Probably the most consistently overlooked “best practice” in venture backed companies is the CEO review. In my experience most companies provide little, if any, structured feedback at the CEO level. Perhaps the board or the members of the compensation committee might provide the CEO with limited (and mostly ad hoc) feedback at the beginning of each year when/if a CEO’s bonus for the previous year is awarded. More often the CEO review is essentially a review of the numbers vs. the financial plan. While that step is important, so is a meaningful discussion of the strengths and weaknesses of the CEO and ways they can improved their performance based on the collective input of the board and other mangers at the business.
I think skipping the CEO review is a huge mistake and I’m working within my portfolio to start implementing a standard CEO review process. Not only is it important for CEOs to get regular, meaningful and structured feedback on their performance, I think a properly organized review process can serve as the basis for an ongoing conversation between the board and the CEO that extends beyond the review period itself. My partner Brad likes to say that the three most important things that VCs do for their companies are 1) make CEO hiring and firing decisions; 2) aid in capital raising and financing strategy; and 3) help facilitate exits. Managing a real CEO review process fits squarely into category 1 which more broadly interpreted is really about managing the success of a CEO.
For those of you looking for a template for this review, here’s what a colleague used for one of the companies we work on together (and which I’ve now used a few times; I’m not sure if this was a form that she put together or that was passed on to her from another source). Feedback of this type should be collected from the board and all of the CEO’s direct reports (and can be expanded to include other important investors and other managers in the business, although may need to be modified some to work in those cases). While incorporating specific feedback is important, I’m not in favor of showing a CEO the raw information that is collected in this process. Instead someone from the board should be appointed to manage the process of collecting information and distilling feedback into a format that is both direct and actionable for the CEO. Finally this person and one other representative of the board should sit down with the CEO and review the feedback in a structured format that focuses on highlighting the positive aspects of the CEO’s performance as well as specific areas that s/he can improve their performance.
(rate performance on a 1-5 scale, 1 being least favorable and 5 being most favorable; provide support for your rating in the space provided):
Vision: Creates vision and strategy. Communicates vision and strategy both internally and externally.
Leadership: Ensures the support and execution of the vision and strategy by:
- Establishment and communication of priorities;
- Driving change for improvement throughout the organization;
- Team-building; and
- Creation of high performance environment.
Operating Management: Develops and executes sound long-term and annual business plans in support of approved strategy. Manages operations and resources efficiently and effectively.
Values and Integrity: Maintains consistent values and exemplary conduct. Promotes positive corporate culture to reflect corporate mission statement.
Shareholder/Investor/Financial Community: Serves as chief spokesperson, communicating effectively with shareholders and stakeholders. Is well regarded and respected by investment and financial community.
Strategic Partners: Maintains personal rapport with strategic partners through open, ongoing communications
Human Resources: Ensures the development of effective employee recruitment, training, and plans and programs to provide and motivate the human resources necessary to achieve objectives.
Public Relations: Ensures that the company and its operating units contribute appropriately to the well being of their communities and industries. Represents the company in community and industry affairs.
Board Relations: Works effectively with the Board of Directors to keep them fully informed on all important aspects of the status and development of the Company. Facilitates the Board’s governance, compositions, and committee structure. Implements Board policies and recommends policies for Board consideration. Supports a relationship characterized by trust, mutual respect, open communication and responsiveness to feedback. Uses Board meetings effectively.
Financial Results: Financial Results – Establishes appropriate annual and long-term financial objectives and manages to consistently achieve these goals; ensures that appropriate systems are maintained to protect assets and maintain effective control of operations.
Key Challenges in the Year Ahead:
Thoughts and Concerns: