April 15, 2017

Evaluating CEO Performance

Being the CEO of an organization of any size is a complex and difficult job. It is often more difficult to be the CEO of an earlier stage company where you are still building momentum, than of an established company where there is established momentum. And, it is difficult to know precisely if you are, or not, meeting expectations with your board and employees. How do you know if you are performing well as CEO? This is particularly relevant if you have never been the CEO before since you really have no comparative points. Everyone believes that they are doing a great job, regardless of their role…even when they are not. But if this is your first time as CEO, you may not be completely sure of what the role actually entails, the key characteristics required, the mistakes that people in your position make and, most importantly, how to evaluate your job performance.

You may also now have a board of directors whose primary job is to hire and/or fire you and evaluate your performance. And you certainly have employees who you need to follow you. If there is a disconnect between what your board or your employees think about your performance and what you believe, there will be certain trouble ahead.

So, how should you think about this? Below are the 10 suggested categories of criteria to evaluate CEO performance. The criteria have been chosen based on input from board members and current and former CEOs. Each criterion has been organized by asking a series of questions that relate to it.

  1. Role – Does the CEO know and perform the key responsibilities of the job? Is the CEO focused on building a company or simply building a product? Does the CEO provide vision, set or enable the culture, set the right quantifiable goals and metrics for the business and hold people accountable? Is the CEO decisive? Does the CEO have a solid decision-making framework? Does the CEO make good decisions? Can the CEO solve problems quickly and effectively? Does the CEO focus on the right issues?
  2. Business – Does the CEO have an understanding of the business, the market, the opportunity and the metrics that will drive valuation for the market that the company is in? This understanding includes the market that the company serves as well as the business the company is in (for instance – SaaS)
  3. People – Does the CEO work to motivate, engage, manage and improve the skills of the management team and the people in general? Is the CEO promoting the culture that is needed to build this company?
  4. Organization Development – Does the CEO know how to build out the organization to match the needs of the company at the stage it is in? Does the CEO effectively develop and utilize the talent available inside the organization and help the organization learn how to win in its market and then scale that into a valuable business? Can the CEO attract and retain good people or is there too much turnover (particularly of key employees)?
  5. Strategy – Does the CEO have an achievable vision for the business? Does the CEO have a realistic plan to win in the company’s market? Does the CEO have the ability to build an effective strategy for the company, clearly communicate that strategy properly to all constituents and to execute to implement the strategy? Are the operational goals and plans aligned with the strategy? Are there metrics in place to measure the effectiveness of the strategy? Are there contingency plans in place for the strategy?
  6. Communications – Does the CEO clearly and consistently communicate with the board, employees, customers, prospects, press, partners and industry influencers? Is the CEO good at oral, written, numeric and visual communications? Is the CEO good at positioning issues and challenges in the best light? Is the CEO good at asking tough questions?
  7. Progress – Is the company achieving the agreed upon metrics and goals (and are they the right ones)? Are those goals the right goals and metrics for the organization? Or is the company falling for fauxmentum? Is the organization held accountable for goals? Is the CEO always asking “What’s next?”
  8. Innovation – Is the CEO leading practical innovation? Does the company innovate across the organization (not just product, for instance, sales, marketing, client services…)? Does the CEO promote and stimulate new ideas? Does the company stay current on innovation within the industry?
  9. Emotional Intelligence – Does the CEO react in the right manner (particularly during times of stress)? Does the CEO deal with conflict and turmoil correctly? Does the CEO accept responsibility for all things that happen in an organization? Is the CEO self-aware of strengths and weaknesses? Does the CEO develop a strategy to help deal with weaknesses? Does the CEO have the basic CEO characteristics? Does the CEO have resilience to deal with the myriad of things that can happen to a company?
  10. Personal Growth – Is the CEO capable of leading the company in its next phase of evolution? Does he/she have the necessary skills and characteristics to deal with the next set of company challenges? If not, is the CEO capable of developing and growing into the role and specifically how will they achieve that growth?

It is highly recommended that a formal CEO evaluation happen on a regular basis and that the above criteria is scored on a 1-10 scale.  In addition, since each company is somewhat unique, it is also suggested that the board and the CEO choose a 1-10 weighting for each category.  The board and the CEO can then come up with a weighted score.  Each category can be discussed to ensure congruence and the total score can be discussed as well.  Arbor Dakota has a CEO Evaluation Form that accomplishes the above.  Please contact us for access.

By the way, boards are lazy in this regard and rarely take the time for a formal (and quantitative) CEO review.  This is a mistake.

The success of a company depends upon the performance of the CEO. The criteria for that performance needs to be discussed, agreed upon up front and then clearly communicated and constantly reviewed. This is rarely done in earlier stage companies and is essential to improve the probability of success and improve company valuation.

For more information on how to better evaluate CEO performance or to gain access to the CEO Evaluation Form, contact Arbor Dakota below.  Arbor Dakota is committed to helping CEO’s grow their great ideas into great companies.