Stricter governance may be bad for CEOs’ health and life expectancy!
As employers boards have a duty of care towards their only employee, their chief executive. No doubt many boards are already conscious of the stress their chief executives face due to their companies’ operating conditions—regardless of any pressures boards themselves might create, unwittingly or even deliberately. And, sadly, we have seen chief executives pushed to breaking point by their own boards.
A new research paper ‘CEO Stress, Aging and Death’ by Mark Borgschulte, Marius Guenzel, Canyao Liu and Ulrike Malmendier looks at the discernible long-term effects of work-related stress on the mortality and aging of over 1600 chief executives of large publicly listed US companies. An analysis of the research and its findings can be found here.
What might catch the eye is the statement that chief executives who serve under stricter governance regimes die significantly earlier! However, this should also be taken with the proverbial ‘grain of salt’, as the researchers appear to have equated ‘governance’ with administrative and reporting requirements, which are only partial components of corporate governance.
Effective boards reduce stress on their chief executives by creating a broad policy framework that offers greater clarity of expectations and a safer board/chief executive working relationship. It enables chief executives to delegate more effectively and makes it easier for boards to endorse and support their chief executives’ actions.
Navigating the Risks of Corporate Political Spending
Is your board faced with pressure to make political donations? If so, you might find this article by Bruce Freed and Karl Sandstrom in Directors and Boards helpful.
As the authors observe: “Today, companies face serious challenges navigating the heightened risks posed by political spending. Policies alone won’t suffice. What companies need is a broad framework to guide them in deciding how to handle political spending and in evaluating and managing the accompanying risks of this spending.”
For such a framework, they recommend the Model Code of Conduct for Corporate Political Spending developed in the US by CPA and the Wharton Zicklin Center. It is contained in the body of the article.
For further reading on this subject see Political Spending Oversight: Five “Best Practices”
Introducing the Idea of a ‘Premortem’
If you have heard of this concept but are uncertain of what it is and how it can be applied to improve board decision making, read the brief introduction in a recent issue of the Farnam Street Blog.
It quotes Bob Sutton’s definition of a premortem: “a mind trick that goads and guides people to act on what they know and, in turn, amplifies their odds of success”.
The FS folk refer to it as a form of imaginary time travel. Its essence is to imagine that a concrete success or failure has occurred and look ‘back from the future’ to tell a story about the causes. Renowned scholars like Daniel Kahneman have supplied compelling logic and evidence that this approach generates better decisions, predictions and plans. This blog post explains why.
Governing the Escalation Process
Something that can easily create tension in the board/executive relationship is misalignment of expectations as to when something should be escalated to the board. This often becomes apparent when a board has not been given a timely opportunity to consider a worsening situation that ultimately demands a great deal of board time and attention.
Equally important, however, is when boards—with already overloaded agendas—are drawn into something that should have been dealt with and fixed at a lower level in the organisation. It is this second situation that Mark A. Pfister addresses in Governing the Escalation Process (Implementing a Simple Process for Effective Problem Solving).
Pfister proposes an escalation model based on the sound idea that the closer a problem gets solved to the source, the less budget, scope and time is expended. His intention is to ensure that topics do not proceed further up the leadership chain than they should.
His aim is to prevent a board’s time being wasted and its confidence in its chief executive’s judgement being undermined. Pfister’s analysis highlights several issues boards should be concerned about, including the structure of their committees.
What do Chief Executives really think about their Boards?
A recent survey by PricewaterhouseCoopers of more than 550 public company senior executives produced a less than ringing endorsement of their boards. We suspect that similar findings might emerge from a sample drawn from a wider range of entities, which makes this worth a look and some reflection.
The survey results might also be a helpful starting point for obtaining executive feedback to your board’s next board evaluation.
Director performance overall is judged as lacklustre. Among key points:
- directors aren’t putting enough time and effort into their jobs
- there is not enough progress on improving diversity (and not for the reasons directors put forward)
- boards are not spending enough time on ESG issues
- overcommitted and long-serving directors are an obstacle to matching boards’ composition to the skills and expertise needed.
The survey analysis points to opportunities for both boards and their executive teams to address these and other shortcomings.