Management Matters Blog

Management Matters with Mike Myatt: Facing Up to Rogue CEOs

By: Mike Myatt, Chief Strategy Officer, N2growth

--Rogue CEOs. Given the recent failures of banks and financial institutions previously thought to be untouchable, there has been a tremendous amount of justifiable venom being spewed at the CEOs of these firms. Their ignorance, and in some cases their arrogance, allowed these rogue CEOs to operate outside of normal business rules, conduct self-serving agendas, and partake in self-dealing transactions all while receiving outrageous compensation.

Before I go any further, let me state that I believe we should understand that the overwhelming majority of CEOs operate within the bounds of reason and ethics consistently placing stakeholder interests ahead of their own. The real question we should be asking is where were the boards of directors during this period of mismanagement?

You see it is the board who is responsible for holding the chief executive accountable. Even where you have a CEO who is inclined to misbehave, an actively engaged board of directors simply won’t allow it to happen. In today’s column I’ll examine the role of the board of directors in keeping CEOs accountable.

Before I proceed further, and for contextual purposes, I believe it’s important to actually define the role of the board of directors. While there are certainly a variety of opinions as to the roles and obligations of a company’s board of directors, from my perspective they can all be boiled down into four simple responsibilities:

1.Shareholder Accountability: A board member’s primary responsibility is to act in good faith as a fiduciary in representing the long-term best interests of shareholders. A board’s actions and decisions must be able to pass the litmus test of public scrutiny (legally, morally, and ethically), rise above personal agendas, and always place shareholder interests above all else.

2.Corporate Governance: A board must insure that the corporation’s charter and by-laws are adhered to. Moreover a board must use its best efforts to hold executives accountable for insuring that corporate actions fall within other legal, financial, regulatory, and compliance boundaries. Ignorance and apathy are not the traits of a good board. Great board members are proactive, involved, supportive, consultative, experienced, and savvy. They know the rules, play between the lines, and do the right things. 

3.CEO Oversight: It is the board’s job to select the CEO, provide the CEO with support and guidance, and to hold the CEO accountable. Good boards exercise great care and prudence in profiling CEO candidates, recruiting the right CEO for the job, providing the CEO with a clear job description, successfully onboarding the CEO, and holding the CEO accountable for meeting a set of clearly defined expectations. Good boards do not attempt to micro-manage a CEO, rather they understand their highest value in being a value added resource for the CEO focused on helping the CEO become successful.

4.External Visibility: A key responsibility of the board is to serve as an external champion of the corporate brand. Board members should have a clear understanding of the corporate vision and mission, and where prudent, evangelize the message for the benefit of the corporation. Whether this requires providing networking assistance, investor relations support, or engaging the media, a highly regarded and active board can add substantial value to the enterprise.

In the text that follows I’ll offer several points that will help a board evaluate whether or not they have the right CEO for the job:

Tenure: I am a firm believer that there is no such thing as a standard shelf-life for a CEO. No rules of thumb apply when evaluating whether a CEO has outworn his/her usefulness purely from a chronological perspective. I’ve witnessed CEO’s where the company has outgrown their skill sets, and/or abilities within a year of hire (a bad hire…), and I’ve also observed many instances of CEOs that have successfully guided companies for 20 years. The question is not how long a CEO serves, but rather what he or she does while serving. Whether age 32, or age 72, a board must ask themselves, is our CEO doing the job, and perhaps the better question is, are they the best CEO for the job?

Performance: The topic of performance is a multi-faceted issue. A CEO’s performance should be benchmarked against a variety of key performance indicators which are clearly spelled out in the chief executive’s employment agreement. When evaluating performance, a board must evaluate whether a lack of performance exists across all areas or in a single area, whether the lack of performance is a short-term aberration vs. the likelihood of it being a burgeoning problem, and whether the CEO can be coached through the performance gap, or whether the lack of performance is an irreconcilable issue.

Ethics Violations: The character of the CEO is often synonymous with the brand of the enterprise. Once a chief executive has violated the public trust, or made a gross or negligent error in judgment which could taint the corporate brand, a board should move swiftly to restore the integrity of the corporation. Many things can be spun, justified, rationalized, or managed, but a lack of ethical behavior on the part of the chief executive is not one of them. Let me also be clear that a good employment contract will make null and void any favorable severance packages where malfeasance, misfeasance, gross negligence, or fraud on the part of the CEO is present.

Loss of Confidence: Once the board, the employees, the capital markets, the press, or other key constituencies have lost confidence in the CEO, the board must replace the CEO. A CEO cannot lead, motivate, or inspire without the trust and confidence of those they serve.

Lack of Development: The corporate enterprise and the business world in general, are dynamic, fluid, and evolving environments. Therefore great chief executives cannot be static in their personal or professional development, or in their strategic and tactical approach to doing business. A CEO that does not exhibit the ability to change, innovate, and grow with the world around them is someone who will likely need to be replaced.

In the final analysis, the board’s decision as to whether a CEO should be replaced is a decision that should be made within the framework of managing risk and opportunity. The board must weigh the transitioning a CEO against the financial costs, the impact of the business disruption and lack of continuity that can come with replacing the CEO, the market reaction to a change in leadership, and whether the decision is ultimately motivated by right thinking. Lastly, and perhaps most importantly, the title of “Director” should not be synonymous with “Crony.”  Any board member not willing to uphold the aforementioned duties and responsibilities should be replaced in a New York second.

When to Consider Corporate Restructuring

By Mike Myatt, Chief Strategy Officer, N2growth

--Times are tough, and they're likely to get tougher, so my question is this; Should you, or should you not, consider a move toward corporate re-engineering? Whether directly or indirectly, your business will likely face negative repercussions of the struggling economy at some point, and there will be tough decisions that need to be made. The mere discussion of corporate re-engineering can cause fear, anxiety, and in some cases even panic. This is so much the case that some CEOs will avoid restructuring initiatives at all costs. There are even some business theorists that warn against undertaking complex restructurings because of the great risks involved. My question is this: Since when have fear and avoidance become prerequisites for success as a CEO? Give me real leaders who possess courage, vision, and a bias toward action, and spare me the timidity of mediocre managers posing as leaders. In today's column I'll examine the benefits of, and the need for corporate re-engineering.

Anybody could be a CEO if business were a static proposition. If change and innovation weren’t critical success metrics, and the enterprise could just run on auto-pilot, you could replace the CEO with a General Manager. The fact is that business is not a static endeavor. Quite to the contrary; there are few things that require as much fluidity as effectively increasing profit, growing revenue, and driving brand equity in today’s global marketplace. In fact, I would go so far as to say that if you as a CEO are not consistently re-engineering elements of your business in today’s business climate, one of the following two conditions exist; 1) You have a perfect business, or; 2) You are an ineffective CEO.

What do great CEOs do when the business model, the strategic plan, and the revenue hurdles don’t seem to be in alignment? They make changes. They don’t sit idly by and watch the business lose market share, suffer margin erosion, see their competitive value propositions vaporize, or watch their brand go into decline. Great CEOs are willing to make the tough decisions…that’s what they’re paid for. Facing reality and being able to make what are often times very painful organizational/structural decisions are the hallmarks of great CEOs.

In an attempt to avoid confusion as to what I’m speaking about, I put together the following definition of corporate re-engineering: “Corporate Re-engineering is simply leadership recognizing, taking ownership over, and acting to correct strategic or tactical business flaws, and/or to realign elements of the enterprise with current or anticipated changes in market conditions.” This isn’t rocket science, rather it’s just plain-old, good leadership. It is actually the fiduciary obligation of a CEO to make the needed changes to protect shareholder value.

So why is it that so many CEOs shirk their responsibility, stick their heads in the sand, and avoid making necessary changes? It is my experience that they either lack the personal skill sets, or haven’t built the right executive team to lead change, they just don’t recognize the need for change, or they just don’t care. The good news is that there is a cure for all four of the preceding problems: Items one through three can be solved with an emphasis on leadership development and talent management, and item four can be solved by holding the board of directors accountable for CEO performance and firing the CEO who doesn’t care. Following are five representative tips that will help you recognize the need for a re-engineering initiative:

1. Unusual declines in revenue, margin, marketshare, customer loyalty, or brand equity.

2. Even if the above areas are not yet in decline, but you are witnessing unusually slow growth or zero growth you still have a problem.

3. The inability to recruit or retain tier-one talent.

4. Current or anticipated changes in market conditions that will adversely impact your business model.

5. Obsolescence of intellectual property, products, services, solutions, or competitive value propositions.

The bottom line is this…Bleeding is not a healthy thing. Whether you’re experiencing a slow bleed or you’re hemorrhaging, both instances can be fatal without treatment. If your company is in products, services, or businesses that you wouldn’t enter into if you weren’t in that particular arena today…Get Out! Stop the bleeding, and reinvest your financial and non-financial resources into more profitable endeavors. I don’t believe corporate re-engineering to be evil, but even if it is, it is a necessary evil.

 

Expectation Alignment Key to 'Promise Management'

by Mike Myatt, Chief Strategy Officer, N2growth

--The art and science behind making commitments and managing expectations has always been a critical skill set for senior executives and entrepreneurs to master. In fact, understanding how to come out on the right-side of the expectation curve can often be the difference between average performers and corporate superstars. This is evidenced by the fact that the consulting industry has zeroed in on the importance of this issue such that it has evolved into an emerging discipline known as "Promise Management." In today's column I'll discuss the value of promise management as a discipline.

Nothing engenders confidence and creates a trust bond like delivering on promises made, and likewise few things erode confidence and credibility like commitments not kept. In previous columns I’ve discussed the importance of saying what you mean, meaning what you say, and doing what you say you’ll do. The science of promise management is about systematically connecting what is said with what is done. The art of promise management is about closing, or better yet, eliminating the expectation gap. Blend the art and science together and you have the framework for what is becoming the differentiating factor in performance based decisioning for the twenty-first century.

Conflicts, disagreements, disputes, and litigation are often born out of expectation gaps. Expectations cut both ways…Keeping what you perceive as being your end of the bargain is only half of the equation, as what you think only matters if it is in alignment with the understanding of the other party. We have all found ourselves in the unenviable position of assigning work product only to end-up with the deliverable falling far short of expectations while having the producer of said work product thinking they exceeded all expectations. Can you say “expectation gap?”

Expectations exist throughout the entire value chain with every stakeholder needing and deserving to have their expectations managed and met. Whether it is managing customer expectations, shareholder or analyst expectations, or the inverse of employees having to deal with the expectations of executives, it is the ability to excel at decisioning based upon managing expectations that creates high performance organizations.

Promises that are made based upon solid reasoning and underlying business logic that are consistently kept will help to create a solid brand attracting loyal customers and talented employees. The following three practices will help create an organization that delivers on its commitments:

1. Collaborate early and often: Decisioning in a vacuum or without all the facts will place you in a deficit from the beginning. It is at best extremely difficult to manage expectations and deliver on commitments made if you don’t have clear visibility as to what is wanted or needed. Before making promises or commitments collaborate with all concerned parties to insure that expectations are understood.

2. Resist making verbal commitments: Most misunderstandings occur as a result of improper interpretation of oral communications. Most broken commitments result from impulsive verbal promises made before all the details were sorted out. Once you have gained clarity as to the perceived need to be fulfilled, place your understanding of the deliverables in writing by outlining key business points and circulate the document for review and comments. Where possible resist formalizing agreements, proposals, or other commitments until you have alignment on key expectations and deliverables.

3. Manage promises like projects: Build a culture that breaks down all commitments made into deliverables, benchmarks and deadlines. Allocate resources, budget and staff while managing the commitment within a framework of measured accountability. Treating all commitments and promises as formal projects will help manage performance risk and will also create continuity of process and delivery.

Performance focused decisioning based upon principles of promise management will lead to a certainty of execution that should translate into one of your company’s greatest competitive advantages.