Board Membership 101: Evaluating CEO Performance

Once a board has hired a capable CEO, it’s important that they continue to offer their guidance and support. For some boards, evaluating CEO performance is a bit of an afterthought. Stephen P. Kaufman, CEO at Arrow Electronics, describes his own first evaluation process as merely perfunctory.
evaluating CEO performance

He explains, “The chair of the compensation committee would pop by my office for just 10 minutes after the year-end closed session of independent directors.

He’d inform me that the board was happy that the company had made its numbers, thank me for my leadership, tell me what compensation it had approved, and express his regret that he couldn’t stay to talk.”

In other words, as long as things appeared to be going well, the board merely patted him on the back and went about its own business. This model, however, does very little to thoroughly evaluate the CEO’s performance.

While it focused on his ability to meet financial goals, it overlooked his influence on company culture, strategic planning, and other aspects of leadership that indicate the development of a well-rounded company.

In some company settings, entry-level workers spend more time on performance evaluations than CEOs do. Typically, these young workers are required to fill out self-evaluations, meet with supervisors, and discuss their team dynamics at length.

Strangely, CEOs often engage in these tasks less frequently, and it’s no surprise as to why. Entry-level employees are regularly being watched and evaluated by other employees within the company. However, board members (who are the de facto evaluators for CEOs) are presented with fewer opportunities to observe or investigate a CEO’s day-to-day successes and failures.

Because they are sometimes blind to other aspects of a CEO’s leadership style, boards can be taken by surprise when company culture turns sour or an HR disaster sends the organization spiraling.

So how can board members better the evaluation process for their CEO? We’ve got a few suggestions:

Create a CEO scorecard system

Joel Trammell at Forbes encourages board members to “grade” various aspects of the CEO’s performance. He proposes several categories, such as vision, culture, and decision making to be put to evaluation. This way, meeting financial goals doesn’t become the lone marker of a successful CEO. If the CEO is achieving well in most or all of the categories, it bodes well for the organization at large—particularly for the shareholders who the board ultimately serves and represents.

Make sure that the CEO completes a self-evaluation on these topics, too. Sometimes, the very best (and most honest) insight can come from the person who is being evaluated.

Meet with employees who work closely with the CEO

But what if you’re not sure what sort of grade to give the CEO? Board members will have to go the extra mile here. They’ll need to reach out to other executives who work closely with the CEO. This might mean conducting interviews with them or asking them to fill out surveys (which would remain anonymous) in order to glean a more comprehensive understanding of the CEO’s leadership role.

This “360 Feedback” style of evaluation has been gaining traction among industry leaders because of its propensity to help leaders recognize and address their blind spots. With 360 feedback, CEOs are evaluated by colleagues at various levels: those who work directly below the CEO, those who work with him/her in the c-suite, as well as those who serve as board members.

Because Mr. Kaufman felt like his evaluation process was underwhelming at Arrow Electronics, he helped them establish a revamped system. In it, each board member met with at least three different employees to discuss topics on which the board had mutually agreed.

These conversations, as Kaufman writes, “…were focused on the state of the company’s strategy, culture, competitive position, and operations: all indications of my performance as CEO.” These meetings were given priority status during a two-month period to ensure that schedules could be aligned.

Spend time discussing the results with the CEO

So you’ve evaluated the CEO, now what? Talk to them about the results. Even if they’re all positive, sit down and have a conversation with your CEO and discuss any trends you discovered during the evaluation process. If there is room for improvement in any one area, outline how the board would like to see the CEO progress over the course of the next year.

It’s important that CEOs receive specifics, so they are clear about how to react to the process. In addition, give them a chance to respond to the results, as they may be able to shed some light on their particular approaches to the topics at hand.

Fundamentally, CEO performance evaluations shouldn’t be about nitpicking. They should be more about getting a clearer view of a CEO’s overall performance and understanding how it affects the future of the company. Just like entry-level employees, CEOs should be given an opportunity to learn from their progress year over year in order to improve any weaknesses and to benefit from strengths.

If your board doesn’t currently have a process in place, we encourage you to start the conversation now.

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