Case Study: What happens when the CEO ‘goes rogue’?

10 May 2019

corporates

Scene:

A board of directors with very different skill sets agree on their vision and objectives for an unlisted SME business.  Their strategy is carefully planned and thought-through where each member of the group feels comfortable enough to speak up with new ideas, fresh perspectives and dissenting views.  The atmosphere is one of positive collaboration, respect and enthusiasm for the future direction of the business with the active input of all directors. Sounds like a perfect setup?

Unfortunately, as time went by, it appeared that the business was going nowhere fast.  Strategic plans were going awry, execution was not happening as agreed and there was much behind the scenes back-stabbing.  Worst of all, the CEO was making decisions which affected the whole business without consulting the board, many of which were in direct contradiction to what was agreed.  


Challenges:

  • There was no governance/oversight of the board
  • Roles and responsibilities were clear but there was no individual accountability
  • Although communications at the ‘top level’ were good, operational, risk and procedural issues were not sufficiently focused on
  • CEO felt he could makes all decisions and execute as appropriate because 1) he was the primary investor, 2) he did not feel accountable to the board, 3) there was no process to prevent the CEO from making and taking the decisions including access to the bank account, general marketing, communications with suppliers and its customer base

Consultation:

Sadly at this time, I had not partnered up with Stephen yet for him to provide this business with his excellent insights into good governance.  However, as an organizational psychologist, there was plenty of material to work with to start helping this dysfunctional board do and be better than it was doing.

I started off meeting with the individual members of the board, asking them the same series of questions, encouraging them to answer as honestly as they could.  This was to help identify the key issues and challenges that they faced. I also attended a couple of board meetings to observe them in action, as well as followed through monitoring their action points and how they communicated with each other.  I also conducted some personality assessments and 360s to elicit more information on the board’s dynamics.

Thereafter I made some recommendations which included:

  • Reducing key man risk dependency on the CEO (in this case it was less a fear of ‘losing him’ and more to reduce his ability to override process and decisions)
  • Greater accountability for individual members
  • Improved communication channels and decision making processes
  • Coaching for the CEO – leadership and derailer management
  • Team dynamics coaching and awareness

Outcome:

For a while, things were going to plan and various changes as recommended by the board for themselves looked like they were going through.  However, at the very last minute and unexpectedly, the CEO decided to terminate two directors’ positions with barely any warning and with no compensation.  And meanwhile, the CEO had put the business up for sale and had found a buyer without consulting the others. One member resigned in protest.

So, you’re asking why on earth would I put this up as my first case study.  Sure, the outcome wasn’t all roses and fluffy bunnies. But it’s a reality check for all businesses and their leaders.  We as consultants can make recommendations but ultimately, the work has to come from the board members themselves. In addition, sometimes, we are called in when it is simply too late to help fix things.

CEOs going rogue – sadly not as uncommon as you’d hope – in small and large companies.  Carlos Ghosn, Philip Green and even the genius Elon Musk…  

What can be done to help curb/prevent this from happening again?

  • Implement proper governance and structure to ensure that all decisions made are subject to the appropriate checks and that they abide by standard codes of conduct
  • Set up a specific committee to specifically oversee the CEO and the board – after all CEOs often choose boards that are ‘closely aligned’ with them
  • Appropriate disciplinary actions if standards are not met
  • And of course regular and timely board evaluations to ensure that good governance exists and continues to be met and that the board is genuinely manifesting good leadership and adding value to the business and its objectives 

Poor leadership is often one of the biggest reasons why businesses fail.  How are you ensuring that that won’t happen to you and your business? And remember – good governance is relevant no matter the size of your business.  And if you don’t do the right thing early on, it might be too late to help you!