AERG Blog

Palace Coups

Just as some serious maladies never seem to be conquered, there evidently lurks in the minds of more than a few chief electeds that he/she, alone, has the prerogative to constrain or hire/fire the chief staff executive, or the deputy at will, outside the purview of the board of directors, bylaws be damned. It IS possible that's the way the board chooses to govern, but usually such fits of pique are costly and destructive of the governance culture.

Why do these explosions occur? How can they be explained?

Elected director interdiction in staff processes may be justified, of course, such as when staff refuses to follow the plan (if there be one), chicanery, embezzlement, or sexual harassment, etc. Then there's the euphemism du jour "we've decided to take a new direction" which goes with the territory ( if the "we" truly means consensus of the board).

Not long ago a presidential cabal in a substantive professional society suddenly decided to replace their CEO and Deputy (and drop the #2 position, as well) without much of a succession plan, it appears. Did a business plan show the way? Was it lack of TLC?

At another large professional group a few officers swept in to headquarters to announce that the CEO’s contractual authority to hire/fire was no longer operative. The group settled.

The accomplished chief staff executive of nearly two decades of an IMO/professional society was terminated in abrupt fashion because she didn’t fit the resurging image of what they thought the CEO should reflect.

In recent days a prestigious Midwest private club was concluding a CEO search. On receiving the search committee’s report on the preferred (CEO), candidate (A), “after consultation (?) with the executive committee,” the president stated to members, “I selected A to be the next (CEO). . .” Wow! Are the club’s elected directors, who assume liability for the CEO selection (its classic responsibility) unnerved that they had no part in it?

I don't have data on these real and attempted palace coups, but examples abound.

My sense is that blood lettings happen more often in professional, collegial, individual membership organizations versus industry ("just tee it up and hit it!") trade groups. No group or CEO is immune, however.

One can identify at least six potential sources of such conflict:

· Failure to uphold board policies regarding roles, responsibilities and authorities or such are insufficient

· strategic and operational plans are not observed or lack clarity of intent

· elected directors are poorly oriented or selected

· CEO/staff performance success is obscure or inadequate

· the chief staff executive is “not one of them.”

· the CEO is thought to be too long in the saddle

We could all name other impediments, of course. I’d love to know others.

Let's review:

Policies- Do board policies include specific authorities, especially for the chief elected/executive committee, such that arbitrary and unilateral action by officers is contraindicated, especially when considering a change in the chief staff executive position?

Plans– Are strategic and operational plans drafted to go well beyond "great good intentions" so that there's actionable, measurable consensus on what is to happen, when, where, the budget allocated, and who is to do what, among other indicators?

Nominations/elections– Is there investment in long term (elected) director vetting/nominating procedures? Those groups which do invest, along with other sophisticated processes (which would typically exist in such an organization’s governance culture), enjoy the fruits of their selection efforts 5-6 years hence. Those groups which fail to control their selection process often live to regret it.

Obscure/inadequate CEO/staff performance- Does the perceived (and deemed actionable) fault lie with staff failure to articulate what IS being accomplished, or is it “staff failure to produce according to plan”? Often, we assume that our leaders know, or have observed when they don't or haven't. We can all get a bit lazy...too ready to assume "they know." Shame on me; I assumed, as well.

Not “one of them” – Virtually impossible to overcome, once the troops get restless for a chief staff executive who looks like they do (read credentials), regardless of whether the group’s strategic/operating plans are fulfilled to a high degree, one’s days are numbered. It is hoped a contract with a formula for “termination without cause” is in force.

“Too long in the saddle” - Tenure may not be revered. Might we posit that, unless elected leaders are regularly reminded of the battles continued to be won, some may view the executive’s being in place “too long” (?) as axiomatic with “same old, same old.” Are there such things as “trophy” CEOs?

Public Company Board Turnover Stalled

The current economic turndown is credited with suppressing corporate director resignations (2010-2011) among more than 500 significant companies, one of three reasons for the smallest number of new executives joining boards in 10 years, according to a recent Spencer Stuart governance survey. The report appeared in Pensions and Investments (11/4) and was reported by the National Association of Corporate Directors (NACD) 11/7.

Motivations for turnover in the world of nonprofit boards differ, of course, but nonprofit organizations should be aware that the changes in public company culture could influence those who also sit on nonprofit boards.

Among the other reasons for fewer new directors (294) in the last decade, which Spencer Stuart said “challenged board renewal” were 1) downsizing on boards, and 2) increases in the mandatory retirement age. (In addition, public company directors are discouraged from holding more than five board seats.)

With director pay in the top 200 public companies averaging $240,000 (cash and stock) a year (total board compensation plus total committee compensation), it is understandable that a number of directors (for whom service on multiple boards is their middle years career) don’t want to relinquish such income. The compensation average for directors serving with public companies with lower revenues, with about 300 companies in each category, is less: 1) large ($2.5B - $10B), $188,000, medium ($1B - $2.5B), $172,000, small ($500M - $1B), $143,000, and micro ($50M - $500M), $101,000. (NACD Director Compensation Report, 2010-2011, in collaboration with Pearl Meyer $ Partners.)

As well, Towers Watson has reported that the annual board director “fixed” retainer is replacing board meeting fees (from 62% of firms in 2004 to 36% in 2010); committee meeting fees have decreased 64% - 40% during the same period.

Overcoming Board Challenges

I was privileged to be interviewed on “overcoming boardroom challenges” in The Glass Hammer, 11/30/11, an online community for women executives in finance, law and business (bit.ly/tizkwk).

My advice to women seeking board service was to prepare as should any man: 1) understand effective governance cultures, especially roles and responsibilities, 2) study the group under consideration, its track record, focus, etc., plans, policies and procedures, 3) plumb the expectation of directors on that board (200-300 hours of work, fundraising, etc.), and 4) be certain on one’s own expectations/intentions regarding accepting the demands of such board service.

Too few organizations are clear regarding their expectations of board directors and, therefore, select/nominate poorly. Conversely, too many potential nominees blindly accept board invitations without understanding the demands and consequences.