A CEO using his megaphone the wrong way.

The 1 Thing a CEO Must Never, Ever Do!

By Mark Robert Richards, Meade Street Advisors, LLC

CEOs serve at the pleasure of the company’s board of directors, and they represent the company’s shareholders. The shareholders seek an appropriate risk-adjusted return on their investment. If the CEO is incapable of delivering expected results, the board’s task is to take the proper steps to correct the situation.

High-performing boards are deeply involved in business strategy formation and consistently review business risk and related corporate matters. There is no shortage of issues and events to keep a CEO and board busy throughout the year. For example, as covered in a previous essay ‘How to Reverse the Great Resignation Trend’, the last ten years have been challenging for CEOs given the Great Recession, pandemic, and, more recently, the Great Resignation.

High-performing boards are deeply involved in business strategy formation and consistently review business risk and related corporate matters. There is no shortage of issues and events to keep a CEO and board busy throughout the year. For example, as covered in a previous essay ‘How to Reverse the Great Resignation Trend’, the last ten years have been challenging for CEOs given the Great Recession, pandemic, and, more recently, the Great Resignation.

A timely example is Bob Chapek, the CEO at Disney and a 26-year employee. In its most recent financial disclosures, Disney had just reported record income and was busily rebounding from the pandemic. Yet, in March, Mr. Chapek spoke out on a piece of Florida legislation and, in doing so, created horrendous public relations for Disney. The fallout continues with State- and Federal-level elected officials looking at retracting copyright and tax district exemptions that have favored Disney for years and saved it tens of millions of dollars. In addition, Mr. Chapek undoubtedly alienated half his customer base and probably as many Disney employees and shareholders.

Disney has enough challenges attracting customers and retaining employees, not purposely offending a portion of its customers and employees. The self-inflicted damage is inexcusable for a seasoned CEO. Mr. Chapek is solely responsible for diverting focus and resources from business strategy execution, customer engagement, and employee retention.

What conditions motivate a CEO to do the one thing a CEO should never do, which is to take a side on a political matter of no consequence to the corporation’s financial performance? Hubris? A vocal minority of employees, customers, or shareholders? Executive peer pressure? Let’s take a closer look at each possible reason and discuss them. But, of course, the goal here is to make sure that you do not make the same mistakes.

Hubris

According to Effectiviology.com, hubris is a character trait that includes excessive pride, confidence, and self-importance. As a result, a hubris individual will likely overestimate their abilities, knowledge, importance, and probability of success. At its worst, hubris will cloud a person’s judgment in many ways, which causes the individual to make bad decisions. For example, because hubris promotes overconfidence in knowledge and ability, it can mislead people to misjudge their ability to achieve favorable outcomes in several areas and promote the taking of unnecessary risks. Similarly, hubris can lead people to miscalculate the legitimacy and consistency of their intuitions and overly trust them, thus avoiding a proper vetting process that could shed essential counter perspectives and avoid needless negative fallout. Perhaps Mr. Chapek made the mistake of conflating his viewpoint or that of a vocal minority without properly evaluating alternative outcomes?

Vocal Minority

A seasoned CEO knows these groups exist and drown out alternative viewpoints, thus stifling a reasoned outcome. Vocal minorities tend to be “bullies” and are filled with hubris by definition. They rarely allow for open debate and marshaling of fact. In other words, they operate primarily with emotion and employ intimidation tactics to bring others into line. A good CEO doesn’t legitimize these groups by giving them an audience. Instead, a CEO should work through alternative viewpoints with the board and debate them to make a well-reasoned decision, then communicate this to the employees, customers, and shareholders.

Companies are not democracies. It is legitimate to encourage employee forums, town halls, and affinity groups to share information, but leadership must not lose sight of why these forums exist. Logical internal processes that deny vocal minorities promote employee engagement as the highest performing employees see the company as operating with discipline and fairness. Unfortunately, a weak CEO succumbs to the vocal minority because they think it will placate them. The opposite occurs. The vocal minority feels empowered and takes increasingly absurd positions. As a result, the CEO unbalances the organization and diverts attention away from strategy execution.

 A short-sighted CEO may fear a “boycott” or protest at the company headquarters. They fail to understand that emotion drives the vocal minority and has a short attention span. The vocal minority typically sees another “butterfly” within days and moves on to the next cause. CEOs need to demonstrate patience and courage when dealing with vocal minorities.

Executive Peer Pressure

Recall March 2021 and the Georgia voting rights bill debacle? There was supposedly “mounting outrage from activists, customers and a coalition of ‘powerful’ black executives.” Ed Bastian, CEO of Delta Airlines, and James Quincy, CEO of Coca-Cola, eventually spoke out and issued press releases on the bill. Even Major League Baseball got involved and pulled the All-Star game out of Atlanta. Other executives from outside the State, including Larry Fink, CEO of Black Rock, and Mark Mason, CFO of Citi, also made public statements. Since when does a sitting CFO make public statements for a company? A CFO makes public statements of a financial nature, but they aren’t the spokesperson for the corporation. Hopefully, the board will address this matter to stop the practice in the future.

CEOs that yield to other CEO personal opinions are not serving their company’s best interests. A good CEO is a steward and is careful in invoking their powers. Anytime a CEO personally speaks out on a political matter, they are not fulfilling their stewardship covenant. Instead, they are showing signs of hubris and weak discipline. The Georgia voting law debacle was a self-inflicted injury that damaged those outspoken companies’ corporate reputations and brands. It is also unfortunate that board governance and leadership were also missing during these events. A strong governance character would bring a candid, objective perspective to the discussion and hopefully prevent these companies from making such short-sighted statements. When a CEO allows outside executive peer pressure to impact the company, employees, customers, and shareholders see this as a weakness in leadership and an abdication of responsibility.

A CEO should not take a position on a political matter that doesn’t directly impact the company. More importantly, they should never project their political opinions onto the company. Corporations do not vote at any level in government, so they have no business taking a political position! CEOs who are outspoken on such matters distract the company from executing its business strategy and unbalance it. In addition, there are measurable and intangible costs associated with such a decision that will negatively impact shareholder value.

Anytime a CEO takes a political position, they will undoubtedly alienate half of their customer base, employees, and shareholders. Why create unnecessary complications for the company? As CEO of Appvion in Appleton, Wisconsin, I learned to ‘stay in my lane’ and stayed focused on executing the business strategy. At times, CEOs fall to hubris, the vocal minority, and executive peer pressure. That’s unfortunate. They should worry less about what their fellow “Club” members may be thinking, get a dog, or resign as being an effective CEO often means taking unpopular positions or not taking them.

 

Mark Robert Richards is the retired Chairman and CEO of Appvion, Inc., headquartered in Appleton, WI.

Mark is now President of Meade Street Advisors, LLC, board governance, executive coaching, and strategic planning consulting business headquartered in Fort Lauderdale, FL. Mark can be reached at:

 mark@meadestreetadvisors.com

www.meadestreetadvisors.com

www.linkedin.com/in/markrrichards

 

 

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