Topics:   Corporate Governance,Featured,Strategy

Topics:   Corporate Governance,Featured,Strategy

May 5, 2022

Three Keys for CEOs: Relevance, Culture, and Alignment

May 5, 2022

Two recent global studies offer important insights into CEOs as a group. Both studies suggest that many CEOs are facing formidable challenges. In the first study, CEOs rated the relative riskiness of the business environment higher for 2022 than directors and other C-suite executives did. Also, the number of risks that CEOs said would have a significant impact on their businesses increased from four in 2021 to 13 in 2022 (of 36 risks studied in the survey), more risks than any other C-suite executive. In contrast, directors rated none of these 13 risks as expected to have a significant impact in 2022. Examples of risks rated as expected to have a “significant impact” by CEOs relate to such matters as the future of work and the workplace, acquiring and retaining talent, rising labor costs, the economy, supply chain disruptions, access to capital, digital innovation, ongoing pandemic concerns, and loss of market share to new market entrants.

A second study reported that 72 percent of CEOs are concerned about their job security in 2022 because of business disruptions—a marked increase from the prior year. Furthermore, the second study noted that 94 percent of top executives expect their corporate models will need to be overhauled within three years.

The implications for boards are clear: chief executives are feeling the pressure of uncertainty in the marketplace more acutely than others might be. Engaged directors must understand their CEO’s state of mind in these unprecedented times to recognize what they can do better to help the CEO succeed.

Directors should ask themselves: Is the board giving the advice and counsel the CEO really needs? Is the board contributing to CEO anxiety through its practices and focus? Does the CEO have the talent and resources needed to execute the approved strategy?

Depending on the direction and substance of the answers to these questions, the board may need to focus on getting on the same page as the CEO regarding how to face the future with greater confidence. Boards can start by having conversations with their CEOs with a focus on relevance, culture, and alignment.

Relevance

First, sustaining relevance—as defined by the customer and the people in the workforce—is the challenge of the times. A commitment to sustaining relevance is a commitment to embracing change and adapting the business to current and expected market forces. A strong, steady hand with a focus on sustaining relevance is putting “first things first” for the CEO, which engenders confidence looking forward.

This process starts with focusing the organization on understanding markets and customers at the speed of change. It continues with ongoing improvements to the company’s customer-facing processes and offerings to effectively meet evolving market demands and customer needs in distinctive ways.

In an environment of rapid, disruptive change, the quest for relevance presents a challenge to longstanding incumbents that have excelled at what they do best. Market success and the blinding lights of short-termism breed resistance to change. In contrast, agility is vital to sustaining an organization’s relevance.

The CEO faces several fundamental questions in pursuing relevance:

  • Is the strategy the right one in view of current and expected market developments, and is it focused on the right outcomes? Monitoring the validity of critical assumptions underlying your strategy against marketplace developments over time is a way to “reality test” the strategy’s relevance.
  • Are the strategy and the business model for executing it on course? What’s the story underlying actual performance against the plan, and are there headwinds the organization needs to address? Effective metrics, measures, and monitoring earn the CEO’s confidence in the organization’s continued relevance.

Culture

Second, an organizational culture based on trust and values is a key differentiator. People and culture should be front and center for every CEO. The survey noted earlier about executive perspectives on top risks points to the importance of doubling down on retention through employee engagement and experience. The future of work and the workplace is driving the need for significant investments in upskilling and reskilling. Retention is also important to avoid competitors poaching upskilled and reskilled workers.

This requires a trust-based culture embracing core values that are attractive to the talent needed to execute the strategy. A commitment to diversity, equity, and inclusion (as well as to human rights, safety and well-being, integrity, and fairness) builds trust. So does community impact through investing in people and in the places where their families live, work, and play.

For CEOs, building and sustaining a strong culture is a fact-based journey that begins with straight talk and transparency. Leaders should learn what their employees really think through confidential, anonymous surveys, share the unvarnished results across the organization, and commit to improving the company’s culture and work experience in response to those results.

Once employees are engaged and understand their leaders are truly committed to listening to their feedback and continuously improving their experience, the process of building trust and inculcating core values will take care of itself through successive iterations over time and regular strategic communications from the CEO.

Alignment

Finally, the CEO’s most critical challenge is alignment. The CEO’s quest for alignment begins with the executive team to ensure that all the chief executive’s direct reports are pulling in the same direction, particularly on major transformation and change initiatives. With a focus on relevance through monitoring markets and customer needs, leaders achieve executive alignment through the “blocking and tackling” aspects of linking strategy, people, processes, reporting, technology, and data.

Executive alignment sets the tone at the top, which has always been important. But rank-and-file employees are more influenced by their immediate superiors than by what the CEO and executive team say. That’s why aligning the “mood in the middle” with the tone at the top is vital to the chief executive.

Performance expectations and reward systems linked to the strategy, effective escalation processes, and periodic assessments of the mood in the middle, as well as the “buzz at the bottom,” are critical tools in this regard. Directors and CEOs should also pay attention to the warning signs posted by independent risk management functions and flagged in audit reports.

Alignment efforts must also embrace core values. This starts at the top with leaders who model the desired behaviors. CEOs must decide which behaviors best represent the brand promises differentiating their company and resonating with buyers, and then drive these behaviors with intention and integrity throughout the organization. These behaviors should emphasize treating others with respect and dignity.

Overall, CEOs are feeling pressure in an unprecedented environment of uncertainty and ever-growing expectations. If one or more of the three keys—relevance, culture, and alignment—are at the root of their CEO’s concerns, directors should shift their focus accordingly to ensure they’re contributing value in the boardroom consistent with their duty of loyalty obligations.

Jim DeLoach is a managing director of Protiviti. DeLoach is the author of several books and a frequent contributor to NACD BoardTalk.


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