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Advice
to a Board on Assessing the CEO
Richard
M. Biery
Assessment
of the CEO is not at all easy for a board to do as a group and
hence, frequently gets procrastinated and/or mangled (or
both). The following are some suggestions.
A.
What not to do
1. Don’t
use subordinate units of the Board to assess the CEO such as a
“specially appointed” committee, the Executive Committee,
the Personnel Committee or (worse) the Chairman. The CEO will,
consciously or unconsciously, work for whoever assesses him or
her. The CEO works for the Board as a group (I hope).
2. Don’t
spring surprise criteria on the CEO. I have served on boards
where the Chair or Personnel Committee chair announces they
have criteria for assessing the CEO and the CEO has never seen
the criteria. There is absolutely no integrity (or
trustworthiness) in this practice of “guess
what I am going to be thinking when I evaluate you.”
3. Don’t
use a “360 degree” evaluation. This popular idea, when
applied to a CEO, violates good governance principles on
assessment (who do I work for and what is their performance criteria?),
assesses the CEO based on unknown criteria; if anonymous, is
an invitation to mischief and if not, may not be honest, and
whatever criteria will be used by the various parties may well
not accord with the Board’s criteria. (The CEO can use a 360º to assess him or herself based on criteria he/she
is using.)
4. Don’t
use surveys regarding the CEO, e.g., a “member survey of CEO
performance,” or, similarly, a customer survey. Usually
these are anonymous, and the criteria used to make the
judgment are unknown. (Unless, under very unique
circumstances, the board (or, preferably, an auditor) surveys
individuals concerning the CEO’s conduct in certain specific
situations, which must be policy-relevant (not surprises). Of course, the
Board can use a
customer or member satisfaction survey to assess
organizational service or product performance as long as the
survey is data-relevant to a board policy.
5. Don’t
use rumor or ad hoc board members observations or experiences
that are popped on the Board during its CEO assessment
executive session, (educate the Board regarding CEO
assessment, including what to do when something comes to a
board member’s attention that might impinge on a performance
assessment.)
6. Don’t
conduct the assessment by confronting the CEO “en banc,”
with the entire board meeting with the CEO. (There is a
not-very-nice phrase for that.) Boards often try to manage the
dynamics of this kind of process, and it usually does not
work. (When one thinks about it, the board cannot orally speak
with one voice. Individual voices are heard and must be
synthesized. The CEO shouldn’t be put in that position.)
Some argue that the full board should be present to “pat the
CEO on the back.” Right. And exactly what words? And what
about critical and corrective comments, which should also be
part of any evaluation?
7. Don’t
guess at what the next compensation level should be, (or what
the “market” is paying), and don’t assign that task to a
committee without clear and confined guidelines.
B.
Do:
1. Recognize
that, in a sense, the CEO is continuously assessed every time
the Board receives a monitoring report, (this is especially
true of Policy Governance® boards*). The annual review is a consolidation of that process.
2. Review
the Board policies concerning evaluating the CEO and assess
them for fairness and clarity. If the Board then wants to refine
the process, do it ahead of time.
3. Have
the Board members bring their monitoring reports for the last
12 months, (incl. the external audit and any special external audits
conducted as compliance checks), and having reviewed them,
make any notes on them to remind them of their observations.
(For the non-Policy Governance savvy, monitoring reports are
reports from the CEO on organizational compliance status with
Board policies. If the Board has none – well,…how can the
Board be governing? Reactively?)
4. Review
and pull together all data bearing on compensation ahead of
time, (comparability data, any counsel received, benefit
package, anticipated next year’s COLA, etc.)
5. Convene
an executive session with all staff absent.
6. Keep a
record of that meeting and the discussion (not necessarily
with attribution).
7.
Have
the Chair (or a designee) gather the Board's assessment terminology and
phrases the Board agrees it would like used in a written
assessment, e.g., on a flip chart.
8. Have
the Chair or a designee write an assessment letter accurately
reflecting the full Board’s discussion.
9. Circulate
that letter to the board for review and confirmation and
emphasize that it reflects the Board’s comments as a whole.
10. The
Chair or a designee (or two) meet with the CEO and present the
letter and any comments the Board has authorized, but none of
his/her own assessment (which would undermine Board authority
and violate Board policy).
11. Give
CEO compensation instruction to the CFO in written form.
Richard
M. Biery 2005; Published in Christian Management Reports,
Feb. 2005
*
(Policy Governance is the registered service mark of John
Carver; the authoritative website for the Policy Governance
model can be found at www.carvergovernance.com.)
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