3 days ago
Board Dysfunction Is On The Rise—And 4 Ways To Mitigate It
It's a long-standing problem for companies of all types and sizes: a dysfunctional board of directors. As many as an estimated 25% of boards are dysfunctional and, given today's politicized environment with organizations facing economic uncertainty and escalating tariffs and trade wars, the problem could get worse.
Board dysfunction has become so urgent, in fact, I was invited by the National Association of Corporate Directors (NACD) to address this issue at their recent seminar in Chicago. Based on what I heard at NACD, it is clear that many organizations are focused on ways to improve the working relationship between boards and CEOs.
Clashes between CEOs and their boards are common, and the biggest ones make headlines. One legendary conflict was between Apple co-founder Steve Jobs and his board, which fired him in 1985 because of his autocratic and demanding manner; 11 years later, Apple brought him back to rebuild the company. More recently, in late 2024, Intel CEO Pat Gelsinger stepped down after clashing with his board over his turnaround plan that reportedly was not producing results fast enough.
Fortunately, conflicts don't have to reach the crisis stage. Here are four steps every organization can take to minimize dysfunction and establish a healthy working relationship between the CEO and the board.
1. Setting Clear Expectations
The first step is to set clear expectations for the roles of the CEO and the board. Management manages and the board governs. It really is that simple. But simple does not mean obvious.
Many people join a board without a specific understanding or training of what the job involves. In addition, many board directors are current and former CEOs who are used to running a company, rather than acting in an advisory capacity. Complicating matters, some CEOs expect the board to act more as a rubberstamp committee, instead of digging in and asking tough questions of management.
Without an appreciation of the balance their respective roles require, no one should be surprised that CEOs and boards end up in conflict. An example is what happened to a friend of mine after being invited to join the board of a private, family-owned company. At his first board meeting, management discussed a company they wanted to acquire. This is an area in which my friend has a lot of experience, so he offered his opinion as to why the acquisition did not make sense to him.
The CEO, who is also the founder, told him, 'That's fine. You can vote against it. But since I own more than 50 percent of the company, I'm obviously going to do whatever I want to do.' After that interaction, there was nothing my friend could do to change that dynamic; as a result, he resigned.
2. Being Accountable As A CEO Means Minimizing Surprises
When expectations are set and clearly communicated, the CEO and the board can hold each other accountable. For CEOs, this means understanding the board is their boss. For new chief executives, in particular, this perspective can be challenging. From one role in the company to the next, they only had one boss. That boss was someone who knew the company well and probably held the position that they now occupy. At the CEO level, everything changes. The CEO no longer has one boss, but rather eight, ten, twelve, or however many directors serve on the board of directors.
To do their job diligently and act in the best interest of shareholders, directors expect to hear from the CEO on a regular basis. That means updates on the company's operational performance, its strategic direction, leadership and talent development, and succession planning. For example, when I became CEO of Baxter International, a $12 billion health care company, the board made it clear that they wanted to be informed about everything—from new opportunities to emerging challenges.
As one board member told me, 'Never surprise me, Harry. I don't want to be driving my car and hear news about Baxter on the radio that I wasn't aware of. Nor do I want to be at a dinner party and have someone say to me, 'Did you hear what Baxter is doing?' If that ever happens, that could be your last day as CEO.'
3. Acknowledging The Board Doesn't Run The Company
The flip side of accountability is ensuring that board members do not overstep their responsibilities, especially in the day-to-day operations of the company. While it's perfectly acceptable to challenge management, the board cannot decide that they're going to get more deeply involved in running a particular division of the company.
Here's a scenario that's all too common. A division president wants to make an acquisition, but the CEO decides it's not the best move for a variety of reasons. Instead of everyone accepting the decision and moving on, a board member reaches out to the division president to discuss the issue. The division president is more than happy to have an ally on the board and eagerly tells the director why this acquisition is important and what a mistake it would be if the CEO does not buy this company. The more they talk, the more convinced they become that the board should pressure the CEO to make the deal — and, who knows, maybe this division president should be running the company.
This is a blatant disregard for the boundaries that are necessary for good governance. The board member is not running the company, the CEO is. And if other members of the management team are doing an end run around the CEO to get to the board, that could set off a leadership crisis.
4. Creating Alignment In Polarized Times
If the very nature of CEO-board relations wasn't fraught enough, there are even more reasons behind dysfunction these days. Political polarization is creating fractures within all groups, including boards of directors, on any number of social, economic, and geopolitical issues. Compounding matters, social media creates the perception that an immediate response is required, instead of taking the time to carefully think things through. This is a recipe for significant dysfunction, since there is likely a divergence of strong opinion within the board, the leadership team, and employees on most issues.
If they are values-based leaders, however, the CEO, board members, and other executives will seek to understand an issue from multiple perspectives. At the same time, they are also clear that they don't need to make a public statement on every issue, particularly if it is outside the company's area of expertise. For example, when I was chair and CEO of Baxter and chairman of the Healthcare Leadership Council's Executive Task Force on the Uninsured, I testified before Congress on the need to provide coverage for uninsured people in America. The board, my leadership team, and I were all aligned on using the company's influence to draw attention to this important issue.
Addressing board dysfunction and mitigating conflicts with the CEO are daunting tasks, but they are vital to the success of an organization. Only when CEOs and board members understand their respective roles, have clear expectations, and are mutually accountable can they forge a healthy working relationship.
