The quality of the board and management relationship is crucial to every company’s success. Organizational effectiveness and good governance stemming from that relationship are doubly important during a crisis. How can the board and the management assess and strengthen their relationship?
What Is the Organizational Impact of the Board-Management Relationship?
Good organizational dynamics keep businesses healthy, setting the foundation for stable growth. When the board and senior management know and respect their roles and responsibilities, the decision-making process, constructive feedback culture, and effective collaboration can be maintained regardless of circumstances.
Flawed dynamics, on the other hand, can be a source of disaster. Any cracks in the board-management relationship will sooner or later affect organizational processes.
Public Relations Damage
A dysfunctional board-management relationship can result in frictions that spill out of control. For example, in 2011, HP fired its CEO in heavily criticized circumstances. The news of the board’s decision leaked out to the media before there was an official announcement made.
While this is an extreme example of a dysfunctional board-management relationship, this situation bared the extent of inconsistencies in HP’s strategy. The industry was severely disappointed by the flaws in the uppermost governance levels at HP. It was later revealed that most of HP’s board of directors didn’t even meet the CEO prior to hiring him.
Stunted Growth/No Progress
When there’s no alignment between the board and the management, conflicting agendas lead to a lack of growth and disrupted decision-making. All parties involved in corporate governance have to move toward the same strategic direction, otherwise this rewn relationship between the board and the executive team will be ineffective.
Also, the board needs to provide the management with appropriate delegations to enable the executive team to implement the strategic direction. Having to constantly inquire about authority to perform crucial tasks ultimately hinders progress.
Poor Crisis Response
A crisis occurring in a misaligned, dysfunctional board-management relationship creates insurmountable divides.
The inability to make correct critical decisions swiftly, along with their execution during a crisis, is capable of seriously affecting company reputation amongst stakeholders and the very existence of a business.
What Are the Common Board-Management Conflicts Management?
While the board and the management should share the same company vision, each has different roles and responsibilities. When the board and the management fail to respect and follow these roles and responsibilities, conflicts are likely to occur.
Board’s Interference into Management Roles
Boards might fall into the trap of interfering with the management processes of a company, effectively assuming the roles of senior management.
When this happens, neither the management can do its job properly nor the board can stick to its main role—oversight. The board provides advice as to what the management could do during the implementation of the strategies created by the board. However, going beyond the supportive role severely disrupts the governance dynamic between the board and the management. The clear recognition of that difference is key to good governance.
Board’s Excessive Dependence on Management
Because sometimes the boundary between oversight and management is thin, boards might fail to succinctly challenge the management for fear of interfering with the management’s duties.
But the board has to challenge the management to facilitate organizational effectiveness. Constructive discussions with the management are a sign of giving support and expert insight, not of intrusion. It’s important to learn the difference between active support and advice and direct interference into responsibilities.
Complacency with and acceptance of the management’s key decisions without due discussion by the board defines poor governance. Again, it’s the matter of learning when to step in and talk the management’s decisions over and when to merely observe the outcome of those decisions.
Disrupted Information Flow between the Board and the Management
Reporting is key to keeping the board adequately informed on the company’s health. Conversely, clearly stated objectives by the board and the exact responsibilities of the management ensure that the management knows what to do. At the end of the day, the lack of an open flow of communication disrupts decision-making and organizational effectiveness.
How to Address the Conflicts and Strengthen the Board and Management Relationship?
The first step in addressing the board-management relationship is to conduct a detailed and objective assessment of it. Whenever roles and responsibilities aren’t clear, there is always a possibility of a conflict. There should be a thorough and open discussion to establish and outline the respective roles and responsibilities.
The responsibilities and expectations of the board and management should be written out to ensure clarity and transparency. This transparency is critical to optimal performance and leadership cohesion.
Structured Information Flow
The exchange of too little or too much information can result in poor decision-making or intrusion into the management process. To avoid this situation, the board should establish a structured information flow.
A structured information flow describes the frequency of reporting, sources of information, and depth of information.
Communication between the management and the board should be regular. Use interactive and specialized executive management communication tools to ensure security, compliance, and collaboration.
Mutual Respect and Understanding of Distinct Roles and Responsibilities between the CEO and the Chair
The relationship between the CEO and the chair helps maintain productive cooperation that resonates with the rest of the board and management. Mutual trust and respect are key to ensuring an engaging relationship.
Here are the basic building blocks that help maintain a productive relationship between the CEO and the chair.
- Collaborative and supportive environment
- Clearly described role and authority boundaries
- Established behavioral expectations
How to Ensure the Board-Management Relationship Doesn’t Exacerbate a Crisis?
To help the board-management relationship evolve and steer the organization toward success in every situation, companies should conduct stress tests with crisis scenarios. A stress test reveals weaknesses in the relationship that can be missed during typical business continuity planning. After all, crises are emotional events where it’s difficult to rehearse and completely control the response and interactions.
However, by assessing the weaknesses in the response to a stress test, the board and the management can objectively find a way to mitigate the flaws and prepare for real-life crises.
While the emotions can’t be predicted, the board should clearly outline responsibilities during a crisis to avoid confusion and misalignment that can result in a conflict of roles.
The Board-Management Relationship Is Crucial to Operational Effectiveness
Assessing and strengthening the relationship between the board and management should be one of the key tasks on the board’s agenda. While everyday business activities might not lead to a significant conflict, a company’s governance will be negatively affected. However, when a crisis hits and the board and the management aren’t properly aligned, all the cracks in the board-management dynamic will be exacerbated.