Peter Myers | DDJ Myers

Organization Alignment Part 1: Work Toward the Ends, Not Managing the Means

By Peter Myers, Senior Vice President, DDJ Myers, Ltd.

Employee engagement, satisfaction, and internal Net Promoter Scores are now common practices; even the NCUA is focused on increasing its employee engagement. As a consulting partner with a talent–management focus, we’re all in favor of organizations improving their cultures. “Culture eats strategy for breakfast,” right?

However, we’ve seen some organizations hyperfocus on tactical engagement steps as the ends and not the means. Hosting virtual team happy hours and passing out electronic food delivery cards are all great. But many execs view these as cultural busy-ness rather than lasting change.

In our many years of work with credit unions around the country, we’ve found a few lasting ideas and techniques that we share. We start by asking what we need to do to help the organization achieve its strategic objectives. And we believe that’s not just a question for the executives, but one for every member of the organization. Many teams get this wrong with staff surveys that ask for feedback without empowerment, which often leads to a long list of ideas or complaints. If you want each individual employee to have a sense of goal ownership and impact, then measure it. That’s easier said than done, but we have some ideas.

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Leading During Crisis – Communication and Culture from a Distance

Just when you thought you knew everything you needed to know about collaboration, communication, and culture…and then you didn’t. The current COVID-19 crisis is changing our lives and “workplaces” dramatically, and daily. With it comes new challenges, obstacles, and stress. How do you keep your business afloat and your members happy in this disordered world? More than ever, your people are your most important assets. Helping them work through distance, distress, and disarray is a leader’s top job today.

During this webinar NAFCU EVP and COO Anthony Demangone will be interviewing DDJ Myers SVP Peter Myers on what it takes to lead during a crisis.

Watch Here >

Nine Hallmarks of a Strategic CEO Evaluation

The opportunity is to shift the focus to being more practical and pragmatic and to implement a practice that accelerates strategic dialogue and boosts board/CEO alignment

Few board responsibilities have more potential for positive organizational impact than evaluating CEO performance. When done well, this process can generate ongoing powerful and meaningful conversations between directors and the chief executive and align them all in the same strategic direction.

In the Filene Institute report, “Tracking the Relationship Between Governance and Performance,” researchers concluded, “Of all the measured relationships, the only governance practice that yielded a strong positive correlation with actual ROA performance was whether boards felt they had an effective CEO evaluation in place.”

https://filene.org/learn-something/reports/governanceperformance

At the same time, many boards are uncomfortable conducting these performance reviews, and many CEOs are unhappy about the way they are done. There is typically minimal dialogue between the two parties and no clear direction to guide the CEO’s performance going forward. Both sides tend to see this process as a necessary—but not necessarily useful—exercise.

At the end of the day, the board-CEO relationship does not need another archaic construct or arduous process putting unnecessary strain on the conversation. The opportunity is to shift the focus to make these evaluations more practical and pragmatic and to implement a practice that accelerates strategic dialogue. The nine hallmarks of a strategically designed and utilized CEO performance evaluation include:

1. Reinforcing Strategic Priorities

First and foremost, the CEO performance evaluation should be viewed as a tool or an action item that further facilitates the manifestation of the strategic plan and its priorities. The process of identifying the characteristics and skill sets the CEO needs to lead the credit union stimulates rich conversations among directors. It provides a framework to align directors and the CEO behind these attributes and to guide discussions throughout the year.

2. Taking a Longer View of What Matters Most

Identifying those measurable key characteristics and solidifying the performance evaluation method should be designed to reach “evergreen” status. You don’t want to spend a lot of time and effort developing a survey and process that is relevant for this year but needs to be completely overhauled next year. This requires an upfront investment of time and commitment of energy by both the board and CEO to ensure the input and output rise to the level of significance to thrust alignment into the future.

3. Encouraging Continued Growth

The challenges and opportunities before your credit union are ever-changing, so the CEO will need to develop new skills and knowledge to keep pace. An effective evaluation process not only acknowledges but encourages the need for growth. The recognition that some capabilities will be a work in progress over several years gives the CEO permission to not be perfect and instead embrace a growth mindset and seek out developmental opportunities. This is in contrast to implying that a five out of five (or whatever scale you’re using) across the board is the expectation. Putting it another way, if your high-performing CEO receives an abundance of fives out of five, his or her first thought is likely, “Well, that feedback is not helpful.”

4. Talking Through the Basis for Evaluation

We recommend that the board plans a frank discussion of survey results before delivering the evaluation to the CEO. The objective is to uncover and get the alignment opportunities squared away so the board can speak with a unified voice once the evaluation is formally, and even informally, delivered.

For example, if most directors strongly agree that the CEO demonstrates a specific characteristic, but one or two board members strongly or even slightly disagree, that disparity presents an opportunity for at least one person to learn something. It may be that directors on one side of the issue or the other have information that is not universally known but should be shared. More than once we have witnessed a director acting on incomplete information, which shows up as a negative scoring on the CEO’s performance evaluation. Even in this occurrence, at least one person learns something. Again, the goal is reaching board alignment on the CEO’s past performance, providing a framework to guide his or her future performance.

Along the same lines, the board’s submission of the formal evaluation to the CEO should be followed up with a conversation in which the executive can ask clarifying questions. The directors and the chief executive can discuss at this meeting which characteristics are working very well and further understand any areas where there’s a significant difference between the board’s performance ratings and the CEO’s self-evaluation.

5. Incorporating a Management Component

The CEO could adapt the evaluation instrument for use with his or her executive team to gain additional performance feedback. We don’t see this happen often, but it can be an illuminating exercise if the managers and executives involved in this process believe that the CEO is open to and looking forward to honest feedback, learning and growing, and doing the right thing as a leader. Without a super duper foundation of trust already in place, this process will likely not produce useful input. It could do more harm than good if not proctored correctly.

6. Supporting Succession Planning and Executive Recruitment

In the five-year roadmap of best practices we recommend for the years leading up to the CEO’s planned retirement, the development of a robust evaluation methodology can help ease the transition for the next chief executive. Having a strategy-focused, high quality evaluation process is also a big selling point for high-caliber candidates as a sign that the board is committed to being in an ongoing partnership and accountability conversation (risk vs. rewards).

When boards don’t have an effective process in place during a change in leadership, that gap places an extra burden on the new CEO. Incoming executives have so much to do already that the need to co-develop a new evaluation system with the board (or likely do it on their own) may feel like throwing a bag of bricks to a person treading water. To say the least, it’s not helpful.

7. Revealing and Supporting Directors’ Perspectives

One of the most surprising elements of a comprehensive evaluation process is that when directors are assessing the CEO’s characteristics, they ultimately learn that their assessment is actually a reflection of themselves. Each director’s submitted opinion reflects what was retained in his or her mind or colored by his or her perspectives.

In our practice, we’ve witnessed a CEO doing X, the board witnessing X, and then six months later a director then negatively dings the CEO for not doing X. It just was forgotten. It happens. Conversely, if a single director’s evaluation calibration holds a lower or extremely high bar for success, that’s likely a reflection of the director as a person. You’ve heard it before, “I never give someone a five out of five as a matter of principle.” The point being, make sure that everyone is on the same page about the methodology. This is an important process, and directors should be conscious of how and why their opinions have been formed.

8. Acknowledging That ‘Learning’ and ‘Action’ Are the Operative Words

Learning only occurs when a relatively permanent shift takes hold and produces new actions. Providing examples of historic and desired future learnings and actions allow CEOs to understand what to do with the historic evaluation and cognitively situate themselves in the future. This may sound like, “The general themes of the CEO’s performance and requests for future action include the following… .”

9. Facilitating a Stronger Board-CEO Partnership

In short, an effective evaluation methodology is not a once-a-year assignment but an organizing system to guide ongoing interactions between the board and chief executive. A well-designed and executed evaluation process guides the coordination of elements throughout the year, both for the board and the CEO. Applying a strategic level of intentionality paves a smoother path for improved performance across the credit union and for serving the members–which, of course, is what the work of the board and CEO is all about.

Apply It to Your Boardroom

What do you like about your board’s current CEO evaluation process?
What does your CEO like about your board’s current CEO evaluation process?
Which of the nine hallmarks outlined in this article might help your board do a better job of strategically evaluating your CEO?

Build a Better CEO Evaluation Methodology

Move your board’s performance review process from routine to dynamic.

There are two types of board-CEO relationships in our industry—good relationships and bad relationships. At either end of that spectrum, revamping the CEO evaluation process could help your credit union step up its game.

Here are nine steps to take:

Start early. The evaluation process can take a couple months, but if you’re planning a major overhaul of your process, it’s best to allow for several additional months on the front end. Don’t wait until the first quarter to start planning last year’s evaluation (a survey each director will complete.) Instead, have the methodology and evaluation tool already in place by December so the CEO and board have a clear, shared understanding of expectations as a new year begins.

Consider forming a committee. A lot of details and possibilities must be scrutinized in developing a new approach to evaluations. Assigning three or four directors, especially board members who have HR expertise and/or experience with executive evaluations, to handle these front-end responsibilities and submit a plan to the full board may be the most efficient route.

Review relevant documents. The strategic plan, mission and vision statements, board meeting agenda and packet, and other documents central to the CEO’s responsibilities can help identify leadership characteristics and performance metrics on which to build the evaluation instrument.

In our work with boards on CEO evaluations, the board survey typically includes 10 to 25 statements, so it takes some time for directors to consider and supply their responses. We recommend that some statements take a big-picture view rather than focusing solely on CEO performance, as in the difference between “The CEO does a good job in this area” vs. “Our credit union adheres to this best practice.”

Calibrate your calibrations. As a board, get on the same page with the CEO on the calibration methodology. Examples include the standard five-point scale (where 1 = poor and 5 = excellent) and the Likert scale, either a five-point range from strongly agree to strongly disagree or a three-point range (agree, no opinion, disagree). An alternative is a strengths-based scale, with choices ranging from “This is an outstanding strength of our CEO (or our organization)” to “Needs significant improvement.”

Satisfy the CEO’s hunger for improvement. Before directors take the survey, it can be useful to calibrate their input with this advice: Don’t give the CEO the highest possible rating on every statement. Unless your chief executive walks on water, she or he is truly outstanding in some aspects of the job and may need to improve in other areas. We’ve found that high-performing CEOs never feel like they are outstanding at everything. So when a director ranks them as outstanding at everything, the CEO’s first reaction is, “Well, that doesn’t tell me anything useful.”

Along the same lines, the board may deliberately include characteristics and skill sets the CEO does not currently possess, with the shared expectation that ratings in this area will start lower and improve over the long term.

Some directors are worried about sharing what they perceive to be negative feedback in the evaluation. But what usually happens when we describe this process to CEOs is that most of them say they will be comfortable hearing about areas where directors agree improvement is needed. Most can see that scoring five out of five across the board is both unrealistic and not helpful. Thoughtful, honest evaluations support a charge of commitment and performance improvement.

Sometimes CEOs are not excited about the prospect of receiving what they perceive as negative feedback, but they may buy into a constructive process over time. Many would prefer a more thorough review than receiving a bonus and pay increase without explanation of the basis for those compensation decisions. High-performing CEOs crave rich and relevant feedback—which puts an onus on the board to adopt a methodology that supports the development of that level of thoughtful guidance.

Build in conversations to add supporting qualitative input. After the survey is completed and compiled, a board review and discussion about the results can add useful perspectives and reflection for the CEO. Building consensus about the meaning and message of the survey data can help the board speak with one voice in delivering the evaluation and enhance board-CEO engagement without diluting the message. These conversations among directors and with the CEO actualize a final crucial element of the evaluation process—to interpret and provide actionable information.

Distinguish between the evaluation process and any bonus scorecard. These two elements have a lot in common. They should both be informed by the strategic plan. The board and CEO should agree up front on the criteria. And many credit unions have room for improvement on both fronts.

They have overlap when the bonus scorecard has a metric dictated by the results of the performance evaluation process. A crucial difference is that the performance evaluation should emphasize the long-term development of leadership capabilities and characteristics, whereas the bonus scorecard is more focused on assessing organizational results that deliver on strategic objectives over the past year. We have seen instances where a board structured the CEO bonus in ways that were inconsistent with the credit union’s strategic goals. Stated differently, the board lacked a formal mechanism to help the CEO become a better leader and partner.

Offer professional development. Developing and delivering feedback is a skill, and many board members haven’t received training on giving executive-level feedback. They don’t want to upset the chief executive or jeopardize the board-CEO relationship. They may have one or two points they want to convey, but they don’t know how to share those perspectives.

Ultimately, effective CEO evaluations are not just about a survey tool but about expert practitioners using a tool—and it takes training and practice to get to that expert level. You can have the best survey out there, but if it’s being used by a novice, or if you’re not taking a strategic approach, or if you’re not doing the necessary, inclusive groundwork—the tool’s impact is limited by its user. Think about it like this, an expert butcher can do a decent job with dull blades (think tools, processes, etc.). A novice butcher with sharp blades will still sell you meat. The best tool, the best methodology, compounds the likelihood of success in the form of a strategic process that fundamentally changes the relationship between the board and CEO.

Keep the conversation going. The goal is for the key characteristics covered in the evaluation to become front of mind and guide interactions between the board and CEO throughout the year. With a clear and shared understanding of those characteristics, directors can take note of when the CEO’s leadership reflects (or doesn’t reflect) the areas covered in the review, and they can document those observations along the way. The CEO is more likely to actively pursue areas identified as in need of improvement if he or she perceives the evaluation to be an ongoing process.

A prime outcome of effective performance evaluations is to promote learning on the part of the chief executive and the board. The CEO is continually learning to be a better leader, and directors are honing their oversight responsibilities. In our work in leadership development, we say that learning has occurred when there is a long-term shift in behavior—which seems like a worthy goal of this process. Toward that end, formal evaluations should happen at least annually, but semiannual and quarterly conversations between the board chair and CEO can help ensure continued positive progress. This helps board members keep the performance of the CEO front of mind.

Returning to our opening premise, even boards with good working relationships with their chief executives could make significant gains by improving their performance evaluation methodology. By building on already functional interactions and changing the conversation, directors and the CEO can elevate the dynamic for stronger performance across their organizations.

Peter Myers is SVP of CUESolutions provider for succession planning DDJ Myers Ltd., Phoenix. To learn more about how to implement a strategically-developed CEO performance evaluation, or if your board wants to improve its critical thinking as part of higher quality governance, reach out to DDJ Myers Ltd. at 800.574.8877.