Boards hire, appraise, reward and sometimes remove CEOs. That is their basic function. Boards must also try to ensure that CEO performance is as high as it can be. For that there are two basic processes: they must exercise control to make sure that the CEO is really up to the job; and they must provide support to the CEO, who is in a very exposed position, through their advice and encouragement.

When a CEO senses a lack of confidence from the Board, it can trigger uneasiness, defensiveness and avoidance. Although the Board may think it is supporting and coaching the CEO, its tight supervision signals that something is amiss, which inhibits and undermines the CEO.
Take the case of Bill Perez, recruited from outside to be CEO of Nike by the chair and founder, Phil Knight. Perez lasted less than 12 months in the job. The drivers of that breakdown were two vicious circles operating in opposite directions and reinforcing one another.
What the Board saw: Knight and the Board began to suspect that Perez might be a poor fit. It all started with an early decision to bring in consultants to review operations. As one insider remarked, “Surveys are not Nike’s specialty. It’s not Nike’s culture.”1
The initial doubt was further fuelled by clear differences in management style between Perez and his predecessor. For example, Knight was relaxed about having people spend the bulk of their time in meetings whereas Perez conceded that he was “Not a meeting man. I’m a data guy. I want to see the facts.”2 Knight quickly became concerned that Perez did not really understand the company or its brand.
Sensing the uneasiness, Perez redoubled efforts to show that he could add value, but did so in a way that actually underlined their differences. He hunkered down and went out of his way to visit Nike’s biggest retail clients – a constituency that Knight had always neglected. In contrast, Knight’s focus had always been on creative high-profile advertising campaigns – and Perez felt it was useful to question their effectiveness.
What the CEO saw: For his part, Perez came to view Knight as “unable to let go” and “unreceptive to outside ideas” – and started interpreting his actions through that lens. As the malaise grew, Perez noted that some of his initiatives seemed to make Knight uneasy, yet Knight did not always tell him what was on his mind. On several occasions, Perez found out that Knight did not agree with him through a third party.
Perez became more reticent about initiating upward contact. As their interactions became rarer, the Board looked for other ways of keeping informed and Knight intensified contacts with his former lieutenants. Of course, this further undermined the relationship.
Ultimately, Knight and the Board concluded that Perez simply did not get Nike’s creative mind-set and decided to replace him with a veteran insider. Although the relationship with Knight had been faltering for some time, Perez was astonished, telling reporters: “I thought silence was a form of agreement.”3 This is a common miscalculation. Even when they sense they are in trouble, executives often bypass the threat and embarrassment of a serious discussion and simply get on with their jobs to the best of their ability, thinking that their results will do their speaking for them.
From a performance perspective, Perez succeeded in trimming expenses, improving relations with major retailers and cultivating the brand in China. Nike’s financial performance remained very strong. Yet Knight maintained that the company was “operating at 80 percent efficiency” under Perez – showing how even objectively favorable data can be re-contextualized or completely excluded. Once a CEO loses the confidence of the Board, it becomes very difficult for the CEO to put a foot right. As Knight later explained, there was no big clash. Rather, it boiled down to “lots of little incidences over a year.”4 What promised initially to be a very complimentary partnership fell apart.5

Sources:
1 Stanley Holmes and Jena McGregor, “Inside the Coup at Nike,” BusinessWeek, February 6, 2006: 34.
2 Stephanie Kang, “He Said/He Said: Knight, Perez Tell Different Nike Tales,” The Wall Street Journal, January 24, 2006: B1.
3 Adrienne Carter and Stanley Holmes, “Curiously Strong Teamwork,” BusinessWeek, February 26, 2007: 90.
4 Stanley Holmes, “Nike’s CEO Gets the Boot,” BusinessWeek Online, January 24, 2006.
5 Stephanie Kang and Joann S. Lublin, “Nike Taps Perez of S.C. Johnson to Follow Knight,” The Wall Street Journal, November 19, 2004: A3.