A CEO/Board Face-Off

CEOs and boards are bound to disagree at times. The real danger is when their misalignment causes a full-blown company crisis.

This week has brought two examples of a CEO/board dilemma. At troubled retailer Sears, CEO and controlling shareholder Eddie Lampert has asked the retailer to sell its prized Kenmore brand to another company that he runs, putting directors in an awkward position. Meanwhile, at Tesla, CEO and chairman Elon Musk first tweeted that he is taking Tesla private and has secured funding (claims that are both unconfirmed). Then, revelations about Musk’s work habits and health have fanned concerns that he’s no longer fit to lead.

While there’s no one-size-fits-all solution, boards should feel empowered to act when CEO behavior spooks stakeholders; if they can’t, experts say, there may be bigger problems at hand. “We’re living in an age of an independent jury called the general public,” says Jane Stevenson, global leader for CEO Succession at Korn Ferry. “If someone behaves inappropriately, and it is already understood by a segment of the population, then boards have to choose whether to manage what is shared or be at the mercy of it.”

Problems arise when boards and CEOs don’t have a healthy relationship to begin with. In some cases, the relationship is unestablished and fraught with misunderstandings; more often, it’s so chummy that, when someone breaches the code of ethics, there’s a reluctance to take decisive action. That’s why such companies are constantly under pressure to diversify their boards. For instance, until last year, all but one of Tesla’s board members were directly tied to Musk or his other ventures.

But some boards also fail to act because they don’t have an adequate succession plan in place, despite the fact that the average tenure for CEOs is shrinking. “Situations like these really put an underline and exclamation point around the need for ongoing CEO succession planning,” says Stevenson. “You need to have multiple options of leadership who are capable to step up if needed.”

Experts say good succession planning means proactively building a pipeline of leaders with the experiences and competencies to support the future business strategy. It means getting to know how they lead, what their strengths are, and their areas for development, so that it’s clear what can be expected when they take the reins.

Perhaps most importantly, it requires finding someone who can be trusted to act in the best interests of the organization. “Experiences and competencies are what get people hired; traits and drivers are what get them fired,” says Stevenson.