The recent saga involving the dismissal and subsequent rehiring of Sam Altman, co-founder and CEO of OpenAI, the creator of ChatGPT, offers a compelling glimpse into the intricate dynamics between visionary CEOs and the boards entrusted with overseeing them.
Often driven by unwavering convictions regarding their company’s strategic trajectory, visionary CEOs occasionally find themselves at odds with their boards, which may only sometimes share their bold visions.
In this complex governance landscape, what role should boards play? Should they act as mere monitors, offering guidance from the sidelines? Or should they actively intervene and endorse or veto the CEO’s strategic decisions?
According to Volker Laux, Professor of Accounting at Texas McCombs and Randal B. McDonald, Chair in Accounting, the answer hinges on the depth of the CEO’s commitment to their strategic vision. In a collaborative research effort with Xu Jiang of Duke University, Laux devised a model to illuminate board/CEO relationship dynamics, particularly in scenarios where CEOs exhibit strong beliefs regarding industry dynamics and strategic direction.
For CEOs with moderate confidence in their strategies, the board is inclined to intensify its efforts in gathering information and providing counsel. Should this information suggest a need for course correction, the CEO is receptive to the board’s guidance, leading to strategic adjustments.
However, when CEOs exhibit high confidence levels and are reluctant to heed the board’s advice, the board assumes a monitoring role despite conflicting information. In such instances, the board reserves the option to override the CEO’s decisions if compelling evidence emerges in favour of an alternative strategy.
In cases where CEOs possess unwavering confidence in their visions, bordering on visionary zeal, boards may opt for a hands-off approach, refraining from intervention even when convinced of the merits of an alternative direction. Here, the board endorses the CEO’s strategy, recognising its heightened motivation to ensure its success.
Volker Laux highlights that in specific scenarios, passivity on the part of the board can be strategically prudent. This nuanced approach challenges the common perception of boards as passive rubber-stampers of CEO visions. Instead, it acknowledges that allowing visionary CEOs to pursue their ideas without interference may yield optimal outcomes in specific contexts.
The alternative – compelling a visionary CEO to deviate from their chosen strategy – carries significant risks. It could dampen the CEO’s enthusiasm and disrupt the company’s momentum, potentially culminating in the CEO’s replacement. Both outcomes would entail substantial costs for shareholders, as evidenced by the tumultuous relationship between Altman and his board.
In instances where the CEO’s loss of motivation poses a significant threat, the board may refrain from advocating for a strategy shift and instead afford the CEO latitude in executing their vision.
Ultimately, Sam Altman’s saga underscores the delicate balance boards must strike when navigating the terrain of visionary leadership. By understanding the nuances of CEO/board dynamics and adopting adaptive governance strategies, boards can optimally support visionary CEOs in driving sustained organisational success.
More information: Xu Jiang et al, What Role Do Boards Play in Companies with Visionary CEOs? Journal of Accounting Research. DOI: 10.1111/1475-679X.12514
Journal information: Journal of Accounting Research Provided by The University of Texas at Austin