Why Should the CEO [Not] be on the board?
- Posted by Ted Hull
- On January 29, 2019
If you want to have a passionate discussion, try one that addresses whether the CEO should or should not be on the board. Some will view it as necessary as ice-cream with apple pie and others as a skunk at a garden party. Well, not quite that good or that bad; but you get the point.
Let’s look at some of the arguments often put forward as to why the CEO should be on the board, and the counter-arguments.
1. The CEO is part of the team.
The role of a board is to connect with those from whom it receives its legal and moral right to govern. The members of the board have been elected or appointed by an identified group of people. Sometimes that group is itself. The CEO, on the other hand, has been hired as a chief executive officer to manage and oversee the operations of the organization. The roles of the CEO and that of the board needs to be viewed as separate and distinct.
But what about the CEO being an ex officiomember of the board? This term is often understood as meaning someone who is on the board but can’t vote. However, this is a misunderstanding of the term. Ex officioliterally means “out of the office” or more simply “by virtue of an office or position.” It has nothing to do with whether the individual can vote. When someone has an ex officioposition on a board or a committee it means they have that position by virtue of being (in this case) the CEO. In any case they should always have the right to vote. You might point to a by-law which says that the CEO will be an ex officio non-voting member of the board. It would be wise to check with your legal counsel in this case, as in many jurisdictions it is now not possible to be on a board and not be able to vote. If one cannot vote, what is the point of being on the board? If it is to offer information or perspective to the board, one can do that without being a member of the board. Thus, the CEO can be a part of the team – with a different role – without being a board member.
2. The CEO knows the most about the organization.
Any board that does not have its CEO at a board meeting is depriving itself of arguably its greatest resource in terms of informing it of those issues of which it needs to be aware. A future-focused board needs to be informed, and who better to get that information from than the CEO? As I mentioned earlier, having someone who can provide information and context doesn’t require that the individual be on the board. As an aside, while information from the CEO is important to have, the board should also access other information sources.
3. It allows for collaboration.
You might argue, when decisions are made, shouldn’t those be done collaboratively? This rationale undermines the distinctive roles of the board and the CEO. First we must determine who has the authority to make the decisions. Information can be taken into account from both sources, but collaboration can create confusion as to who has the ultimate authority. The board has authority for its own governance-level decisions, and the CEO has authority for operational decisions within the boundaries set by the board.
4. The CEO will feel marginalized if he or she is not allowed to be at the meeting.
The issue is not whether the CEO should be at the meeting, but whether that person is a voting member of the board. Even if the CEO is a member of the board, there will be times when that person cannot vote because it would be a conflict of interest (such as assessment of monitoring reports), and parts of the meeting he or she should not be at. This will include the annual CEO evaluation, which under Policy Governance should only be done against the accomplishment of the Ends and the avoidance of the unacceptable means as stated in the Executive Limitations policies, both reasonably interpreted by the CEO. Additionally, the setting of CEO compensation would create an obvious conflict of interest.
While having the CEO on the board may have traditionally been your practice, there does not appear to be any redeeming feature for the practice. The board and the CEO have distinct and mutually exclusive roles. If your organization is required by legislation to have the CEO as a board member, be extra vigilant to keep the roles distinct, and to observe conflict of interest considerations.Keep it simple. Keep it clear.