The recent hiring and quick rehiring of Sam Altman, the co-founder and CEO of OpenAI, the company behind ChatGPT, shows how CEOs and their overseeing boards navigate a tricky dance.

Some CEOs, especially the ones who started the company, strongly believe in the direction they want to take. But their boards may not always agree with their vision.

So, what’s the board supposed to do? Should it keep a close eye on the CEO or just give the green light to whatever strategy the CEO has in mind?

Commitment to the strategy

Research from Duke University suggests the answer depends on how much the CEO is committed to their strategy. The researchers created a model for board/CEO relationships. In this model, the CEO has a strong belief about where the industry is headed and the strategy they’ve chosen.

The board, which represents the interests of shareholders, collects information to either support the CEO’s plan or suggest a change. How much effort the board puts into gathering this information and whether they use it to convince or overrule the CEO depends on how strongly the CEO believes in their vision, according to the model.

When the CEO is only “slightly too sure of themselves,” the board goes the extra mile to gather information and provide advice. If this info suggests the CEO’s plan isn’t working, the CEO is open to changing direction.

Confidence matters

For CEOs with a high level of confidence, there’s a twist. They might stop listening to the board’s advice, even if the data hints their vision is off. In this case, the board becomes a watchdog, ready to step in and override the CEO if the facts point to a better strategy. The more the CEO sticks to their beliefs, the less info the board collects, according to the model.

Now, if the CEO is a real visionary, super confident in their ideas, the board might choose not to interfere, even if they think a new approach would benefit shareholders more. Here, the board just gives a thumbs-up to the CEO’s plan because they trust the CEO is really determined to make it work.

“It can actually be optimal to be passive,” the researchers explain. “You often hear that boards are too passive and rubber-stamp the CEO’s vision or ideas, but our setting shows that in certain situations, it can be the right move.”

Going the other way and making a visionary CEO switch strategies might not be a good move. It could dampen the CEO’s excitement and throw off the company’s momentum. It might even lead to finding a new CEO, which is expensive for shareholders. The recent back-and-forth clash between Altman and his board is a clear example of how this can be costly.

“If the loss of motivation would be substantial, the board won’t insist on a strategy shift,” the authors conclude. “They will just let the CEO run with his idea.”