How to Avoid Dysfunctional Chair-CEO Relationships

On paper, few would disagree that a good Chairman-CEO relationship is essential for business performance. Yet all too often, it is an ignored foundation, or one that is not given the attention it warrants. The problem is that we tend to only notice how effective these relationships are or should be when they go wrong and break down, and by then it is too late. Because an unhealthy or ineffective Chair-CEO dynamic is like a virus in the business, eating away at the leadership of the firm and fundamentally undermining its performance. So how can investors spot when it is not working, or – even better – get advance warning before things break down?

When it isn’t working

There’s lots written about the perfect Chair-CEO relationship and how it is supposed to work; but surprisingly little research into how things can fall apart. In our experience, though, there are six common tell-tale signs to watch out for:

Surprises. The Chair-CEO relationship needs to be a partnership, so any sign that either of them is springing surprises on the other - be it deliberate or unintentional – means that things are not optimal.

Lack of communication. Often the cause of surprises, a simple indicator is how often the Chair and CEO talk to each other. There is no set rule of how much is the right amount, but you can check how regularly they speak, and how they each feel about whether they are talking enough.

Difficult decision-making. Some decisions are difficult. Others just feel that way. The thing to look out for is when decision-making at the Board continually feels that way – when there feels like there is some underlying tension perpetually hovering under the surface. It is usually a solid sign that something is not right.

The Hands-On Chair. Operational interventions from the Chair, or signs that the Chair is actively developing relationships with the CEO’s executive team are both indicators of either the CEO underperforming, or a Chair who hasn’t outgrown their CEO seat. And both are a sign that the Chair-CEO relationship is not working as it should.

Unrealistic requests. Repeated requests for extreme levels of detail are a sign of poor confidence levels and thus an indicator that the relationship could be turning bad.

A lack of tension. IdealChair-CEO relationships need some appropriate tension to be effective, as there has to be a degree of challenge. This means that as far as the Chair and CEO are concerned, it is possible to get on too well. You can see it when a Chair is overly or continually defensive about the CEO and too soft on performance.

Getting advance warning

The six signs above are all signs that investors can use to spot when things have gone wrong. But how can investors identify before any of these issues above starts happening whether the relationship is going to work? Fortunately, there are two things you can do.

The first is proactive relationship management. Setting clear expectations of what you as an investor expect of a great portfolio Chair and CEO. We sometimes see investors skipping this step - taking for granted that the Chair and CEO know their roles and see them the same way. But in our experience, taking the time to have these conversations, and have them formally, is always worth it, because making sure that everyone involved is aligned and working from the same set of expectations is the simplest way to avoid future problems. And even where it does not help avoid future issues, it makes them easier to solve by giving everyone a common reference point. Indeed, from our experience of facilitating these conversations, we have found that it is worth going even further, and formally discussing not just role clarity, but also things like broader business approaches, and fundamental standards about what good business looks like.

The second thing you can do is to formally evaluate the deeper factors involved. Expectations, approaches and values tend to be more conscious and surface-level things. But there are other important factors, too, such as basic personality differences, underlying values, and disparities in thinking and communication styles, and how people manage emotions and tensions. These underlying factors can be much harder to spot and tend to be much harder to resolve. Like any couple, the Chair and CEO need to be sufficiently compatible, and in our experience the more deliberate and informed investors are when creating and managing these partnerships, the more successful they tend to be.