CEO success factors — balancing Board and shareholder relationships with company knowledge
Building trust and company knowledge to achieve commercial success.
The financial and people accountabilities of the CEO role to lead, manage and achieve company and team success are as challenging as they are wide. Whether the objective is revenue growth, portfolio transformation, operational and process refinement, product development focus or profit maximisation through cost optimisation and restructuring, the roadmap of iterative and constant change for any CEO is fluid and in a state of continual re-assessment and flux. For any new or seasoned CEO, this change constant is tricky enough. Ever-present in mind and with ever-present linkage to budgetary and P&L performance.
Simultaneously you are responsible for demonstrating prudent management and direction to the Board and shareholders while managing and adhering to corporate governance processes. And it is here that building a rapport, an understanding, trust and a relationship with the shareholders is of course expected and necessary, but it also needs to be balanced with developing company knowledge. This is not just important, it is essential. You must develop a clear understanding of how the company was formed and be comfortable with key company knowledge related to its operations. This information is contained in, for example, the original shareholder agreement, the constitutive contract and any related corporate governance associated charters or management agreements. Balancing these two (relationships and knowledge) is fundamental to leading commercial performance and having a CEO knowledge toolkit to work with. And something I wish I had been aware of before securing my first CEO role.
Differing Board and shareholder perspectives
So why is this so important? Ask yourself, as CEO, are you prepared for managing the business when you are faced with different perspectives and opinions on company strategic direction at the Board and Shareholder level? Are you equipped with the right knowledge to manage or affect commercial decision-making when the Board or shareholders disagree on key commercial options?
Films and TV are full of Board showdowns, high stakes negotiation and power-based decision making but when you are in that Board meeting or that AGM where you have to manage and influence real-life Board and shareholder decisions, do you have the right skills and knowledge? Or are you going to wing it like on TV? I suggest you don’t.
It is under such circumstances that the company can be challenged not by the competition, disruptive technology, market forces and change or even geopolitical dimensions, but by itself. Despite your recommendations as management, you will be faced at some point with conflicting perspectives on commercial direction, driven by different underlying shareholder perspectives, their own personal circumstances and desired outcomes. These may be centred around revenue growth ambitions vs EBITDA maximisation and net profit through operating cost control. Or split between the desire for further investment in the company vs positive equity management and dividend returns. And each party may well be valid in their position and assured in their perspective. How you go about understanding and managing these situations is then crucial. But, remember, your and your team’s success and dedication can affect or be a creator of the situation.
Commercial factors that can influence situations
How? Well, for example, after a period of growth and success or successful optimisation of cost and a turnaround of the business, as CEO you may be faced with shareholders who have the desire to sell the company or a proportion of the shareholding, given the recent positive results and commercial success. Credit to you if as CEO you have achieved the strategic business goals and targets, but understand that success and delivering shareholder value can also lead to new perspectives on ‘where next’ and revised commercial opportunities or divestment. Similarly, a downturn in performance driven by managerial or market factors will also bring about Board and shareholder repositioning. Here, you will face personal pressure to relay and detail the trends and explain why. Plus provide the steps, options and managerial recommendations to buck the decline in P&L performance which, for example, could include the need to secure new investment from shareholders.
It is therefore fundamentally important to readdress the situation from time with this lens and empathise with the Board and shareholders and how they might perceive ‘success’ or ‘change’ ahead. And find a way to balance the different perspectives to allow you to manage the business ahead by succeeding in getting Board and shareholder alignment, decisions or if necessary, decisions by vote. But what do you need to know to do this?
Understand your position and accountability
In these situations, as CEO, you must be ready to manage your position by thoroughly understanding your role in the context of accountability. In simple terms, for example, you are responsible for your team and P&L performance, but ultimately, at the end of the day, you are entirely accountable to the Board and shareholders. You are not just leadership, managing down, but leadership managing up and across the Board and shareholder community to achieve and secure down-line managerial direction. It is a subtle but essential factor to consider. A hard and soft line.
For example, in the shareholder’s agreement, it may state that the CEO is responsible for general commercial management and business performance with defined ranges of decision-making powers (and potentially restrictions to adhere to under an authority matrix). However the Board and shareholders have the ultimate decision mandate, especially when core commercial decisions affect the long-term business plan. Pay some attention to these differences if, for example, you have been promoted to a CEO from a non-CEO role and how your personal and business position and accountabilities have changed. You now obviously need to operate at a different level and with a different focus but will have new critical legal responsibilities that require careful consideration that connects to you as a person.
Understand the company construct, leverage, power and decision criteria
To help you get to grips with the tools to operate as a CEO, develop a solid understanding of the company construct (documentation such as the constitutive contract and the original shareholder agreements and any subsequent amends). Company knowledge plays and key role in circumstances where you need to manage the Board and shareholders. Give yourself the best insight and capability to handle these situations.
How? Well spend some time and attention to the company structure and ask yourself, do you know the leverage points you have as CEO to manage the situation, over and above trust and relationship? Do you know what tools or authorities you or each shareholder have under the original shareholder’s agreement and what are Board or reserve matters? Are you aware of what decisions require a majority or super-majority and the voting process? What level and what powers are exerted to different or combined authorised signatories under the company authority matrix?
Yes, you are going to have to do some reading and research, and I would recommend any CEO to ask for this information either as part of the hiring process, under an NDA, or in the first week of joining.
Naturally, building trust and relationships will help you manage Board and Shareholder disagreement or support strategic direction, but also be sure to develop your relationship foundations on fully understanding the company construct and levels of power and controls. Such knowledge will empower you to manage the corporate governance layer and shareholder relationships built on the baseline of clarity and insight. An essential balance when executing the processes of corporate governance such as Audit Committee, Board and shareholder’s meetings (including the AGM).
Building on relational and knowledge capital
It is now that by having built trusted relationships, supported by company construct knowledge and by demonstrating prudent management of their company that you can work with the Board and shareholders to glean support. To grow and protect your team, to secure new investment or to receive their backing for core commercial and strategic decisions. And of course, allow you to run the company. But, as described, it is also here where you can face some of your most significant challenges when there are shareholder disagreements or alternative perspectives on strategic direction. And you need to be prepared to look in the mirror and do some constructive self-evaluation of your perspectives too.
These situations are natural and can be cyclical, but the way in which you manage the situation and the ‘how’ using your relational capital and or company construct knowledge with the shareholders are a vital CEO success factor foundation. It is also where you as CEO may need to step up to position yourself or the company based on a blend of facts, business case evidence, company construct, corporate governance processes or legal parameters.
This balance is never simple, as there are such a wide size and diversity of issues that CEOs face, but knowledge of the underlying facts and processes will help you ascertain situations and make decisions accordingly within the boundaries of reason, fact and your presence and conviction.
Good luck.
Alex
