How should boards handle visionary CEOs?

January 28, 2024

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How should boards handle visionary CEOs?

The recent firing and rapid rehiring of Sam Altman, the co-founder and CEO of ChatGPT creator OpenAI, illustrates the delicate dance between visionary CEOs and the boards who oversee them.

Some CEOs — often founders — are fueled by strong convictions about the strategic direction their companies should take. But their boards sometimes don’t share their visions. When that happens, what is the board’s role in governance? Should it monitor or advise the CEO? Should it back off and approve the CEO’s strategy?

The answer depends on how deeply the CEO is invested in the strategy said the lead author of a new study. The researchers built a model of board/CEO relationships, in which a CEO has a strong belief about the state of the industry and the strategy they've created.

The board, representing shareholders’ interests, gathers information to either confirm the CEO’s plan or recommend a switch. But how much effort the board puts into gathering that information — and whether it uses that data to persuade or overrule the CEO — depends on how strongly the manager believes in their vision, the model shows.

• If the CEO is only “mildly overconfident,” the researchers found, the board will invest more resources to collect information and give advice. In this scenario, if the information shows the strategy is not the right one, the CEO listens and changes direction.

• Sometimes, the CEO has a higher level of confidence and no longer listens to the board’s advice — even if its information suggests the vision is wrong. In such a situation, the board’s best course is to act as a monitor, with the option of overruling the CEO if the accumulation of information supports a new strategy. The stronger the CEO’s belief bias, the less information the board will collect, the model finds.

• If the CEO is a visionary who strongly believes in their ideas, the board may decide not to intervene, even if it’s convinced a new direction would better serve shareholders. In this case, the board rubber-stamps the CEO’s strategy, because the CEO will be highly motivated to make it succeed.

What the researchers say: “It can actually be optimal to be passive,” the lead author told us. “You often hear that boards are too passive and rubber-stamp the CEO’s vision or ideas, but our setting shows that in certain situations, it can be the right move.”

The alternative — forcing a visionary CEO to change strategy — could backfire by depleting the CEO’s enthusiasm and derailing the company’s progress. It could ultimately mean replacing the CEO. Both scenarios would be costly to shareholders, as the back-and-forth conflict between Altman and his board demonstrates.

“If the loss of motivation would be substantial, the board won’t insist on a strategy shift,” the researchers explained. “They will just let the CEO run with his idea.”

So, what? In our experience of 30 years as a consultant to major organizations throughout the world we have discovered—as research by the Gallup Organization has found—that few CEOs are in the right job. Gallup estimated that only about 5% of CEOs are genuinely suited to the role in terms of their, business acumen, administrative abilities, EQ and SQ (social intelligence).

We have also found that boards are rarely willing or able to fulfil their roles as guides and guardians. We also observed that where CEOs were successful it was more due to luck and favorable market forces than judgement.

In terms of our DNA, humans are not designed to have leaders except in times of crisis. We are designed for consensus decision-making. We have seen CEOs—and political leaders—create a real or perceived crisis or emergency to protect their position.

Of course, at times a strong, or visionary, CEO is needed, and we have been privileged to work with a number of them over the years. But they are rare, as are the circumstances which call for them.

Dr Bob Murray

Bob Murray, MBA, PhD (Clinical Psychology), is an internationally recognised expert in strategy, leadership, influencing, human motivation and behavioural change.

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