The Board of Directors 513may say nothing and mentally file the incident for future reference in evaluat-
ing the CEO. The Business Roundtable, a group of CEOs of leading companies,
succinctly described the directors’ role vis-à-vis the CEO as “challenging, yet
supportive and positive.”
An important function of board meetings, conversations, and even social
occasions is to give the directors a basis for continuously appraising the CEO.
Directors usually cannot make constructive suggestions on the details of cur-
rent operations. Occasionally, they may call attention to a matter that should be
investigated. Primarily, however, they listen carefully to what the CEO says
and do their best to judge whether things are going satisfactorily and, if not,
where the responsibility lies.
The directors want the CEO to be frank and to give an accurate analysis
of the company’s status and prospects; concealing bad news is one of the worst
sins a CEO can commit. Nevertheless, human nature is such that directors can-
not expect the CEO to be completely objective. Incipient problems may go
away, and making them known, even in the relative privacy of the boardroom,
may cause unnecessary alarm. Directors, therefore, are on the alert for indica-
tions of significant problems. In many well-publicized bankruptcies of public
companies, the directors were significantly responsible; they did not identify
or act on the problem soon enough.
Louis B. Cabot, former chairman of the board of Cabot Corporation, had
a frustrating experience with the ill-fated Penn Central Corporation. He joined
the Penn Central board about a year before the company went under. From the
outset, he was disturbed by management’s unwillingness to furnish the infor-
mation about performance that he felt he needed. A few months after joining
the board, he wrote the CEO a letter that contains the following succinct de-
scription of the director ’s role:
I believe directors should not be the managers of a business, but they should en-
sure the excellence of its management’s performance. To do this, they have to
measure that performance against agreed-upon yardsticks.The Next CEO
The board cannot tell beforehand whether a candidate will make a good CEO.
The best indicator is how well the individual performs in his or her current job.
In most instances, therefore, the board looks to senior executives with proven
track records as candidates for the CEO position. One of the most important
responsibilities that a board assigns to a CEO is to develop a succession plan
for the company’s senior managers. The purpose of such a plan is to identify
potential CEO candidates, provide them with opportunities for growth, and
groom them for higher level positions. The board participates actively in this
process by meeting with the CEO (usually once a year) in a meeting devoted
largely to reviewing the senior management. Typical questions asked are: How
is a key executive performing? What is his or her potential? Who are potential
successors for the CEO, now and in the future?