Why appraise the CEO?

All good leaders need to know if they are doing a good job. The best way to review a CEO is through a robust appraisal system. Read further for reasons on why CEOs should be appraised.

As the third sector develops in size and complexity, systems of best management practice should be in place to support and monitor all staff, including the CEO. Before establishing a chief executive appraisal system, it is important that the chief executive, chairman and board members discuss, and agree answers to, the question “why do we want to do this?”

There are many possible answers to this question, encompassing the support and development of the CEO, performance management, strategic development, and compliance.

It is particularly important to have a system of appraisal for the chief executive because the complexity of the relationship between governance, leadership and management in the third sector places upon him or her many expectations and responsibilities. These need to be made explicit to the post holder on his or her appointment. They also need to be agreed and supported by the board members on a collective basis, and reviewed regularly.

Below are the reasons why a CEO should be appraised.

CEO support and development

• Identify areas for the chief executive’s training, support and development.
• Adjust the shape of the chief executive’s role.
• Review the support by the chair of the chief executive.
• Review the support by the board as a whole of the chief executive.
• Build good working relationships and trust between the chair, the chief executive and the board.
  

Performance management

• Review the chief executive’s achievements and weaknesses against agreed objectives, competences or performance benchmarks.
• Review the chief executive’s achievements as role model for the organisation's values.
• To make the CEO aware of any concerns about his or her performance,
• To improve the performance of the organisation as a whole by establishing a culture of appraisal and development.
  

Strategy and objectives

• Set short, medium and long term objectives for the chief executive and indirectly for the top team
• Identify barriers to success of the organisation in the past and avenues for action in the future,
• Communicate common ground or differences in vision, attitudes and objectives for the future.
  

Compliance and accountability

• Demonstrate compliance with the sector’s Code of Governance.
• Reassure funders and regulators that the organisation takes performance
• management seriously.
• Ensure the board members are meeting their duty to deliver effective leadership and management for the organisation.
  

Board members continually observe and review the actions and overall performance of their chief executive, regardless of whether a formal appraisal system is in place.

They may have differing degrees of involvement with the activities of the charity and differing ideas about how much authority is, or should be, delegated to the chief executive. On this basis, they may reach very different views on the performance and effectiveness of the CEO, causing tensions and perhaps disputes within the board.
Since appraisal of a sort takes place even without a formal system, the question is not whether to have an appraisal system, but whether to have a formal one.

“The board should ensure that formal arrangements are set up for the regular supervision, appraisal and personal development of their chief executive. This may be carried out by the chair, another trustee or by a small group of board members.” Third Sector Code of Good Governance

Formal appraisal has many clear advantages for board members:

• It helps board members’ expectations and observations to be communicated explicitly to the CEO on a regular basis. These can be clarified and negotiated in a way appropriate to the particular organisation.
• It provides a solid foundation for defining the relationship between the chief executive, the chair and the board members, and a structured channel for managing it.
• It also helps to clarify and set clear objectives for the successful running of the whole organisation. Since board members will not be closely involved in the operations of the organisation, appraisal of the CEO provides a vital means of holding the CEO to account for them in an objective way.
• The process of developing a formal appraisal system helps improve trust and therefore helps the chief executive and his or her board members work well together.
  

Board members may be reluctant to introduce a formal appraisal system for the CEO, in case it implies criticism of performance to date. However, a formal system of appraisal will directly benefit the CEO, and most CEOs are delighted to have one in place.

• In the absence of formal appraisal, CEOs may be left in the dark as to the board’s view of their performance. This lack of clarity can lead to considerable anxieties, particularly for a first-time CEO who is used to working within a formal line management structure.
• A formal appraisal process provides a clear opportunity to communicate feedback from the board in a structured and orderly way. This helps to prevent any criticism appearing unnecessarily personal, and encourages feedback to be made at helpful times and in helpful ways.
• The process of appraisal enables a CEO to communicate to the board his or her own expectations and observations about the role, and how it should evolve over time.
  

Brian Lechem points out that, “The role of the CEO can be very isolated. All CEOs desperately need to know how they are performing.”

Board members should also be encouraged to overcome their natural reluctance to challenge the CEO. An appraisal mechanism provides an agreed and unthreatening way of doing so:

“Clearly the CEO holds a great deal of power, in fact if not in law. This power is further enhanced because board members normally have considerable respect for expertise and are not inclined to challenge a CEO before his peers unless the issue is very important.”

Taken from Your Chair and Board – A survival guide and toolkit for CEOs. For further information or to purchase this publication, please visit the ACEVO website.
 

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