Stress & the CEO: What role for the NED?

There’s no doubt its a tough job being a CEO, but it goes stratospheric when you have to manage a game-changing situation that has the potential to destroy or seriously damage the size and shape of your organisation.  Take the challenge of access to capital for instance, as it is one of the top concerns for scale-up entrepreneurs and SME CEOs and consequently one of the top stresses. Which is hardly surprising when its quite usual for the process of raising finance to be more lengthy, more onerous, more incomprehensible and less within the CEO’s control than anyone had forethought.

I read recently that some financing professionals claim the rigorous and stressful process of raising capital ensures that only the best companies (i.e., those most likely to succeed) receive funding. There may be some truth in this, as I’ve certainly seen companies produce clearer, more thorough and more strategically robust business and financial plans as a response to external scrutiny and criticism. But, if only it’s a perfect world, as for every good outcome of the process of raising capital, I’ve also seen a bad one:  spurious demands for data, reports and analysis; legal documents full of irrelevant clauses (only inserted to be negotiated out); and, worst of all, processes that seem to be going swimmingly only to be derailed just when nearing the finish line. Go figure that persistence and resilience are considered the most vital qualities needed by CEOs of companies trying to raise capital.

It also means that money, or the lack of it, becomes the focus of conversation around the Board table and, consequently, as the CEO bears responsibility for raising capital, they face mounting pressure. We also expect them to shield employees from this pressure and to retain a calm, positive and contained exterior for fear that otherwise others in the company will get stressed and performance will go downhill.

Crikey, who’d take on that job?

This is a good reminder to NEDs: the CEO is only human and more than likely the situation is causing them extreme frustration, irritation and disappointment to the extent that they are probably wondering what possessed them not to take the sensible job which was on offer at Google. So allowing the CEO time to vent is imperative, especially because those who hold the power over the investment cheque can make unexplained decisions perceived as unjust and unfair. Its elementary human psychology to want to be listened to, and so it is crucial that Non-Execs don’t just jump in with ‘solutions’. Neither should they suggest inane actions that have already been pursued, nor should they express opinions such as “if only the CEO had spoken to so-and-so” if they themselves have not offered any practical help to introduce the CEO to this seemingly very important person known to them.

So once the gripes and frustrations have been aired, the team needs to constructively turn their attention to “if not this, then how else?” and when the leader of the company is experiencing significant stress, NED’s need to be allies not critics. Studies have shown that to build resilience, you need to buffer collective stress and support is essential for stress management within groups. While you don’t need to be the best friend of everyone around the Board table, you do have to work together and cultivate a collective belonging and belief in the talents of the team to get through this crisis.

The good NED then brings perspective, experience, wisdom, clear thinking and contacts. We all know the importance of being forced to pause and reflect when in the thick of a fight and this is where intervention from the NEDs can be so helpful, using the clarity that comes from not being in the day-to-day miasma. They can identify strengths that may be being overlooked, focus the executive team on being data-driven (as the enemy of anxiety is good information) and offer practical help. NEDs should deliver a dose of realism, but they should not be unduly negative as openly reflecting on the dire nature of the situation and being a harbinger of doom helps no-one.

Adding to some CEOs stress is, of course, the underlying concern that the Chairman of the Board can ultimately sack them. Believe me, though, it also adds to the Board’s heightened anxiety that the CEO ultimately can resign! Either way, you will always find pundits who want to introduce someone new to boost the chances of improving a business’s fortunes.  Realistically, finding a CEO replacement at short notice for a company that is strapped for cash is nigh-on impossible, but introducing additional firepower is certainly an option that everyone involved should entertain as anything that helps the company live to fight another day is worthy of being explored.

Times like these are extraordinary so they call for an ‘all hands to the pump’ mentality.  This will help a business raise the capital. For instance, NEDs can introduce possible new investors from their networks or behind the scenes they can use their influence with the external decision makers or, just simply, they can add credibility to the plan by publically voicing their support for the CEO and executive team.  The stress on the CEO will only be worse, and the outcome less favourable, if the resources around the Board table aren’t used and this stress can become toxic and highly unproductive so the absolute last thing your CEO needs in this circumstance is a ritual beating.


Of course, I hope all the CEOs out this predicament weather the crisis, but realistically there are times when it just doesn’t work out.  In these cases, having NEDs on your Board who have experienced it before can help with the practicalities of winding up a company, but when they also have the capacity to be phlegmatic, reflective and supportive it could be the difference between giving up your entrepreneurial dreams or trying again.


Are you an effective NonExec Director?

Do you have what it takes to manage a CEO like Camila Batmanghelidjh?4282

The article in today’s Guardian,”Camila’s Kids Company: The Inside Story review – both damning and vindicatory” by Sam Wollaston  accurately summarises my feelings on watching the fascinating BBC programme last evening about Camila Batmanghelidjh and Kids Company.  It was a extraordinary exposé and very revealing – if you are interested in running businesses do watch it.

I am left reflecting on how important it is that Trustees, Non-Executive Directors and Board Governors really, truly scrutinise the operational decisions of management and how difficult it can be to do this with a charismatic, single minded CEO who, no doubt in Camila’s case, brushed off probing questions and deliberately kept information away from the Board.

It strikes me that to get it right, the Board needs to be not just seen as additive but actually is additive to the company.  In addition, they must overtly demonstrate they have the same common interest as management, namely delivering the mission of the business and safeguarding the interests of the stakeholders.  This makes sure the relationship with Board Directors is positive and supportive so that CEOs and managers are confident about bringing bad news to the Board table – Board Directors are not parents to tell the management off which is how I think Camila saw it.

It also intrigues me that she tried to hide behind the audits and because they were ‘clean’ everything was therefore fine.  Given what we now know this not only reveals her own inadequate financial understanding but begs the question why didn’t her Finance Director explain it to her.  Interestingly the TV programme doesn’t show any of the finance professionals in the business – they must have been there but obviously they were so way down the ranks of importance in Camila’s mind they didn’t merit featuring on the documentary.  I think CEOs not seeing (or demoting) the value of the finance function is always a bad sign and the Board should have treated this as a warning and investigated it.

And since when are we expecting moral judgements from our auditors? Auditors make sure money is properly accounted for, which is entirely different than passing judgement on how its used, unless, of course, it has been used illegally.  It was the job of the Board to query the brown paper envelope payments to individuals which would have been documented in the accounts as ‘food vouchers’ and similarly the Trustees needed to decide if splendid interior of the “White House” home (paid for by Kids Company for psychotherapy) was appropriate, as the accountants would have signed off ‘costs of refurbishment’.   This also speaks to having Trustees who are qualified to do the role.  The financial mismanagement at Kids Company is now well documented – unrestricted reserves in the 2013 accounts of less than £500k when benchmarks suggest this should have been nearer £4m – and yes, in this case I would have expected the auditors to alert the Board that the reserves were too small, so were the Trustees sufficiently financially literate?

The list of the Trustees of Kids Company looks good, indeed it looks impressive.  Actually this list was quite hard to find; Alan Yentob is referred to all the time in the media but I had to dig into the Fourth Report from the House of Commons Committee to find the list of the other Trustees in Annex A.   One can only surmise that these, on the face of it, well qualified business individuals just didn’t take the time to get close enough to the business; that were they just ‘stuffed shirts’.

The lesson to CEOs is there’s no value in having stuffed shirts around your Board table: you need to get over any delusions of grandeur you have that you don’t need oversight because you do.   Board Directors or Trustees should be selected on the basis that they will both do their job well and work with the management team effectively.  In my mind, there is no doubt Kids Company could have been saved if the Trustees had done their job properly.