The board of directors of a company has three main responsibilities. How do these reflect on the CEO?
- The board appoints the CEO. They continually assess the CEO and ensure there is a succession plan.
- They set the strategy and make sure it is followed.
- The board ensures proper governance – that laws, regulations and good practices are followed.
This puts specific requirements on the personality of the CEO.
- Continual assessment by the board means that the CEO must have built in confidence. A feeling of having the full trust of the board, even when they question you being the right person.
- The board sets the strategy but that does not get the CEO off the hook. Proposals for the strategy are made by the CEO, who must form an opinion on every topic of strategic nature. Even if this is made with the help of the executive team and other experts, at the end of the day, the CEO alone makes the recommendation, something that makes it a lonely job.
- To ensure proper governance of a company the CEO must hire people better than themselves. A CEO has skills and weaknesses. If those are not covered by hiring great people, at some point governance will be compromised and the company can’t be successful.
See also other videos in the board room series!
The board of directors of a company has three main responsibilities.
- Number one is, they appoint the CEO.
- Number two, they set the strategy.
- Number three, the board ensures proper governance of the company.
If you are a board member you will constantly ask yourself: “Do we have the right CEO in the job? Do we have a succession plan in case something happens?”
They ask, “Do we have the best strategy in place and is the company following the strategy? Is the company operating in line with the strategy?”
Thirdly, board members ask themselves, “Are we doing what we need to do to ensure proper governance?” Meaning: following the laws, and the regulations, and good practices, accounting, and so on.
These three things put very specific requirements on the personality of the CEO. The fact that the board is continually assessing you means that as the CEO you must have built-in confidence.
You must be comfortable operating with the full trust of the board although you know they are always asking themselves whether you are the right person. You must not let that freak you out in any way. You must have the confidence.
Number two, the fact that the board sets the strategy doesn’t get you off the hook as CEO. You make the proposals for the strategy. The board will look to you and say, “Dear CEO, what do you recommend?” As a CEO, you must form a personal opinion on every topic of strategic nature. You have the executive team and others working with you, you have good discussions with the board members and the board.
But, at the end of the day, you are alone in your recommendation. It makes the CEO job very lonely at the end of the day.
Thirdly, to ensure proper governance of a company you need to hire people better than yourself. A CEO has many skills, but a CEO also has weaknesses. If you don’t cover for those by hiring really great people, then at some point governance will be compromised and the company can’t be successful.
The three main responsibilities of the board lead to three specific requirements on the personality of the CEO:
- to have strong built-in confidence,
- to be very comfortable in the loneliness of the job, and
- to have the ability to hire people better than him or herself.