Street Talk

Street Talk: Money still talks in CEO performance reviews

Woof hoof.

May 24, 2013
Print
Text Size:
A A

A new study conducted by the Center for Leadership Development and Research at Stanford Graduate School of Business, Stanford University’s Rock Center for Corporate Governance and The Miles Group reveals boardrooms are giving poor grades to CEOs for their mentoring skills and board engagement — but still prioritize financial performance above all else.

More than 160 CEOs and directors of North American companies were polled in the 2013 Survey on CEO Performance Evaluations, which studied how CEOs themselves and directors rate both chief executive performance and the evaluation process.

When directors were asked to rank the top weaknesses of their CEOs, “mentoring skills” and “board engagement” tied for the No. 1 spot.

“This signals that directors are clearly concerned about their CEO’s ability to mentor top talent,” said Stephen Miles, founder and chief executive of The Miles Group. “Focusing on drivers such as developing the next generation of leadership is essential to planning beyond the next quarter and avoiding the short-term thinking that inhibits growth.”

However, when actually evaluating the performance of a CEO, companies place very little weight on many nonfinancial performance measures. The survey found only a 5 percent weighting was given to a CEO’s performance in the areas of talent development and succession planning, and only a 2.5 percent weighting was given to employee satisfaction/turnover.

“While boards clearly see mentoring and talent development as weaknesses in their CEO, the problem is that they are not evaluating CEOs against those measures in a meaningful way,” said David F. Larcker, co-director of the Center for Leadership Development and Research at the Stanford Graduate School of Business. “Financial performance still dominates the grading metrics, so if boards really want CEOs to focus on other things as well, they will have to change the way they evaluate those in the top seat.”

Additional key findings of the survey include:

  • Directors rate CEOs high in decision making but low in people management areas. In addition to mentoring and developing talent, listening and conflict management were the skills least mentioned as strengths.
  • Little weight was given to customer service, workplace safety and innovation.
  • CEOs and boards believe the evaluation process is balanced between financial performance and nonfinancial metrics such as strategy development and employee and customer satisfaction.“Unfortunately, the truth of the matter is that the CEO evaluation process is not that balanced,” said Larcker. “Amid growing calls for integrating reporting and corporate social responsibility, companies are still behind the times when it comes to developing reliable and valid measures of nonfinancial performance metrics.”
  • CEOs fail to engage boards. “Board relationships and engagement” tied with “mentoring and development skills” as their No. 1 weakness.
  • Directors are lukewarm when comparing their CEOs against the peer group. Forty-one percent of directors believe their CEO is in the top 20 percent of his or her peers, while 17 percent believe their CEO is below the 60th percentile. “For almost half of directors to say that their CEO is just ‘in the top 20 percent’ is not exactly a ringing endorsement,” said Miles.
  • There is a disconnect in how CEOs and directors regard the evaluation process. Sixty-three percent of CEOs versus 83 percent of directors believe the CEO performance process is effective in their companies.
  • Ten percent of companies say they have never evaluated their CEO. “Given their fiduciary duties, it’s strange that any company would not evaluate its CEO,” said Larcker. “The CEO performance evaluation should feed all sorts of board decisions, including goal setting, corporate performance measurement, compensation structure and succession planning. Without an evaluation of the CEO, how can the board claim to be monitoring a corporation?”

Blood pact

The first holiday weekend of the season signals the beginning of a busy time for many people. It also traditionally signals the start of a slowdown in blood donations.

Michigan Blood is encouraging donors to make an appointment to stop by one of the donor centers this week to ensure there is an adequate blood supply at hospitals around Michigan.

In return, donors will find a little something extra for their efforts.

“We know people get busy this time of year with outdoor activities, graduations and travel,” said Jim Childress, vice president of community relations. “Still, the need for blood never takes a vacation, so we are asking people to set aside about an hour of time to help save lives.”

As a thank-you during Michigan Blood’s Give and Go campaign, everyone who attempts to donate will receive a $10 Meijer gas card.

“People are on the go more this time of year, so the cards are a simple gesture to say thanks for taking time out to help boost the blood supply,” Childress said.

The gas cards are available for anyone trying to donate from 8 a.m.-7 p.m. May 28-30, and 8 a.m.-4 p.m. May 31 at the 1036 Fuller Ave. NE location.

Let them eat steak

It’s good to see local companies still take care of each other in this high-tech age of texting, email and instant messaging.

Breaking bread together, a sometimes forgotten tradition, carries a powerful impact — especially when it’s delivered with heartfelt thanks. The folks at Custer Office Interiors showed their appreciation on the company’s Facebook page recently, posting pictures of a steak dinner with all the trimmings, courtesy of Steelcase.

“We exceeded our sales goal with Steelcase this past year and, as promised, they treated all Custer employees to a steak dinner! Thanks, Steelcase!”

Is Fido home?

Last year, there were 17,878 active dog licenses in Ottawa County, but officials believe that accounts for only about a third of the actual dogs living within the county. So, beginning next month, Ottawa County will begin a door-to-door dog census to assess if canines are accounted for and licensed.

In 2003, the number of dogs licensed peaked at 20,628 but has steadily declined since then. Michigan law requires that all dogs four months and older be licensed.

“In many households, pets are part of the family. Licensing your dog dramatically increases the odds of your pet being returned to you if it is ever lost,” said Shannon Felgner, communications manager for Ottawa County. “A dog license can be the difference between your dog finding its way home or being kept in a shelter. All in all, getting a dog license is part of being a responsible dog owner.”

Representatives from Ottawa County will go door to door beginning June 4. Households with unlicensed dogs will be given information on how to obtain a license. Those who choose not to follow through risk being ticketed. County officials are encouraging owners to register their dogs now — before the census begins.

Dog licenses can be purchased online, by mail or in person in either one- or three-year increments. Owners must provide a current rabies certificate and proof of spaying or neutering (if applicable). Owners can visit miOttawa.org to order the license online. The cost of a license ranges from $10 to $70.

Remind Fido that barking when someone knocks at the door will be a dead giveaway.

Recent Articles by Business Journal Staff

Editor's Picks

Comments powered by Disqus