The best CEOs invest in their relationship with their board. In the fifth episode of the CEO Insights series, senior partner Celia Huber shares how CEOs and their boards can best collaborate. Speaking with Laurel Moglen, McKinsey’s managing producer, Celia talks about establishing efficient and effective board processes, communicating often and openly, and fostering a strong board culture.
CEO Insights, which features short, sharp perspectives on the evolving role of the CEO, is produced by The McKinsey Podcast in partnership with the CEO Special Initiative.
This transcript has been edited for clarity and length. To catch the full episode, click here.
The CEO–board relationship
Laurel Moglen: What is the role of the board?
Celia Huber: That is either a simple question or a very complicated one. The role of the board at its most basic is for overseeing and guiding the company’s strategic direction and ensuring its success. And maybe the board’s most important job is figuring out who the CEO might be and CEO succession. All of this is put together to safeguard and look out for the interest of stakeholders, in particular, the shareholders. What we’re also seeing now is that boards have evolved to think about the broader implication to stakeholders, not just the direct shareholders.
Laurel Moglen: That seems like such a critical change in priority.
Celia Huber: It has been a change in priority. If you go back roughly 20 years, boards were much more focused on the shareholders. They were picked by the CEO and didn’t act that much as critical thought partners, but more as supporters of the CEO.
They were people in the same social circles. What we see today is a lot more diversity in board members, a lot more of boards being the genuine thought partner to the CEO and the rest of the management team. Boards are really acting as a foil to stress-test a lot of different actions that the company could take.
Laurel Moglen: Based on what you’ve experienced on the ground, plus with McKinsey’s research, how knowledgeable do board members feel about the companies they serve?
Celia Huber: For the most part, board members would say that they’re not that knowledgeable about the industries the companies they serve are in or about the dynamics and technological change involved in them. Onboarding and continuing education for board members is a number-one priority that helps board directors to stay abreast of current issues, changes in technology, and the industry that they’re in.
Laurel Moglen: So big picture, what would you say CEOs need to do to achieve that ideal partnership, as you describe?
Celia Huber: Today, most board members say that being a board member is getting more complicated. The issues are more complex. They’re spending more time on it—roughly 30 days a year. I think there are several things that are stylistic depending on the CEO, but fundamentally, there needs to be an ongoing trust-based relationship between the CEO and the management team with the board.
What do I mean by that? Understanding that the questions that come up in the boardroom are not personal attacks, that there should be a level of collaboration—asking questions back and forth— and that board members understand where their role ends and the management role begins.
A second thing that the CEO can do is plainly share insights and learnings that they have about the company and how they’re moving forward. An example of that might be continuing education, or a board off-site meeting where a half day is spent discussing how AI might affect the business. It also could be, depending again on the CEO’s leadership style, having regular meetings one on one, once a year, and/or also sending out monthly board memos. I know a CEO who spends a lot of time texting their board with hot topics. There are many ways to interact.
What underpins all of this is a level of transparency, and without that transparency the conversation doesn’t hit the most important issues. You don’t really cultivate that trust level. We see CEOs who are confident in their role often bringing in either outside advisers or thought leaders who take a different perspective from the company, to push and pull on where we think the future is going, and what scenarios are important to us.
Laurel Moglen: What is the best way to prep for board meetings?
Celia Huber: What directors tell us repeatedly is that they don’t want to be buried in information that is not relevant. They don’t want to walk through pages of a PowerPoint with the management team. They want to understand the context for the discussion and the prereading is a prerequisite for that. In the board meeting, they want to discuss the most important issues and risks related to the topic at hand.
There is a lot of diligent preparation on the management team’s part, and they are often as frustrated as the board members when it comes to getting to the right balance of how to communicate what you need to know at a high enough level so it’s not too voluminous, but at a low enough level so that the board understands the key issues.
One way is to start with a short note on an issue that says, “Here’s where the management team sees our strengths, our opportunities, and risks, as well as how they affect how our business model creates value.” That can be a very short piece or cover memo or even a synthesis of the executive summary.
One of the things I’ve talked about with clients is always having a return-on-invested-capital tree or some other depiction of how profit is made, where expenses fit into the business model so that you can literally say this topic is moving these two branches of the tree.
Laurel Moglen: We’ve discussed board meeting preparation. What’s the best way to run the meeting?
Celia Huber: First, the CEO and the chair together set the agenda. The CEO can direct the conversation to make sure the things talked about in the prep are coming out in the discussion. This level of facilitation doesn’t just fall on the chairman of the board or lead director. It’s for the CEO, who knows both their team and the issues better than anyone else in the room. This also gives quieter board members a chance to get a word in edgewise.
It allows the CEO to understand the questions that have been brought into the room, so that those questions are answered dynamically. The CEO keeps an eye on the time to make sure discussions happen efficiently and makes sure the management team is able to answer questions that might be a bit more complicated for the board. And before closing the meeting, the CEO should work with the chair to recap not just decisions that were made but also the important issues that they’re going to see again.
Laurel Moglen: We know that relationships are two-way, so what can board members do to be the best partner to that CEO and the company?
Celia Huber: Absolutely, it’s a two-way street. The boards have a fiduciary duty to do their best. This means they should not just do the reading the company gives them, but they should actively seek information, whether in the Wall Street Journal about what’s happening to competitors, a news feed on what’s happening in the industry, or going to other board meetings, bringing back ideas on governance that works well for other companies, while also investing in education outside of the boardroom, like a university course on cybersecurity. If just one or two board members don’t do their prework before coming into a meeting, it can create an enormous disruption.
Laurel Moglen: Any other thoughts you might want to share?
Celia Huber: When we study effective versus less-effective boards, what we find is that the most pivotal position is the chair or lead-director role. They really are the coach for the CEO and can tell them honestly if what they said landed with the board. That type of straightforward communication is so important to give to the CEO.