Alcohol problems, sexual misconduct, financial misconduct, defensiveness, toxicity, berating of senior management and directors, litigation, bullying: there is not much I have not seen when I am called in to coach the CEO. And CEO misbehaviour happens at the highest level of corporate Canada. You may be surprised, but I am not.
By the time I am called in, much of the damage has been done. But it doesn’t need to be this way. The question that boards, prior to my coaching, often have for me is, “Can the CEO change?” I say two things are required: awareness of the deficiency and a willingness to change. I am optimistic, and usually have coaching success, but in a few instances, the CEO would not or could not change and I recommended firing the CEO.
Here are seven lessons for CEO coaching for any board:
1. The CEO’s coach is always hired by, and accountable to, the board chair and the governance committee. For CEO coaching to work, the coach should understand board dynamics and report directly to the chair, not the CEO. The coach reports on coaching sessions, developmental plans, deliverables and progress, candidly and thoroughly, without the CEO present.
2. Prospective CEOs should be thoroughly vetted. A wrong CEO hire is always the board’s fault. Proper vetting now includes detailed résumé checks, reference checks, professional background checks, social media and profile checks, personality testing against culture, exposure to all directors, and multiple interviews in different settings, using external assistance. Put rigour and independence behind the CEO hire, base it on the strategic plan, and conduct an external search if only to test the market.
3. Collect your data and listen to employees. CEO evaluation should always be 360 degrees, and include a board line of sight to views of direct reports in an anonymous fashion, reporting right into the boardroom.
4. Link CEO behaviour to pay incentives. Frequently, I find the CEO has little incentive to change, as most of the pay metrics are financial and short-term in nature. In CEO coaching assignments, I normally restructure the CEO’s pay package to include non-financial metrics such as leadership, employee engagement, customer satisfaction, company culture, CEO succession planning, and/or board relations, or a combination of the above. Indeed, now, 75% of a company’s value lies in leading intangible measurements, such as the ones I mention, so pay metrics should reflect this.
5. Have the tough conversation with the CEO early on. While consulting in two companies’ recent board meetings, I had to ask each CEO to leave the room. The conversation completely changes when this happens. A board talks about CEO performance openly. When the CEO is called back into the meeting, there is a message delivered to the CEO by the board chair. The message is that the board wants the CEO to succeed, and that behavioural and leadership issues need to be addressed. The CEO has to receive this message, the board needs to be aligned, and the executive session without management is the first step.
6. Craft the CEO contract properly. The person advising on the CEO contract should not be the company lawyer, nor the law firm that advises management. These people have a vested interest in not making the CEO contract hard-hitting. Firing a CEO “for cause” should be defined and broader than fraud. Just as athletes and entertainers have morals clauses in their contracts, CEOs should as well. The reputational, morale, talent and financial damage from CEO misconduct can be significant. Misconduct should be properly drafted to include ethical and professional conduct, with a defined process to determine whether a CEO is ever offside, with which the board and CEO agree.
7. Engage in CEO succession planning and be prepared to fire the CEO. There is a direct relationship between CEO leverage over a board and the lack of CEO succession planning by that board. CEO behaviours can get worse when the board has no immediate or near-ready CEO successor. It’s a board’s duty to have options.
Richard Leblanc is an associate professor, governance, law & ethics, at York University’s Faculty of Liberal Arts and Professional Studies and a member of the Ontario Bar. E-mail: firstname.lastname@example.org.