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strategy and business
 / Summer 2003 / Issue 31(originally published by Booz & Company)


The Leadership Challenge 2003

Neff:  I think there’s an overreaction right now in the marketplace, but there’s clearly a reluctance that we haven’t seen before, particularly on the part of the active executives, whose own boards are saying, “Hold on, you’ve got enough to do,” or even asking their CEO to get off boards.

Tom Neff (left), Didier Pineau-Valencienne

Roman: But you do want to serve — on a limited number — because it clearly gives you another window on the world. If you’re a chief executive, you’re faced with these problems. You get some perspectives from consultants, you get perspectives from your board of directors. And you also get them from sitting on somebody else’s board. That’s another place you get good, creative, actionable ideas about compensation, succession planning, strategy. The boards that I’ve been on, I sit there and I say, “Gee, that’s pretty good. That’s something we could use; tell me more about it.”

Pasternack: Most CEOs tell me that serving on a couple of boards is extraordinarily valuable to them for all the reasons you were saying. But to be successful, a director needs to penetrate below the surface — to understand the strategy, the plan for execution and leadership development, and to be more accountable for the performance of the board. The challenge as a board member is how do you get below the surface without crossing the line between good governance and micromanagement.

Neff: It’s a matter of making sure you get the right information, rather than just what traditionally has been fed to board members for 20 years. Some of that is accomplished by doing what Ken Langone and other directors are doing at Home Depot, regularly visiting stores and spending extra time getting to know some aspects of the business. But maybe it’s kicking a few tires also.

Pineau-Valencienne:  More expansive homework is necessary to be a director. I also think it’s good to be on a limited number of boards, but people should limit the number themselves.

Khurana:  We also have to make sure that board members have psychological independence. These are people who are not only involved in economic relationships with senior management, but also in social relationships, club memberships. This is a complex tie. As a result, to create a culture of what I would call constructive conflict is a very difficult thing to do.

Pasternack:  I’ve been in a lot of board meetings, as I’m sure we all have, where there were a couple of polite questions and then it was, “Let’s vote.” That’s changed. I really do believe that things are changing pretty radically because boards are taking their role more seriously.

Roman: And they don’t want to be sued.

Pasternack:  Yes, and I think CEOs are understanding the value of boards differently than they did 10 or 15 years ago. They know the value of getting real talent to help. They are saying, “I need some help, because it is a complex world and I want people around me who can give me sound advice.”

S+B: In the U.S., do we risk going in the other direction: creating antagonism, pitting boards and CEOs against each other?

Neff:  CEOs have to have a degree of self-confidence and a thick skin these days. Because there should be feedback from boards, based on a CEO evaluation, in which CEOs are held more accountable against specific, agreed-to objectives. A lot of egos out there have a tough time taking that feedback, but it’s becoming a given in terms of how the board and CEO relationship has evolved.

Lead Directors

S+B:  Many have argued that separating the CEO position and the chairman’s position would ensure more independent boards. That flies in the face of U.S. tradition, where some 80 percent of large companies have one person serving in both positions.

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