Dave Stackrow and I weren’t able to cover the segment on board evaluation of CEO performance because we chose to leave more time for the CEO panel following our presentation at APTA’s CEOs Seminar on April 14. Since it’s such a critical subject, which we address in our new book, Building a Solid Board-CEO Partnership: A Practical Guidebook for Transit Board Members, CEOs, and CEO-Aspirants (https://www.dougeadie.com/building-a-solid-board-ceo-partnership/), we decided to share some of the key points that we make in the book in this post.
Experience has taught us that a well-designed process for board evaluation of CEO performance can be a powerful tool for maintaining and strengthening the board’s working relationship with its chief executive officer. To take a fairly recent example of an effective evaluation process, one of us was fortunate to sit in on a highly productive end-of-year three-hour CEO evaluation session being conducted by the board’s governance committee. The first hour of the session was devoted to discussing the CEO’s performance in terms of authority-wide outcome targets that had been established for the year just ended in the annual operational planning/budget process. The discussion focused on measurable outcomes in such areas as ridership, on-time performance, maintenance, safety, customer satisfaction, among others. Making and exceeding targets was noted, but most of the discussion centered on targets that were not met. By the way, the CEO had prepared for the session by putting together an explanation for the shortfalls in performance that she knew would be highlighted.
The final two-thirds of the session were devoted to the CEO’s “CEO-centric” outcome targets that had been negotiated with the governance committee a little more than a year ago. These targeted outcomes, which were explicitly tied to the CEO’s individual leadership priorities involving significant CEO time, falling into five main leadership categories:
- The authority’s strategic development and growth – for example, the CEO had committed to forming a partnership with the regional economic development commission aimed at launching a number of transit-oriented development initiatives.
- Image/external relations – for example, the CEO had committed to taking a number of specific steps to strengthen the authority’s working relationship with the county commission and mayor’s office.
- Internal management – for example, the CEO had committed to significantly upgrading the authority’s financial management capacity, including hiring a well-qualified chief financial officer and completing a major overhaul of the accounting system.
- Board of directors support – for example, the CEO had committed to working closely with the governance committee in developing and implementing a comprehensive program to strengthen board member governing knowledge and skills, including a completely re-designed process for orienting new board members.
- Professional development – for example, the CEO had committed to retaining a coach to help polish her public speaking and team building skills.
The CEO had also prepared for the latter segment of the evaluation session by documenting progress in achieving her CEO-centric targets and explaining any performance problems she had encountered. By focusing on two tiers of outcomes, the board’s governance committee got to the heart of the CEO’s performance and was able to deal with truly important performance issues, such as an actual decline in ridership on three of the authority’s bus routes. Four further steps were taken to complete the evaluation process after this three-hour meeting. First, the governance committee briefed the full board on the evaluation results and solicited board members’ feedback. Second, the governance committee finalized its evaluation and reviewed it with the CEO. Third, the governance committee met again with the CEO to discuss and firm up the CEO’s performance targets for the new fiscal year, including performance issues she needed to address over the coming year. And fourth, the governance committee set the CEO’s compensation for the coming year.
Board-savvy CEOs do their utmost to make sure that a substantive, meaningful process for the board to evaluate their performance, like the one we’ve just described, is designed and fully implemented. Not only do they want to participate in a process that is outcomes-focused and hence protects the best interests of the whole authority, the board, and the CEO, they also recognize that a well-designed and executed evaluation process is a major tool for keeping the board-CEO working relationship healthy. The example of a meaningful process that we’ve just described is dramatically different from the kinds of mechanistic, ritualistic, and pseudo-scientific “instruments” that we’ve seen many nonprofit and public organizations employ. We both have come across many questionnaires that boards have used to “scientifically” measure CEO performance in major functional areas. For example, board members are asked to assess how effective the CEO is in representing the authority in the external world or in providing the board with support, or in filling top positions – often on a scale of 1 to 5 or even 10. Being disconnected from concrete targeted outcomes, these patently subjective opinion surveys obviously widely miss the mark and can end up doing more harm than good.