Over recent years the spotlight has been on organisational culture and the impact of that culture on the performance of the organisation. Both the Banking Royal Commission and the Aged Care Royal Commission focused on culture and in particular the importance of the ‘tone from the top’. The behaviour of a CEO has a tangible impact on the performance of an organisation; however, many boards focus the assessment of their CEO predominately on the financial performance of the organisation. While this is necessary, it is not sufficient. A proactive board needs to focus on both the ‘what’ and the ‘how’ to ensure both organisational performance and sustainability.
The board and CEO relationship
Boards are becoming increasingly more aware that they are accountable and responsible for the performance of the organisation. Boards exercise this responsibility through their only employee - the CEO. This delegation creates a unique relationship between the board and the CEO and imposes a responsibility on the board to implement a robust CEO review process. If there is a desire to focus this review process on more than just financial performance, a 360-degree CEO review becomes a very useful tool.
What is a CEO 360-degree review?
A CEO 360-degree review is built around a survey focused on assessing the CEO’s skills, knowledge and behaviours (collectively referred to as competencies). This survey should be custom designed to reflect the skills, knowledge and behaviours expected by the CEO. Depending on the structure and nature of the role, the survey can seek input from directors, direct reports of the CEO and key stakeholders. The survey should also provide recipients with the opportunity to provide further insights through the provision of comments. Importantly, the survey should provide participants with anonymity to ensure they are comfortable enough to provide honest feedback.
What is the value of a CEO 360-degree review process to the board?
A CEO 360-degree review provides the board with:
- An independent assessment based upon the feedback of all key stakeholders. The board can be comfortable that the feedback is not their personal opinions.
- An assessment which reflects the behaviours identified by the board as critical to the success of their CEO.
- Anonymous feedback which provides survey respondents with the safety to provide honest responses.
- Feedback which is valued by the CEO as providing meaningful independent insight.
There are several reasons for a board to implement a robust CEO assessment process, including:
- Solid CEO assessment can support a process which has a focus on continuous development. Given the rate of change facing organisations, the CEO needs to continually grow and adapt to deal with this level of change.
- A robust CEO assessment process can provide an early warning system to ensure the board can address performance concerns with the CEO before they become problematic.
The CEO review framework
The 360-degree CEO review is an efficient usable component of the CEO review framework (see below). Over time the behavioural focus on the CEO 360-degree review can be combined with the traditional assessment of CEO Key Performance Indicators (KPIs) to ensure the board has a focus on both the ‘what’ and the ‘how’ of CEO performance.
Effective Governance is experienced in guiding boards through CEO performance reviews and providing the tools to support that process. If you wish to prepare for your CEO’s review or need assistance with structuring a clear process, please contact our Effective Governance team.
Effective Governance helps boards and executive teams across Australia and internationally perform, achieve compliance, and deliver best practice board and organisational governance. Effective Governance is the governance, strategy and risk advisory practice of HopgoodGanim Lawyers.