As we emerge from the pandemic, which has seen many boards operating in emergency mode, the world is faced with yet another crisis with the invasion of Ukraine. This is not only having a significant impact on any business with interests in the region, but also knock-on effects for others with inflation, and supply chain disruption.
With their focus on the urgent during Covid, many boards have deferred some important governance tasks, such as a regular review of the performance and personal development needs of their chief executive.
If boards are serious about wanting an effective CEO who is fit for the future, their evaluation is not something that can be put off any longer—despite more volatility and uncertainty with recent events. With the end of the financial year approaching in the UK this important board process should not be delayed for yet another year.
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 “lightweights”.
Forward-thinking CEOs are critical
It’s forward-thinking CEOs who have 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.
Some CEOs have identified a once-in-a-lifetime opportunity to transform their organisation to shape the business for the future to ensure it thrives. Unfortunately, those under significant strain can close down dialogue with the board, and present “oven ready” decisions at board meetings.
Others have experienced uncertainty paralysis, delaying decisions, and therefore end up being driven by events rather than driving them. Some CEOs have focused too much on the present and not looked at the future direction, which can have negative long-term implications for their organisation.
Why evaluate performance now?
With the current crisis in Ukraine it’s a 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 assesses performance, development needs and helps the board better understand what is required to ensure the leader of the management team and business delivers great results. A review is best practice corporate governance and enables the board to refine its approach to the performance, support, succession and development of the CEO.
By evaluating the CEO it’s possible to assess and document performance, not just against key performance indicators, but also the behaviours and ways of working.
It’s an opportunity to move beyond subjective assessment of personality to an objective review of deliverables, achievements, behaviours and development needs. This way you reduce the risks of an emotional, personality-based assessment by infusing rationality and objectivity. The assessment must also be honest, impartial and strictly confidential with the “psychological safety” of the CEO paramount.
How to review the CEO effectively
To ensure the CEO evaluation process delivers a 360-degree review, the board, CEO 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 video platform, and an online survey.
The best methodology involves using a four-stage process:
- Start by reviewing relevant employment documentation. This includes documents from the previous evaluation, development plans and key performance indicators.
- Online surveys are a must. They 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.
- Interviews, via a video platform or face to face, are critical to validate and clarify matters raised in the survey, which simply cannot be explored purely via an 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. Such a review will also ensure the CEO is aligned with company values and strategy.
Clarity on next steps
At the end 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 evaluated at a later date to check on progress.
Unfortunately, too many boards run an evaluation review of the CEO and then do nothing about it. It’s vital to follow up on the 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 chair and the board to ensure progress.
While any performance review will help the board to clarify how to better support the current CEO, it may also prompt the board to consider whether a different one is now needed. It will highlight whether the CEO is fit to lead the organisation and deliver on the business strategy for the rest of the year and beyond.
As volatile times continue, a review is not only best practice governance, but will help ensure effective decision-making and the long-term success of the business.
John Harte is managing partner at consultancy Integrity Governance.