Problems in Business: Is Your Board of Directors Too Nice?

In order to succeed in the long term, every large company needs a system of checks and balances. One of the most crucial systems is the relationship between a CEO and the board of directors. The board oversees the CEO’s decisions and protects the best interests of shareholders and of the company itself.

To truly protect the interests of the shareholders and the company, a healthy board of directors needs to push back on some of the decisions made by the CEO — or at the very least, ask probing questions to make sure each decision is a wise one. 

Unfortunately, the boards of directors of many large companies aren’t doing their jobs. For a host of reasons, they’re choosing to mindlessly approve each of the CEO’s decisions without taking a closer look. Here’s why that’s a bad thing (and what you can do to stop it from happening at your company).

The Problem With Boards of Directors

Business leaders aren’t oblivious to the problem of too-permissive boards. Recent research indicates that only 33% of C-suite executives — roughly one-third — believe that their boards of directors ask probing questions. This means that from an executive point of view, about two-thirds of companies have boards that approve executive decisions with little thought.

Even board members themselves are noticing that their colleagues aren’t standing up to company execs as often as they (probably) should be. Another study found that 19% of company board members surveyed believed other board members weren’t standing up to CEOs and other executives enough.

The central problem is simple: modern CEOs expect their boards to give the stamp of approval to their every decision, and modern boards of directors are happy to oblige.

Over time, passivity becomes ingrained in the board, and even new members tend to go with the flow instead of being the lone voice of dissent. It’s an issue that’s almost impossible to correct without conscious effort.

What Happens When Board Members Don’t Confront CEOs?

If boards of directors were more willing to stand up to CEOs and take an active role in making company decisions, businesses wouldn’t have some of the issues they have today. However, because boards aren’t held accountable when they permit CEOs to make unwise decisions, the problem continues to snowball. 

Here’s an example. Imagine that a company’s C-suite executives decide they deserve a large pay increase. The company is struggling, so most reasonable people would say that straining the budget further is unwise.

The CEO brings this plan to the board of directors. Many of the members think that increasing executive pay is not a good idea. However, over the years, the board has developed what can best be described as a non-confrontational culture. Each time a decision is made, board members tend to keep their concerns to themselves and approve the measure.

In this example, the board approves the executive pay increase even though that decision is clearly not in the best interests of the company. Now that the executives see how easy it is to increase their pay (and to generally make decisions that benefit themselves and not the company as a whole), they might try to continue raising executive pay in the near future.

Tips for Fostering Healthy Confrontation

A confrontation between board members and executives doesn’t have to be tense or heated. When a board of directors confronts a CEO in a healthy manner, the goal isn’t to instantly shut down an idea or force the executive to see things from the board’s point of view — it’s to open up a dialogue. 

Here are some ideas to help make sure your company’s executive suite and board of directors have a relationship that’s both healthy and productive.

Shift Priorities When Screening Candidates

An effective board of directors starts with the screening process. And all too often, shareholders avoid voting for anyone who they think will rock the boat or be a dissenting voice.

It’s important for shareholders to note that if a conscientious board member argues against an idea, it’s not out of spite or just for the sake of argument. Board members who are willing to push back on CEO decisions are actively protecting the company — and by extension, its shareholders. 

Instead of avoiding candidates who aren’t afraid of conflict, shareholders should see this trait as a good thing.

Nominate a Dissenter

This is a smart tactic if your entire board of directors is conflict-avoidant. Pick a period of time and select one member to be the voice of dissent. During that period of time, that member must raise complaints and make the arguments a dissenter would. 

With this plan, the board is forced to confront possible challenges, and there’s no risk of someone getting the cold shoulder because they went against the rest of the group.

Learn From Negative Analyst Reports

Want to take the “voice of dissent” strategy to the next level? If you want to make sure your board is considering every possible angle (and refuting solid arguments as they do so), try finding negative analyst reports about your company. Your board can pore over the reports and identify current trends that may need to be addressed.

Of course, many passive boards will ignore suggestions like these, continuing to abdicate virtually all responsibility for the company to the CEO. Confronting a CEO or looking critically at their plans might make the job of a board member a little harder, but it’s one of the main duties entrusted to a company’s board.

Conflict: A Company’s Best Friend?

Conflict for its own sake isn’t productive. However, if you want to ensure your company is moving in the right direction, having a board (or at least a board member or two) willing to go head-to-head with your CEO is crucial. 

If your C-suite and your board of directors can understand that they’re working together for the good of the company, you might find that your company leadership becomes healthier than ever.