to my time as a Chro where we were struggling a bit and as a company and similar probably to what Rich is saying, and I think this, no doubt the CEO had a little bit of doubt whether the board was supportive of what the company, what. What he was doing.
And, you know, the Chro at the time stepped in and went and talked to a few board members about it, which then sort of at least, you know, created a conversation, and then they got it sorted out, and the board did indeed endorse and confirm their support for what was happening. And I think it was paramount. And I think the most important part of that was if that chro had not stepped in, if they would not have had the relationship with the board to go have that conversation, it could have lingered, and who knows what would have happened? I think it's really important that chros are in a position to both recognize when that might be the case, but then, importantly, to go do something about it and to have the relationship with the board to make sure it corrects itself.
[00:10:22] Speaker A: Yeah. So, well, then let's switch gears then, to what maybe the Chro can do to help this. So, Rich, there was another finding that I thought was interesting from the study, and I guess it's to be expected that among the population of CEOs who said they don't feel effectively supported by the board, there's a lot of, like, other negative beliefs that come with that. So, like, the majority of them felt detached from the board.
They felt the board takes up too much time, the board doesn't challenge them appropriately, 94% of that group amazingly, said the board doesn't add value.
So what, as a chro, what stands out to you about those findings?
[00:11:02] Speaker B: There's a lot there, Ani.
That's a lot to kind of get your arms around. But I think that there's a lot of Chro in combination with the CEO and the chair or the lead director can do in that regard.
I think the first thing you need to establish, and I think maybe even Steve kind of alluded to this, there's a joint ownership of this relationship. This is not one where it's like, well, the CEO needs to do all this stuff to build the relationship. There's joint ownership. They own this relationship together.
So it kind of goes both ways.
And I think to the extent that there might be some gaps in expertise on the boards, I think it's very important for the chro and CEO to bring that up.
I know that tends to fall within the purview of the nominating a governance committee, but that should be something that, you know, you would want to bring up to your. To your chairperson.
The next thing is, is the CEO.
And this is almost like what a CHRO might advise with management committee meetings. Right.
So does the CEO create the right environment within the boardroom for dialogue, for debate? Right. Are you. Are you allocating enough time to big, big ticket items that you're encouraging the board members to weigh in on? Right.
And I don't know. I also think that there's a relationship between board members who understand the business enough that they feel comfortable providing points of view. Right.
So I guess I would encourage board members to get to know the management team members outside of the boardroom, maybe spend some time understanding what's going on in the market. You know, we would encourage our board members to get out and spend time in our restaurants.
I think to the extent that they feel comfortable knowing that this is how the company operates.
And now I feel like I'm on safe ground to be able to have a point of view.
So I think you have to. Chro can do a lot of things to be able to create that kind of environment along with the. Along with the CEO.
The other thing I would say is encourage conversation before the board meeting.
Right. I mean, we all advocate for that with prep meetings, when we deal as chros with comp committees. Why not apply the same? And I'm sure most successful CEOs do this, but have meaningful conversations before you walk into the boardroom so that you can provide context to what you're going to be recommending.
That makes a board member feel pretty comfortable that. Okay, I understand the logic. I might have some questions, but now I'm not just coming in cold.
So I think there's a lot of things that the Chro and CEO can do to create that Right. Kind of Environment on.
[00:13:58] Speaker A: And, Rich, it's interesting you're pointing out what was identified in the survey, which is the need for more board expertise, more time for strategic discussion, feeling that the board is actually capable and willing to help advise you in a way that supports you as a CEO. But I was a little surprised. 60% of CEOs mentioned the desire for personal support from the board, basically the opportunity to be vulnerable and to feel like the board has your back, as you said earlier. And yet only 15% of CEOs said they felt like they can be vulnerable.
Is this a factor of just increased scrutiny, corporate governance obligations and requirements, where maybe the CEO is. Is made to feel that the board is, like, waiting for him or her to make a mistake or, you know, just doesn't feel that they're able to be vulnerable?
[00:14:51] Speaker B: Yeah, Yeah. I think Steve can weigh in on this as well, I'm sure. I mean, you know, I. I think to the extent that the board moves outside of the typical kind of, you know, we've got to comply with all these requirements as a board member, you know, there's certain kinds of rules around how we operate, you know, that have legal precedent.
But at the end of the day, I mean, I would think that CEOs and chairs, when there's a good working relationship, it almost feels like they're thought partners.
And again, just like you would do in advising your management team members, you know, your peers, about how to work effectively with the CEO. I think the CHRO is in a great position to be able to kind of advise the CEO. And the other thing I would encourage is I know CHRO spent a lot of time building relationships with the comp committee chair.
But the most important person in this dialogue that we're having right here is with the lead director of the chair.
And CHROs need to find ways to build a similar kind of relationship of trust with the lead director and chair that they have with the comp committee chair? I don't know, Steve, if you have other thoughts on that.
[00:16:07] Speaker C: Look, I agree with everything you said, Rich, and I do think it's critical that the CHRO establishes relationships with all the board, particularly the comp committee and particularly the lead director or the chair. And they do it early on in their tenure, because if you wait until there's an issue and you don't have that level of trust, it's too late.
You can't do it. But I think even back to the CEO board relationship, I think to me, we have to start with sort of a fundamental, at least in My opinion, fundamental principle that is the CEO is the loneliest job at the company. I mean, maybe the second loneliest is a Chro, I don't know. But the CEO has to be the loneliest job in the company.
And they rely on the board then, because those are the people who they can and should be able to talk to about everything.
But on the same token, if you're a board member, with all the scrutiny that you oni and Rich, you rightly point out, a board has to rely on management to be completely transparent with them about what's happening inside the company.
And if they sense that there's anything that you're withholding or where you're not being transparent, it puts a little bit of, I don't know, a damper on what I think they're willing to do and how they're willing to help a CEO.
So I think the way to tackle this from the very beginning is for the company to make sure your complete management team be completely transparent with your board members about everything happening. If the board knows that, they're certainly more likely to engage with a CEO not only on business strategy and other things, but on that personal level where they can offer the kind of help that at least we heard CEOs were wanting in the. In the survey.
[00:17:45] Speaker A: Yeah, that's a really good point, Steve, because I, you know, looking at some of the more public kind of, you know, collapses of board and CEO relationships that have played out on a public stage, it does strike me that in most cases, there was an element of something that had been held back from the board. The board felt that the CEO had not been completely forthcoming with them, and that's really what. What tarnished the relationship. So I think you may be onto something there, Rich. I don't know if you've seen that play out.
[00:18:13] Speaker B: Oh, there's no question. I mean, I can even think back on my own career. You know, when, you know, when you have a relationship with a boss, you know, that is predicated based on open dialogue, transparency, and, you know, building up a lot of trust.
The nature of the conversation goes deep and there's a lot of give and take.
And you solicit, you actively solicit input from the person because either you know that they have their back and. Or they've got some expertise that you don't have yourself.
[00:18:53] Speaker A: So going back to the Chro's role, who. I mean, I think, Steve, you pointed out the Chro is responsible for talent, strategy, and, you know, presumably has these types of conversations quite a bit so how. What are your thoughts on the chro's specific role here? I mean, he or she can advise the CEO.
You know, is it. Is it too much to say to the CEO?
Look, would it be helpful if I had a conversation with the lead director or the board chair?
[00:19:23] Speaker C: Well, I think I. I never had a conversation with the board without my CEO knowing, but I also had an agreement with my CEO that if I needed to have a conversation with the board, I would do it. And that was sort of, you know, on my onboarding with my CEOs, where I said, look, I mean, I hope we always agree on things that need to go to the board and how we want to position this, but if I ever disagree, I'll talk to you first, of course, but then I would always go to the board if I felt like I needed to. But I think the Chro can play a pivotal role in the relationship between the board and the CEO.
And, you know, I think it actually, one of the things that Rich and I were talking about in preparation for this is, you know, one of the things I thought was the most important thing is how the board gave feedback and coaching to the CEO.
You know, one of the board's responsibility is managing the performance of the CEO, of course, naming CEOs.
So that process that we ran, and, you know, one of the first things I did in my tenure was sort of rebuild and make more robust how the board was giving feedback to the CEO, how it was communicated in the annual. The annual performance cycle.
But it wasn't just one time a year. It was a few times a year where the board had that chance to have that conversation, and I facilitated that.
And it's one of the reasons why I worked so hard early on to build trust with the board so they would allow me to participate with them in that. In that conversation. And I think if you can have a good, robust process where the board is telling me what they think, I can provide a good summary. Then the board can talk specifically to the CEO about their performance and any coaching and then turn it around and also have the CEO ask for help where they feel like they need help.
That's the basis for any good kind of supervisor, employee relationship. And that's really what we're talking about here.
[00:21:12] Speaker B: I think, hey, Ani, this is one. You know, you're talking about talent, right?
So if you're really think about it, this is the. This is in the wheelhouse of the Chro.
So the same things that a chro would do with the CEO and the Management team are similar things you would do is the same model. So for example, as you think of, as you look across your management team, do you have the right level of expertise on some areas that all of a sudden now are emerging? The same question for the board, right?
Let's say over the next two to three years, your business strategy calls for a lot of M and A.
Do you have people on the board that have M and A experience?
Let's say you want to move into a new vertical, a new line of business.
Well, does, does your board have somebody that has experience in that line of business? So again, matching the business strategy with the talent needs is the same kind of model.
Next, are there some areas that maybe you can educate the board on?
So recommend educational sessions using external advisors. That's a, that's an easy one for a chro to recommend.
And then here's, here's one that's maybe a little bit tougher, just like you would do with the management team.
Are there board members that are not providing sufficient value as a board member and bringing up, is it time to replace that person?
So again, now you need to build a relationship with the lead director and the chair to have these kinds of conversations.
But like I said, the same set of questions and decisions that you go through in your day job would be the same kinds of things you could do for the board.
[00:23:13] Speaker A: Yeah, yeah. I really like that. I wonder what the role of a third party would be. So, I mean, I know a lot of companies have a third party assessment like that comes in and assesses maybe board members or management.
Obviously we have third parties that might help with board recruiting.
To what you've just said, like talking about, do we have the right set of skills and expertise on the board? I wonder if this is something that could ever come up with them that, hey, I, I sense that the CEO is not feeling fully supported by the board. And you know, could you help with that?
[00:23:49] Speaker B: Yeah.
[00:23:49] Speaker A: Or is it too much of an outsider?
[00:23:51] Speaker B: No, no, no. I think in the right situation that makes a lot of sense, particularly if you want to do a little bit of an objective view.
Again, Steve, jump in here. But if you want to do an objective view of kind of how does the management team or even the board stack up as a benchmark against others?
So I think bringing in an objective third party, you know, who have good intel on how other boards are structured, or in the case that you're bringing up capabilities of some of the board members, say, again, that's a great point. The same kinds of things that you would consider when you're thinking about whether or not your management team is strong enough.
You could apply to the board using a third party. Great point.
[00:24:41] Speaker A: Okay, so last question for both of you. I never do a podcast without asking about failure points. This is my favorite topic. I feel like for chros, one of the most important things is, okay, but tell me where this could go wrong or where it has gone wrong or some awful lesson you've learned in your career that I can learn from so I don't have to repeat your mistakes.
So just any risks for. And I'll start with you, Steve, and then, Rich, you finish up any risks that you see with what we've talked about today or with the Chro taking on a more proactive role in helping the CEO set expectations with the board.
[00:25:17] Speaker C: I think the most important thing is to make sure that everybody involved is clear on the role that you're playing as a Chro and what you're. And what you're. And what you're doing.
If you. If you do it without clarity and without an understanding of the board and the CEO, then I think you're. You're at risk both personally and probably for. For the business.
I do think you. 1. One of the things that. That I was going to mention, I think there are some basics, though, that. That we need to get right here, which is, you know, the way that we allocate and we spend our time tells us what's important and those kinds of things. And I think that, you know, how a CEO manages a board. Rich touched on this earlier, is really important. And, you know, I was blessed because we, we as a management team had ample time with our board during their meetings. Of course, they had executive sessions and they had time alone with the CEO. We had dinners and lunches and all those sorts of things to get to know, travel with the board. But I also think it's really important that the CEO has enough alone time with their board so they can talk about the things they need to talk about without the management team there. And I think that balance is really key. And if you get it right, it's very powerful. If you get it wrong and either the CEO isn't getting enough time with the board on their own or counter, if the management team is always there, I think then the CEO relationship with the board will not be as. There's no way it can be as strong under those circumstances.
[00:26:56] Speaker B: Yeah, 100.
Just a couple things that I picked up along the way, and this is really where I think you know, a CHRO's EQ comes into play because, you know, there's a lot going on. There could be some interesting dynamics, you know, with that relationship. But Steve mentioned it first.
CEO needs to know, anytime you have a one on one conversation with the lead director of the chair and there should be no surprises. If your CEO finds out that you're having conversations and you're not being forthcoming, you're gonna, there'll be a trust issue.
So totally understand the reason for that. The next one's kind of subtle, but I think it's really important, which is I wouldn't approach, let's say the three of us were in a room talking about something around building stronger board CEO relationship.
I wouldn't go in necessarily and start talking about specific recommendations.
I always like the idea of asking questions first because there might be something, I bet you Steve had this as well.
There might be something that gets revealed in that conversation that you didn't know about that gives you context for how you might think more appropriately about how to position a particular recommendation. So I just think when you're in a three way conversation like that, asking questions and testing things is a smarter idea than coming in, trying to say, oh, I've already figured this out because you're going to miss something. Maybe at the end of the day you want all three of you to be aligned, right.
And then other thing I would say is remember your role in this case, you're an advisor, right? And really what you want to do is you want the CEO and the chair to own, you know, what they're going to be doing next coming out of this conversation.
And I think that's really important. Sometimes you maybe feel like you could overstep your bounds and stay in that advisory role as opposed to having the CEO and the chair actually own the outcomes.
[00:29:17] Speaker A: Love that. Great advice. All right, well, thank you so much, Steve and Rich and thanks to everyone tuning in. We will see you next time.
[00:29:25] Speaker B: Thanks.
