2013 CEO Performance Evaluation Survey Results form Stanford University and The Miles Group

7/30/2019 2013 CEO Performance Evaluation Survey Results form Stanford University and The Miles Group

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2 0 1 3 C E O P E R F O R M A N C E E V A L U A T I O N S U R V E Y


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TA B L E O F C O N T E N T S

Executive Summary: Key Results 1

Survey Questions 3

Descriptive Statistics 12

About the Sponsors 14

About the Authors 15

Contact Inormation 16


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2013 Survey on CEO Perormance Evaluations 1

Executive Summary: Key Results

In Grading CEO Perormance, Financials Still Dominate

Boards rate CEOs high in decision-making, low in

talent development

A new study conducted by the Center or Leadership

Development and Research at Stanord Graduate School o

Business, Stanord Universitys Rock Center or CorporateGovernance, and The Miles Group reveals that boardrooms are

giving poor grades to CEOs or their mentoring skills and board

engagement but still prioritize nancial perormance above all

else. More than 160 CEOs and directors o North American public

and private companies were polled in the 2013 Survey on CEO

Perormance Evaluations, which studied how CEOs themselves

and directors rate both chie executive perormance as well as the

perormance evaluation process.

When directors were asked to rank the top weaknesses o their

CEO, mentoring skills and board engagement tied or the #1

spot. This signals that directors are clearly concerned about their

CEOs ability to mentor top talent, says Stephen Miles, ounder

and chie executive oThe Miles Group. Focusing on drivers

such as developing the next generation o leadership is essential

to planning beyond the next quarter and avoiding the short-term

thinking that inhibits growth.

However, when actually evaluating the per ormance o a

CEO, companies place very little weight on many nonnancial

perormance measures. The survey ound that only a 5%

weighting was given to a CEOs perormance in the areas o talent

development and succession planning, and only a 2.5% weighting

was given to employee satisaction/turnover.

While boards clearly see mentoring and talent development

as weaknesses in their CEO, the problem is that they are notevaluating CEOs against those measures in a meaningul way,

says David F. Larcker, James Irvin Miller Proessor o Accounting

and co-director o the Center or Leadership Development and

Research. Financial perormance still dominates the grading

metrics, so i boards really want CEOs to ocus on other things as

well, they will have to change the way they evaluate those in the

top seat.

Additional key ndings o the 2013 Survey on CEO Perormance

Evaluations include:

Directors rate CEOs high in decision making but low in

people management areas. In addition to mentoring and

developing talent, listening and confict management were

the skills least mentioned as strengths o the CEO. The act

that these were in the bot tom three means that there is a real

problem, says Mr. Miles. Each o these should be at leastin the top ve o a CEOs strengths, because they are critical

components to excelling in the CEO role. Decision-making,

which directors overwhelmingly stated was their CEOs greatest

strength, is important, because you dont want a CEO with

analysis paralysis. But planning skills which also made the

top three in CEO strengths are really what CEOs should be

delegating, not ocusing on themselves.

Little weight given to customer service, workplace saety,

and innovation in CEO evaluations. While accounting,

operating, and stock price metrics are assigned high value by

boards, other actors generally hold little worth when boards

rate their CEOs. Seeming important things such as productservice and quality, customer service, workplace saety, and

even innovation are used in less than 5% o evaluations, says

Proessor Larcker.

CEOs and boards believe the evaluation process is balanced.

Eighty-three percent (83%) o directors and 64% o CEOs

believe that the CEO evaluation process is a balanced

approach between nancial perormance and nonnancial

metrics, such as strategy development and employee and

customer satisaction. Unortunately, the truth o the matter

is that the CEO evaluation process is not that balanced, says

Proessor Larcker. Amid growing calls or integrating reporting

and corporate social responsibility, companies are still behind

the times when it comes to developing reliable and valid

measures o nonnancial perormance metrics.

CEOs ailing to engage boards. Board relationships and

engagement tied with mentoring and development skills

as the #1 weakness in CEOs. This serious disconnect

between management and the boardroom has multiple

negative ramications, says Mr. Miles. Board engagement is

absolutely vital to the unction o the CEO and to the health

o a company. How can the board understand whats going on

in the company i the CEO is not engaging?
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Directors lukewarm when comparing their CEOs against peer

group. Forty-one percent (41%) o directors believe that their

CEO is in the top 20% o his or her peers, while 17% believe

that their CEO is below the 60th percentile. For almost hal

o directors to say that their CEO is just in the top 20 percent

is not exactly a ringing endorsement, says Mr. Miles. The

board hires the CEO they should believe that they have the

individual in that job who is absolutely the best, or can quickly

become the best. The act that nearly 20% o directors eel

that their CEO ranks below the top 40% means that a lot o

CEOs should be preparing their resumes.

Disconnect in how CEOs and directors regard the evaluation

process. Sixty-three percent (63%) o CEOs versus 83% o

directors believe that the CEO perormance process is e ective

in their companies. Nearly a third o CEOs dont think that

their evaluation is eective, says Proessor Larcker. The

success o an organization is dependent on open and honest

dialogue between the CEO and the board. It is dicult to see

how that can happen without a rigorous evaluation process.

10% o companies say they have never evaluated their CEO.

Given their duciary duties, its strange that any company

would not evaluate its CEO, says Proessor Larcker. The

CEO perormance evaluation should eed all sorts o board

decisions, including goal setting, corporate perormance

measurement, compensation structure, and succession

planning. Without an evaluation o the CEO, how can the

board claim to be monitoring a corporation?

CEOs highly likely to agree with the results o their

perormance evaluation. Only 12% o CEOs believe that

they are rated too high or too low overall, and almost hal

(49%) do not disagree with any area o their perormance

evaluation. Shareholders have to wonder at the objectivity o

the evaluation process, says Proessor Larcker. Its hard to

believe that boards are pushing CEOs on their evaluations i

they pretty much agree with their evaluation.

Only two-thirds o CEOs believe that their own perormance

evaluation is a meaningul exercise. Even though a high

percentage o directors and CEOs think that the CEO evaluation

process is meaningul, this number really should be 100%,

says Mr. Miles. Every board has the power to meaningully

evaluate the CEO whether doing it themselves, or bringing in

someone to do it, or some combination thereo.

Directors unlenient on violations o ethics but more orgiving

o CEOs with legal or regulatory violations that occur on theirwatch. A signicant minority o directors 27 percent say

that unexpected litigation against the company would have no

impact on their CEOs perormance evaluation, says Proessor

Larcker, while approximately a quarter o directors (24%)

say that unexpected regulatory problems would also have no

impact. By contrast, all directors (100%) say that their CEOs

perormance evaluation would be negatively impacted by

ethical violations or a lack o transparency with the board.


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Survey Questions

1. How oten does the board o directors ormally evaluate the

perormance o your CEO?

CEOs and Directors Combined.

Percentage

Have never been evaluated 9.9

Less requently than one time a year 6.8

One time per year 75.3

Two times per year 4.3

Four times per year 3.1

More requently than our times per year 0.6

2. Who is primarily responsible or leading the process or the

ormal evaluation o the CEO perormance?


Percentage

Chairman (i dierent than the CEO) 36.1

Lead independent director 13.9

Head o the nominating and governance committee 8.9

Head o the compensation committee 15.2

Entire board o directors as a group 15.8

Outside consultant or advisor 2.5

Other 7.6

3. Do you engage an outside consultant or advisor to

supplement the review process?


Percentage

Yes 21.4

No 78.6

4. How satised are you with the services provided by this

outside consultant or advisor?


Percentage

Very satised 38.2

Moderately satised 58.9

Neither satised nor dissatised 0

Moderately dissatised 0

Very dissatised 2.9


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5. Who establishes the criteria or metrics that your company

uses to assess the perormance o your CEO?


Percentage

Chairman 22.2

CEO (i you are not the CEO) 4.9

Lead director 3.1

Board o directors as a group 71.0


Human resources 3.7

General counsel 0.6

Major Investors 3.7

I dont know 1.9

Other 11.7

6. On a scale o 0 to 100, what weighting do you place

on this metric?

Assign a number rom 0 to 100 or each selected

metric; your total should add to 100. CEOs and

Directors Combined.

Mean

Accounting, operating or stock price perormance 41.1

Strategy development 17.0

Customer service / satisaction 4.2

Employee satisaction / turnover 2.5

Product or service quality 4.4

Workplace saety 1.5

Innovation 3.7

Leadership skills 14.6

Succession planning / internal talent development 4.9

Other 6.1


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7. What impact would each o the ollowing have on your

overall evaluation?

Assign each according to a scale o: very negative impact,

moderately negative impact, no impact.

CEOs Directors

Unexpected fnancial restatement

Percentage

52.1

62.1

Very negative impact

43.7

33.8Moderately negative impact

4.2

4.1

No impact

Unexpected litigation

Percentage

21.1

12.0


52.1

61.3

Moderately negative impact

26.8

26.7No impact

Missed orecast o revenues or earnings

Percentage

23.9

32.0Very negative impact

69.1

58.7


7.0

9.3

No impact

Major negative PR event

Percentage

36.6

16.0Very negative impact

53.5

77.3


9.9

6.7

No impact

Unexpected regulatory problem*

Percentage

23.9

21.3


42.3

54.7


33.8

24.0No impact

* Such as with the Environmental Protection Agency/OSHA/Food

and Drug Administration, etc.

Unexpected resignation o senior executive team members

Percentage

11.3

10.7


50.7


38.0

26.7

No impact


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Negative results rom workplace engagement survey

Percentage

18.3

8.0


53.5


28.2

16.0

No impact

Event in which CEO violates ethical principles or personal

conduct standards

Percentage

91.6

98.7


4.2


4.2

0

No impact

CEO lacks transparency with the board o directors

Directors Only. Percentage

Very negative impact 86.3

Moderately negative impact 13.7

8. Which individuals are interviewed as part o the

review process?

Select all that apply. CEOs and Directors Combined.

Percentage

CEO 48.2

Board members 74.1

Executives one level below the CEO 40.7

Executives two levels below the CEO 6.8

Executives three or more levels below the CEO 2.5

Customers 6.8

Suppliers 1.2

Analysts 2.5

I dont know 31.1

Other 7.4

9. How amenable is your CEO to the process o being reviewed?

Directors Only.

Percentage

Very cooperative 64.0

Moderately cooperative 20.0

Neither cooperative nor uncooperative 8.0

Moderately uncooperative 8.0


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10. Does the CEO do a sel-evaluation as part o the

ormal review?

Directors Only.

Percentage

Yes 74.7

No 25.3

11. When is the inormation in the evaluation shared with

the CEO?

Directors Only.

Percentage

Both in the middle and at the end o the process 20.0

Only at the end o the process 80.0

12. How is this inormation shared?

Directors Only.

Percentage

Verbally 44.0

In writing 2.7

Both verbally and in writing 53.3

13. Who reviews the evaluation with the CEO?

Select all that apply. Directors Only.

Percentage

Chairman o the board (i dierent than the CEO) 51.2

Lead independent director 22.0

Head o the nominating and governance committee 9.8

Head o the compensation committee 26.8

Another outside director 2.4

Entire board o directors as a group 24.4


Other 4.9

14. Do you agree with the ollowing statement: The CEO

evaluation process [My evaluation process] is a meaningul

exercise?

CEOs Directors

Percentage

25.0

60.0

Strongly agree

39.8

28.0

Agree

19.1

6.7

Neither agree nor disagree

13.2

5.3Disagree

2.9

0

Strongly disagree


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15. Do you agree with the ollowing statement: The CEO

evaluation process is a balanced approach that ocuses

on nancial (stock price and accounting) perormance and

non-nancial (strategy development, leadership, employee

and customer satisaction)

CEOs Directors

Percentage

18.6

48.0Strongly agree

45.6

34.7

Agree

24.3

12.0

Neither agree nor disagree

8.6

5.3Disagree

2.9

0Strongly disagree

16. How would you rate your personal understanding o the

strengths and weaknesses o your CEO?Directors Only.

Percentage

Excellent understanding 78.7

Moderate understanding 20.0

Very little understanding 1.3

17. Do you agree with the ollowing statement:

There is no way that the board can really understand

my perormance?

CEOs Only.

Percentage

Strongly agree 5.8

Agree 11.6

Neither agree nor disagree 14.5

Disagree 50.7

Strongly disagree 17.4


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18. What are the biggest strengths o your current CEO?


Percentage

Decision making skills 69.5

Board relationship and engagement 47.6

Planning skills 46.3

Team building skills 43.9

Communication skills 41.5

Motivational skills 39

Sharing leadership / delegation skills 39

Persuasion skills 35.4

Interpersonal skills 32.9

Compassion / empathy 26.8

Mentoring skills / developing internal talent 23.2

Listening skills 23.2

Confict management skills 19.5

Other 12.2

I dont know 2.4

19. What are the biggest weaknesses or your current CEO?


Percentage

Board relationship and engagement 24.4

Mentoring skills / developing internal talent 24.4

Sharing leadership / delegation skills 22



Planning skills 14.6




Decision making skills 11

Communication skills 11

Persuasion skills 11

Motivational skills 7.3

Other 11

I dont know 3.7


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20. Which o the ollowing areas o your evaluation do not

refect your personal opinion o your perormance.

Select all that apply. CEOs Only.

Percentage

None o these 48.8

Decision making skills 15

Sharing leadership / delegation skills 11.3




Planning skills 10

Mentoring skills / developing internal talent 10

Communication skills 10


Persuasion skills 7.5

Motivational skills 6.3


Other 5

21. Do you agree with the ollowing statement:

The best board evaluator is someone that either is a CEO

or has recently been a CEO

CEOs Only.

Percentage

Strongly agree 14.3

Agree 40.0


Disagree 18.6


22. Do you agree with the ollowing statement: I am generally

rated too high or too low on my perormance evaluation

CEOs Only.

Percentage

Strongly agree 2.9

Agree 8.7


Disagree 20.3



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23. How would you evaluate the eectiveness o the CEO

perormance [your perormance] evaluation process?

CEOs Directors

Percentage

40.0

15.5

Very eective

42.6

47.9

Somewhat eective

6.7

16.9Neither eective or ineective

8.0

12.7

Somewhat ineective

2.7

7.0

Very ineective

24. How would you rank your present CEO relative to his or her

peers [your perormance relative to peers] in your industry?

CEOs Directors

Percentage

9.9

6.7

The absolute best

56.3

41.2

Top 20

22.5

34.721-40

8.5

10.7

41-60

1.4

4.0

61-80

1.4

2.7

Bottom 20


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Descriptive Statistics

Methodology: Survey conducted in February and March 2013.

Respondents were asked to consider each question rom the

standpoint o the corporation they are most closely associated

with. Respondents were screened to include only CEOs and

nonexecutive directors. CEOs include a small number o

executives with joint president and/or COO titles.

Note: Percentages may be rounded to achieve 100.0 percentDemographic Data: Total Population Directors and CEOs

What is your primary proessional background?

Percentage

General corporate executive background 46.8

Academia / Government service 3.6

Accounting or auditing 2.2

Commercial banking 1.5

Consulting 3.6

Engineering 3.6

Finance 15.4

Investment management 5.8

Law 3.6

Technology 5.1

Other 8.8

What is the revenue or the company that you are most closely

identied with?

Percentage

$20 billion 9.6

Gender

Percentage

Male 78.7

Female 21.3

Age

Percentage

31 to 40 3.6

41 to 50 19.7

51 to 60 42.4

61 to 70 27.7

>70 6.6


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What is the industrial sector or the company that you are most

closely identied with?

Percentage

Business Services 8.1

Chemicals 1.5

Commercial Banking 2.9

Commodities 0.7

Communications 5.1

Computer Services 13.2

Electronics 12.5

Energy 7.4

Financial Services (other than commercial banking) 8.8

Food and Tobacco 7.4

Industrial and Transportation Equipment 3.7

Insurance 2.9

Other Manuacturing 7.4

Other Services 11.8

Retail Trade 2.2

Transportation 0.7

Utilities 1.5

Wholesale Trade 2.2

Respondent: Director or CEO

Percentage

CEO 49.4

Outside Director 50.6


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About the Sponsors

About Stanord Universitys Rock Center

For Corporate Governance

The Arthur and Toni Rembe Rock Center or Corporate

Governance is a joint initiative o Stanord Law School and the

Stanord Graduate School o Business, created with the idea

that advances in the understanding and practice o corporate

governance are most likely to occur in a cross-disciplinaryenvironment where leading academics, business leaders, policy

makers, practitioners and regulators can meet and work together.

The Rock Centers goal is to conduct research and tap this wealth

o expertise to advance the practice and study o corporate

governance. The Rock Center works closely with the Center or

Leadership Development and Research.

About Stanord Graduate School o Business, Center

For Leadership Development and Research

The Center or Leadership Development and Research mission is

to advance the intellectual understanding o corporate governanceand executive leadership by engaging academics, regulators,

practitioners and proessionals, bridging the gap between theory

and practice. We aim to strengthen governance and leadership

as independent areas o teaching and scholarship in business

schools worldwide and to generate new insights into undamental

big issues.

About The Miles Group

The Miles Group develops talent strategies or organizations,

teams, and individuals ocusing on high-perormance,

world-class leadership. Headquartered in New York, The Miles

Group advises top global corporations through CEO succession,

executive transitions, board assessment and training, and talent

development. The rms coaching and advisory services enableleaders to raise the bar on their own perormance, as well as

create an environment or success throughout the organization.


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About the Authors

David F. Larcker

David F. Larcker is James Irvin Miller

Proessor o Accounting at the Graduate

School o Business o Stanord University

and proessor at the Stanord Law School

(courtesy). He was previously the Ernst &

Young Proessor o Accounting at theWharton School o the University o

Pennsylvania and Proessor o accounting

and inormation systems at the J. L.

Kellogg Graduate School o Management

at Northwestern University. He received bachelors and masters

degrees in engineering rom the University o Missouri Rolla and

a doctorate in business rom the University o Kansas.

David is senior aculty at the Stanord Rock Center or Corporate

Governance and Morgan Stanley Director o the Center or

Leadership Development and Research. He is also a trustee o the

Wells Fargo Advantage Funds.

David has published many articles and book chapters ontopics such as executive compensation, corporate governance,

measurement o intangible assets, and strategic business

models. He received the Notable Contribution to Management

Accounting Literature Award in 2001. He is the coauthor o

Corporate Governance Matters: A Closer Look at Organizational

Choices and Their Consequences. In 2012, he was named to

the NACD Directorship 100 as one o the most infuential people

in the boardroom and corporate governance community. He has

served as a consultant to numerous organizations on corporate

governance and design o executive compensation contracts.

Email: [email protected]

Brian Tayan

Brian Tayan is a member o the Center or Leadership

Development and Research at the Stanord Graduate School o

Business. He has written broadly on the subject o corporate

governance, including the boards o directors, succession

planning, compensation, nancial accounting, and shareholder

relations. Tayan is co-author oCorporate Governance Matters:

A Closer Look at Organizational Choices and Their Consequences.

Stephen Miles

Stephen Miles is the ounder and chie

executive ocer o The Miles Group.

Previously, he was a vice chairman at

Heidrick & Struggles and ran Leadership

Advisory Services. With more than 15

years o experience in assessment,executive coaching, top-level succession

planning, organizational eectiveness and

strategy consulting, Stephen specializes in

CEO succession and has partnered with

numerous boards o global Fortune 500 companies to ensure that

a successul leadership selection and transition occurs. He has

also led many chairman successions and board eectiveness

reviews, partnering with boards o directors to help them with

their overall eectiveness, committee eectiveness and individual

director eectiveness.

Stephen is a recognized expert on the role o the chie operating

ocer, and has consulted numerous companies on theestablishment and the eectiveness o the position and supporting

the transition rom COO to e ective CEO. He is a coach to many

CEOs and COOs around the world, and his clients cut across all

industry sectors.

Stephen and his CEO advisory services were proled in the

Bloomberg BusinessWeek article The Rising Star o CEO

Consulting.Prior to The Miles Group and Heidrick & Struggles,

Stephen held various positions at Andersen Consulting.

Stephen is author and co-editor o the best-selling business book

Leaders Talk Leadership. He also co-authored Riding Shotgun: The

Role o the Chie Operating Ofcer, as well as the cover article in the

May 2006 issue oHarvard Business Review on the same topic.

Email:[email protected]

Michelle E. Gutman

Michelle E. Gutman, associate researcher, is a member o

the Center or Leadership Development and Research at the

Stanord Graduate School o Business, and at the Rock Center or

Corporate Governance at Stanord University. She is a ounder and

advisor to Stanord Women on Boards, an initiative to increase

the representation o outstanding Stanord-aliated women on

duciary boards o directors. Follow Stanord twitter eeds:

@StanordCorpGov & @StnrdLeadrship or research news.


18/19


Contact Inormation

For more inormation on this report, please contact:

Katie Pandes, Stanord Graduate School o Business

Phone: 650-724-9152

Email:pandes _ [email protected]

Stanord GSB Center or Leadership Developmentand Research:

http://www.gsb.stanford.edu/cldr/

Rock Center or Corporate Governance at Stanord:

http://rockcenter.law.stanford.edu/

The Miles Group:

http://miles-group.com/


19/19

Documents

2013 CEO Performance Evaluation Survey Results form Stanford University and The Miles Group