How to rein in a superstar CEO

Boards can ride a CEO’s celebrity or establish a healthy balance of power.

When the CEO is a superstar, it can pose unique challenges for members of the board of directors. Can they and the CEO get along and work together for the good of the shareholders?

A look at the case of Facebook CEO Mark Zuckerberg illustrates the dilemma. Zuckerberg owns 28 percent of Facebook’s stock and controls 57 percent of its voting rights, so he pretty much gets to do what he wants. When news reports suggested that he brokered Facebook’s $1 billion acquisition of Instagram , a photo-sharing service, mostly on his own, people didn’t know whether to applaud him for having the insight to buy a future Facebook competitor before it got fully established or to vilify him for not involving his board earlier in the process.

Prior to its IPO, the Facebook board was happy to allow Zuckerberg’s celebrity to help raise the IPO’s value to an overpriced $38 per share. After the IPO and the subsequent 50 percent drop in share price, it will be interesting to see how much Zuckerberg’s celebrity will influence the board now that investors are angry and the company has a real business emergency.

Lori Ryan, professor of management and director of the Corporate Governance Institute at San Diego State University, sums it up this way: ‘Zuckerberg was firmly in charge of his pre-IPO firm, and the post-IPO board may face a challenge in finding an appropriate balance of power between an enormously influential CEO and the non-voting shareholders whom it will represent.’

Zuckerberg is far from the only big-name CEO to have issues with the board. According to published reports, Jon Corzine, former New Jersey governor and chairman of Goldman Sachs , who in March of 2010 became CEO of MF Global , suggested to board members that he might leave the company if they didn’t trust his judgment about investing billions in European bonds. Everybody knows how that arrogance played out: he bet wrong, and MF Global lost billions and filed for bankruptcy in October 2011.
The stakes can be huge when a CEO operates without the checks and balances of the board, so here are some tips from the experts on how boards can best work with superstar CEOs.
 
Set ground rules

In the case of Facebook, what’s done is done, but there should be discussions about how acquisitions and other business will be handled going forward. ‘Even though Zuckerberg will continue to control the majority of the firm’s voting rights, non-voting shareholders should be made to feel as if their well-being is considered in major corporate decisions,’ says Ryan.

Future board/CEO relations and ground rules need to be discussed, if for no other reason than to clarify the shift in roles going forward. Facebook, like any other company, needs to have guidelines in place regarding what rises to board approval level, how that process should work, and what documentation needs to be put in place to create the appropriate approval record, says Cindie Jamison, who sits on a couple of corporate boards and is a senior partner with Tatum , a professional services firm specializing in placing C-level executives.

Zuckerberg would be well served by humbling himself and asking the board to work with him on major decisions instead of getting out too far ahead in the decision-making chain of events, advises Linda Bolliger, founder of Boardroom Bound , a non-profit organization. Boardroom Bound has established the Boardology Institute, which offers training for minorities and women to help them prepare for board service.
 
Don’t buy the hype

When the CEO is a media darling, warns Jamison, the role of the board can be severely confined because its power to control and govern can be clearly compromised – that is, if it allows itself to lose sight of its purpose. ‘The board’s primary responsibility when working with a superstar is not to be blinded by the light,’ cautions Ryan. While the media, consumers and even minority investors may be adoring fans, board members must retain their objectivity and monitor and control the superstar CEO just as they would any other CEO.
 
Do your job

Be ready to discuss, debate and challenge. ‘Don’t settle for being window dressing,’ says John Alan James, executive director of the Pace Global Center for Governance, Reporting & Regulation at Pace University.

The board of directors should not be involved in the tactical operations of the company, but it should be consulted for major strategic decisions. ‘The best strategies are born from management’s analysis and creativity, coupled with the board’s incisive questioning and probing,’ says Patricia Lenkov, founder of Agility Executive Search , quoting author and business advisor Ram Charan.

Superstar status comes as a result of some major success, but the key thing to remember, says Lenkov, is that the success happened in the past. The board needs to ensure that more success happens in the future.

In business, no one is infallible. The superstar should be reminded that business decisions are enhanced by quality advice and that the board is there to provide the voice of the shareholders, says Michael Bechara, managing director of Granite Consulting Group , which specializes in corporate governance.

‘Facebook, like Apple and Google before it, may be a company where the board and the public at large are able to ride on the coattails of a superstar CEO to a future that only he or she can envision,’ says Ryan. ‘In order to benefit from the fruits of their inspiration, boards must know when to stand back and when to intercede.’

Finesse the situation

The board must first get on the same page by building consensus and then approaching the CEO. One strategy is to assess who on the board seems to have the ear of the CEO, then appoint that person to work as a representative of sorts to present the collective board’s voice to the CEO at critical times.

Another tactic is to be more direct. ‘All board members need to have a direct conversation with the CEO to present their points of view as to their experience and understanding of the rules of engagement that are standard on any board of directors, along with the expectations they have of the CEO and the CEO has of them,’ says Bolliger. Not having these discussions leads to discord as no one has really placed their cards on the table, and that leaves too many opportunities for misunderstandings and turmoil down the road.

In a case where the CEO controls the makeup of the board, the board’s primary management tools are persuasion and publicity. Board members must make strong arguments to the CEO in support of their positions, and in extreme cases use the media to nudge the CEO in directions they believe are critical to the company, says Ryan. In most publicly traded firms, on the other hand, the board has the option of firing the CEO if he or she is damaging the firm or its reputation. But before resorting to that option, it’s important to implement some of these other strategies when dealing with a superstar CEO.

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  1. Steven Shapiro102|

    And have a succession plan in place!