Issue 10

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BoardWorks International
Issue 10, 2012

Don’t Underestimate Your Chief Executive’s Insecurity

A recent survey of chief executives of mid-sized US companies ($50M to $2B turnover) reported very positive relationships with their boards. (1)  The survey highlighted, however, two interesting and arguably more generally applicable aspects of the chief executive condition which might not be considered quite so positive:

Over the years my colleagues and I have seen many examples of the truth of these findings. Since starting to think about writing this article I have become conscious of numerous current or relatively recent examples of chief executives demonstrating a significant degree of vulnerability. Often this condition is perfectly explicable, even predictable. Other times it takes the board completely by surprise as in the following two examples in which high performing, outwardly confident chief executives, revealed their underlying insecurity. And, in both cases, issues of succession planning were not far away. The purpose of this article is to suggest that boards should, in their dealings with their chief executives, pay closer attention to the assumptions they make about just how confident and secure in the position he or she really is. A failure to do so may induce some surprising and unintended responses from your key employee.

The first example was a chief executive in the public sector who was highly regarded by her board and who enjoyed a great reputation with peers and politicians both within the sector and beyond. This chief executive projected a confident ‘take charge’ demeanour. The chief executive had a 5 year term employment contract that was coming to an end. Both she and the board wished to renew the contract for a further 5 year term. The legislation applicable to this organisation meant, however, that this was not possible. To make an appointment for more than two years the board was required to advertise the position (i.e. make the position contestable). The chief executive would then be eligible for a longer term contract (up to 5 years) if re-selected.

For the board it was a ‘no brainer’. They wanted to retain their existing chief executive and also avoid the costs of readvertising the position before they needed to. They also wished to avoid putting both themselves and the chief executive through a stressful process in which there were real risks because, in a contestable process, they could not guarantee her reappointment.

Surprisingly though, their offer of the 2 year extension option, really spooked the chief executive. Why did the board only want to reappoint her for 2 years? Had they lost confidence in her? Had they decided to replace her but just not quite yet? Was this an easy ‘out’ for them to buy some time? Were they trying to send some sort of disciplinary message?

In the second example, the board was experiencing some internal upheavals including the unexpected loss of its chair. The company was also under significant external threat from sector restructuring and a dominant shareholder was reconsidering its level of commitment to the company. The chief executive was well established in his position. Considered an industry leader by many of his peers and, like our first chief executive, he was also highly thought of by his board.

The board was conscious that the circumstances described above were stressful for the chief executive and, indeed, that his own intense personality was likely to exacerbate his vulnerability. The board was concerned the chief executive, obviously frustrated by both internal and external circumstances, may be considering moving on. The chief executive’s current employment contract was open ended and he could go at any time subject only to giving 3 months notice.

For its part the board wished to retain the chief executive's services for at least the period of probable instability and likely beyond. The board offered him a deal designed to retain his services for a two year period. The board assumed that it would be a signal to the chief executive that it valued his services and wished to give him confidence that, notwithstanding everything else going on, they wanted him to stay for at least another two years.  Wrong!  This completely unnerved the chief executive who saw it as the board's first step in replacing him!

There is a prima facie case that both boards failed to communicate effectively their intentions and thinking to their respective chief executives. However, both situations may also reflect the difficulty many chief executives have in hearing and believing their boards’ messages. This is likely to be even more true when a chief executive is under some form of stress and, perhaps, not ‘thinking straight’.

As the GFC (global financial crisis) continues there are few organisations - whether for-profit or not-for-profit – that are not under some degree of financial stress. For chief executives everywhere there is no such thing as business-as-usual. The pressure is on them, not least from their boards. In many cases the pressure is intensified by stakeholder and media scrutiny. The increased rate of chief executive ‘churn’ around the world has been widely publicised.  Internationally, chief executive tenure has reduced significantly. Many are being replaced after only a relatively short time in the job if results are not considered satisfactory. Chief executives’ positions give them power, prestige and probably very substantial remuneration as well. This is a lot to lose.

The particular circumstances of the two case studies may not be that common. They do, however, reinforce the need for boards to have a high level of awareness that, despite the usual confident exterior, many (if not most) chief executives feel quite vulnerable in their positions. This is negative rather than positive stress and it is something boards have the ability to manage to a significant degree.

Boards should, therefore, think carefully about the way they approach the board/chief executive relationship. A starting point is the board’s overall perspective on the relationship. Does it take the approach that central to its own effectiveness is a chief executive who is successful and feels confident rather than anxious in the role?  Alternatively, does the board interpret its role as being primarily to keep the chief executive guessing in a relationship typically marked by aggressive challenging and an underlying assumption that the chief executive is trying to take advantage of both the board and the organisation.

A productive and mutually satisfying board/chief executive relationship is likely to have some or all of the following features.

The performance of chief executives who feel vulnerable or insecure for any reason is likely to be affected in a negative way.  The behaviour which goes with that condition can easily become self-fulfilling.  We expect and assume that chief executives will have strong egos.  The US survey cited and the examples referred to in this article show, however that even apparently ‘strong’ chief executives have feelings and are vulnerable as human beings.

(1) By human resources consultancy RHR International. See  www.rhrinternational.com/news/blog/2012/01/chief executive-snapshot-survey-january-2012.htm

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