Reporting to a board

Trust is the essential element of an effective relationship between a senior executive team and its board and while it can take time to establish, there are steps the CEO can take to ease the process.

That is the advice from those who have been on both sides of the boardroom table.

Mark Waller, Rick Christie and Mark Hamilton are highly experienced chairs and directors and also former CEOs and all agree that trust, or the lack of it, is what makes or breaks good collaboration between board and management. Good collaboration is fundamental to a successful organisation.

Mark Waller is currently chair of the EBOS Group and was formerly the group’s chief executive and managing director. He is also director of Scottech.

He said in his experience, new CEOs often view reporting to the board as a pain that slows them down but as CEOs mature and evolve they can appreciate the difference between the roles.

“This evolution of CEOs means that they can understand what the board is actually there to do and can use that knowledge to value the skillsets around the board table and tap into them.”

Rick Christie is currently chairman of IKEgps, Service IQ and NeSI and is director of Southport, Solnet Solutions and PowerHouse Ventures. He said the CEO’s understanding of the board’s role and how a board thinks is vital to developing a trusting dynamic.

“There’s no point telling boards everything that is going on, on a day to day basis. CEOs often have to make a judgement call about what to report and that’s why it’s important they actually know how boards work so they can make good judgement calls.”

“Board members will ask themselves ‘can I rely on what management is telling me?’ and ‘are they telling me everything and leaving nothing important out?’ It’s vital they can say yes to those questions.”

Mark Hamilton is an independent director of several companies and former CEO of BrewGroup, formerly Bell Tea and Coffee Co.

He said when he was a CEO he had good advice from one chair who said there was no point presenting a perfect report as no business ran perfectly.

“There is the temptation by CEOs, especially New Zealand CEOs because we hate conflict, to present perfect reports. But if you’re presenting a paper that doesn’t report any issues or problems then you’re not presenting a true picture. It just leads to directors to ask a lot of questions instead of being reassured. The way to build trust between a board and management is for the CEO to be honest and upfront rather than make things seem rosy.”

Neglecting to pass on the issues and challenges so they can be discussed thoroughly can expose an organisation to risk and undermine performance. Christie said an example of this was Solid Energy where “things went completely off the rails”.

“They completely missed the main critical factor that was their undoing – the coal price. With the benefit of hindsight, both board and management failed to do their job adequately as they ignored the risks.”

Hamilton said CEOs needed to give a lot of thought to reporting and use templates to deliver accurate, timely, concise and insightful reports. Barriers to developing trust were reports that gave too much information, gave too little information or were delivered in a defensive tone or manner.

Waller said as a chair his ideal report from a CEO would include a macro section on the international situation and possible effects on the organisation, a quick operational overview, and the strategic implications.

Christie said boards hated getting too much detail too early. “My advice is to state upfront what the paper is about and put supporting information in the appendix. Directors want to know the main points first.”

He said in a crisis or serious situation, CEOs should raise the issue with the board as soon as possible but preferably when they had a good picture and could brief thoroughly on the risks. Risk evaluation was a key board role.

Hamilton said he also believed in a “no-surprises” approach and if an issue could be a key risk to an organisation it should be raised with the board outside of the normal meeting schedule.

“Directors should never be blindsided and in serious situations it’s not up to management alone to solve it.”

Waller said when he was a CEO if a crisis arose he would talk to his executive team first. He’d try to get the information so they could look at how the situation arose, look at how to prevent a repeat and come up with some recommendations then approach the board.

“Its best to take it the people who are less emotionally involved – the board.”

The relationship between the CEO and the chair is at the heart of the trust between the executive and board. Waller said although the chair sets the tone, the CEO does have the ability to strengthen the relationship. As a generalisation, he said there were three different types of chair: those too hands-off and so ill-prepared for meetings, those too hands-on and trying to do the role of CEO, and those who were well-balanced and diligent.

CEOs could meet with a hands-off chair ahead to board meetings to engage them in the issues and brief them on the reports and important risks. Dealing with a chair who was trying to act as a pseudo-CEO was more difficult. However, the CEO should never make it personal but always focus on the issue at hand and ask them to logically explain why they want to take a certain course of action.

Christie agreed that it was crucial to avoid actual arguments with directors.

“My advice for everyone is to leave your ego at the boardroom door. Bad decisions can result if people’s egos get in the way of common sense.”

Hamilton said whether you are a director, a manager or a business leader you cannot know everything.

“The only way you can be successful is to have good trusting relationships and value the views of others.”

Waller likened the board-executive relationship to the one between the All Blacks and their coaching team.

“The coaching team is not out on the field playing the actual game but provides the strategic overview and support. Its key that both groups trust each other to do their roles the best they can.”

Published in Boardroom Jun Jul 2017 issue