The difficulty is that boards often encounter warning signs one at a time. Photo by Getty Images/iStockphoto

Article content

Few decisions test a board’s judgment more profoundly than determining whether a chief executive should remain in office.

Article content

Contrary to popular perception, the challenge is not identifying the warning signs; more often, it is recognizing what they collectively mean.

Article content

Article content

Corporate history is filled with examples of boards that acted too late.

Article content

When a corporate crisis becomes public, attention naturally centres on the CEO. But increasingly, investors, regulators and shareholders are shifting their focus and asking the question: Where was the board?

Article content

Article content

It is an uncomfortable question because the warning signs are usually visible before the crisis became apparent.

Article content

Article content

A talented executive unexpectedly departs. Then another.

Article content

A complaint is raised regarding a senior leader. It appears isolated.

Article content

An employee survey reveals concerns about culture. Management provides reassurance.

Article content

A respected executive resigns. The explanation seems plausible.

Article content

Viewed individually, each event seems unalarming. Each can be explained. Each may even be dismissed.

Article content

The difficulty is that boards often encounter warning signs one at a time.

Article content

Only in retrospect does the pattern become obvious.

Article content

Governance is, in many respects, the art of recognizing the pattern as it begins to emerge.

Article content

There is a reason that this is difficult.

Article content

Boards rarely fail for lack of intelligence. Most are composed of highly accomplished individuals who have spent their careers making consequential decisions. Their failures tend to arise from something far more human: optimism, loyalty and the hope that tomorrow’s information will make today’s difficult decision unnecessary.

Article content

Article content

A board wants the chief executive to succeed.

Article content

Article content

It has often selected that individual, supported them and publicly championed them. In many cases, they were recommended to the board by that individual.

Article content

No board wants to conclude that the person entrusted with leading the organization is now putting it at risk.

Article content

Yet that is sometimes precisely what occurs.

Article content

One of the enduring myths of corporate governance is that exceptional business performance can excuse otherwise problematic leadership.

Article content

It does not.

Article content

Indeed, some of the most significant governance failures occur during periods of success.

Article content

Revenue grows. Analysts are satisfied. Strategic objectives are achieved.

Article content

Yet beneath the surface, something less visible is taking place.

Article content

High performers begin to leave. Potential successors fail to emerge. Candour becomes less common. Information becomes more filtered. Risks that should be confronted become risks that are tolerated.

Article content

As an employment lawyer, I have frequently observed organizations extend extraordinary latitude to leaders whose conduct would not be accepted from anyone else. The justification is usually straightforward.