Tip #67 How To Evaluate CEO Performance
In our previous Tips for Effective Boards, we discussed the first nine of the Ten Principles of the Policy Governance® model of board operations. We now turn to the ninth and final Policy Governance® principle, Monitoring.
John Carver and Miriam Carver have articulated this principle as follows:
“Monitoring: The board must monitor organizational performance against previously stated Ends policies and Executive Limitations policies. Monitoring’s main purpose is for discovering if the organization achieved a reasonable interpretation of these board policies. The board must judge the CEO’s interpretation for its reasonableness, and the data demonstrating the accomplishment of the interpretation. The ongoing monitoring of the Board Ends and Executive Limitations policies constitutes the CEO’s performance evaluation.” (“Policy Governance® Source Document” produced by Govern for Impact, formerly the International Policy Governance Association, in consultation with John Carver and Miriam Carver, 2021: https://www.BoardsOnCourse.com/policy-governance.)
As we have mentioned in previous Tips for Effective Board, the board expresses its expectations of the CEO in its board policies. Ends policies define the organization’s purpose in terms of what benefits or results are to be produced for what beneficiaries or recipients. Executive Limitations policies define organizational operational expectations. Once the board has established such policies, the CEO is entitled to any interpretations of these polices that they can demonstrate are reasonable interpretations. The board is then responsible to monitor organizational performance with respect to its policies as reasonably interpreted.
To fulfill its responsibility to ensure that the organization is performing according to its expectations as expressed in its policies, the board establishes a schedule for monitoring each of its Ends and Executive Limitations policies. When it receives a monitoring report on one of its policies, the board addresses two questions:
1. Is the CEO’s interpretation of the policy reasonable?
2. Do the data presented by the CEO demonstrate compliance with the policy as reasonably interpreted?
Note that in the Policy Governance® model, organizational performance and CEO performance are seen as being identical since the CEO is responsible for organizational performance. In addition, all performance expectations for the CEO/organization are expressed by the board in its Ends and Executive Limitations policies. The ongoing monitoring of these policies constitutes the board’s evaluation of CEO performance. If the board wishes it may periodically, perhaps annually, pull together the results of its monitoring activity into a summary CEO performance evaluation.
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