Ted Hull Consulting FYI
Why Bother Evaluating Your CEO?
June 25th, 2017
One of the most common questions I’m asked is “How does a Policy Governance® board evaluate its CEO?” Let me suggest that if your board is asking this question, it is asking the wrong one.
If you hired someone to build a fence, you wouldn’t (or shouldn’t) evaluate the competence of the carpenter while the fence is being built. You should have looked into that before signing the contract. Let’s assume that you have hired a reputable carpenter, that you know what type of fence you want, where you want it built and how much you are prepared to pay. There are industry standards as to the size of the posts and how deep they go into the ground, the type of wood used etc., which will reflect the quality of the fence. Once the job is completed you are only concerned if the fence was built well and done so in a legal and environmentally responsible way. You are evaluating the fence, not the carpenter.
Many boards don’t follow this principle. They want to evaluate the carpenter, with very little idea what kind of fence they want or where they want it built or what would be a good price for their nebulous project .
Some boards are clear about the type of fence they want built, where they want it built and how much it’s worth to build the fence. The job is completed and it has been done so legally and ethically. But they still want to evaluate the carpenter. It seems to me that the evaluation of the carpenter is concomitant with the evaluation of the fence.
With this analogy in mind, let’s look at a board example. A Policy Governance board has proactively:
- Stated its Ends; what results should be achieved by the organization, for whom and what it’s worth to produce those results. In that way it has defined – in advance – what the results will look like if the job is executed successfully. (It knows what kind of fence it wants.)
- Stated its executive limitations; what conditions, situations or circumstances would be unacceptable, even if the Ends were accomplished. (It values the fence being built in a way which is compliant with all applicable laws and regulations.)
- Identified the CEO as the one person it will hold accountable for achieving the results and ensuring the unacceptable means are avoided. (The board knows who the carpenter is. How many helpers are hired is irrelevant as long as the job is done well, comes in within budget and the helpers are not exploited.)
- Monitored compliance with its expectations and limitations by receiving data which demonstrates that the Ends have been achieved and the unacceptable means have been avoided. (Receives information to assure that the fence has been built in a way that is consistent with the owner’s wishes and industry standards.)
- Developed a board policy which essentially states that the board will view the CEO’s performance as identical to organizational performance such that organizational accomplishment of board stated Ends and avoidance of the Board proscribed means will be viewed as successful performance by the CEO. (It agrees that if the fence is built well and done so legally and ethically, that the carpenter has done a good job.
Let’s assume that:
- The CEO has reasonably interpreted the board stated Ends and that they have been accomplished.
- The CEO has reported compliance with all the executive limitations, reasonably interpreted by the CEO. Even if there are areas of non-compliance, the CEO has demonstrated that there will be compliance within a reasonable length of time.
“Yes, but our board is still uncomfortable…something seems missing”. I would challenge the board to ask itself what relevant and policy-related information it wants that it doesn’t already have. While a Policy Governance board is entitled to monitor any policy at any time by obtaining monitoring information from the CEO, from an external inspector, or by directly examining evidence as a board or board committee, it has agreed that it will not evaluate its CEO based on criteria it has not set out in advance.
But perhaps your board should be uncomfortable. Maybe something is missing, such as one of the following:
- Your board policies regarding the performance of the organization are not clear or complete. In this case the board has expectations it has not stated. If the board isn’t clear regarding organizational success, don’t expect the CEO to have a clear understanding. (If you’re not clear what kind of fence you want, don’t expect the carpenter will know.)
- There are values your board has that are not contained in its executive limitation policies. (It should be stated up front if you didn’t want the wood to be purchased from a socially irresponsible company.)
- There has been an inadequate or incomplete interpretation by the CEO. Your board has been clear about what results it wanted or what it considered imprudent or unethical, but the CEO has not reasonably interpreted them.
- The board has lacked diligence in monitoring its policies. Remember, if it’s valuable enough to the board to develop a policy, it must be valuable enough to monitor to make sure there is compliance. (Don’t evaluate the carpenter if you haven’t evaluated the fence.)
- The board is not speaking as one voice in terms of what CEO behaviour would be unacceptable. This is not the time for individual board members to voice their preferences or wishes. (It’s always a problem if you are telling the carpenter one thing and your spouse is saying something different.)
So as long as the fence is built well, in the right place and within budget, and there were situations or behaviours previously identified as unacceptable, why is any further evaluation necessary?