Governance Bites #133: CEO or managing director? with Steven Bowman

Join Mark Banicevich on Governance Bites as he talks with Steven Bowman, a governance expert with 45 years in the CEO and board space. They unpack the fundamental differences between a CEO and a Managing Director (MD). The core distinction is that an MD is both a manager and a voting director of the board. Steven shares the criteria for adopting the MD title, such as having a board vote or shares in the company. Crucially, they discuss how boards navigate the potential blurring between governance and management, often employing mechanisms like board only sessions (in camera) and external mentors. Discover the real meaning behind the titles and the best governance advice: be curious about everything.
Steven Bowman is founder of Conscious Governance, a global, independent advisory service specialising in strategic planning, board governance, leadership, and risk management consulting for Boards, CEOs, and directors. The firm provides resources and guidance to organisations across virtually all sectors, including health, education, government, faith, disability, and housing.
The governance model promoted by Conscious Governance is defined as running an organisation with conscious awareness. This approach moves beyond 19th-century systems focused on policy and conformance, prioritising conscious leadership to steer the organisation toward a defined vision and align day-to-day management with organisational strategies. Conscious Board leadership is vital for improving both financial and social results. Core services include Board governance evaluations, risk management strategies, and leadership development, such as CEO performance management. Conscious Governance has reported completing over 500 successful strategic plan facilitations and serving more than 4200 clients.
#CEO, #ManagingDirector, #Governance, #BoardOfDirectors, #ExecutiveRoles, #CorporateGovernance, #Leadership, #Management, #FamilyBusiness, #FinanceSector, #BoardOnlySessions, #InCamera, #Mentoring, #GovernanceBites, #ConsciousGovernance

Transcript

0:00

Hi everyone. I'm Steve Bowman, the Managing Director of Conscious Governance. I've been working in the board and CEO space for close on 45 years, so have come across lots of very interesting stories, anecdotes, examples of fantastic performance and really, really bad performance. Look forward to sharing some of that with you. Hi, I'm Mark Banicevich. As you just heard today I have the pleasure on Governance Bites to spend time with Steve Bowman. Steve, thank you very much for your time. The topic we want to talk about today is on the CEO[Chief Executive Officer] or managing director [MD]. We have some companies that have one model where they ever CEO that reports to the board, and others where there's a managing director who sits on the board, and runs the business. So my first question for you on this topic is at a governance level, what are the fundamental differences between a CEO and a managing director? Well, the key thing in that is in the name. You've got a chief executive officer who is working with the board and has a very defined role and then you've got a managing director, which is someone who both manages and is also a voting director of the board. And so to understand those differences is very much about, What does the organisation require? What does the culture of the organisation require? What do the stakeholders require? So, family owned businesses, for example. Then typically the owner of that business is also the managing director. So they want to see it on the board, they want to be able to vote, but they're also day-to-day management, as well. Makes perfect sense. Works really well in many cases. Then in some industries, for example, I was managing director of the Australian Society of Corporate Treasurers for a number of years. Why? Because that finance sector, we're used to seeing managing directors. Right. And I had myself taken off as a managing director, because I didn't want to vote. As a CEO. I just didn't want to have that, that part of the vote. I didn't need that. So then we reverted back to chief executive officer. So the key thing is, if you're going to be having the title of managing director, there's only a few criteria that really would make sense for you to be called and act as a managing director. The first one is that you have a vote on the board. Right. The second one is if you've got shares in the company, and that's part of what, that's part of your buy in, then often they are also managing directors. Or [third] if the sector expects it, because everyone in that sector is called a managing director. Right. And there's very few sectors like that. But certainly investment, finance, banking, it's not unusual to be a managing director, as well. So as you suggest, quite often a founder of a business, because they own it, they'll want to have a driving seat as well as running the day-to-day. So they will often be a managing director. But there are other situations when that may be the case, as well. And as you say in the in the name, the major difference between the two is that a managing director is both the director and managing the company, where as chief executive officer is just running the company and reporting to the board of directors. You also find different nuances around that, too. So there's one at the moment, which is a major union. Now they're not called a union, because they can't call themselves a union. So it's an association, but they are a union - Right. - under the the union legislation. And they have president / CEO. Yes. Which is common in the US [United States], too, isn't it? Yeah, it's quite interesting, because that position is elected by the membership, to represent the members, and also be the CEO. And then they have a General Manager. Right. Oh, yes. So there's no right or wrong around this, but the president / CEO has a vote on the board. Not called "managing director", called "president". Yeah. So in the end it's not so much what you're called, it's what the purpose is there. And because they've been placed there by a vote of the membership, then they are acting as a director, but also as the chief executive. Right, right. Interesting. So in that concept of managing director, and no matter what they're called, could the title cause some sort of blur between governance and managing the business? Oh, all the time. So this is one of the biggest issues, is, I was the general manager of a family owned business, a very large family owned business in Australia and very, very successful, and they brought me in to be the general manager. And that's where I learned the two lies of the family owned business. The first lie is, "I'm ready to retire." And the second lie is, "And you're in charge." Right. So, you know, there's, there's nuances in all of this. So family owned businesses, typically there has to be a really well thought out succession plan in place, and the owner's got to be behind that. And the owner was the managing director, but they they wanted to retire, but they also weren't willing to give over control. So that's where the governance issues comes into it. The other thing is often you'll find advisory boards, particularly in those types of companies. So rather than having a full blown corporate-style board, you have advisory boards. Yes. And the key trick with advisory boards is that they've only got two rules, as an advisory board. [First] they're there to ask questions, and the second rule is, they're there to ask questions. They can still function as a board, but they actually don't have the right - To make decisions. - to make the decisions that are in there. Yes. So again, the whole notion of having a managing director is if, I've seen a lot of associations call their CEO "managing director", but the person doesn't have a vote. And they're actually not a director, but they think it sounds more important than executive officer. Yes. So you've just got to be a little bit careful about what it means. And so if someone does have a managing director position, just be very clear, their role as a director, but then also their role as the chief executive, as well, too. Different hats. And that's where things like your governance committee, or you're nominations committee, or some of the other mechanisms you can put in place can actually help that person transition between when they're being a director versus when they're being a chief executive. I expect that other people on the board can help keep them out of the weeds in the boardroom, as well, too, right? Yeah, absolutely. So, what we're finding with a lot of boards these days is that they're actually allocating a mentor, an external mentor to the managing director or the owner, to assist that person navigate their way through some of these these areas. Right. Because sometimes the board doesn't have the experience themselves. Yeah, true, true. How should boards ensure that regardless of title, the top executive remains accountable, without overstepping into governance when it's not their role, or without diving into the weeds when it is. So can you reframe that? So if you've got a board, sorry, a managing director or CEO. Yeah. And in their role in management, you want them to ensure that they are managing,- Yes. - and not overstepping into governance. Yes. How can boards ensure that that doesn't happen? Ah. Very good question. When a managing director is acting as a director, then the chair manages that process. And hopefully will be able to remind the managing director when they're getting too far down into the weeds where the board actually doesn't require that. Also, one of the mechanisms that boards find very useful is having a board only session, where the managing director is not there. Right. So, and then they can talk about the things that are worthy of talking about when it comes to performance management, when it comes to, "So how's this position going? Is there anything that we can do"to help this person to elevate us to the level that we need to be at?"How is this person taking criticism? Do we need to work with that?" So that whole notion of an in camera or board only session can be very, very powerful. And there's some rules of the game behind that. So it's not not a whinging session, but actually helps the manageing director navigate that role between being a full on director, and also the chief staff officer. It is very interesting that you raise that point out. I was wondering about that with, because, you know, when you've got a CEO, board only time is very clear. The CEO's not in the room and you've just got the board. When you've got a managing director who is technically a director saying, "We need some conversation without that person in the room," as well, for the same reasons. Really useful. Well, the thing with the board only session is that it's not a decision making body. Right. So therefore it doesn't need, you know, it doesn't have to have all of the director's in there, but those that aren't conflicted, and the managing director by the very nature is going to be conflicted with a lot of different things. Nothing wrong with it, just needs to be managed. Yes, of course. Are there any decision making or accountability advantages on a managing director type role versus a CEO role? I think it's very personality driven. There are some people who can navigate that really, really well. So when they sit down as managing director at a board meeting, their functioning as a director. And then when it comes to the managing director's report, they've already done the hard yards by pulling out the two or three really strategic issues they want the board to focus on. So they don't have to get into the operational side. But also as a director, I mean, one of the things that could be very, very useful is to understand, "What is it that my board needs to help keep them focused and strategic?" And it isn't a 50-page staff report on how busy the staff have been. So hopefully the managing director understands even more intuitively what their directors need to be able to have those really strategic value creation conversations that they need to have. Right. Yeah, OK. Is there a rule that, you mentioned before, about sometimes an industry can impact whether there's, and let's talk substance over form, managing director versus a CEO role. Are there particular sectors, or particular industries, or complexities and stakeholder environments that say, "Okay, in this situation one or the other is better?" Yeah. Typically there's two sectors that expect the CEO to be the managing director, or they're not surprised if they are. One of them is in the finance sector. So my background has been with Society of CPAs[Certified Practising Accountants] in Australia, CEO of the Society of Corporate Treasurers, CEO of the Australasian Institute of Banking and Finance. They're used to having managing directors sitting around their board table. Why is that? Because that's how they function. Right. So a large financial institution - often partnerships and things? Yeah, will always, will typically have a managing director. Yeah. In those cases, I always ask them to remove me as a director. I didn't want to be a director. That was a personal choice I had. But previously, the other dozen or so CEO's that they's had were all managing directors. Right. So that's typically in that area. And then there's some areas where, if you want to be, the sector would not be surprised for you to be called a managing director, and you do have a vote. And so they're often areas where there in advice, again financial advice, you very seldom see it in education or health or aged care or manufacturing or those sorts of things. You don't often see it there, but there are some instances where it's quite appropriate. Interesting isn't it. You do a lot of work consulting on governance to firms. If you're sitting down with the business and they're saying, "Should we have a CEO or a managing director?" What advice do you give them?"Well, do you want them to have a vote?"Have they got skin in the game? Does the sector expect it from you?" If the answer is no to of those things, then why would you want to do that? Yeah. Right. It's really, simple. Okay. That was a nice short answer to that question. Which role do you believe better serves governance clarity in organisation performance? Either. It depends on the person. Right. See, you can have a managing director who is really, really good at navigating between their role as the chief operations person, the chief executive, and their role as a director. And then you got some people have got no clue. The difference is, they're different people. So, in many instances you'll find, particularly in ownership, in organisations where they're family owned, for example, very often they do it really well, because they've grown up with the business. But then as the business has grown, they've had to develop a board around it. If they wanted to get listed, they had to have a board. Yeah. And they've been taught by the board on how to actually be a good director. I've seen some other family owned businesses where that's never going to be the case. They call it a board and it smells like a board, but the managing director won't let it act as a board. You probably don't want to be sitting on that board. There's a phrase that Dr John Peebles told me in a conversation that I had with him was "parsley on fish", which came from a president and CEO from, I think an oil company in the US, [Irving S. Olds, Chairman of U.S. Steel, 1940 to 1952] boards that were decorative but useless. I mentioned before that you know, in the US it's very common to have a president and CEO. Yes. So that managing director type role. And in our part of the world it seems to be more common broadly to have a separate CEO, and have the CEO not have a place on the board. Are you seeing any trend globally towards one or the other? There's a growing conversation in the US to differentiate the role between chairman and CEO. Okay. It's very common over there. I mean, I did my masters degree in nonprofit management in the US. Yes. And so I grew up with, the chair is often the CEO, the CEO is often the chair. And in some cases it works, in some cases it doesn't. It's just very different. There's a growing conversation that those roles are probably best split, but there's also many examples of where it works exceptionally well. I mean, I've seen many organisations where the chair is not very good. And particularly in those organisations where you bring someone in as a chair and they've never been a chair before. And the rest of the board had no idea how to do it. So there's, you know, there's all sorts of examples where that occurs. Blind leading the blind. Blind leading the blind. So look, in the end, it works until it doesn't. Yeah. And the key thing in that is to, if someone is going to be the chair, they should have some sort of skills training, experience or mentoring in chairing. Because it's not something you just pick up from day one. There's some real skills involved and tricks of the trade. So CEO versus chair. Certainly in the Commonwealth countries it's very, very, very, very, very unusual. Yes. The union movement in Australia, I don't know whether it's so in New Zealand, it's not uncommon where the president is the chair, is also the chief executive, but that leads to all sorts of potential problems. But it depends, again, it depends on the person. Right. Yeah, okay. One final question for you, that's off topic a little bit. In your career, what's the best governance advice you've received? Don't have a fixed point of view about how something should be. Be curious about everything. And that curiosity then leads you to do some background reading, to look for the evidence of what we're being told is actually so, to deal with external stakeholders and just keep your ear to the ground on that. And also to value the diversity of view around the board table without taking it personally. Yes, right. Steven, that's been really cool. Thank you so much for your time. I really appreciate it. A pleasure. I'll look forward to catching up again soon, and doing it again. Thank you. And see you next episode. Bye. Thank you for watching this episode of Governance Bites. We have more episodes on YouTube and your favourite podcast channel where I interview directors and experts on various topics relating to boards of directors and governance. We'd love to see you back and please like, subscribe and share the videos and podcasts.