Many boards have been operating in emergency mode during the pandemic, and now they are facing yet another crisis with the conflict in Ukraine. Not only is the situation in Ukraine having a significant impact on any business with interests in the region, but there are knock-on effects for others with supply chain disruption and inflation.
Due to the focus on the urgent during the pandemic, many boards deferred some important governance tasks, such as a regular review of the performance and personal development needs of the CEO. For those boards that are serious about wanting an effective CEO who is fit for the future, evaluation of the leader of the business is not something that can be postponed any longer – despite the increased volatility and uncertainty.
After all, the pandemic revealed that some CEOs under enormous pressure were “leading lights” by spotting new opportunities for their organisation, and operating with agility and competence, while others were exposed as “simply light”.
Forward-thinking CEOs required
Those CEOs who stepped above the issues of Brexit and COVID to direct their energy into how to overcome the challenges, and get their businesses back onto an even keel, are leading the way. It’s these CEOs who have recognised the importance of identifying a once in a lifetime opportunity to transform their organisation during the crisis, to shape the business for the future to ensure it thrives.
Conversely, some CEOs under the strain of the Covid emergency closed down dialogue with the board and presented “oven ready” decisions at board meetings. Others experienced uncertainty paralysis, delaying decisions, and therefore end up being driven by events rather than driving them. Then there are those CEOs who focused too much on the “present” in the crisis and not looked at the future direction, which can have negative long-term implications for their organisation.
Is it the right time to evaluate CEO performance?
With the geopolitical instability generating a cost of living crisis, now is a very good time to assess the CEO’s progress against the performance and risk indicators in the context of the strategy and the purpose of the company. An effective CEO review evaluates performance, development needs and helps the board to better understand what is required to happen to make sure the leader of the management team and the business is well placed to deliver great results. Doing so is best practice corporate governance and it enables the board to refine its approach to the performance, support, succession and development of the CEO.
It’s only by evaluating the CEO that it’s possible to assess and record performance, not just against key performance indicators, but also the behaviours and ways of working. It also provides an important opportunity to move beyond subjective assessment of personality, to an objective review of deliverables, achievements, behaviours and development needs. By infusing rationality and objectivity in this way, you reduce the risks of an emotional, personality direct assessment. Importantly, any assessment must be honest, impartial and strictly confidential with the “psychological safety” of the CEO paramount.
How to effectively review the CEO
To deliver a vital 360-degree performance review, one that also provides an objective assessment of the CEO, the board and their direct reports must reflect and provide feedback on the CEO’s performance and development needs. This involves qualitative and quantitative research based on interviews, either face to face, or on a videotelephony platform, and an online survey.
A four-stage process
The best methodology for CEO evaluation involves using a four-stage process:
- Start by reviewing the relevant employment documentation. This also involves studying documents from the previous evaluation, development plans and the key performance indicators.
- Undertake an online survey. It should be tailored to reflect the purpose and strategic objectives of the company and an assessment of the behaviours, skills, knowledge and impact of the CEO. The criteria to be assessed should be those which are most relevant to the organisation at this time. These can include strategic planning, leadership, financial performance, and engagement with stakeholders, for example. Each of the participants should confidentially rate every area of the CEO’s performance in the survey.
- Follow up on the online survey with interviews, via videotelephony platform or face to face. This is critical to validate and clarify matters which simply cannot be explored purely via the online survey.
- The final stage is reporting – to the board, the CEO and with some feedback to the direct reports that have participated in the review. This report will highlight any gaps between the CEO and views of the other participants, enabling the board to spot strengths and opportunities for performance improvement and personal development, which could involve training or additional mentoring. Importantly, such a review will also ensure the CEO is aligned with company values and strategy.
Clarity on next steps
At the conclusion of the review process there must be clarity on the next steps for the CEO, with deliverables agreed by all parties. These can then be revisited and reviewed at a later date to check on progress. Unfortunately, too many boards run an evaluation of the CEO and then do nothing about it. It’s vital to follow up on the annual CEO performance review – but not just formally 12 months later. Regular “pulse checks” based on the feedback from the assessment must be undertaken throughout the year by the chairman and the board to ensure progress.
As well as the review helping the board to clarify how to better help and support the current CEO, it may also prompt the board to consider if a different one is now required to ensure the organisation delivers on the business strategy. After all, it will highlight if the CEO is fit to lead the organisation for the rest of the year and beyond.
As volatile times continue, those boards yet to do so must reflect on the performance of the CEO, and support that assessment with a robust, repeatable process that identifies support and development needs. It’s not only best practice governance but will help ensure effective decision making and the long-term success of the business.
Boards that need advice on delivering a review of their CEO and / or directors, planning for succession, transition and onboarding of those on the board, or support with wider governance matters, should contact our highly experienced team.