As was I waiting for the next session to get started in the grand ballroom of the InterContinenal Hotel, I had this thought: If I was an outside director of a local community bank, would I rather spend one of my afternoons golfing, getting a root canal or telling the CEO of my board’s bank that he or she wasn’t doing the job as expected? Personally, I’d choose none of the above, but I’m positive that the majority of the 270-plus attendees would not have chosen the latter.
Which brings us to the last general session of day one where TK Kerstetter, of Corporate Board Member, artfully moderated the somewhat uncomfortable topic on handling situations most compensation committees want to avoid. The panel of compensation experts included Susan O’Donnell of Pearl Meyers & Partners, Henry Oehmann of Grant Thornton, and Alice Cho from Promontory Financial Group, who all naturally suggested what any expert would when you’re faced with a conflict — confront it.
Despite the somewhat obvious advice, the session focused specifically on guidelines for proactively managing the board and CEO relationship, effectively overseeing the CEO’s compensation and consistently conducting board evaluations. Susan O’Donnell started the discussions by outlining the following scenarios that many board members all too often find themselves struggling with:
- The compensation committee has designed the entire plan with no input from the management team and thus are experiencing an unexpected backlash that is costing the company time and money.
- The bank is being led by a dominate, yet high-performing, CEO who is driving most of compensation planning process, and therefore board members essentially have become lame ducks who rely too much on CEO.
- The CEO is best buddies with a few directors and as a result the board has lost all sense of objectivity.
If the above scenarios feel all too familiar to you, then the question became, how should the board deal with these scenarios, or at the very least work towards avoiding them in the future? The panelists all agreed that the following approaches will go a long way in setting the board up for success:
- Set expectations with the CEO early on in the relationship.
- Use outside advisers to help evaluate compensation plans, especially the CEOs.
- Rely on the chair, lead director or compensation advisor to help have the tough discussions.
- Don’t be afraid to think independently as healthy debates are important.
- Know the compensation plans even for audit and risk team members.
- Use board evaluations to hold each other accountable.
Clearly, the goal is to avoid dissension between the management team and the board while keeping the bank’s CEO happy and cooperative. Building these positive relationships starts by setting expectations, staying objective despite having differing opinions, and regularly evaluating your peers and the situation. Luckily, the National Association of Corporate Directors has a diagnostic book on doing peer reviews with directors available on its website at nacdonline.org.