Directorship Magazine, November, 2001 

Leading up: Lessons for CEOs in “managing” their boards 

by Michael Useem 

Professor of Management, Wharton School 

Michael Useem’s newly published Leading Up: How to Lead Your Boss So You Both Win (Crown Business/Random House, 2001) argues that upward leadership can be just as important as downward, and perhaps nowhere is this more evident than in top management’s relationship with its governing board.

Leadership has always required more than a downward touch:  It needs to come from below as well as above, and leaders today must reach up, not just down.  Leading up is needed when a supervisor is micro-managing rather macro-thinking.  Leading up is called for when a division president offers clear directives but can’t see the future.  Leading up is essential before a board of directors becomes restive or even rebellious.

At the very top of the pyramid, leading up takes on distinct form since your bosses are multiple and their responsibilities divided.  Your superiors may include a dozen directors and scores of investors.  They own you collectively and no one is your boss.

Yet one of the cardinal mistakes is then equating this with having no boss.  Your title of chief executive officer may seem to imply that you’re king of the roost.  Your pay proves it.  You have worked a lifetime to earn the pinnacle, and now the perks and powers have made it all worthwhile.  You run your own schedule, beholden to no one.  You define company strategy, vital to everyone.

Twenty years ago, your predecessors were assured of staying at the summit until they decided one day on their own that the mowed fairways and gated communities of Pebble Beach or Palm Beach were even more alluring.  They and only they determined precisely when they would abdicate the throne, but with the rise of investor clout and director fortitude, executive command is no longer quite so secure.  It now requires the best in upward leadership to remain at the top.

In some cases, top executives have become victims of circumstance, casualties of forces far beyond their control, scapegoats for errors not of their own making.  The ultimate cause could be a faltering economy that gave no quarter or a founding family that allowed no latitude.  Certainly such macro factors helped trigger the premature departure in 2000 of the chief executives of blue-chip enterprises ranging from Coca-Cola and Procter & Gamble to Xerox and Lucent.  Yet rarely were such circumstances solely responsible.

Our detailed examination of CEO dismissals at CBS, Compaq Computer and British Airways shows that executive actions—or inactions—are almost always contributing.  Each discharge contained a unique blend of circumstances, but together they confirmed that a key executive limitation was insufficient appreciation for the power of superiors and the universal fact that all superiors despise surprises.  Add to this a world where shareholders now rule, and the lesson becomes clearer still:  Executive success requires not only inspired employees and satisfied customers but also approving directors and appreciative investors who expect to know what you are going to do almost before you know it.  In other words, you must lead up as well as down even when you have arrived at the top.

The three executives in question had taken their directors too much for granted.  Thomas Wyman was unaware of the CBS directors’ revolt he was about to face as he walked into his boardroom on Wednesday, September 10, 1986.  Eckhard Pfeiffer was as shocked as anybody when the Compaq chairman handed him his walking papers on Saturday, April 17, 1999.  And Robert Ayling was confident enough about his future to have vacationed abroad just before the British Airways board ousted him on March 10, 2000.   Catalyzing events precipitated each firing, but behind all were distressed directors emboldened by irate investors and unhappy employees.

At CBS Wyman had dismissed staff and lightened newcasts as cost-cutting measures, but both moves had created enemies within who were able to carry their opposition into the boardroom through CBS director Walter Cronkite.  Wyman’s exclusion of founder and director William S. Paley from management decisions created another powerful opponent on the board. Pfeiffer had churned Compaq’s executive ranks in a search for the right people to manage a changing enterprise, but in doing so he created a cadre of disgruntled ex-managers whose critical voice readily reached up to the boardroom when chairman Benjamin Rosen reached down for it.  British Airway’s Robert Ayling had cut costs, but his callous methods had engendered widespread hostility within the ranks, a condition no board could ignore.  When their board’s support was becoming most vital, it was, alas, most lacking.

Preserving directors’ confidence can be especially critical but also most challenging among companies engaged in organizational restructuring or strategic redirection.  It is then that company conflict is most pitched and resistance most fierce.  When jobs are threatened, divisions slashed, and rules rewritten, those on the short end hit back with whatever means available, however necessary the changes may be.  Outside owners hear little from the ranks, but directors are not out of earshot, and though you are in between, disgruntled employees have no problem going around your back if they are unhappy enough and your back is turned.  Your effectiveness in leading up therefore depends in part upon your success in leading down.  If you have not done the latter well, your board is likely to know it.  Even though your directors have pledged not to interfere with your management of the company, and even if they have promised to back your restructuring of it, they may nonetheless choose to pull the plug.  This is especially true when they hear frequent and unhappy messages about your downward leadership—and those messages unfortunately parallel what they already see as shortcomings in your upward style.

Even stellar performance may then not save the day, and all that is required is a catalyzing moment that pulls the directors together against you.  Each of our three executives inadvertently handed the board such a trigger.  Wyman had walked into a CBS board meeting with a proposal to merge with Coca-Cola without preparing the directors for the plan or heeding their past opposition to any merger.  Pfeiffer had announced that Compaq’s quarterly earnings were half those expected, he initially refused to explain them, and he then blamed an industry slowdown at the very time when IBM and Dell were reporting strong sales.  Ayling had presided for four years over an airline that was highly profitable when he took control, asserting that it would also be the “best-managed company in Britain in 2000,” but in 2000 he announced that it had plunged into the red, its first annual loss in years.

All three were shocked by their sacking.  Wyman was serving not only as chief executive but also as chairman of the CBS board.  Pfeiffer had grown Compaq ten-fold in eight years.  Ayling had a commitment from the British board to back his long-term restructuring of the carrier.  Each had wielded enormous power, and they were as dumbfounded as any when the board pulled it from under them.

The three executives had faced exceptionally powerful overseers that most CEOs will never see.  Wyman reported to two directors—Lawrence Tisch and William Paley—who together owned a third of the company.  Pfeiffer reported to venture-investor and Chairman Ben Rosen, who had seeded the company and served as chairman since its inception.  Ayling reported to two directors—Lord King and Lord Marshall—who themselves used to run the company.  Few executives will ever have to contend with such commanding figures, but as boards become more sovereign worldwide, executives can expect to face more demanding directors than in the past.

A first principle, then, is to remember that you have superiors, even if your business card combines both chief and executive.  A second is to remember the cardinal tenet of the capitalist universe, on a par with nature abhorring a vacuum in the physical universe:  Never ever surprise your directors.  That is when you are most vulnerable, as Wyman found when he startled his board with a takeover proposal, and as Pfeiffer and Ayling discovered when their rosy financial projections inexplicably turned to ash.

A third principle is to remember that retaining your directors’ confidence depends on maintaining credibility with your investors and faith with your employees.  Languishing short-term performance had weakened investor appetite for Wyman, Pfeiffer and Ayling.  Troubled internal relations damaged their employee confidence as well.  Both developments undermined the ample director support with which each had started.

The potential for dismissal is greatest when your performance suddenly plummets, and that’s when you will most need to appreciate who is really the boss.  That’s when you wish you had consulted and otherwise cultivated those who do count.  If you have, they and you will know the earnings story and appreciate the rescue plan; if not, they may feel blindsided by a reversal that is perfectly sensible to you but cannot be readily appreciated by them.

Effectively leading up with your directors simultaneously requires leading out to the financial community and leading down through the management ranks.  Executives always sit on a three-legged stool, supported by directors, investors and employees.  If the stool lacks either investor or employee support, the directors will find it difficult to keep it upright with their leg alone. 

The crux at the apex is therefore recognizing that you must keep all of your numerous superiors well apprised of whatever you did and, above all, informed in advance of whatever big you plan to pursue or whatever bust you had hoped to avoid.  Though directors and investors may be scattered across the country, meeting with them, listening to them and performing for them are the essential ingredients for retaining their collective trust.

If you appreciate what your bosses want and when they want it, they’ll give you all the latitude you need for the most ambitious of ventures.  If you are coming up short on either, however, it is past time to give special attention to those above you.  Otherwise, they may be gunning for you, and you may be the last to know.  Wyman, Pfeiffer and Ayling had unintentionally managed to lose their directors’ trust—and then their jobs because of it. 
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