As a group, the board of directors decides who will serve as chief executive, for how long, and at what level of compensation. One of the biggest revelations for the new CEO they choose is that he or she now has a board, rather than a boss, to report to. To get this rather unorthodox relationship off to a healthy start, new CEOs should accomplish the following within the first six to 12 months on the job.
No. 1 Get Comfortable with Governance Issues
Most CEOs arrive in the corner office with little board experience other than presenting to their own board. Serving on the board of another public company can be invaluable experience—though limiting outside directorships to one board is the best policy, given the time required to be an effective director and a terrific CEO at the same time. If another board seat isn't in the cards, hold a private governance tutorial in your office that allows you to ask "dumb questions" about governance issues—everything from how frequently most boards meet to the practical implications of Dodd-Frank—to outside specialists who really know their way around a boardroom. It will dramatically increase your comfort level in this area.
No. 2 Meet One on One With Each Director
You may have just been through a round of director meetings in the final stages of the succession process. So why do it again? Because in that series of meetings, you were the job applicant for the CEO role. Now you're the CEO, and the focus of these discussions should shift to how the directors want to work with you—and you with them. Take your time with this; don't rush. Ask your board members what they've enjoyed and what they've been frustrated with in serving on this board. What do they see as the company's priorities? How might they want to work differently with you from the way they did with your predecessor?
No. 3 Establish Your Working Relationship with the Lead Director or Nonexecutive Chairman
There are two models for board hierarchy. One type has a CEO who serves as chairman of the board—but names one of the outside board members "lead director." This structure has become a fixture among many S&P 500 companies. The second model features a "nonexecutive chairman"—an outside director serving as chairman of the board who is someone other than the CEO. Lead directors and nonexecutive chairmen can be extremely valuable assets to new CEOs. These players keep their fingers on the pulse of the board between meetings. They are your early warning system of board concerns and can also act as terrific mentors and sounding boards as you begin working with your board as CEO. Moreover, they can run interference for you on some thorny boardroom issues—including telling your predecessor, who may have opted to stay on the board for a transitional period, when time has come to leave the building.
No. 4 Review the Annual CEO Evaluation Process
Historically, CEO evaluations were relatively superficial. Over the past decade, the public outcry on executive compensation has caused nearly all boards to put some sort of formal performance appraisal in place for the CEO. These range in style from an appraisal form with enough goals and measures to make anyone dizzy to a brief conversation about the financial results the company plugs into the bonus metrics. Most new CEOs don't ask about this until the end of their first year—and many end up shocked by what they discover.
No. 5 Develop an Emergency CEO Succession Plan
Up to now, your board probably had a pretty good emergency succession plan in case your predecessor got hit by a bus. You were the plan. But once the CEO transition is completed, the emergency plan needs a rework. This issue is undoubtedly on the minds of your directors; they're probably wondering how to raise it with you in a way that won't give offense. Save them the trouble; get it onto the board agenda yourself. Not only will this exercise leave your board better prepared if your snowboard really does head over a cliff; it also enables you to gain invaluable insights into how your board members view your executive team. Many CEOs have been startled by the board's perceptions of their direct reports once this dialogue opens up.
The hallmarks of a constructive CEO-board relationship are trust, mutual respect, openness, and candor. Never forget that the board of directors sets the tone at the top of your company. If you seek to foster a corporate culture of vibrancy and innovation, but you find your board climate stuffy and uninspiring, you need to do something about that. But save that work for your second year as CEO.