Even with young and inexperienced Founder/CEOs, the Board must set a reasonable expectation of performance and communication. First, in a mirror image of a Director’s responsibility, the CEO must undertake to manage the Company in the best interest of the Company and its stakeholders using judgement appropriate for a CEO with his/her level of experience. The CEO is not expected to be perfect and is expected to make mistakes, but s/he must make the best decisions and take the appropriate action after considering the facts and options available.
To assist the Board, the CEO must bring material decisions, such as any long-term commitment of funds, a lease, a major contract, all proposals to raise funds, all funding agreements, etc. to the Board for its approval.
The CEO must be pro-active in communicating with the Board, especially the Chair, between meetings to keep them up to date on the business. This does not mean discussing routine day-to-day activities which is the CEO’s to manage. Major developments that have occurred or are anticipated upon which the Board might be expected to advise, or comment should be communicated at the first opportunity. This is especially so if the news is bad. The CEO must be upfront about the situations and their potential consequences. Waiting for an important issue to resolve itself is never a good practice. The Board needs to know as soon as possible so that they can give their advice early when it can best ameliorate the potential outcomes. The worst event for a CEO is for the Board to discover a material piece of bad news that did not come from the CEO. This would break the trust between the CEO and the Board which may not be recoverable. Refer to Holding Management to Account.
The CEO also needs to consider and be guided by the Board’s advice. While the decisions are the CEO’s to make, and it is a major issue if the Board were to reverse a CEO’s decision, the CEO at the same time should take advantage of the experience of the Board in taking his action. The Board is not a rubber stamp for the CEO. Giving and taking its advice is an integral part of the governance process. If the CEO repeatedly rejects the Board’s advice, then the Directors will soon become disinterested in the process, and the Company will be the worse for it.
As noted in section 4, at a minimum, the CEO with the help of the Board Secretary, must provide a complete, organized and indexed Board package, typically in electronic form, at least a weekend in advance of the Board meeting. This will give the Directors the time and opportunity to read and consider the documents prior to discussion.
To deepen the
engagement of the Board and to leverage the Board’s experience, the CEO should
identify an issue for the Board to consider and discuss at the meeting. The Board will appreciate the request and the
CEO will learn something of value.