Wednesday, September 24, 2008

Boards CAN give the CEO a proper performance appraisal

The CEO is an island. His/her boss, the board, meets infrequently, has many unrelated obligations, and possesses a fraction of the corporate knowledge the CEO has. The result is CEOs who operate with little oversight--until things go horribly wrong. After which the bluntest performance appraisal is applied: "You are fired."

There is an alternative. In the October Harvard Business Review (link), Stephen Kaufman, former CEO of Arrow Industries, describes the effort his company made to create a review process that was more like the one applied to his direct reports. It involved numerous board members interviewing executives throughout the company and was intended to provide a window into Kaufman's needed development areas--and to complement the financial and business objectives he was judged on.

I wonder how other CEOs would view this type of process. Would they see it as an intrusion into their space? Or as a yearly checkup that could prevent the root canal of a surprise firing?


Dave Stein said...

Good post, John.

I sat on the board of a small public company for three years. Our chairman insisted (even before SOX came into play) that the CEO be reviewed yearly through a process that included each board member's participation.

I understand this wasn't a GM or HP. With that said, the board became more educated on what was going on within the company a level below what we learned during our normal quarterly reviews. We came to understand the CEO's strengths and weaknesses, and were in a terrific position to assist him in his growth as a chief executive in the areas with which we were most familiar.

The CEO was an open, intelligent, and talented businessman who accepted some of our suggestions and rejected others. Bottom line: It was a responsible and valuable process. I wouldn't join another board without one.