Global CEO turnover was at an all-time high in 2023. While there are many contributing factors to this, one of the common causes is conflicts with the board of directors.1 In some cases, poor communication of the board’s expectations is at the root of this conflict.
It’s certainly not always a bad thing for a CEO to depart a company, but as CEO performance, succession planning and recruitment are key governance roles of the board, it’s critical that the board is able to deliver high quality feedback to the CEO and build a deep, open relationship.
In this article, we’ll discuss the common challenges many boards face when delivering feedback to the CEO, before providing examples of the key areas to include in a CEO performance review.
Common challenges in conducting CEO performance reviews
The recruitment, monitoring and mentoring of the CEO is arguably one of the most critical functions of the board. Despite this, it’s not always easy for the board to provide performance feedback. In some cases, this comes down to the people management experience of the Chair. If they don’t have the appropriate skills, or they’re not comfortable with providing difficult feedback, the performance process can fall down.
Even at the highest level of business, CEO feedback may be limited to just an informal chat over a coffee. While the Chair may have consulted some directors the result is still likely filled with subjectivity and bias – and most likely won’t lead to optimal results for the organisation.
The other challenge is ensuring that the process covers the full range of topics that can sit inside CEO performance. A comprehensive framework can be extremely valuable in ensuring that the board can demonstrate to the CEO that they understand the depth and complexity of the role. A light touch process runs the very real risk of sending the opposite message.
Few things are more frustrating for performance-focused CEOs than shallow or inconsistent feedback from the board. Whether good or bad, it is critically important that the CEO has a clear picture of where they stand. Issues need to be discussed frankly between Chair and CEO, and just as importantly, the CEO needs to understand whether they have the full confidence of the board. When done correctly, the CEO performance process can be an empowering one.
Best practice for CEO performance reviews
To allow for frank and rich discussions between the board and CEO, a rigorous foundation for the feedback conversation needs to be put in place. All of the most critical elements of the CEO role need to be covered, including a range of questions designed to test alignment between board, management and CEO on short and medium term priorities.
At BoardOutlook, our best practice recommendations centre around the following:
Depth and breadth of data
Ensuring that the feedback received covers the full scope of the role, from both a qualitative and quantitative standpoint. This makes the performance discussion easier, providing a clear foundation of data that can focus on next steps.
Self-awareness opportunities
A good leader is one who is aware of both their strengths and growth areas, which is why we recommend including a self-assessment as part of the CEO performance review process. This allows the CEO to gain a deeper understanding of their performance, so they can take targeted steps towards personal growth and professional development, paving the way for more effective leadership.
Three-way alignment
By receiving performance feedback from the board, management and the CEO, the data can be reviewed in an objective manner. This helps to identify any obvious patterns in viewpoints (and potential biases) from directors and management, ensuring a more robust review process.
Formalise the process
It’s important to take emotion out of the exercise. This means once the data has been collected, the feedback should be provided in a formal environment, ensuring that both the CEO and the board understand the results and the expectations moving forward.
Tracking progress over time
The final component is ensuring that all data is collected, ideally in a platform that offers a standardised framework, in order to track progress over time. By comparing performance over various time periods, the board can identify trends, observe the impact of changes or improvements, and assess the CEO’s ability to adapt and grow. This longitudinal perspective aids in making fair, data-driven decisions about the CEO’s overall performance.
Key areas to cover in a CEO performance review
The role of the CEO comes with a significant number of responsibilities and expectations. This means a lot of areas to cover in a performance review. At BoardOutlook, our CEO 360 software utilises a diagnostic that breaks down these areas, providing comprehensive coverage of a CEO’s performance. These include:
Leadership
A fundamental area that a CEO must display qualities in. This typically includes:
Leadership on strategy
Does the CEO have a compelling strategy for the next 3-5 years? Do they have a strong understanding of company strengths and history, and of the competitive environment? Do they monitor and drive the execution?
Leadership style
Does the CEO’s leadership style empower the team to perform? Do they lead authentically and live the values? Are they respectful, approachable and responsive?
Overall leadership
Is the CEO the right leader for the organisation at this time? Are they focusing on the right priorities? How effective is their decision making?
People management
This area helps to understand the CEO’s abilities in the following:
Building talent and capability
Is the CEO building a competitive advantage through talent? Do they understand the critical roles for the success of the organisation? Do they ensure the board has visibility over talent?
Leading the executive team
Does the CEO have the truth and confidence of the executive team? Have they set clear priorities and expectations? Do they hold leaders to account?
Leading the culture
Is the CEO a champion for the culture of the organisation? Do they set high standards and hold all employees accountable? Do they ensure reward frameworks reinforce the culture?
Stakeholder management
Another core component of the CEO role includes:
Stakeholder relationships
Does the CEO communicate a compelling narrative for the organisation? Do they have strong relationships with customers, regulators, investors, partners and employees?
Partnering with the board
Does the CEO have the trust and confidence of the board? Do they leverage the experience of the board appropriately? Are they aligned with the board on strategic priorities?
Results
Lastly, the CEO must be able to support:
Driving change and transformation
Is the CEO the right person to deliver on the change and transformation agenda? Do they present a clear view of what success looks like? Do they rapidly move on roadblocks and spotlight success stories?
Delivering results
Taking into account all relevant tailwinds or headwinds, has the CEO performed strongly over the last twelve months? Have they delivered on commitments? Can they balance short and long-term goals? Do they prepare for unforeseen events?
Formalising the CEO performance feedback process
When conducting a CEO performance review, it’s clear that a systematic, data-driven approach is of the utmost importance in today’s corporate environment. This process shouldn’t simply be a formality, but an essential mechanism to ensure unbiased, thorough feedback is delivered.
Well-rounded feedback is vital to the growth and development of both the CEO and the organisation, and a well-structured performance review paves the way for open, constructive conversations between the CEO and the board, fostering a relationship built on transparency and mutual trust. It bridges any gaps in understanding, aligns their visions and equips them to work collaboratively towards achieving the organisation’s strategic goals.
Lastly, it provides the CEO with clear insights into their performance, highlighting areas of strength and identifying opportunities for improvement. In essence, a formalised CEO performance review process is a powerful tool that not only drives individual growth, but propels the organisation forward more effectively.
Sources
1. https://www.russellreynolds.com/en/insights/reports-surveys/global-ceo-turnover-index