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CEOs must lead

The difference between success and failure for companies is making the right decisions – no surprises there.  Another truism is that making the right calls is often a subjective process, with no right or wrong answer.  Decisions like whether to hire candidate A or B, or what your budget should be for next year are at least in part matters of gut feel, and inevitably there will be times when the CEO disagrees with the rest of the board.

In this situation it is imperative that there is a proper debate and everyone takes the time to properly understand everyone else’s position (and I stress properly), and that everyone feels that they have and respected.  However, if there is still disagreement, then the CEO must do what he or she thinks is right, even if the investor board members disagree.  In a recent post on his Information Arbitrage blog Roger Ehrenberg put it like this:

the buck ultimately has to stop with the CEO, and if the CEO cedes effective leadership to the Board it will create both an unhealthy dynamic and an untenable situation as more real-time decisions need to be made

This can be tough for investors who have some real skin in the game and care passionately about the success of the company.  They don’t want to see it go wrong and they are being asked to stand by and let the company take a decision that they don’t agree with that might make it go wrong.  However, none of us became investors because we want an easy life, and tough as it may be we should learn to live with it, as the alternative is worse.  I say that as an investor who in the past has definitely found it tough to stand by as companies take what I thought were the wrong decisions.

However, if there are too many disagreements and the board and CEO lose faith in each other then the situation becomes untenable.  Brad Feld wrote about this back in July, saying:

the board – and individual board members – are often involved in many operational decisions, but the ultimate decision is (and should be) the CEO’s. If the CEO is not in a position to be the ultimate decision maker, he shouldn’t be the CEO. And if board members don’t trust the CEO to make the decision, they should take one of two actions available to them – leave the board or replace the CEO.

This last sentence is the rub.  Ultimately if there isn’t a meeting of minds most of the time on most issues between any two people then they shouldn’t be on the same board together.  That said, it can be difficult for some investors to resign as directors, particularly in situations where the number of VCs is limited.  In that situation if the CEO is going to stay then the investor director should, whilst still being helpful where possible, take a back seat and not let their disagreement with the CEO get in the way of the functioning of the company.

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  • Sylvia Brune

    Having read a couple of blogs along the same theme recently, I would like to point out that while general advice like this is fairly interesting, putting examples behind your opinions would greatly enhance their usability.

  • http://www.theequitykicker.com brisbourne

    Hi Sylvia – point taken. I reach for examples when I can, but it is difficult in areas like this where discussions are private and making them public might hurt the interests of a company or harm the reputation of an individual. I will try harder though. Nic