Boards must manage a CEO’s conduct, not just the numbers

Every time a chief executive is publicly accused of misconduct, the same question follows: Where was the board?

Hiring and managing the chief executive is one of the most important jobs a board does. Everyone nods along to that. Then some boards quietly narrow it down to performance – KPIs, targets, the annual review – and CEO conduct gets pushed to the margins, treated as someone else’s department.

When that happens, it is a real risk. How a CEO behaves and how the board handles that behaviour set the tone for the whole organisation. When organisational culture and trust are eroded, no run of good quarterly results buys that back.

Directors do not get enough credit for how hard the task is. They are not in the building every day. Most of the ongoing work of managing a CEO falls to the chair and someone new to the role may have no training or experience of reading conduct or culture from arm’s length.

Managing senior people is difficult, full stop. Plenty of capable executives, CEOs among them, struggle to manage the strong-willed senior people who report to them. That problem does not dissolve the moment someone becomes a director. A board seat does not come with a hidden reserve of people skills you did not have before. It just adds distance and higher stakes.

The easy cases are easy. Intentional illegal activity or a CEO deliberately misleading the board: nobody needs help figuring out what to do about that.

The real test is everything short of it. A CEO delivering strong numbers while acting outside the organisation’s values. Allegations of bullying or harassment that have not been tested. This is where boards often get stuck and I do not blame them for it.

Push too hard on an unproven allegation and you can wreck a working relationship with a CEO you still need. Do nothing and the risk compounds quietly until the day something worse surfaces and it looks like the board knew all along and sat on its hands.

Boards know how to prepare for a crisis they hope never happens. Cyber incidents get simulated. Disaster recovery plans get rehearsed.

CEO conduct issues should be treated with the same discipline. Boards should decide in advance who will investigate a complaint, what threshold triggers a need for external advice, and when an allegation should be escalated to the full board. Preparation will pay off when a complaint lands and someone has to make decisions under pressure, possibly with a reporter already on the phone.

Chairs must be prepared to speak frankly with a CEO. A chair who cannot have a direct, uncomfortable conversation with the CEO about conduct has a bigger problem than the conduct itself: their relationship is not working and that creates risk for the organisation.

The chair-CEO relationship tends to fail in one of two ways. It can turn adversarial, which is its own problem. More often it swings the other way: the chair gets too close to the CEO, hard conversations get avoided and when another director raises a concern, it gets quietly minimised.

That second failure is the more dangerous one because it looks like harmony right up until it is not. A board’s duty is to act in the organisation’s best interests, not to protect an individual executive, and a chair who has forgotten that has stopped doing the job.

Action by the board may have consequences beyond the CEO. Standing someone aside affects staff, organisational performance and how the situation is perceived outside the organisation. None of that is a reason to sit still. It is a reason to move carefully, in a way that leaves room for the board and CEO to keep working together if that is still possible.

Boards should also consider who is best placed to have the conversation. Usually, it starts chair to CEO, because that is the relationship with regular engagement and it is the easiest place to raise something difficult without it feeling like an ambush. That does not mean the chair should carry it solo, or keep the rest of the board in the dark.

Sometimes, someone else is better placed to lead and not because of what is being discussed. It is because you want someone outside the day-to-day chair-CEO relationship holding the conversation, precisely so that relationship is not the thing that gets damaged.

The chair of the Nominations and Remuneration Committee is often the logical choice since they are already leading the work on CEO remuneration and KPIs. Sometimes the right setting is the full board, worked through as part of the regular board and CEO time rather than a side conversation.

None of this will stay inside the building. Bad conduct affects staff first, but New Zealand is small enough that word gets around long before anything reaches the media. That alone is a reputational cost to the organisation, separate from whatever the CEO actually did. It is not only the CEO’s name that is damaged when conduct issues become public. I have had plenty of conversations over the years where someone points to a specific director, or a whole board, and says: they knew and did nothing. That is enough on its own to make people question a director’s judgement. Silence does not protect a board’s reputation. It weakens it.

Boards also need to think past the CEO conversation itself. Staff affected by the situation may need support nobody has planned for. Someone needs to think early about how all this is communicated, inside the building and outside, if it goes public. Bringing in communications advice before the pressure hits is better than scrambling for clarity once a journalist has already called.

There is no checklist for this and pretending otherwise is its own kind of failure. The boards that get it right are not the ones with the tidiest policy. They are the ones willing to have the conversation before they are forced to.

The ones that wait for a headline to tell them what they already knew have already failed, whatever the minutes from ‘that meeting’ say.

This article was first published by NZ Management Magazine.