The expectation placed on directors continues to grow as they are tasked with increasingly complex and demanding responsibilities. As contemporary challenges at board level continue to arise, stronger partnerships with CEOs and the wider executive leadership team can help directors create the most value for their organisation. In our ongoing series on striking the right board balance, we explore the third of the four key continuums – board and management relationship.
What it means to balance the board and management relationship
A recent McKinsey Global Survey confirmed directorships have become more consequential to an organisation than ever before, with roles and responsibilities in the boardroom becoming increasingly complex. In the same survey, most respondents outlined that they are dealing with the increased pressure of board roles through strengthening collaboration with their executive leadership teams. The value of such an approach is that it helps directors align more meaningfully on their organisations’ priorities, as well as better clarify their own roles and focus on activities that add the most value.
Thus, a strong, well-balanced relationship between the board, CEO and executive leadership team is essential for effective governance and sustained organisational success. Boards must work collaboratively with management to provide mentorship and strategic guidance while also maintaining their oversight role to constructively question, challenge and hold management to account as necessary.
Key consequences of not achieving the right balance
A subpar relationship between the board and management can result in a number of negative outcomes.
Underutilisation of directors’ skills and experience
If management does not see the value of the board as a resource, it may miss insights, knowledge and networks that could benefit the organisation.
Erosion of trust and communication
A dysfunctional relationship between the board and management may lead to tension. This can reduce transparency and openness, ultimately leading to weakened decision-making. Open transparent reporting by management to the board is also fundamental to directors being able to fulfil their duties at law, especially those relating to due care and diligence.
Dampened company performance
Lacking clear alignment between the board and management risks a focus on the organisation’s strategic direction and operational effectiveness.
Actions for boards to take
Achieving an optimal relationship between the board and management requires trust, transparency and a shared understanding of roles. The board must not unduly overstep into operational matters, nor should it become too passive, merely rubber-stamping decisions without due scrutiny. The ideal relationship balance is one of mutual respect, where open communication, collaboration and shared purpose drive better outcomes.
As such, there are a number of mechanisms that can assist in fostering a productive and balanced board and management relationship.
Establish agreed ‘principles of operation’ and mutual expectations
A clear framework outlining how the board and management interact provides the basis for constructive engagement and a shared understanding of roles.
Maintain a current board delegation of authority policy
Clearly defining decision-making responsibilities in terms of the matters reserved for the board’s decision and matters delegated to the CEO of both a financial and non-financial nature helps prevent the board from becoming too operational, while ensuring appropriate oversight.
Facilitate regular Chair and CEO communication
Open, ongoing dialogue between the Chair and CEO is critical to maintaining alignment, addressing concerns early and fostering a collaborative working relationship.
How Directors Australia can assist organisations
Through our board and governance advisory services, Directors Australia specialises in assisting boards with the mechanisms outlined above. Underpinning this work is our Governing for Performance® framework.
In particular, we facilitate workshops between board and management to discuss and agree matters such as:
- The principles on which the board and CEO / management relationship is based
- Mutual expectations between the board, CEO and executive leadership team, and
- Communication protocols between the board and CEO / Management.
These workshops aim to ensure that directors, the CEO and executive managers have the opportunity to work through any issues and decide on their future way of working in the interests of organisational success.
By embedding the mechanisms outlined in this article, the right balance can be struck between board and management relationships. A high functioning board and management relationship strengthens governance, enhances organisational performance and ultimately drives long-term success.
Directors Australia works with the boards of publicly listed, government, private, APRA-regulated and not-for-profit organisations Australia-wide to achieve real, ‘best fit’ corporate governance appropriate to the organisation’s nature, and thus enhance board and organisational performance. For further information or to discuss how we can help, contact us here.
**Nothing in this article should be construed in any way whatsoever as legal advice. It is the reader’s responsibility to obtain expert legal advice on any issue which requires a professional legal opinion.
Kerryn Newton
Chief Executive Officer
