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January 3, 2011 GetAbsract "Board members and CEOs can learn a lot from Klepper's insightul, instructive and fascinating case histories"

Monday, January 4, 2010

The CEO's Boss: Tough Love in the Boardroom

I’m a Jesuit product. I grew up in the mid-west, and I got my Bachelors, Masters and PhD education under the tutelage of the Society of Jesus. It ended up being an ideal preparation for my journey into professional life, and the emphasis on philosophy that my Jesuit education instilled in me has always stayed with me. For my dissertation, for instance, I studied the works of Peter Drucker, who at that time had been writing for over thirty years. I was particularly interested in his “Practice of Management,” written in 1954, in which he espoused a method of management by objectives and self-control. It felt to me as if Drucker was touching on something deeper here than simply making the workplace run more smoothly. By applying a test of a philosophy prescribed by Cardinal John Henry Newman, I proved that Drucker was not just a management theorist, but a philosopher. The Jesuits on my doctoral committee loved this conclusion, and when I started my journey into professional life a year later, I went in thinking that I’d already mastered the philosophy of management.

However, when I got to the East Coast and my executive leadership positions, I learned that the devil was in the details of aligning diverse beliefs and behaviors of individuals toward a common set of objectives. Working out how exactly to accomplish this became the basis of my own particular take on management theory. I served as president of my school board, mayor of my town and president of the county legislature, an independent director of a startup, and worked for more than twenty five years at the College of New Jersey—and with each position came a new set of challenges, and an opportunity to tweak my understanding of the best management practices. Before I joined the full-time teaching ranks of the faculty at Columbia Business School, I had amassed thirty years of executive leadership experience in higher education. This long career path gave me time to work out the nuts and bolts of my own management theory, but my early understanding of it as a “philosophy” never left me.

I retired from The College of New Jersey while in the position of Vice President for Student Life, its chief student affairs officer. I knew it was time to move on when I started to notice that the students always stayed the same age, and I kept getting older. I had been an adjunct professor at Columbia for ten years prior to my leaving the College, so I knew that graduate students and practicing executives would be more appreciative of my graying condition. Along with my graduate teaching responsibilities at Columbia, I was assigned to the role of chief academic officer of the Executive Education program within the Business School. By the end of my fifth year in that role, the Financial Times had ranked us as number one in the world in Executive Education, and we stayed in the top spot for four years in a row (2000-03). We accomplished this feat by aligning the diverse beliefs and behaviors of a very talented group of faculty toward a common set of objectives. This became particularly challenging when a new variable was added in—the deep recession at the end of the decade.

During this period of general decline of the economy, I began my work with corporate directors as the faculty director for our partnership with the Outstanding Directors Exchange, a program for corporate directors to exchange best practices in corporate governance that Columbia contributes its intellectual capital to. Over a period of three years, I developed and presented a series of business cases at these ODX meetings that I hoped would allow the directors to consider the inflections within a business cycle, and how they would survive the subsequent demands on them and their CEOs. As the discussion ensued with these directors, it became apparent to me that an organized body of knowledge could help facilitate their fiduciary roles as the CEO’s boss—and so this book was born.

The basis of good management, as I have always believed, is to align diverse behaviors and practices towards a common goal. When directors do this, it becomes much easier to understand what they need out of their CEO, and when they need to step in and show a little “tough love” to a CEO going off-course.

The choice of the CEO is the single most impactful decision of the board. If they get it right, the board will be revered by the stakeholders. If they get it wrong, they’re in for a world of hurt. I’ve been in both these situations, and I’ve learned far more from the times I’ve been wrong than the times I’ve been right. I offer a CEO Alignment roadmap that I constructed after having gone down the wrong path a couple of times. Consider it a gift.

What does alignment look like when it is working well? First, the directors and the CEO have a Social Contract of the beliefs and behaviors that they hold in common. At a minimum, those common commitments include:
Commitment to values
Commitment to the stakeholders
Commitment to risk assessment
Commitment to transparency
Commitment to coaching

With this contract in place, directors can more intentionally fulfill their fiduciary responsibility as the boss of the CEO. The alignment of common commitments with the directors’ sincere intent to help the CEO succeed is what enables tough love to flourish in the boardroom. The practice of tough love requires that the board address:
The CEO’s behavioral style and leadership practices
The organization’s needs
Matching needs with leadership
Finding the correct match internally, but if not possible
Finding the correct match outside the company

Understanding the leadership agenda, practices and style of the CEO and matching these up with the cycle of the business is essential for achieving success. My Integrated Leadership Model (ILM) offers a representation for achieving the right alignment of your CEO with your business, and consequently the right partnership with the board.

However, ultimate success is in the outcome. The board sets the stage for success by achieving all the proper alignments, but they need metrics to determine if they have achieved their objectives. In business, success is measured by more than the hard metrics. Leadership success in particular is best measured by looking at the “soft metrics” that effective executives employ. My research in the area of “soft metrics” reinforces the Drucker’s last writing on this topic, but goes further to identify those leadership practices that CEOs must employ to be truly effective. When you’ve agreed to the metrics, you will be on the same page with your CEO on what will get measured and what needs to get done and, subsequently, rewarded. Indentifying the gaps and developing the action plan to close the gaps is evidence of a productive partnership with your CEO.

Assuming your board is on the right path with your CEO and business, don’t leave your direction to chance. The board’s commitment to the CEO is ongoing and must be approached deliberately and with dedication to providing tough love in the boardroom. At its core, tough love demands ongoing feedback.

While writing this book, I received the benefit of constructive feedback myself, from peer reviewers. One of the most compelling recommendations by one reviewer was a request to include a chapter on effective board dynamics, which turned out to be the perfect piece to conclude the book. A productive partnership between the CEO and the board distills down to teamwork. Teamwork doesn’t happen by chance any more than does an effective partnership. Solid examples of good teamwork are the best evidence of its importance, and I end the chapter with a discussion of some outstanding instances of successful partnerships and teamwork.

I couldn’t close the cover on this book without looking to the future, and offer in an epilogue some corporate governance predictions for the next decade (2010-2020). I predict that:

Boards will become more egalitarian, participatory and regulated.
Directors will “run” for a seat on the Board, not dissimilar to a political election
Shareholders will have input in deciding the best Board chairperson
Lead independent directors will become the chief process leaders of their Board
The strategic risk profile will be a recurring item on the Board’s regular agenda

I hope these tools will prove helpful to boards, CEOs, and companies as we move into a new decade and a new economic environment. I will continue to develop my philosophy of management, and I’m always interested to hear feedback and thoughts on it. You can offer them on my blog: http://theceosbosstoughloveintheboardroom.blogspot.com/.

William M. Klepper, Ph.D.
Academic Director, Executive Education
Professor of Management
Columbia Business School
Columbia University