Is your CEO satisfied with the process used by the board to conduct his/her annual performance appraisal? How do you know? In a survey of CEOs conducted in 2012 by governance consultant Greg Boudreaux, more that 42 percent (the highest rated item) of respondents said that the thing they value most from their board is feedback via the annual performance appraisal.
However, nearly a third of CEOs also reported that they were not satisfied with the annual appraisal process used by the board. (Appraisal results were not discussed in the survey). CEOs cited one reason for this dissatisfaction was that boards tended to put off the appraisal in the face of other pressing issues faced by the co-op leaving the CEO with the impression that the appraisal was not a priority.
Some reported that the appraisal process often seemed like an afterthought or was treated as if it were a checklist item. Other CEOs noted that compensation didn’t seem to be tied to the appraisal process — or simply wasn’t discussed.
A formal and effective CEO appraisal process is also a key part of the board’s fiduciary duty. As then Deputy Chief Member Counsel, Tracey Steiner wrote in a 2012 Legal Reporting Service article:
CEO Evaluation as Board Fiduciary Duty
“There are a number of benefits to conducting formal, regular CEO evaluations. First and perhaps foremost, such evaluations force a board to consider and define expectations for the CEO, which can drive greater accountability for performance,” noted Steiner, who now serves as the Senior Vice President of Education and Training at NRECA.
“As a natural corollary to defining performance expectations, boards will consider the organization’s strategic direction and objectives. The fact that the board has conducted the evaluation (and spent the time contemplating objectives and assessing achievement) stands as evidence of the board’s work to fulfill its fiduciary duties to direct and monitor corporate affairs.”
So, is a Discussion in Order?
Whether your board has appraised your CEO this year yet or not, it might be a good idea to put a full board discussion of your process that includes the CEO on the agenda for 2017. Given the CEO appraisal process is a central element supporting the board-manager relationship and critical to the overall performance of the cooperative, it makes sense that all should be comfortable with the process.
Here a few questions to start a conversation around your board table:
Is there anything that we could do differently to improve the value – to the CEO and the board – of the CEO appraisal process?
What should the roles be of the Chair, CEO and the cooperative attorney in the appraisal process?
Would it make sense to create an annual calendar for reviewing CEO goal accomplishment milestones?