HRE Online: Keeping CEOs in Check

Powerful CEOs need powerful boards of directors to counterbalance them if their organizations are going to succeed, according to a recent study. And it's HR's unenviable task at times to make sure dominant CEOs understand that. By David Shadovitz A company with a strong CEO at the helm shouldn't underestimate the importance of having a strong board of directors to help counterbalance that leader. So suggests a recent study, "Dominant CEO, Deviant Strategy and Extreme Performance: The Moderating Role of a Powerful Board," published in the February edition of the Journal of Management Studies. In an analysis of 51 publicly traded business in the U.S. computer industry, researchers at the Memorial University of Newfoundland and the University of Western Ontario find that powerful CEOs typically drive either extreme levels of positive or negative performance in their organizations. The study defines dominant CEOS as "very powerful relative to the other executives in their top management teams. But the researchers also find "a positive effect on firm performance when [dominant CEOs were] coupled with powerful boards, than when coupled with less-powerful boards. Moreover, they conclude, powerful boards weaken the extreme tendencies of dominant CEOs. "Powerful boards are more apt to restrain unsound than sound strategic deviance ... and [therefore] curb many harmful tendencies of CEOs," the researchers write. It's only natural for boards to want a take-charge, visionary, charismatic CEO at the helm, says Mary E. Kier, CEO in charge of executive search at Cook Associates in Chicago. "But you don't want that person to show the characteristics of a megalomaniac or bad actor, like Ken Lay [the former CEO of Enron]." Good boards, she says, are always challenging their CEOs to make sure they're aligned with the business' goals. Kevin Cashman, a senior partner in the leadership and talent consulting practice of Korn/Ferry International in Los Angeles, agrees that boards provide an important counterbalance for strong CEOs. But they aren't the only force for keeping dominant CEOs from heading in the wrong direction, he says. "Having a strong management team -- one that ensures real conversations are happening around tough topics -- can also fill in many of the gaps of a CEO," Cashman says. The other wild card is the CEO's character. "If the CEO's character is ... self-focused, then the downside can be big," he says. "In contrast, if they're doing things for the right reasons, then there can be a big upside. "If you have a strong CEO, strong board, strong team and a CEO with strong character, you're going to have a highly functioning organization," says Cashman, adding that it's important to remember that each of these counterbalances can be evaluated and measured. "The tools are there for assessing the board and how it's doing ... and for assessing the strength of the team ... and the CEO's character," he says. Even so, Cashman adds, "I would say most dominant CEOs tend not to have strong boards. Too often, he says, strong CEOs, especially those with long tenure, will dominate the composition and configuration of the board and thereby control the amount of power they have. This fact underscores the critical role HR leaders need to play as "senior advisers" who can help their CEOs properly evaluate their board situation, he says. HR leaders need to make sure their CEOs are aware of the available resources for properly assessing their boards and ensuring that they're successfully complementing their strengths, he says. That said, Cashman admits this task represents one of the toughest jobs HR leaders have to perform. As an HR leader, he says, "you have to be tough ... but you also have to survive.

March 1, 2011
Copyright 2011 LRP Publications