Aug 262010

Style, or Substance?

Style, or Substance?

I had an interesting conversation the other day with a friend who sits on a couple of Boards, as do I (besides Return Path’s).  We ended up in a conversation about some challenges one of his Boards is having with their CEO, and the question to some extent boiled down to this:  a Board is responsible for hiring/firing the CEO and for being the guardians of shareholder value, but what does a Board do when it doesn’t like the CEO’s style?

There are lots of different kinds of CEOs and corporate cultures.  Some are command-and-control, others are more open, flat, and transparent.  I like to think I and Return Path are the latter, and of course my bias is that that kind of culture leads to a more successful company.  But I’ve worked in environments that are the former, and, while less fun and more stressful, they can also produce very successful outcomes for shareholders and for employees as well.

So what do you do as a Board member if you don’t like the way a CEO operates, even if the company is doing well?  I find myself very conflicted on the topic, and I’m glad I’ve never had to deal with it myself as an outside Board member.  I certainly wouldn’t want to work in an organization again that had what I consider to be a negative, pace-setting environment, but is it the Board’s role to shape the culture of a company?  Here are some specific questions, which probably fall on a spectrum:

Is it grounds for removal if you think the company could be doing better with a different style leader at the helm?  Probably not.

Is it fair to expect a leader to change his or her style just because the Board doesn’t like it?  Less certain, but also probably not.

Is it fair to give a warning or threaten removal if the CEO’s style begins to impact performance, say, by driving out key employees or stifling innovation?  Probably.

Is it fair to give feedback and coaching?  Absolutely.

This is one of those very situation-specific topics, but probably a good one for others to weigh in on.  I do come back to the question of whether it is part of a Board’s role to shape the culture of a company.  Is that just style…or is it substance?

  • http://www.tothefallenrecords.com Sean Gilfillan

    I would have to say that Style certainly effects how you receive Substance from your workers. If the environment is conducive to new innovative ideas, the company can continuously adapt. A flat, collegial-type atmosphere works best for that. As a veteran of the world's MOST hierarchical organization (DoD), innovation and change are definitely stifled when you "get orders directly from the tower" instead of brainstorming solutions with your team and the confidence/ability to implement them in order to meet the company's stated "intent" or goals.

    However, it also depends on the type of mission you have. For a company based on ideas and innovation, you need to be flat and encourage an environment where people are comfortable speaking out and suggesting changes. I'm sure for a manufacturing company where success is limited by time and efficiency gained in improving processes you would benefit from a command and control/ hierarchical type of leadership.

    • Matt Blumberg

      You’re right…but is it the Board’s role to hire/fire on that basis?

  • http://www.avchopeful.blogspot.com Kyle Pearson

    I think that if the CEO's mentality is affecting the company negatively, then yes the board should clearly step in. Depending on the CEO's style, he may be running up value in the short term but destroying it for the longer term stake holders, right? That's a tough call to make.

    • Matt Blumberg

      The question for my friend was more that the CEO didn't appear to be affecting the company negatively, but he didn't agree with the style/philosophy. In any case, you're right, it's a tough call!

      Matt

  • http://jenslapinski.wordpress.com Jens

    The CEO and the board need to be aligned. This is important for the long term performance of the company.

    If the company is doing well and the board doesn't sync with the CEO, then the company should find itself directors who are aligned with the philosophy of the CEO. Not the other way round. Maybe it is not the CEO who needs to get changed, but the directors. After all, there are directors who can have a substantively negative impact on the company as well.

    • Matt Blumberg

      Interesting point, Jens. The board is a variable here as well. Maybe not venture investors, but certainly independents.

      Matt

  • tmcmh

    I would argue that in most organizations "style" is specifically the CEO's purview. It's part of the culture she creates around the firm, for those who come to work every day (in other words, not the Board). More generally, it seems to me that the dividing line between managers and board members (independent ones, anyway) may be the difference between subjective (but critical) dimensions, like style and culture, and objective measures — financial results, product performance, other operating statistics like customer counts or impressions.

    Where there is a grey area is retention: if retention of talent is mission-critical, and style or atmosphere is a key contributor to retaining that talent, then the Board may need to step to protect the goal, and change the style, based on the Board's assessment of the leader's style.

    A good Board hires a CEO and sets some goals, based on an agreed-to strategy and set of resources, and style is almost never a goal — it's a tool or a variable in the equation, but is it ever the end result and output?

    A last thought: I would worry about an organization where the Board changed the leadership because of this issue, because the risk of getting it wrong — again — is so high. The mismatch may be due to dysfunction (sorry, overused word) in the Board itself, and no Board in my experience can fix that.

    • Matt Blumberg

      I agree on both fronts – retention is the key, although sometimes that can take a couple years to really identify as an issue; and that Boards have to exercise extreme care when removing a CEO always, but especially when there’s no obvious performance or legal issue.

      Thanks for the comment!

      Matt

  • Rob Shurtleff

    This is where a 360 review can uncover if the style problem is affecting key staff in addition to causing an allergic reaction with board members. I am watching a company (thank god i am not an investor or on the board) where the CEO has a distinctively negative style, company is doing "fine considering the economy" but all the major employee's are just waiting for better times and then it wouldn't surprise me if they all quit. If this occurs in a short period of time it could have major negative consequences, style does matter.

    • Matt Blumberg

      Great point. I am a big fan of 360s, especially for CEOs.

      Matt

  • Rob Shurtleff

    This is where a 360 review can uncover if the style problem is affecting key staff in addition to causing an allergic reaction with board members. I am watching a company (thank god i am not an investor or on the board) where the CEO has a distinctively negative style, company is doing "fine considering the economy" but all the major employee's are just waiting for better times and then it wouldn't surprise me if they all quit. If this occurs in a short period of time it could have major negative consequences, style does matter.

  • Matt Blumberg

    Great point. I am a big fan of 360s, especially for CEOs.Matt

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