It is very difficult for a CEO to get objective feedback from anyone within his or her organization. For this reason, it is critical that the board – whose primary role is to provide oversight and assistance to the CEO – provide a clear feedback mechanism. As someone who spends a lot of time in board meetings, I have found that many boards don’t know how to do this. To help remedy this, I’ve begun using a report card to help the boards I am on evaluate the CEOs we work with around the country.
In my experience, the reason most boards are not particularly strong in giving formal feedback is that there is not clear agreement on what the CEO should actually be doing. While everyone agrees he or she should deliver a return to shareholders, the next level of detail is usually missing. The trend towards a more diverse board composition often means few board members have experience in the chief executive role; they may not have even given much thought to the question of what the CEO’s job really is versus what others in the organization should handle.
In order to solve the problem of not knowing how to evaluate a CEO, I use the following scorecard, which corresponds to what I think are the key responsibilities of a CEO. I ask each board member to fill out the scorecard covering six areas, giving the CEO letter grades from A to F in each category. In addition, I ask the CEO to fill out the same report card to rate his own performance in each area. We then review the report cards with the CEO. If the CEO is executing in each of the following areas, shareholder value will follow.
Own the Vision – I use the word vision, but this area includes the entire corporate strategy. Has the CEO signed off on and communicated a clear vision, mission, corporate values, and strategy to all stakeholders, both internal and external? Is it an effective strategy that leverages the unique strengths of the organization to establish a clear competitive advantage? Do employees come to work excited by the mission of the company? Do customers and shareholders know what to expect from the company?
Provide the Proper Human Resources – How many times have we heard CEOs say “Our people are our most important resource”? If that is the case, then has the CEO built a company whose people are clearly better than the competition? It is easy for the CEO to say we have great people, but if they are not as good as the competition at acquiring talent, then the company is at a competitive disadvantage every day in the market. While all the members of the team are important, the board and CEO should pay special attention to the executive team and provide clear succession planning. In the human resources area, the board should consider two key questions: Is the CEO getting the right people? And then, is the CEO making sure they are developed to perform to their fullest potential?
Provide the Proper Capital and Other Resources – No business can continue to function without the proper financial resources. Those resources can come from external funding sources or from the internal operations of the company. The CEO must constantly anticipate the needs of the organization and not allow a shortage of resources to cause the company to miss opportunities. Additionally, the CEO is the one person in the company in the position to bring in external expertise. Has the CEO attracted the right board members and surrounded himself with external advisors and service providers that can provide real value to the company?
Build the Culture – I define culture simply as how things get done in an organization. High-performance cultures don’t just appear, as they require a CEO who understands what motivates people throughout the organization. Too many CEOs allow the culture to develop organically and then are surprised when people develop attitudes that aren’t aligned with the company’s vision, mission and goals. Is the CEO setting the standards for the company or is each employee left to his or her own standards? Are the company’s stated values applied consistently across the company? Is the culture driving a high level of performance consistently across the organization, or is performance highly variable based upon the particular group?
Make Decisions Well – Decisions are the fuel on which every organization runs. The quality and speed with which decisions are made determine the productivity of the organization. The CEO is responsible not only for the decisions he makes but also for any decisions his management team makes. Building an organization that consistently makes thoughtful choices in a timely manner is one of the toughest but most valuable things a CEO can accomplish. Does the organization run like a well-oiled machine or are there constant stops and starts as decisions are either: 1) not made or 2) have to be sent to the top for review?
Deliver Performance – At the end of the day, as we all know, CEOs are responsible for delivering performance. The challenge with evaluating performance directly is that it often takes years to see how things play out. Instead of just waiting to see what happens, the CEO must work with his management team to understand the key metrics in each area that will lead to superior performance. I worked with new executives and directors to agree on the three to five metrics that would drive performance in their area. Is there a clear system of goals and metrics that tie to the vision, mission, values, and strategy of the company? Does the CEO know what makes the business work, and can he identify problem areas before they significantly impact performance?
By evaluating the CEO in these six areas, boards can provide great feedback and start a valuable conversation with any CEO.
Joel Trammell is the CEO of Khorus, a business management software system for CEOs, co-founder and managing partner of private equity firm Lone Rock Technology Group, and Chairman of the Austin Technology Council. As CEO, he built two companies from founding to nine-figure acquisitions by Fortune 500 companies. He is a Forbes Contributor.
