Chief Investment Officer
the optimizing ceo
My daughter Liat calls me "The Optimizer". She says I always look for ways to get more out of every situation. She is right. Dick says that when I have five minutes I do a six minute job. He is right as well. Which is why, when my good friend John Hairston, CEO of Hancock Bank, gave me an outline for our next CEO Forum agenda, it deeply resonated with me.
CEOs and other are crazy-busy most of their lives. Their schedules are challenging at best, and their constituencies often represent conflicting interests. How can the CEO juggle all these balls? Hairston's agenda offers a great start to the answer.
Below are the primary responsibilities of a CEO, and some thoughts as to how to organize them. The list is incomplete and the complexities remain uncaptured, but it's a solid place to start considering your life and how you spend your day.
- Management team and structure.
A CEO's first job is to organize their management team in a way that will optimize delegation opportunities and make the whole greater than the sum of the parts. I like to say that each one of us has many limitations, but the right team has none. So the first optimization opportunity is the team selection itself. Even if the CEO inherited some executives they'd rather not have, the opportunities for optimization still exist. I, for example, am an irrepressible optimist who can only see the end of the rainbow but has difficulty noticing obstacles. It helped me immensely to have a person on my team who could only see the clouds in every silver lining. When you can't see the clouds, you need someone who can.
Once the executive team is identified, several decisions need to be made:
- Positions and responsibilities
- Reporting relationships
- Major themes of each individual responsibility
- Committees and charters: what groups make what decisions
These decisions are driven by variables such as the players on the team and their respective capabilities; organizational culture; management philosophy (flat vs. hierarchical structure, for example); decision making style, etc.
- Board organization.
I still remember the days when I thought CEOs had no bosses; in my mind, they could spend their time watching the soaps and eating the bonbons. Reality, as I found out, is vastly different. CEOs have many bosses: their staff, investors, community leaders, and, most of all, the board which represents the shareholders. Board relationships take time and a lot of emotional energy. Even the most effective boards can be unpredictable and emotionally challenging.
The board's role is critical. As the shareholders' representatives it is their job to provide strategic oversight to the CEO, and walk the fine line between that and executive management. Board membership and structure decisions are made by the board and its Chair, but the CEO typically has meaningful input into those decisions, which include:
- Structure (committees)
- Meeting frequency
- Meeting agenda
- Role of committees and their chairs (including the committee charter formation)
- Role of board chair or lead director
- Managing the overall per-director cost
The CEO needs to spend much time and thought providing input to these decisions, since they will make a meaningful difference in the quality of their life and the performance of the company.
- Strategic planning.
One of the CEO's most important jobs is to set the strategic direction of the company and then execute it. In too many banks the process is sloppy and unfocused. Executives frequently get sidetracked and distracted by the daily fires, which makes focus even harder.
It is the CEO's job to implement a simple and clear strategic planning process which taps the brain and heart power of as broad a group as possible. Further, the process should not terminate in a thick strategic planning book for the regulators, but rather it should be captured in a brief document which clearly spells out the definition of success and progress toward it during the planning horizon.
Among the key decisions the CEO needs to make regarding strategic planning are:
- Establishing the process itself: how does it work
- Involving the board productively and appropriately
- Determining the role of key executives in plan development and execution
- Definition of actionable deliverables, milestones toward progress, mid-course correction points etc.
- Financial performance management.
Managing and reporting financial performance is, ultimately, what the CEO's job is all about. Even if all processes work well but the shareholders do not get a good return on their investment within the planning time horizon, the CEO has failed. Several major decisions need to be made in this realm to achieve the desired results:
- Who do you hold accountable for financial performance: Line-of-business (LOB)? Geography? Both? Determining where the power resides is a key decision that significantly impacts the organization's culture and ability to generate revenues. This decision is always made, tacitly or explicitly. The organization will know who's in charge and who has the power. Making the structure explicit facilitates alignment and accountability throughout the organization.
- The use of transfer pricing. This decision invariably generates huge amounts of stomach acid among all participants, from LOB managers to the board. The accountants say, correctly, that full cost allocation is the right way to accurately reflect the true contribution of every unit. Unfortunately, this information might lead to the wrong decision. The business owners often advocate direct expenses only, since then you can tell whether or not the shareholders will be better off without the income stream from this business. At the same time, without accurate allocations each business can show great returns, yet the company as a whole will show poor results.
- Capital allocation further complicates matters, but the reality is, some assets are riskier than others and consume more capital. Is it fair to show their gross returns without capital allocation?
- Using this information to create accountability is the real key to the CEO's effectiveness. You can have all the data you want, but without meaningful consequences, both upside and downside, the data is non-actionable.
My bias is always for simplicity and away from "black box" calculations. We often spend too much time rearranging the chairs (i.e. fighting over cost allocations) and yet the shareholders are indifferent to that part of the calculation. The cost of the CEO compensation package will be borne by the company regardless to how you allocate them.
- Risk management.
This has become a major time and resource consuming part of the CEO's responsibilities, especially after Dodd-Frank. Several decisions need to be made:
- How should the function be organized?
- What should be centralized vs. distributed within the LOBs?
- What summary reports should reach executive management and the board?
- What pictorals (dashboards, heat maps etc.) should be developed to truly represent organizational risk profile?
- How many resources should be dedicated to the risk management function in the company?
- How to ensure Enterprise Risk Management doesn't strangle the bank's ability to function and prosper?
- Human Capital Management.
We all say people are what make our banks unique and effective. It is the tone from the top, as expressed and demonstrated by the CEO, that makes all the difference in the rank and file.
If people are truly our differentiator, then what is more impactful to the optimizing CEO than to spend time with people, especially those who touch customers, and the customers themselves? This is a key question that needs to be answered.
- Time management.
An Optimizer looks for ways to get the most impact from their activities. Time allocation is the cornerstone of that quest. So ask yourself these questions:
- What percent of your time you spend doing what activities? Are these aligned with your strategic priorities and where you can make the most impact on the organization, its culture and its performance?
- How do you use your assistant to leverage yourself better?
In this case, I am biased towards spending more time with the people who touch customers. I believe that the more interaction you have with these individuals, the more you will spread a consistent message of your corporate culture and inspire the troops to strive toward greatness.
This "checklist" for the CEO's and other executives' responsibilities and the time allocations an associated with them can serve as a foundation to an intentional view and action plan to increase CEO effectiveness. This is true for any reader of this article. You can outline your main responsibilities, how you should spend your time to achieve those most effectively, and then realign your current activities to match the optimized view you developed. Life is too short, and work is too complex, not to stop doing some things and focus on what makes the most positive difference in your constituents' (and your) lives.
Any additions to this list? I'd welcome your thoughts.