THE JOURNAL OF PEOPLE + STRATEGY
Creating Board-Management Alignment | Directors Roundtable
January 4, 2024
For the effective operation of any organization, a board of directors needs to work cohesively with the management team toward its common goals. Dawn Zier sat down with three business leaders who, like her, have experience as both a CEO and a board member, to discuss how to measure and strengthen that board-management alignment.
Participants
Carter Pate, former CEO of Modivcare and MV Transportation; director at Option Care Health, GlobalStep and Purple Innovation
Mark Schiller, former CEO and board director of Hain Celestial Group; director at Kontoor Brands
Mike Spanos, executive vice president and COO of Delta Air Lines; former CEO of Six Flags; director at Casey’s
MODERATOR: Dawn Zier, former CEO of Nutrisystem and director at Hain Celestial Group, Spirit Airlines, and Acorns
DAWN ZIER: All of you have sat in both the CEO and the director’s seat. What are the areas you feel are most important for the board and CEO to have clear alignment around?
MIKE SPANOS: The first area of alignment has to be financial transparency. Second is clarity around board governance and ensuring that the CEO and board chair have a mutual understanding of what this entails. The level of board engagement is different for every company and is situation-dependent. Third is the importance for the board to be aligned with the CEO when it comes to talent, especially with respect to succession planning. This requires the board to have adequate exposure to the team. Along a similar vein, there must be alignment around an executive compensation program that supports the CEO, sets the right behavior for the team, rewards for performance and drives sustained results for shareholders. Fourth, alignment on the strategy and associated capital allocation is a key process for the CEO and board. Finally, there must be alignment on corporate risk. With emerging megatrends, boards are really punching up their focus on risk oversight and holding the management teams accountable for putting the right processes and monitoring mechanisms in place.
MARK SCHILLER: There are four primary areas where alignment is critical. First and foremost is the strategic direction of the company. If you don’t do the hard work upfront to debate and align, it impedes progress down the road, which leads to frustration. Second is role clarity. Agree on the role of the board, the role of management, and understand the “unofficial” role each director plays on the board. Third is an understanding of how the board and management will engage with each other, especially when off-cycle. Rule of thumb for CEOs: If something important happens or changes, communicate with your chair immediately. Directors, like most people, don’t like surprises. And finally, alignment around risk management: Are we keeping up-to-date? Are we adequately monitoring? Do we have the right escalation protocols in place? Risk management is much more than a once-a-year management topic for the board. It needs to be embedded into every meeting and constantly challenged.
CARTER PATE: Right off the top, I think the one thing every director is obligated to fully understand and be aligned on as a full board is “What are your CEO’s weaknesses?” The board always needs to keep that in the back of its mind. Every CEO gets into the seat because they bring an incredible amount of talent in certain areas to the table. The board is often impressed, but they often don’t have a full appreciation of the CEO’s weaknesses.
For example, a CEO who came up through finance probably doesn’t have deep sales and marketing expertise.
A CEO who is a marketing guru likely doesn’t fully understand capital markets and leveraged finance. Boards need to ensure that the CEO has the support they need to succeed, especially when dealing with issues that might not naturally be in their wheelhouse.
I have observed that many boards that have had a major misstep— resulting in them losing confidence in the CEO—forgot what their CEO’s weaknesses were. Directors have an obligation to do a much deeper dive and challenge management in areas where the CEO has an acknowledged skill gap. In these cases, in addition to holding the CEO accountable, the board needs to also reflect back on its own failure.
‘Active board engagement served the company well, particularly during a time of transformation where we were changing strategic direction.’ — Mark Schiller
ZIER: What can impede board and CEO alignment?
PATE: Failure of the board, and specifically the chair, to adequately coach and provide input to the CEO, or failure of the CEO to be receptive to feedback and embrace some of the directors as trusted advisors, can impede alignment. Being a good mentor to the CEO is a board obligation. Being able to have open conversations that do not make the CEO become defensive requires gravitas.
The chair needs to have gentle one-on-one pushes with the CEO, like, “Look, it’s just you and me talking. Have you considered getting a second set of eyes on this issue? We’ve talked about this kind of thing before, and it may be a little bit outside of your swim lane. How can we help? Are you surrounding yourself with the support you need?”
SCHILLER: Lack of understanding around what the board wants to be involved in and wants to see can rightly or wrongly lead to a board questioning management’s transparency and openness. Conversely, management not anticipating and providing the board with the information it expects can result in the board becoming overly prescriptive in its information requests, which may lead to the management team feeling a perceived lack of trust. Without transparency and trust, it is near impossible to have alignment.
My bias has always been to over-index on engagement. However, if it gets to a point where it feels as if the board is being intrusive or overly involved in day-to-day decisions, the CEO needs to be able to push back. As a CEO, I always appreciated the different perspectives of the board, the backgrounds they had and the experiences they shared, which led to my being a better decision-maker. Active board engagement served the company well, particularly during a time of transformation where we were changing strategic direction.
SPANOS: The top impediment to alignment is lack of trust. Relationships matter at every level, and both the board and the CEO need to work hard to build mutual trust. The board-management dynamic is naturally full of friendly tension. You want to enable respectful, good debate, and that circles back to trust. Also, if clear processes are not in place at the board, committee and C-suite level, there can be a breakdown in alignment.
ZIER: Can you share an instance where you have witnessed board-to-management or director-to-director misalignment, and how you course-corrected?
PATE: As the board chair or the CEO, the obligation to drive for alignment is incumbent on you. A good CEO spends time working the board and ensuring that no director is left behind. I have seen many instances where the CEO thinks they have alignment only to get derailed at the last minute because they failed to bring a director along and did not get buy-in throughout the process.
If you want to get to alignment quickly, whether as a CEO or as a director, pre-selling your idea to the key players on the board and addressing key concerns that stand in the way of their support is a good tactic. Once you feel that you have their general support, you need to ask for their commitment. “Do I have your support on this? Will you stand behind me if there’s debate?”
One hard-learned lesson is the realization that alignment and agreement are not the same thing. Alignment is often only the first step to agreement. It’s the general support for the “what.” Getting agreement can be much harder as that requires negotiating the “how.” Often the distance between alignment and agreement is vast, and that’s where board dynamics can fall apart.
‘A good CEO spends time working the board and ensuring that no director is left behind. I have seen many instances where the CEO thinks they have alignment only to get derailed at the last minute because they failed to bring a director along and did not get buy-in throughout the process.’ — Carter Pate
SPANOS: On one of my boards, we didn’t have initial agreement on whether we should combine the CEO-chair role or move forward with an executive or nonexecutive chair. The Nominating and Governance Committee put a framework in place to work toward a resolution and owned the process.
We gave ourselves a good year to think through what was best, knowing there was a board succession process leading up to that. This was an important decision, and we did not rush the process. In this case, we had a CEO who had been there for a number of years. We knew that the solution could be very specific, given where the organization was on its journey, as well as the capabilities of that CEO and the management team.
We created forums to encourage dialogue and trust-building through board offsites and one-on-one dinners. The Nominating and Governance Committee gathered industry perspectives from NACD, ISS and Glass Lewis. We allowed the CEO to discuss their opinion on the case with the committee members and allotted plenty of time for questions and answers. We considered the impact on employees as well as what was best for shareholders. And then, we had the Nominating and Governance Committee make a recommendation to the board, and the board held its vote. We got to a really good place and ended up aligned.
SCHILLER: Probably one of the more common situations where we see a lack of alignment is when a shareholder activist (different from an activist nominee) sits on the board. An activist is going to have a distinct financial objective and timeline around return for investment, which may or may not align with what other board members and management think is in the long-term best interest of all shareholders. I found that having a subset of the board that can interface with management, separate from the activist, when there are disconnects, can be helpful. We also established good mechanisms to re-engage with the activist around such topics. In all cases, it is important to listen to and understand all perspectives with an open mind. Perhaps one of my more interesting learnings of having an activist director on our board is that we were more often aligned than not.
I also think that board members need to feel comfortable giving feedback to one another both privately and during board debriefing sessions. It’s important to have an established process as a board where the chair facilitates discussions around questions like: Are we aligned? Where are there disconnects? Is there an elephant in the room? Where could we have done better as a board? Where could you have done better as a director? Is everyone voicing their opinion and being heard?
ZIER: With alignment being so critical to successful outcomes, how can directors assess the level of alignment in the management team?
SCHILLER: A director needs to play the dual role of participant and observer. When management is presenting to the board, I look at body language and other indicators to see if people are withdrawing. For example, if somebody is speaking and others sit back in their chair, cross their arms or start fidgeting, maybe there’s not complete alignment.
I also use informal interactions between the board and management, like cocktail hour and board dinners, to pressure-test whether everybody is saying the same thing. I’ll bring up topics that I have concerns about and ask open-ended questions to assess whether there’s alignment or not.
PATE: Successful CEOs have often learned the hard way that the failure to recognize reluctance or to read body language is a shortcoming of their EQ. So maybe they have the highest IQ, but it’s the lack of EQ that will bite them every time.
Chairs of the standing board committees have a unique opportunity to build relationships with other members on the management team in addition to the CEO. I’m often the head of the audit committee and work closely with the CFO and CAO. If you’ve built a strong enough relationship with these leaders, you should be able to have open conversations and get unfiltered perspectives. For example, I might get a board deck and call my CFO and say, “Wow, this seems pretty far out there. I’m a little surprised at the amount of ramp-up you have in the second half of the year. How achievable is this? Get me comfortable.”
‘Alignment is important, but you also need to be on the watch for groupthink—not just at the management level but also within the board. … The last thing we want is for the CEO to be surrounded by “yes” people. Be aware of a CEO who tries to control the message and limit team access.’ — Mike Spanos
SPANOS: As boards have expanded their oversight around talent and culture, they have a lot of access to insightful data that can reveal the level of alignment within an organization—things like employee and engagement surveys, 360s, Glassdoor and exit interviews, to name a few. I also listen to the earnings calls—in addition to reading them—because you pick up on tones and camaraderie between the CEO and CFO, as well as areas of hesitation or reservation.
It’s important to probe a little harder on team alignment when it comes to highly matrixed organizations, where there often is tension around crossfunctional priorities and accountabilities. In these cases, your customers and your employees are going to be the strongest, truest voice when you’re not doing the work properly. Again, look at the comments in the employee survey, look at high-level summaries of customer complaints, and watch your NPS scores.
I want to end with this note: Alignment is important, but you also need to be on the watch for groupthink—not just at the management level but also within the board. Management teams and boards need to have a healthy tension where they are able to discuss, debate and then align. In the case of the management team, the last thing we want is for the CEO to be surrounded by “yes” people. Be aware of a CEO who tries to control the message and limit team access.
In the boardroom, diversity is the key to avoiding groupthink. Not just diversity in terms of ethnicity, gender or age, but also diversity of skill sets, experiences, industries and tenure. It is the responsibility of the chair to make sure that all voices are heard. Often, it’s that third or fourth voice in the conversation that offers a unique perspective that really matters and causes the group to pause and think harder.
The Directors Roundtable was hosted by Dawn Zier, the former CEO of Nutrisystem and a current board member at Hain Celestial Group, Spirit Airlines and Acorns.
This article was originally published in the Winter 2024 issue of The Journal of People + Strategy, where the ExCo Group’s CEO, David Reimer, and senior managing director, Adam Bryant, are editors.