Role of the CEO

Know the Board
To obtain the highest value from their company’s’ directors, CEOs must attentively seek to know board member’s background, experience, special skills, special areas of interest, strengths, weaknesses, likes and dislikes. Based on this knowledge, a CEO can generally predict how the directors will react to management’s proposals, thereby enabling him or her to anticipate and prepare for board questions and disagreements and, in so doing, prepare a more informed and effective case for management’s proposals.

Setting the Tone and Corporate Culture
The cultures at Enron place a premium on earning growth at any cost. To obtain growth, creative accounting was created. Apparently, little attention was placed on developing a system of checks and balances on an out-of-control engine that caused Enron collapse.
The CEO is responsible, with the assistance and advice of the board, for creating the corporate culture and setting the right tone at the top. The CEO’s action and the tone that he or she uses in communicating with employees reveals and influences the company’s culture and the expected attitude of the company’s employees.
The board’s role is to monitor and supervise the company’s culture and ensure that the CEO is sending the company’s management team and employees the right message. It must also identify programs that aid in maintaining the right tone throughout the entire organization, including those designed to deter, quickly detect, and strongly prosecute dishonesty and fraud within the organization.

The CEO’s role in the Decision-Making Process
Inexperience, ignorance, or fears have driven many successful CEOs to keep their directors out of the decision-making process. The reason is that CEOs were reluctant to disclose early warnings or bad news, based on mistaken belief that with time, management could get back on track, meet revenue projections, or raise the funds needed to finance the corporation’s business.
They believed that disclose to the board of bad news or the need for board help would ineluctably lead the board to believe that management was weak, lacked leadership, and needed to be replaced.

What the CEO Expects from the Board
The CEO and the directors must relate to each other as equals in the operation and oversight of the company. To operate effectively, they must trust each other. While current trends are leading to a reduction of the CEO’s dominance in the boardroom, cooperation must be preserved to ensure that the important responsibilities of the board are properly performed, particularly as the new rules of corporate governance are implemented. Therefore:
- The CEO and the director must cooperate and work together to create an open board environment where disagreement doesn’t create disruptive tension or animosity.
- Directors must be aware of the CEO’s need for attentive and committed directors who are willing to devote the time necessary to acquire and maintain solid knowledge about the company’s business, finance, competitors, and risks.
- Directors need to concentrate during board meetings and remember what the CEO and management tells them about achievement, problems, plans, and future strategies.
- Directors need to assist the CEO in planning the agendas for the board meeting.
- The CEO wants and needs honest feedback from the directors, including advice designed to improve a board meeting as well as frank and helpful criticism when required and encouragement and praise when earned.

Avoiding Surprises
CEOs who want to keep their job should never surprise the directors with bad news. Rather, they must keep the board apprised of potential future problems before they occur, seek help from the board solve those problems when they do occur, and make the board and integral part of the decision-making process. This makes good self-protective sense because it lets the CEO benefit from the board’s experience and advice and avoid unpleasant surprise. In addition, if the decision later turns out to be wrong, the CEO van take some comfort in the fact that mistake was not solely his or her mistake, but a mistake made by the entire board after a candid, informed discussion.
CEOs who observe best practices supplement their board meeting material with a two-to three-page memorandum that summarizes the good and bad that occurred during the past quarter, reveals the problems and concerns that keep them awake at night, and focuses on the important matters that will be presented for serious discussion with the board at the scheduled meeting.

Source: Paul P. Bountas, Board Excellence: A Commonsense Perspective on Corporate Governance, Jossey-Bass a Wiley Imprint, 2004