Under Pressure: How to find a healthy tension in the Chair and CEO relationship?

It is widely accepted that a healthy tension in the CEO and Chair relationship* is beneficial to a company, its employees, shareholders and stakeholders. Certainly, no one would argue that if these two leaders don’t get along or are not working in the best interests of the company, performance will suffer. There are, of course, situations when a Chair, sometimes newly appointed, must make the difficult call to replace a CEO. And there are also cases when the CEO and Chair are too close, which can lead to all sorts of other issues including complacency. The CEO and Chair relationship is all about finding a way of working together in the context of their respective mandates. However, with the dramatic decrease in tenure in both roles, CEOs and Chairs are confronted with the high stakes challenge on how to find this healthy tension and make their relationship work under time pressure.

* or Lead/Senior Independent Director when the CEO & Chair role is combined

As I put the final touches on this article, the news just came in of another high visibility CEO departure. This CEO had been in place for just under 2 years and was appointed under the leadership of the prior Chair, who then left the role 5 months later. While our analysis shows that this is an extreme case, the overall trend is dramatic. The median "overlap" time of a CEO and Chair "pairing" (or Lead/Senior Independent Director when the CEO & Chair role is combined) has dropped from 4.5 years to 2.1 years. This decrease highlights the growing pressure under which CEOs and Chairs must establish a working relationship.

And even if you know each other, as often CEOs and Chairs are internal appointments, how can you reengage in a way that will help bring the best relationship dynamics in the context of the new roles?

A healthy balance requires that both sides are strong and work to achieve a common goal. When the CEO is too strong, this can lead to all kinds of strategy and long-term succession issues and a disempowered board. When the Chair is too strong, this not only undermines the CEO but the entire management team. While the CEO should feel they report to the board, and not just to the Chair, there should be a mutual understanding that they are serving the same agenda. CEOs have an information advantage, but this should not be misused, if there is to be a healthy relationship. And Chairs typically have a power advantage and should equally be careful in using the "I can fire you" line. A healthy balance would be for Chairs to make the boardroom a "safe place, but not a soft place" for the CEO.

This article captures Egon Zehnder's insights on what CEOs and Chairs can do to make the most of the time together under pressure. In addition to the quantitative analysis, we share our perspectives from across the world from years of working closely with CEOs and Chairs, through advisory, succession and leadership development engagements.

We collected start and end dates for CEOs and Chairs (or Lead/Senior Independent Director when the CEO & Chair role was combined) of publicly quoted companies with market cap of over $30 billion, a total of 168 companies from around the world. We then analyzed the actual overlap time that CEOs and Chairs have together. From this, we generated nearly 400 data points of CEO and Chair "pairings" that have come to an end in the period of 2013-2023.

While for pairings with start dates up to 2015 the median is 4.5 years, for pairings with start dates from 2016 the median drops to 2.1 years, a dramatic decline. Again, this only includes pairings that have ended, and not ongoing CEO-Chair relationships.

Note on data: 168 global public companies with market cap over $30 billion, providing nearly 400 CEO-Chair pairings data points. Excludes CEO-Chair pairings that are ongoing. Data sources: BoardEx database and company public fillings and news releases.

Further we observe that when the CEO departs, 80% of the cases are when the Chair is new to the relationship. And in 50% of these cases, the CEO departure is for reasons other than planned succession or retirement. In the cases when the Chair departs, nearly 70% of the cases are planned succession or retirement. This points to an underlying dynamic between these roles that needs to be better understood.

When the Chair is in place and the CEO is new:

This is seen as the more natural situation, as the Chair, having selected the CEO, will have a vested interest in their success. It is also more natural as both sides have made a conscious decision to work together. Whether the CEO is an internal or external candidate, extensive conversations will have taken place in the run up to a decision. This typically sets up the partnership for success, unless the Chair chooses to depart soon thereafter, leaving the CEO to start a new relationship with the incoming Chair. In cases where the outgoing CEO become Chair, it becomes more delicate. We have seen through our CEO succession work that sometimes the Chair can get in the way of the new CEO really stepping up to the full dimension of the role. The board, particularly the Lead/Senior Independent Director, plays a key role in ensuring this transition process is successful.

When the CEO is in place and the Chair is new:

This is seen as the more complicated dynamics and if the incoming Chair is not careful, it can very quickly lead to misunderstandings and power struggles. Even if the Chair was on the board and knows the CEO, the dynamic changes when a new Chair takes on the mandate. Also, we have seen that first-time Chairs, in particular former CEOs, often expect “too much too soon,” putting pressure on the relationship. If the CEO is given the courtesy to participate in the Chair selection process, at the minimum providing input on the profile specifications, then there is a better chance things can work out for the longer-term. Any sensible Chair candidate will want to meet the CEO before considering the role to discuss the future collaboration, even if they are already a member of the board. It is rare for CEOs to be more directly involved in the final Chair selection, but we have seen this courtesy being extended to strong performing CEOs. However, this can also backfire, if the sitting CEO exerts too much power and influence, or if not careful, overplays their cards, setting themselves up for a difficult start with the new Chair.

1. Trust, Respect and Communication:It’s crucial for the CEO and Chair to have trust, mutual respect and a clear understanding of their respective mandates. They should maintain an ongoing dialogue and a professional distance that is neither too close nor too distant. This can take time to build, so the added pressure of time is not ideal. We have found that regular, scheduled one-on-one meetings and no surprises on either side are essential.

Too often CEOs and Chairs just start working together and get into a dynamic of focusing on the “what,” while they hardly take the time to discuss the “how” and the “who.” They feel they are getting on because of the initial “honeymoon” period, and then suddenly something goes wrong, and they realize they don’t have the relationship fundamentals in place, let alone the trust in each other. In some cases, we have observed a senior board member informally making sure that their CEO and Chair are investing in their relationship. They also act as a “smoke detector” when the relationship is not what it could be, and as a “bridge builder” to bring it back on track.

2. Roles, Intent and Rules of Engagement:

It’s important for CEOs and Chairs to spend quality time in their first meeting on how they see their roles, being open about their intent and the rules of engagement, as well as frequency of meetings, topics to be discussed, and the level of involvement required from each party. Often the agreement is that the CEO leads the company, and the Chair leads the board. This clarity ensure balance, helps avoid power struggles and ensures smooth functioning. However, it is important to go beyond roles and agreeing intent and discussing the rules of engagement. This helps define boundaries and ensures smooth collaboration, as the business goes through cycles or when there are special situations (e.g., M&A, activists, crisis, etc). Some of the best partnerships seems to happen when each side realizes that they have a defined mandate as opposed to an entitlement to lead. We have seen tensions emerge when one party decides to stay longer than previously discussed. It is thus important to revisit roles and intent from time to time.

3. Navigating a complex world together:

There’s an opportunity for Chairs to help CEOs, particularly first-time CEOs, navigate complex situations and unchartered waters such as regulators, capital markets, employees, and shareholders. This includes Chairs and CEOs working together to optimize the composition of both the Executive Committee and the board of directors. We have heard too many CEOs frustrated that their board has not moved with the times and is too backward-looking. And we have also heard Chairs advising CEOs to be bolder and more decisive with C-level changes.

In this context, structured mutual feedback is seen as essential, but it does not always happen, as it requires a real interest in learning, a touch of vulnerability and openness to criticism, which can be difficult for alpha types, who have risen to the top of business circles. Having said this, we have observed that in last decade, CEOs have taken self-development much more seriously and regularly take time for introspection, as in our CEO breakthrough programs. We are now beginning to see Chairs embark on a similar journey if only to remain relevant in their role as someone who can/should provide support and mentoring to the CEO, such as in our Chair Retreats. To our surprise, in our last CEO survey, only 13% of CEOs turn to their Chair for “discussing and making sense of the challenges ahead.”

We have started coaching work with a few CEOs and Chairs keen to invest purposefully in their relationship, but they are currently seen as exceptions. Considering the challenges and the pressure, we expect further engagements of this nature. Sometimes the request comes as part of a new CEO or Chair appointment, or as an extension of a board effectiveness review process. Sometimes it just comes because CEOs and Chairs recognize that they are part of the relationship dynamic and so cannot change it by themselves. In the words one of colleague: “it’s a bit like couples therapy.” Given the high stakes, it looks like the time has come for more CEOs and Chairs to invest in their relationship.

Acknowledgements

The author would like to thank the following colleagues (in alphabetical order) for their time and insights: Jill Ader, Cagla Bekbolet, Lisa Blais, Gaëlle Boix, Ed Camara, Gabi Carvalho, Raphael Czuwak, Peter Flueckiger, Chuck Gray, Sanjay Gupta, Frank Heckner, German Herrera, Clemens Hoegl, Philippe Hertig, Sonny Iqbal, Dominique Laffy, Albert Laverge, Ingrid van den Maegdenbergh, Nina Peters, Andrew Roscoe, Claude Shaw, Ashley Summerfield, Ricardo Sunderland, Lindsay Trout, Johannes von Schmettow and Pam Warren. The author would also like to thank Devyanee Kaushal, Manjari Sharma Shrivastava and Megha Sharma for the research, data and analytics support.