CEOs and Boards at Top Performing Companies Pursue Rigorous Evaluations
CEOs and boards have different jobs to do. They face very different challenges in performing their jobs effectively, which can make their working relationship complicated.
And sometimes that relationship can go terribly, terribly wrong.
Since 2014, the directors of American Apparel and the company’s founder and past CEO, Dov Charney, have been battling over the company’s future. Charney was ousted after mismanagement on his watch led the trendy, US-produced clothing manufacturer into bankruptcy.
Could a CEO evaluation have helped in this situation? Most likely. If Mr. Charney was held accountable earlier and coached to lead for the long term, the result may have been very different. According to a Jezebel interview, one American Apparel director, Allan Mayer, saw Charney’s mix of provocation and idealism as the company’s calling card. Mayer seems almost enamored with Charney’s proclivities for poor behavior and sexual misconduct. It is unlikely that a majority of the Board would have felt the same way. A well crafted CEO evaluation combined with a Board Evaluation, would likely have focused the Board on these issues and either helped coach the CEO in a different direction or created an impetus for change.
A different perspective on board-CEO relations — minus the drama — comes through in a 2013 Harvard Business Review leadership report, “What CEOs Really Think of Their Boards,” about how established, well-respected CEOs view their companies’ boards of directors.
The CEOs interviewed in the study talked about board members who put self-interest above shareholder interests, whose risk aversion suppressed the bold thinking that made the company great in the first place, and whose entrenched points of view blocked exploration of new ideas and strategies. CEOs further felt the burden of dealing with board conflict fell on their shoulders. The study quoted one company head as saying, “It’s difficult when you make the CEO accountable for dealing with disruptive personalities.”
Meeting in the Middle
Whether in the context of an established Fortune 500 company or an industry maverick, boards and management need a baseline for managing all aspects of their working relationship.
The essentials should be found in the company’s mission statement, the CEO’s contract, the board handbook, and long-term strategy. But compliance with these documents — and adherence to the company’s core mission and values — is often best measured through the annual board and CEO evaluation process.
Reciprocity and buy-in from the top down are key to successful evaluations. Our short tag line from Peter Drucker, ‘What’s measured improves,’ requires that board leaders appreciate a self-evaluation process and act on its results. I have spent hundreds of hours with board members, and there is a clear difference between high performing and underperforming directors. When a board reviews its CEO’s performance but is not subject to evaluation itself, or doesn’t take the process seriously, it sends the message that performance assessments are not important.
An approach to assessments that includes developing evaluation tools for the board, the CEO, and upper management helps build a team that can work synergistically. For instance, questions about product development goals may show that the CEO and multiple board members share the same concerns, but never had the opportunity to discuss them. It also leads by example and sets the tone for these same types of assessments throughout the company.
Evaluation beginning at the top can bring out other insights.
- A board’s self-evaluation gives the CEO evaluation more credence and establishes performance assessments as part of the company culture.
- The board evaluation can help set clear actionable goals for the board and help set performance metrics for future evaluations.
- An effective board evaluation process will provide good substance to incorporate into public company proxy statements.
- Information compiled from a CEO evaluation helps the board reach clarity on what the CEO wants and expects.
When data from standardized questions and open-ended responses are aggregated into an objective report, that report can be used to more effectively promote communication, collaboration, and analysis.
Open Communication Is Key
Boards that incorporate meaningful assessment send the message that they are ready for challenging dialogue and are open to change. For their part, the CEOs interviewed for the Harvard Business Reviewstudy don’t want their recommendations rubber-stamped. They welcome informed, thoughtful questions that are forward-focused and bring fresh perspectives to the table. Honest, open engagement by both directors and CEOs can help them stay focused on their common goals — adhering to their core vision and positioning the company for growth.
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On January 25, 2016, a U.S. bankruptcy court judge ruled in favor of American Apparel’s plan to exit bankruptcy. Watch for an analysis of the company’s ups and downs in a future blogpost.