This is perhaps the most common reason that a CEO and/or a corporate board decide to bring in a consultant. Typically, neither the board nor CEO would ask the consultant directly to address a poor working relationship and facilitate a resolution. That would be too overt. Instead, the consultant is expected to "discover" this problem while doing a governance audit. It's a very inefficient way to address an important problem.
An impaired relationship between CEO and board is usually caused by one of three things:
My experience suggests many boards avoid confronting this problem. To put this in perspective, the 2012 Price Waterhouse Cooper Annual Corporate Director Survey finds that almost a third of directors are dissatisfied with a fellow director and feel the director should be replaced. This problem could be about a single low-performing director who drags down a healthy chemistry and culture on the Board, or more broadly about a board that has grown stale over the years and desperately in need of new blood.
A strong Nominating and Governance Committee can significantly mitigate this problem through the adoption of sound director nomination and evaluation processes.
Take the case of the energy company Enron. It went bankrupt in 2001 after years of fraudulent accounting practices and failed projects. A "talent" inventory of the Enron board would have shown that not one independent director had enough expertise in structured financing to ask the right questions at a time when the company's strategic direction and business plan relied increasingly and heavily on such instruments.
If there is buy-in by the board in advance, the director peer evaluation process can be used as an instrument to “refresh” the board’s makeup. When a board has approved its review processes in advance, it provides much greater authority to take the actions required to create the best possible line-up of directors.
The smaller the entity the more likely this frustrating situation may occur. This may happen because the wrong people are on the committee – because of ineffective committee leadership, a lack of committee education, and either the lack of a committee charter or a dusty committee charter.
I discuss board composition, leadership and education in the Best Practices section. Let's focus here on the importance of the committee charter.
The Nominating and Governance Committee must ensure that each committee has a charter that is updated at least annually. A committee charter is a job description. The process of creating its own charter forces committee members to come to a common agreement on not only the purpose of the committee, but also its specific responsibilities and how the responsibilities will be achieved.
Going through this process is an invaluable first step to turning a dysfunctional committee into one that is highly effective. In fact, going through the process is arguably more important than the final product (the charter itself). A committee chair once asked me to develop their charter for them because of my expertise in governance. I refused to rob the committee of the value of going through the charter development process.
Remember, too, that charters should be updated annually as that allows the committee members to get back on the same page with their job description.
Board member evaluations can be tedious and bear little fruit. But if done properly, the process can be a valuable tool for board self-improvement.
If the evaluation process is embraced by the board in advance of its implementation, it is much more likely to be an effective tool.
Another common problem is an incomplete evaluation process. I remember one CEO telling me how the results of the survey were interesting, but he found himself asking “so what?” It is not good enough just to gather information on “problem areas” -- the process needs to include a specific action plan to address the issue and a specific person who is made responsible for implementation.
Finally, the process should include a follow-up review a year or so after implementation to assure that appropriate action was taken and is having its desired effect.
Of all the responsibilities assigned to the Nominating and Governance Committee, board education is the one that receives the least attention and tends to be reactive rather than proactive.
I have had experience with committees that scramble to find a facilitator in any area relevant to governance simply because the board was expecting its annual “education” session. Other committees may be very passive and simply wait for the board to make an education request and otherwise do nothing.
While the results of inattention to board education may not be observable, deliberate education planning can have hugely positive results.