MOST CEOS ARE NOT MANAGED WELL ENOUGH BY THEIR BOARDS
November 4, 2013 5 Comments
I have served on quite a large number of different boards for companies of all sizes, in different countries and cultures, and believe that generally boards do not manage their CEOs well enough.
This is particularly true for skills other than the non-financial skills needed in the role.
The Business Schools, as well as management consultants are continually telling us that there are critical “soft skills” that every CEO needs today to be able to succeed in our ever-changing, globally competitive environment, such as driving innovation, building talent, growing customer care, monitoring employee satisfaction, building strategic growth and ecosystem development. However, it has been my experience that it is very rare for a CEO to be tested on anything other than financial metrics, if he is measured at all.
The belief seems to be that as long as a CEO is delivering against his revenue, profit and share price metrics he must be doing a good job, and should just be allowed to get on with it.
I see this as a very short term strategy that may suit start-up or PE/VC driven companies that have a well-defined exit strategy, but does not make sense in companies that are trying to build a sustainable long term business future.
In all my CEO roles, whether the role was national, regional or global, I was only ever measured on my financial performance, and while I have no doubt that the boards I worked for expected me to do more than that, it always seemed to be easier for them to just measure and reward me on the numbers. I have seen very little difference in some of the boards that I have served on since my retirement from full time corporate executive roles, and attempts that I have made to change this at board level have often been met with some resistance, and in a number of cases my change attempts have even been put down to the fact that I spent the last three years of my full-time working career as a global head of HR, the implication being that this had somehow softened me from being a hard-nosed business person to a touch-feely one.
The reality is that my 45 year career has strengthened my belief in the fact that there are two key business elements which are mandatory and which are critical for sustainable success, and that need to be measured in any CEO by his board …
1. The numbers are a given … once the financials have been fought through, agreed, accepted, allocated and signed off, they are a blood commitment to be delivered, and “woe betide those who miss.” The budget that the business has been built on cannot be a moving target. I served on one board where, about 6 months into the year, the CEO started presenting the budgeted revenue numbers as being billing numbers instead, thereby effectively giving himself a 10%+ drop in the company revenue target, without any equivalent cut in the expense lines, changing the year from a planned success to a less than break-even. Nice try, but totally unacceptable.
2. Building the future for all the stakeholders is a non-negotiable goal … This is as true for our shareholders, as it is for our customers by delivering the needed customer service and support, as it is for our employees through building an environment where people can succeed, as it is for our partners who have built their business, and who rely on their business success on our making it easy for them to do business with us, and on ensuring that we “share the spoils” equitably.
I believe that these two business elements are inseparable, and that boards that do not goal and who do not evaluate their CEO (and entire executive team) on both elements are not fulfilling their role. Even worse, I have come across many situations where the CEO was not evaluated at all, beyond having to present and defend the financial performance at the monthly or quarterly board meetings. Although I believe that formal performance reviews do not work well for general staff members, they are better than doing nothing. The same holds true for the CEO, and there should at the least be a formal review process put in place for the CEO. A better process I believe is for the Chairman to meet regularly with the CEO, say monthly, not only to ensure that they are working together in a way that benefits all the stakeholders and that there are no surprises at the board meetings (from either side), but also to manage and guide the performance of the CEO, in the same way that an executive would manage the performance of one of his team members.
One of the critical roles of any board is to mentor and guide the CEO and the executive team in all elements of the business, which means that the board needs to be comprised of people who are capable of doing this through a wide set of experiences, skills and knowledge and these need to be more than just how to evaluate the numbers. I feel that it is important that board members are allocated some key executive mentoring and coaching responsibilities over and above their normal board fiduciary responsibilities, and that if these skills are not available in the board it does call into question the whole board member selection processes.
American VC Fred Wilson was right when he said “Board meetings should not be for the benefit of the board. They should be for the benefit of the CEO and the senior team.”