Governance Bites #118: Holding the CEO to account, with Julie Hood

Holding a CEO accountable is a critical yet challenging duty for any board. In this episode, I talk to governance expert Julie Hood to dissect the nuances of this vital relationship within a sports organisation. They explore how boards can establish clear expectations, monitor performance, and navigate common pitfalls like micromanagement. Learn about effective performance reviews, succession planning, and the subtle art of difficult conversations. This discussion provides essential insights for boards committed to ensuring their CEO’s leadership aligns with the organization's success and values.
Links: 
Sport NZ Futures – Relevance to any organisation and sector - https://sportnz.org.nz/futures/
Sport NZ Governance Resources - https://sportnz.org.nz/sector-guidance/governance/
Strategy specific resources and content - https://sportnz.org.nz/resources/step-4-provide-strategic-leadership/
Online tutorial -good governance = https://sportnz.org.nz/resources/new-governance-101-online-training-now-live/
Julie Hood a nonprofit governance consultant with specific expertise in membership-based organisations, including sporting organisations working in complex federated structures.  She is currently an Independent Director at the Wellington North Badminton Association, gaining hands-on experience in voluntary governance and brings executive leadership experience from the public, private, and not-for-profit sectors. 
In 2024, Julie began a PhD focused on how sport CEOs can develop their governance capability to better support effective board (and their own) performance. A Chartered Member of the Institute of Directors and MBA graduate from Victoria University of Wellington, Julie has a consultancy practice helping boards and executives deliver the right results sustainably.
#governance, #leadership, #corporategovernance, #boardcraft, #decisionmaking, #makingadifference, #ceo, #governancebites, #boardroom, #director

Transcript

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Kia ora koutou [hello everyone]. Ko Julie Hood toku ingoa [my name is Julie Hood]. I'm here today to have a conversation about holding the chief executive, how the board can hold the chief executive to account. Sounds pretty gruesome, doesn't it.'Holding to account'. 'Do what I say. You're in big trouble.' Hi, welcome to Governance Bites. My name is Mark Banicevich and as you just heard, I have the pleasure again to spend time with Julie Hood. Julie, thank you very much for your time. Our conversation today's about holding the CEO to account; a real focus recently in sports governance. So, in your view, what does it mean for the board to hold the CEO to account in the sports context? Yes. Well, it doesn't sound as gruesome as it sounds like, but it can do if you're the chief executive. It basically means that if the board has thought through all of the requirements it has of the chief executive and documented that well, then it has a framework, typically in policy, to be able to hold the chief executive to account for performance. And typically, performance is progress towards the organisation's strategic direction, the outcomes it wishes to achieve, and compliance with policy. And wrapped up in policy is compliance with all of the laws and legislations, the way the board wishes to engage with the chief executive, management team. Anything the board wishes the chief executive to do either on its behalf or in his or her role. If they've documented it properly, then they've got a way of making sure that the chief executive is working in a way that is not going to embarrass the organisation, run it into the ground financially, get offside with the stakeholders. And importantly, the chief executive has a nice time in their role because the relationships between the board and the chief executive are high trust with some oversight, and the freedom for the chief executive to innovate and deliver. So long as, you know, the limitations are set well, then the freedom to do the best job that they can. So, that's what I think holding to account is. What it isn't, is calling out the chief executive every time they're in the boardroom in a way that's hypercritical, diving into unnecessary detail, trying to do their job for them, disrupting the chief executive, not having a culture of openness and trust. And the two can happen, almost at the same time sometimes. Right. So, it's really important for the board to get that right, and for the chief executive to understand what it means, so that they're not feeling hamstrung or threatened, and the board isn't overreaching its obligations and role. Right. Yeah. I can see as a CEO, you kind of want this, as well, right. Because you want to know what the expectations are to deliver to. If you're left with kind of this open slate and not really knowing where you're going, it's very difficult to keep the board happy if they don't set those expectations. It is. Yeah. So, how does the board then establish clear expectations and objectives for the CEO's performance? And how do you link those to the strategic goals? Well, the first thing you have to have is a decent strategy that makes it very clear what the chief executive, what results the chief executive is going to go after on behalf of the board. Who's doing that on behalf of their owners. In sport, its members. And if they don't have that in place, then it's very difficult to start to say to the chief executive,'you have or you haven't delivered'. And if you don't have it in place, you start holding the chief executive to account for being busy. Like, how many things has the chief executive done? How many meetings has the chief executive been to? Versus, are those meetings progressing the strategy? So, get the strategy first. And in policy terms, a statement of strategic direction or an outcome-based statement of intent is the highest level policy document that you can create. Because once you've created the top-end part of it, you work with the chief executive on how to get there, and then you hand it over to them to deliver. So, it's a delegatable document in a way. Right. And then the other thing they should do, or must do, and if they can't do it themselves, get some help to do it, is get a decent board charter developed that has the fundamental policies contained within it that the board requires, both to give themselves guidance on how they will operate, what they will do, and then what they require the chief executive to do. And once those things are in place, and the culture's right, I think any organisation is set up to do, you know, to deliver some pretty good impact collectively. Yes. Yeah. Right. What are some common challenges that boards face when trying to effectively hold their CEO accountable, particularly within the sports environment? I think in many in many cases, members can get into the ears of the board. Members who, and members who are getting into the ears of the board are typically members who don't understand governance. They mean well, and they've got worries and concerns, but they get themselves into the ear of of the board and then the board brings those issues into the boardroom, either having prepared, or typically not having prepared the chief executive, and the chief executive feels like he or she is under siege. Yes. So, rather than being really aware of what the roles are and performing those roles as they should, and the chair, honestly, the chair is just critical. Because if board meetings, which is where all the board's business typically gets done, outside of subcommittees, really. Yes. And board members reading outside the board meeting. The board meeting is where they do their work. And if that environment isn't conducive to good collegial relationships, open, robust discussions that are respectful, then chief executives can often come out of those meetings feeling incredibly bruised and disillusioned. And there's nothing worse than feeling like that. And if there's any board member who doesn't understand contemporary leadership and tries this kind of top-down, directive approach, which is not their role anyway, they're not there to direct the chief executive. The board as a whole is. But if they have that kind of leadership style, rather than a servant leadership style or a collaborative or facilitative style, then it is really tough on the chief executive. Especially when there's one chief executive and there can be nine, 10, 11, 12 board members all coming at them in an unplanned, unhelpful way. And one thing that's unique about sports organisations is you hopefully, actually not always unique, but you often have people on the board who also work in the organisation and report to the chief executive. So, they're kind of on both ends of the scale. Not necessarily so much in formal capacities. In the sports organisations that I've been involved with, quite often the people on the board, although they may not be a formal management role, they're very heavily involved in the organisation at a grassroots level. Oh, in the other membership, yeah. That may involve... And that may involve producing a whole lot of work for the organisation. Yeah. That can be involved at both ends. Understand. What are the key mechanisms and processes the board should have in place to monitor and evaluate the CEO's performance? Yeah, again, do it upfront. So, get your strategy right, because in your

strategy you will have measures: 8:21

'this many more participants','this many more medals'. Yes.'This kind of quality experience as'measured by'. If you've got that right, and you've got good policy documents in place, then you can have a pretty good conversation with the chief executive about what you want them to achieve. Not how you want them to get there, unless there are some limitations that they want to set. So, obviously the chief executive can't break the law. They can't operate with the organisation being insolvent. So, there'll be some limitations by which the chief executive can work. But if they upfront agree the KPIs [key performance indicators] and agree to monitor regularly performance as well as an annual review, - Right. - and get others, people's perspectives and the board's observations and all of that, then the performance management of the chief executive should be an enjoyable process, not a nightmare. Yes. You don't want a thousand KPIs for the chief executive. You only need a few really important ones. You don't want any surprises in performance management. We all hate those. So, regular, every time a chief executive comes to a board meeting, they're kind of being evaluated. Yes. Aren't they. Yes. Their papers are being evaluated, how they present themselves at the meeting, how they come across, are they defensive, are they relaxed, are they, you know, are they being curious about what the board's needing? All of those things can be assessed at a board meeting. If the board members have got their antennas up, there should be no surprises at the end of the year for either board or chief executive about how the year has gone. Right. In my view. Yes. So, you're starting with your strategy document. You got a handful of very important KPIs. The CEO will then be reporting on a regular basis against those KPIs to provide the information to the board. There'll be informal feedback throughout the year and then your formal performance reviews. Yeah. Right. Right. How frequently and in what format should the CEO then report to the board on their progress against those strategic initiatives? Every board meeting. So that should be an agenda item on every board meeting. And depending on where they are in the cycle will depend on what comes to, what information comes to the board. But it must always be in the context of, A, what do I want the board to do with this information? B, what outcome is this speaking into? And typically where there is good progress, and particularly where there might be some obstacles. Right. In what the chief executive has explored as part of those obstacles, and what they've landed on. And sometimes coming to the board for advice. Yes. Using their collective and individual wisdom to help them get that. So, every board meeting is structured up in that strategic context and every paper and every document that comes across is in that strategic context, and the rest is removed. Right. You'll also have financial reporting and some operational reporting in each board meeting. Yes, you do. Yep. So, at a high level the financial dashboard, ideally. Yes. So, how are we tracking against the previously agreed - Budget. - budget and criteria that the board wants to manage in terms of financial position, reserves, cash flow, profit and loss, balance sheet, all of that kind of stuff. Any other metrics. Risk. Not the risk register all the way down to the last paper cut. Yes. But what are the top two or three risks that the chief executive's worried or monitoring. And then I would always tend to put something in around stakeholder engagement. So, how is that progressing? What's coming up for the board to be mindful of? And anything else that's kind of relevant to policy, if it's at variance of it. Right. And what would be the right sort of cadence for board meetings for a sports organisation? It does vary. I think maybe every six weeks is, I'm guessing, but I think about every six weeks. Two months would be a wee bit, a wee bit far out, I think. Yes. That's only six board meetings a year. So, I think six-weekly. Monthly is hard because, I was a chief executive in a prior life. You've only just finished, because people, board, chief executives typically spend time and thought putting those board papers together, and it's a mission. Yes. To do it. Especially if they're large organisation and they've got reports from everybody else to pull together, and they've got subcommittee meetings going on, you can spend two out of the four weeks either preparing for or recovering from board meetings. Yes. So, six weeks I think is quite nice. Gives you a little bit more time to do some work in the middle. Gives you a month to do some work, before you prepare for the next one. Yeah. So, I think every six weeks is good, and not a whole day. Right. And not a whole day. I don't think it's necessary to do a whole day if you're well organised. Right. Yes. How crucial is a clear succession plan for the CEO? And how is the board involved in that process? That's a tricky one, isn't it? Because if the board starts talking to you as a chief executive about succession planning, you start to think,'oh'. 'Have I still got a job?' Yeah. Yeah.'Am I going somewhere that I don't know I'm going to?' So, again, right up front I would be saying actually at interview, before you land on who, that you have a discussion at the interview around the board's role in succession planning and there would be an expectation in large organisations that the chief executive identifies people within the organisation who could at least be a safe pair of hands. Either if they had to exit temporarily. Yes. Or if they decided to go. So, the board wasn't rushed into making a decision. And that's lovely, too, to be able to groom people within their organisation, with the board's, in discussion with the board, so that they know that there'll be... I mean, would it be great if three people rocked up internally to apply for a job that were really well qualified as well as an external group of candidates? Yes, mix. So, I think start from the beginning, and make sure that that succession plan is in place. And the board does need to keep a regular eye on how the dynamics are within the organisation and who's moving on or up into roles. It is always good to go externally, I think, to test the market. But I think the other thing they need to have, too, is an emergency chief executive succession plan. They need to know if something happens to their chief executive unexpectedly, that there's someone in the organisation who can step up. And ideally not a board member stepping across. Right, right. Because that's- excuse me - fraught with difficulties.

So, two parts to succession planning: 15:25

longer term and then emergency. Emergency. And there'll be some organisations, as well, where, small membership organisations, for example, where very small staff, - Hard. - so they may not have somebody internally who can step in. It's very difficult. And it is a challenge for boards when they are in small entities. And I think it does, sometimes, I think it allows chief executives to stay longer than they should, performing less effectively as they should, because the board just doesn't want to go through the drama of replacing a chief executive. Yeah, right. Because they're all voluntary board members. Yes. So, it is really tricky. But if you've got more than one, then the other one should be in a position where they can at least be a senior administrator if they possibly could. Yeah. Right. While they look around to replace them. Because otherwise, a board member will have to step in. Yes. Yeah. Because at some stage, as you say, an emergency can happen, right. It's not always just the planned succession. How does the board ensure that the focus on CEO accountability, particularly in a sports context where we've got those passionate people that are involved in the organisation, doesn't become micromanagement of the CEO and the executive team? Doesn't that wind you up, micromanaging? Absolutely. I hate it. It drives me nuts. It can be quite stressful for people. I don't know anyone who likes it. How to stop the board from micromanaging? Well, again, I think any board member coming on to a board, whether they're experienced or not, should have some refresher provided by the board on what the board's view about good governance is, a reminder about the role of the board, the culture that the organisation has and the board works to, and a conversation about, how will we know if we are overreaching our role? Why are we overreaching? Because sometimes there could be a good reason. Yes. Like everybody, there was a lot of overreaching in COVID, because it was like 'all hands to the pump'. Right. And then people backed out, the board backed out. So, if you're overreaching or you're worried, it's not necessarily a bad thing, but you need to know why and get it sorted and get back out into your own role. But the best way to do it would be to have a conversation around the board is, 'what do we do if we hear one of us overreaching into the chief'executive's business and winding him or her up and getting down into the detail'in the board meetings, the operational detail that is adding no value and is not'what we're there to do? How are we going to address that?' Yes. Does the chair call it out? Can the chief executive call it out respectfully? Can - Any board member. - peers call each other out respectfully? Yes. If that's agreed up front, then it's a lot easier than not talking about it and then allowing one person to go on and on and on and on, and you see the eyebrows raised by the others and sighing, and on their phones. Or eyes glazing over. Because no one's going to call it out. So. Right. Yeah. So, a big portion of it handled in your board induction process. Yeah, I think so. And then your board charter will have elements of it. Yes. And then the board culture and stuff and how you call that out. Yeah. Thank you. Can you describe the elements of an effective CEO performance review process? I think we've done that, have we? Or did we do that last time? We may have briefly, but can we just elaborate on that a little bit? We will. We will. Telling you how to do your job. I'm a volunteer, so you know, every feedback appreciated. Ask me that question again. Performance evaluation. Yeah. Well, tell, describe the performance evaluation process of a CEO. Yeah. Again, it starts at, well, it starts when the chief executive arrives. In fact, I think it starts before the chief executive arrives and you have a conversation about how the review is going to take place. So, everyone understands that it's a planned process. It's continuous in many ways, but it starts with what the board wishes the chief executive to achieve. Right. The end goal. So, this year, or in five years' time, ideally five years' time, let's say that's the strategy, 'this is what we're after: more people'participating, more medals'. We're going after that, and every year we're going to set you some KPIs that will give us confidence that you're tracking towards that. We're going to agree the policies that you're going to work within, and so long, and the limitations that, you know, things you can't do. And so long as, and you need to provide us with assurance regularly that you are complying with the policy, and we'll probably have a conversation if we think you're not. And then maybe one other KPI. Sometimes there's one around, if there's a particular thing the board wants the chief executive to focus on out of that, that can be included but you don't need to cast of thousands of KPIs. No. Set those up. And then monthly or six-weekly review at every board meeting, because the board can get a feel for how the chief executive is going. Yes. And then an annual performance review. So, tell me about the annual performance review. Is it the CEO sitting down with the seven, nine, thirteen board members all poking holes? No, it's not. How how does that work? Ideally a board will have a chief executive's performance subcommittee. Right. Two or three people? Even in a small - two or three people - even a small one. I'm on a regional sporting organisation and we have a small one. It's got terms of reference. The chair does not chair that committee. Okay. Another board member does because the chair will typically have quite an informal relationship with the chief executive outside of the board meetings. Yes, of course. So, someone else chairs it, usually three people and they have a terms of reference which can include getting feedback from the board, reviewing the KPIs that have been set, getting a self-assessment from the chief executive [CE] and sometimes an independent view on how the CE is going. So, those few people that are involved, you talked about the chair being involved but not chairing, another board member chairing. Would you have an independent person involved? Or would they all be board members? Not typically. Right. You'd normally have a couple of board members, and - Okay. - three board members. Yes. But you can get independent. I've never got independent advice, but the board could get independent advice on the process, and if they have any issues, and they can certainly get independent advice on the salary. Because I think that you should have a good idea about what the benchmark. What the market is. The salary band, what the market is, before you go in and have a conversation. And then the chief executive does a self-assessment. Yes. This is how I reckon I've gone. Do you do 360°, asking the management team, as well? Can do. Yes. Yes. I would do that well in advance, and make it, and that would be a good thing to outsource, I think. Right. And never do it if there are obvious issues going on in... I mean obviously if there are issues you've got to sort them out, but I think it's very tricky for a chief executive to have a 360° if there's a poison pen sitting in the organisation and no one's aware of it or the board's aware of it and they... And you just, I think 360°s are helpful, but the chief executive's got to be comfortable,- Right. - on how it's set up and who does it. Yes. Okay. And are you saying that you'd then, you have your remuneration review as part of that performance process or or do you separate the remuneration out of it? Some people separate it out. I'm seeing more of it. I've always done it together. I think there's, I don't know about you and your performance agreement, performance reviews, but there's an expectation that it will come with some remuneration. You kind of expect it to be tied in some way, right. I think so. Performance tied to remuneration. I know there is a view that you uncouple it, but I think in reality, if you don't, if you've done a good job, it'd be nice to be paid for it, wouldn't it. Yeah, absolutely. Yes. What are some early warning signs that the CEO may not be performing adequately in a sports organisation? The board's got to have its antennae up for that, I think, and they've really got to understand and know their chief executive because I think it can come in many ways. It can certainly, in a board meeting, come across as being defensive. I think, if you've got a worried chief executive, you've got to, I would be asking again at interview, 'how will we'know if you are under the pump, anxious and worried, or out of your depths? Because none of those mean, well, we're going to get fired? But it will give us an idea about how we can find out if you are, what are your symptoms? Yes. Because my symptoms will be different from yours, if you're anxious or stressed or worried or out of your depth. And not many chief executives would say'I'm out of my depth', would they. So, I think again it's got to be a well-formed discussion, so that you know how your chief executive looks. But, you know, warning signs, the papers are late, they're in a muddle, you're starting to hear things around the traps that you haven't heard before, either from stakeholders that you respect who might be worried, or staff members. Yes. That might be worried, and then it's time to act quickly. And if you're having a, if the chair is having a good relationship, a regular meeting with the chief executive, then that should really be on the agenda. Right. 'How are you tracking?''What are you worried about?''Anything happening in your private life that we need to be able to accommodate'that's going to impact on your day job?''Are you taking your holidays?''Are you working on your holidays?''Do you take the phone with you?''Are you on 24/7?' Those kinds of questions. And that's where I would get some advice, if I was worried. Right. Because it's got to be handled sensitively. It's a hard, lonely job being a chief executive and I think the board, boards often underestimate the size of the role and the size of the relentless challenges, especially in sport. Right. The federated structures are highly political, highly stressful jobs, full-on all the time, and it's not 40 hours a week. No. No. So, if they've got to engage internationally, they're often in meetings at night or early in the morning. They're often holding board meetings in the evenings or the weekends. Not always, but often. AGMs [Annual General Meetings], stakeholder meetings. It's a really tough gig. Absolutely. Yeah. When you've got a board that's full of volunteers who will have their own day jobs, that you tend to have to have your board meetings on the weekends. Yeah. So, you're eating up a lot of family time. Yeah. It's hard, and it's a good question because I think boards should be really mindful of it. Yeah. Okay. A final question for you. What governance advice would you give to a new director? Do your due diligence before you accept a role. So, make sure you understand why you want to be on a board, and make sure that it's the right board. And if you've got any concerns about the board's competence, don't go near it. If that's been confirmed. And so, pick the board that's right, do your homework on it, and then take as much time as you need to learn about the organisation, its environment, how it operates, complete the induction, do all the training, turn up prepared, don't talk all the time, ask good questions, go to the other events that are on, not all of them but at least some of them, and have time. Right. There's quite a lot I think to consider before you take on a board role and don't take it on just because it's going to make your CV [curriculum vitae] look good, and have the skills and competencies they're looking for, so that there's nothing. I don't think there are many board members that want to sit around a boardroom feeling at the end of it that they haven't made a contribution or added any value. Yeah. So, what is it that you can bring to the boardroom room table that will add value to the board and have you feel as though you've done a good job at the end. Particularly in a sports organisation where quite often the board roles are pro bono. Yeah, they are. Most of them are. Yeah. And you know, if you're on a committee or two then, yeah, you need to have time to do it. And the chair needs to have a heck of a lot more time, two or three times the time that a board member will have. Yes. Particularly in rocky times if the chief executive leaves or there's problems then, it can become a full-time job. Yeah, absolutely. Julie, again, thank you very much for your time. It's a pleasure. And sharing your expertise. Hopefully we can get another chat in soon. and we'll see you next episode. Lovely. Thank you. Thank you for watching this episode of Governance Bites. We have more episodes on YouTube and your favourite podcast channel where I interview directors and experts on various topics relating to boards of directors and governance. We'd love to see you back, and please like, subscribe, and share the videos and podcasts.