Upload
philip-bateman
View
218
Download
0
Tags:
Embed Size (px)
DESCRIPTION
A paper on Effective CEO Evaluation created for the Swinburne Masters in Entrepreneurship and Innovation by Philip Bateman
Citation preview
www.bravocharlie.com.au Copyright 2009
“A leader has one job; to access others genius, and liberate their own.
If they get this, it engenders respect and this can create miracles.”
- Ted Hummerston
Independent Management Consultant
Q. How can you effectively evaluate the performance of a CEO?
A. The performance of a CEO is intrinsically linked to the organisation within
which he or she operates. A set criteria is therefore impossible to apply. It is well
recognised that CEOs of ‘great’ organisations have common success factors
amongst which is the ability to make informed decisions. The author therefore
suggests a common standard for assessing the capacities of the information
sources supporting the CEO.
This report explores the theory in context to Bravo Charlie.com.au
Prepared by Philip Bateman
www.bravocharlie.com.au Copyright 2009
Introduction
Bravo Charlie provide Sales, Marketing and Governance services to aid globally focused, environmentally
conscious startup companies become “Investment Ready”.
By taking selected products and services to global markets for investment, manufacturing and marketing,
we also provide a channel and networking system that allows overseas investment in Australian markets.
Each opportunity will require the presence of an effective CEO, one that is capable of running a high-
growth, globally focused enterprise from relative startup, using the process of:
Alignment within the organisation
Sourcing expertise from outside the company
Insight into emerging customer needs
- Krinsky and Jenkins (1997)
As such, Bravo Charlie requires the best possible measurement by which to track each CEOs performance.
What is a Chief Executive Officer?
n. Abbr. CEO
The highest-ranking executive in a company or organisation, responsible for carrying out the policies of
the board of directors on a day-to-day basis.
n. Lead-er
1. A person or thing that leads.
2. A guiding or directing head, as of an army, movement, or political group.
Source: Oxford Dictionary, 2006
www.bravocharlie.com.au Copyright 2009
These definitions are presented to highlight that CEO and leader are synonymous and the terms can be
used interchangeably.
CEO = Company?
For our purposes the CEO and the company shall also be considered one and the same. In context the
CEO in question is representing a globally focused, high-growth venture.
Supporting this Nohria, Joyce and Roberson completed a groundbreaking, five-year study on the
management practices that produce superior results entitled ‘What Really Works’. Excelling at the
primary management practices of strategy, execution, culture and structure represented the
fundamentals of business.
Further, specific competence in two of four from Talent, Mergers and Partnerships, Leadership and
Innovation were requisite for success.
Being aware of and responsible for the progress within these areas is therefore an intrinsic part of what it
means to be a CEO.
What does a CEO do?
An effective CEO is someone who can:
1. Play a pivotal role in setting the company’s direction – this requires the CEO to be innovative and
looking for ways of improving competitiveness, to lead short-term and long-term planning
processes and to focus on customer satisfaction when making decisions.
2. Act as the firm’s chief communicator – this person promotes communication within the company
and is able to keep its members focused on the goals and challenges faced by the organisation. A
good communication also promotes the company’s vision to people outside of the company.
3. Set the tone of the company’s culture – this is done by encouraging innovation as well as
accountability.
www.bravocharlie.com.au Copyright 2009
4. Lead the executive management team – the CEO must also continually work to improve the
executive management team.
5. Properly manage corporate resources, both human and financial – this means ensuring that the
proper measurement and control practices are in place and that there is a balance between the
long-term and short-term goals.
6. Shape the company’s structure and processes to fit the strategy and culture sought by the board.
7. Demonstrate he or she is serious about continual learning – this means the CEO is constantly
looking for ways to improve the company’s and his or her own performance.
Source: Kiel and Nicholson, 2004
How do they do it?
How a leader operates could be categorised on a scale of great, good, ineffective and bad.
Bad Leadership
In reverse, bad leadership is defined by Zaleznik (1977) as falling into seven groups;
Incompetent
Rigid
Intemperate
Callous
Corrupt
Insular
Evil
General English terminology gives accurate reflection of each ‘bad’ group as defined by Zaleznik, further
investigation being beyond the scope of this document.
www.bravocharlie.com.au Copyright 2009
Ineffective Leadership
Ineffective leadership denotes a situation where the desired change has not been produced. These can be
for reasons that include “missing traits, weak skills, strategies badly conceived and tactics badly employed.
Ineffective leadership falls short of its intention” (Kellerman, 2004).
Good to Great
When looking to the line between good and great leaders, Jim Collins’s work defines the organisational
competencies, as well as the qualitative aspects of the leadership that move a company to being labelled
as ‘great’.
From organisational perspective CEO compensation, change management initiatives, mergers and
acquisitions, even technology all had relatively minor roles in lifting a company. Success was instead
attributed to disciplined people, disciplined thought and disciplined actions.
Remembering our earlier definition of a CEO, responsibility over these elements is therefore part of being
a ‘great’ CEO.
Qualitatively Collins found his CEO success cases displayed an unusual mix of intense determination and
profound humility. Long-term investment in the company and its success often characterised by a climb
through the companies ranks were part of the process, as well as a confidence that personal ego and
financial gain were secondary to the long-term benefit of the team.
These are key factors in how Jim Collins defines a ‘great’ leader, what he calls the ‘Level 5 leader’.
In context we are looking at ‘Great’ leaders - AKA an interview with Ted Hummerston:
During my research I interviewed a world leading management consultant.
We spoke on the subject of evaluating CEO performance, agreed that an obvious factor was financial
return and then explored the makeup of a ‘great’ leader, primarily through anecdotal reference.
www.bravocharlie.com.au Copyright 2009
“In Jim Collins work ‘Built to Last’, Humility and an unswerving conviction about where they are taking the
company were defined as qualities ingrained in the great CEOs”.
Ted and I shared the premise that a CEO is the company, defining success as;
“Getting the right people on the bus, and then taking the bus somewhere".
When Ted visited Orica and met the CEO for the first time, it was a life changing moment for him.
He was amazed by the CEO’s capacity to attract high quality people, and went on to define a key question
HR should be able to answer for staff “Am I going to be in a learning environment?”
On the effectiveness of a CEO;
“You could say the core ability of a CEO is to ensure robustness of the operation. They do this by being
able to articulate a vision which captures the imagination of the people that come to the company“.
On the line between Good and Great;
"The distinguished CEO’s were people who went to the mirror in times of failure and looked into their own
eyes, in times of success they went to the window and looked for who they could attribute the applause.
The CEOs who were not so just went to the mirror in times of success, and in times of failure went to the
window to find an employee responsible.
As an example, the legacy of John McFarlane (CEO of ANZ through to 2007) will be characterised by the
culture he has created".
A qualitative and quantitative look at CEO performance
It can be said “A manager is concerned with how decisions are made and how the communication flows; a
leader is concerned with what decisions get made and what he or she communicates (Zaleznik, 1997)”.
From my interview time, a clear and consistent message was that “at its essence, it is about culture.”
www.bravocharlie.com.au Copyright 2009
To drive a culture it needs people, and as such bringing a team together is of major importance. Ted
stated that a good CEO understands people, when sourcing team members they know;
What is it that brings fulfilment
What makes them buzz
What motivates them
What really works for them
Anecdotally travelling through South America with a newly appointed Orica CEO for an extended period,
seeing groups of ten to twenty people, two to three groups a day every day for a number of weeks;
He described a good CEO as having the strength of character to visit each of his global branches in person,
understand the needs of his people and work from the ground up on cultural alignment.
Specifically this was done through determining the line in the sand required for profitability, what they
termed ‘18% RONA’ (return on net assets).
To gain complete buy in from every member of the company, RONA was translated into terminology
relevant to its place of reference. If workers were in the packing department, 18% RONA became X
number of boxes per day. In the production environment, X barrels, for delivery, X drop offs etc.
Everyone unilaterally knew their '18% RONA'. Thus operational involvement and respect was engendered
throughout the organisation.
Why was this so important? The RONA statement was a strategic line in the sand for the organisation.
It was a financial metric that supported a cultural maxim held by the organisation:
"If we can't be first or second in this market, we should sell the business."
This example demonstrates the ‘people skills’ a leader needs to effectively translate a financial metric.
www.bravocharlie.com.au Copyright 2009
Ted went on to support his earlier reference to Collins and the CEOs ‘unswerving conviction to where they
were taking the company’. The CEO of Orica would face the head of each division stating “I am coming
back in 12 months time and closing all divisions operating under 18% RONA.”
When the time has passed a CEO of
character and strength will listen to the
division head say "I didn't make eighteen
percent, but I made sixteen and a half!".
He will respond with "I appreciate the work
you have put in. We have to shut the plant”.
..ok, so what about the money?
Kiel and Nicholson previously defined the
fifth component of the CEO role as;
Properly manage corporate
resources, both human and financial
As financial metrics and cash flow are the
lifeblood of a business, a keen awareness of
them and ideally constant improvement is
part and parcel of a CEO position.
Is that it for the CEO then; Culture and
Finance?
No. Not by far.
Nohria expands on the fundamentals of
business in the diagram to the right.
www.bravocharlie.com.au Copyright 2009
How are CEOs currently measured?
Kiel and Nicholson (2004) state “The CEO evaluation will utilise both quantitative and qualitative
measures. Evaluation will be judged against the approved strategic plan.”
Strategic plan hey? Logic dictates the strategic plan is the responsibility of the CEO and as the company
grows, defining the characteristics of success in each area would fluctuate massively.
A strategic process that can conceivably underpin the role of the CEO and the board is shown below;
www.bravocharlie.com.au Copyright 2009
So.. goals move?
Yes.
Greiner (1998) defines Organisational Practices in the Five Phases of Growth as:
Category Phase 1 Phase 2 Phase 3 Phase 4 Phase 5
Management focus
Make and sell Efficiency of operations
Expansion of market
Consolidation of organisation
Problem solving and innovation
Organisational structure
Informal Centralised and
functional Decentralised and
geographical Line staff and
product groups Matrix of teams
Management style
Individualistic and entrepreneurial
Directive Delegative Watchdog Participative
Control System Market results Standards and
cost centers Reports and profit
centres
Plans and investment
centers
Mutual goal setting
Management Reward Emphasis
Ownership Salary and merit
increases Individual bonus
Profit sharing and stock options
Team bonus
Greiner goes to state that those in control of an organisation must:
- Know where they are in the developmental sequence.
- Recognise the limited range of solutions.
- Realise that solutions breed new problems.
CEOs and the board work with these factors through execution of the strategic plan. The plan drives the
growth process, which moves the goals and thus the metrics.
The big picture
We now have a comprehensive picture of a ‘great’ CEO, as well as the massive amounts of information
they must work with to achieve their goal.
Evidentiary reference has also been made to support an inability to create a ‘standard’ set of metrics to
evaluate a great CEO’s effectiveness.
It is a logical progression that quality of decision making supports a ‘CEO being a success’.
www.bravocharlie.com.au Copyright 2009
Tools for Success
The author suggests that as a CEO is reliant on the decision making process and quality of information
provided to them, a company should ascertain best practice levels of knowledge, certification and skills
training associated to every position held within its company.
Ultimately this approach should be applied to every level of contact that occurs with the organisation,
from suppliers through to affiliates.
Realistically it is most feasible for companies to directly assign HR or similar to assess current best practice
levels of industry certification. As this knowledge base aggregates skill training paths will become
apparent, staff retention can be improved through educational transparency and ideally sources of
competitive advantage will arise.
In summary
This process has clearly identified several criteria associated to a ‘great’ CEO.
It has determined a broad range of organisational responsibilities that rest with the position, identified the
spectrum of organisational change facing a company, as well as providing real life examples of execution.
It is hoped that an individual can be assessed as to whether or not they are an ‘effective performer’ based
on this research, and once identified, the quality of the information passed to them can be assessed
against best practice levels of knowledge where possible.
www.bravocharlie.com.au Copyright 2009
Bibliography
Kiel, Nicholson, 2004, Boards that Work - A new guide for Directors, McGraw Hill, North Ryde.
Kellerman, B 2004, Bad Leadership: What It Is, How It Happens, Why It Matters, Harvard Business Press,
Boston Mas.
Kets De Vries, M 2001, The Leadership Mystique: a user’s manual for the human enterprise, Prentice Hall,
Upper Saddle River.
Nohria, Joyce, Roberson, 2003, ‘What Really Works’, Harvard Business Review, July, pp. 43-52.
Zaleznik, A 1977, ‘Leading and Managing: Understanding the Difference’, Harvard Business Review, pp. 97-
119.
Greiner, L 1998, ‘Evolution and Revolution as Organisations Grow’, Harvard Business Review, May-June,
pp. 55-67.
Obholzer, A 1997, ‘The Leader, the Unconscious, and the Management of the Organisation’, Harvard
Business Review, pp. 197-216.
Kellerman, B 2004, ‘The failure factor in leadership, Harvard Business Press, pp. 72-105.