The number of U.S. companies that separate the chairman and CEO roles is at a historic high: 40 percent of the S&P 500 now separate the roles, up from 23 percent a decade ago, according to Spencer Stuart. A new report published by Yale’s Millstein Center for Corporate Governance and Performance, The Effective Chair-CEO Relationship: Insight From the Boardroom, examines how this increasingly common relationship works. Based on interviews with CEOs, non-executive Chairs, and stakeholders, the report aims to understand what constitutes a winning relationship between two individuals, each successful in his or her own right. As this leadership structure becomes more prevalent, these insights should be useful to those working together in these interdependent roles.
The report identifies three major areas that describe the characteristics of an effective working relationship: good chemistry, a clear framework, and a supportive context. Most commonly mentioned was good chemistry – the direct interpersonal relationship between the two. Expanding on the chemistry headline, Chairs and CEOs identified effective communications as an underlying factor. Effective communications included frequent contact, open, ongoing dialogue, and a mix of formal and informal venues. Also supporting good chemistry was reciprocity and consideration – keeping each other well informed, avoiding surprises, and assuming good intent. Communications should be purposeful and while the relationship might be close, it should not become a personal friendship. Chairs and CEOs alike felt their own good communications should intentionally facilitate good communications among and between the board and management, creating an environment conducive to sharing, learning, and confidence. Finally, good chemistry included Individual qualities such as competence, authenticity, being willing to learn and listen, and, most frequently mentioned, not a lot of ego.
The next area, a clear framework, contemplates key working arrangements. For instance, Chairs and CEOs must be aligned on a common vision of corporate wellbeing and success. This alignment goes beyond high level vision to include the “what” of strategy and vision – which business to exit, which to expand, what degree of risk is appropriate, what obligations to which shareholder take precedence, and so forth. A clear framework also meant having the right processes around key areas of board responsibility: managing the board agenda; material financial decisions, major transactions such as acquisitions; compensation; C-suite personnel; and succession planning. By better managing information and opinions, good processes reduce waste and frustration, and increase effective decision making. Where good processes are lacking, Chairs and CEOs worked together to create them. Another important element of the framework: a leadership transition strategy. Interviewees recommended that there be a planned approach to succession in both CEO and Chair positions, and generally preferred that transitions should not occur simultaneously.
A supportive context, the third area, identified conditions helpful to a successful relationship. Three specific aspects of context – a talented executive team, a strong supportive board and a culture of transparency – promoted an effective working relationship between the Chair and CEO. When these were in place, the pair could focus important work at hand; where these elements are weak, the Chair and CEO addressed them immediately. One Chair brought together a deeply divided board to build the alignment needed to work effectively with management and the CEO. Another Chair and CEO worked together on an approach to ensure capability in key executive positions.
Overall, a good partnership led to better outcomes for the corporation and its shareholders. Chairs and CEOs identified concrete outcomes created by a good working relationship – improved strategy, stronger corporate messaging, more transparent decisions, effectively dealing with activist investors, managing unsolicited bids, and enhanced corporate ability to retain and attract top talent. The effective relationship helped most in two types of situations: during significant material events such as mergers, repeated acquisitions, or other major asset decisions; and when the company needed to reposition itself strategically.
Overall, the report paints a picture of the effective Chair-CEO relationship, drawn from the experience of Chairs and CEOs who worked together to achieve corporate and shareholder goals. The report and the stories included reflect knowledge and practice in North America at a point in time and, as such, should contribute to the evolution of knowledge and practice in the culture of board leadership. The report also offers practical ideas for those working in this increasingly common relationship structure. These ideas may also be helpful to those working in similar non-executive board leader – executive leader relationships. Finally, investors and other stakeholders may find these ideas worthy of consideration. As a supplement to the generally held interest in the effective CEO and the effective Chair, stakeholders may do well to take an interest in the effectiveness of the working relationship between the two.
The full paper can be accessed here.