Case Study: Sidestepping Accountabilities 2040’s Ideas and Innovations Newsletter, Issue 98
Issue 98, March 9, 2023
At 2040 we work closely with our clients to bridge theory to practice. Strategy is great, but if you don’t know how to apply the great ideas, it becomes a hard stop to any forward progress. We can get mired down by details, overthinking – and worst of all, not keeping out of our own way. So, back by popular demand, we bring you another case study that you may be able to relate to. It’s a common story about building a brand, a workplace culture, a pathway to profitability – and leadership blinds spots. Enjoy the read and see how you would solve the problems! For more real-life case studies and a playbook for managing an organization in today’s highly volatile digital marketplace, check out our book, The Truth About Transformation.
The Back Story
A young software technology company went public through a SPAC and overnight was infused with many millions of shareholder dollars. The CEO, Gabriel, co-founded his company 12 years ago and has been running the show alongside his original partners. As a public company, he now reports to a board of directors with direct fiduciary responsibility under regulatory oversight. Gabriel fired the chief revenue officer for criticizing the executive team in front of employees, among other reasons. Unhappy, the ex-sales director wrote a vengeful letter to the independent board members outlining a series of activities that he deemed negligent on the part of the CEO and executive management. The board had no choice but to open an internal investigation and retained a prestigious law firm (think, Mueller Investigation) to conduct it. Seven months and over $1.2 million in legal fees later, the executive management team was completely exonerated. The board, however, identified a hostile work culture that needed some immediate remediation, requiring that the CEO get some leadership coaching. It also put in place additional board oversight and “guardrail” mechanisms to ensure that executive management brings about genuine workplace cultural change.
A Board Culture
Gabriel is experiencing growing pains adjusting to running a public company and being accountable to the board. He and his executive team have benefited from the infusion of over $60m and are now under pressure to execute his personal vision and the company’s business plan. Gabriel is also chairman of the board. He only answered to himself and his partners before going public, now he is finding it anxiety-producing when the board routinely questions his judgment and actions.
Each of the board members is an established and highly qualified businessperson, and Gabriel knows there is much he can learn from them. Yet their routine questioning and advice have put him at times on the defensive. It’s true that he launched and grew the business over the first dozen years, but he now realizes that he is most likely at the limit of his abilities and experience to scale the company.
Gabriel is conflicted in transitioning into running a public company. He only knows how to be the leader and owner of a private company. Above all, he is accustomed to making all the key decisions, and now, reporting to a board, he doesn’t have the same control or financial purview that he once did. Stockholders, as partial owners of the company, share in its profit and loss. However, they often have little, if any, say in the business decisions of the company and they have no control over the everyday operations. Instead, it is the company’s board of directors and not the CEO, that is charged with the decision-making responsibility and operational control.
Gabriel knows he must adapt his behavior. He also has to accept that he must meet objective goals, achieve agreed-upon outcomes, and follow established protocols, as stated by the board.
Having been the CEO of a private company all these years has led to Gabriel developing a strong ego and a quick temper. He believes that he has been able to manage his reactive behaviors with his team, but he is finding that he regresses when interacting with individual board members and the entire board. The pressures of strict GAAP financial accounting and legal oversight, brought on by his decision to fire the sales director, are only adding to his stress and defensive posturing with the board.
As a board director, how would you coach the CEO to adhere to established protocols and respect accountabilities without making him feel restrained or disempowered? What other advice could help the CEO?
As one of Gabriel’s direct reports, how would you encourage the CEO to practice self-evaluation to improve his work style and actively manage his default behaviors? Also, how do you help the CEO navigate his new role for the sake of the company’s continued growth?
How would you help the company adjust to its new shareholder accountability structure enabling it to meet the realistic annual growth goals it now must set?
What does the company need to do to make Gabriel understand that he no longer runs the company by himself; he now reports to the board?
As the company is going through change and transformation, what should the company consider and do to ensure success?
Advise and Dissent
In the ex-sales director’s letter to the non-executive board members, he cited the CEO’s intolerance for opinions and positions that run counter to his positions. Employees who disagreed were sidelined, fired, or voluntarily resigned. The board members, in their initial interactions with Gabriel, perceived a strong and competent leader. Yes, everyone has their faults, and running one’s own business surely creates some strong personality traits. Savvy leaders, however, become self-aware of their own faults and actively keep them in check.
Continue Reading to Learn More about Gabriel and Explore How You Would Help>