What Should I know about CEO Evaluation

Background

CEO evaluation is not an end in itself. It is a major step in managing leadership risk, and building and maintaining excellent leadership that propels the organization into the top 20 percent.

Stephen R. Covey said, "I am personally convinced that one person can be a change catalyst, a transformer in any situation, and organization. Such an individual is yeast that can leaven an entire loaf. It requires vision, initiative, patience, respect, persistence, courage, and faith to be a transforming leader.

Leaders, whether we call them CEOs or Executive Directors, are the catalyst of any organization’s performance, whether significant change is required or not. They are the catalyst for the vision that ignites the enthusiasm of employees, clients, funders and other stakeholders. They are the pathfinders that guide the accomplishment of the vision. They are the pillars that provide resilience when the going gets tough.

For owners, the presence of strong leadership is the most convincing measure of the Board’s capacity to act on their behalf.

The challenge for Directors

Directors manage risk

The most significant challenge for any Board is to ensure that the organization’s leader is the right catalyst, the right pathfinder, and the right pillar for the time and the situation. A significant part of the challenge is finding internal candidates who fit or can grow into the profile. The Board manages leadership risk and ensures the right leadership is in place?

How Directors manage the risk

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Drop-In Directors

Being a Director is like buying a house—and not being allowed to go inside to look around. Would you buy a house if the only way you could see what was inside was to look through the windows? That’s, in a sense, what every Director is required to do.

Directors aren’t around day-to-day, unlike the CEO and senior management. They can’t observe events as they unfold. Instead, they “drop in” to attend six to eight Board meetings a year that last from two to ten hours, and they review information prepared by the CEO.

How can Directors fulfill their responsibilities for monitoring and supervising the CEO? How can you be held accountable for the reputation and financial well-being of the enterprise you serve when you’re only an outsider looking in? What windows do you look through to gather and assess the information you need to “buy the right house”? That’s the challenge faced by all Directors, from non- profits to major corporations.

To bridge the time and knowledge gap, effective Boards rely on their capabilities as risk managers. They specify the information they want to see through ten risk windows that give the Board an almost compete view of the inside of the house. By examining the CEO’s management through each risk window, the Board can monitor and supervise the CEO, contribute to the CEO’s decisions, and fulfill its mandate of preserving the reputation and financial well-being of the enterprise.

Risk management is a key skill for Directors. Fortunately, it’s a skill at which you’re probably already proficient. You’ve been identifying and managing risk for most of your life. With experience you’ve learned to apply it to complex situations like buying a house, considering a promotion, or making an investment. You assess the risk, weigh your options, and consider the consequences. With each decision, you become more skilled and confident in your ability.

For more information on the risk windows and how to use them, visit our website at www.GovernanceTools.com.