Question: of the following Board types, which one means oversight?
- Advisory Board?
- Operating Board?
- Governance Board?
Not a tough question, right? The answer is Governance Board.
So, if the role of a Governance Board means oversight, how come so many public companies elect their CEO’s as Board Chair?
Role of a Governance Board of Directors
Let’s step back. What’s the role of a Governance Board? There are three elements:
- To identify and mitigate risk to the organization – in other words, help the organization avoid those legal, financial, environmental (external) and operating (internal) risks that blow up organizations unexpectedly
- To validate and approve strategy for mitigating risk and achieving the mission better
- To performance manage the CEO – the person responsible for executing the Board’s approved strategy
Now, if the Governance Board’s role is to provide oversight on the CEO’s performance, what kind of governance is possible when the Board Chair is the CEO?
Answer: not much.
Tesla and Facebook are Examples of Risky Corporate Governance
Elon Musk is a brilliant entrepreneur. Like a lot of entrepreneurs, he took Tesla public for the money, not because he wanted better oversight from a governance Board of Directors.
Mark Zuckerberg is the same. He’s a brilliant entrepreneur who’s ideas and personal wealth are fuelled by access to the public markets.
Until 2018, Musk was both the CEO and the Chair of Tesla. The Chair title was stripped from him by the SEC as punishment for tweeting out confusing information on taking Tesla private. CEO’s and/or Board Chairs aren’t supposed to do that without a plan, permission and oversight. This failure of corporate governance hurt a lot of people, including Musk. Stripping the Chair title sends a clear message – overseeing the organization and being an entrepreneurial CEO are two different roles.
The same fate has not befallen Zuckerberg – yet. But there are lots of signals that all is not well with Facebook’s governance. As CEO, he has built an incredibly influential organization. However, as Board Chair it is clear that there has been little or no Board oversight on Facebook’s strategies for growing and gaining influence – strategies that are increasingly putting Facebook at risk from international lawmakers and even Facebook’s own clients (I know a lot of people who have deleted their accounts). Identifying and mitigating this kind of risk – not rubber stamping CEO direction – is the first role of a Governance Board.
Corporate Governance Fails On a Regular Basis
In the US, almost 50% of public organizations still have CEO’s who are also the Board Chair. However as companies like Tesla, GE, Wells-Fargo, Volkswagen and many others show, corporate governance fails on a near-daily basis. Boards need to take their oversight roles seriously or people get hurt (lose money, lose their jobs, go to jail, etc.).
Allowing the CEO to also act as Board Chair is a serious governance mistake. It guarantees that oversight of CEO performance is compromised.