2013 CEO Performance Evaluation Survey with The Miles Group


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Boards rate CEOs high in decision-making, low in talent development.

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 that boardrooms are giving poor grades to CEOs for their mentoring skills and board engagement – but still prioritize financial performance above all else.

STANFORD, Calif. —More than 160 CEOs and directors of North American public and private companies were polled in the 2013 Survey on CEO Performance Evaluations, which studied how CEOs themselves and directors rate both chief executive performance as well as the performance evaluation process. When directors were asked to rank the top weaknesses of their CEO, “mentoring skills” and “board engagement” tied for the #1 spot. “This signals that directors are clearly concerned about their CEO’s ability to mentor top talent,” says 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.”

Read more: http://www.gsb.stanford.edu/cldr/research/surveys/performance.html

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2013 CEO Performance Evaluation Survey with The Miles Group

  1. 1. 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
  2. 2. TA B L E O F C O N T E N T SExecutive Summary: Key Results 1Survey Questions 3Descriptive Statistics 12About the Sponsors 14About the Authors 15Contact Information 16
  3. 3. 2013 Survey on CEO Performance Evaluations 1Executive Summary: Key ResultsIn Grading CEO Performance, Financials Still DominateBoards rate CEOs high in decision-making, low intalent developmentA new study conducted by the Center for LeadershipDevelopment and Research at Stanford Graduate School ofBusiness, Stanford University’s Rock Center for CorporateGovernance, and The Miles Group reveals that boardrooms aregiving poor grades to CEOs for their mentoring skills and boardengagement – but still prioritize financial performance above allelse. More than 160 CEOs and directors of North American publicand private companies were polled in the 2013 Survey on CEOPerformance Evaluations, which studied how CEOs themselvesand directors rate both chief executive performance as well as theperformance evaluation process.When directors were asked to rank the top weaknesses of theirCEO, “mentoring skills” and “board engagement” tied for the #1spot. “This signals that directors are clearly concerned about theirCEO’s ability to mentor top talent,” says Stephen Miles, founderand chief executive of The Miles Group. “Focusing on driverssuch as developing the next generation of leadership is essentialto planning beyond the next quarter and avoiding the short-termthinking that inhibits growth.”However, when actually evaluating the performance of aCEO, companies place very little weight on many nonfinancialperformance measures. The survey found that only a 5%weighting was given to a CEO’s performance in the areas of talentdevelopment and succession planning, and only a 2.5% weightingwas given to employee satisfaction/turnover.“While boards clearly see mentoring and talent developmentas weaknesses in their CEO, the problem is that they are notevaluating CEOs against those measures in a meaningful way,”says David F. Larcker, James Irvin Miller Professor of Accountingand co-director of the Center for Leadership Development andResearch. “Financial performance still dominates the gradingmetrics, so if boards really want CEOs to focus on other things aswell, they will have to change the way they evaluate those in thetop seat.”Additional key findings of the 2013 Survey on CEO PerformanceEvaluations include:• Directors rate CEOs high in “decision making” but low inpeople management areas. In addition to mentoring anddeveloping talent, “listening” and “conflict management” werethe skills least mentioned as strengths of the CEO. “The factthat these were in the bottom three means that there is a realproblem,” says Mr. Miles. “Each of these should be at leastin the top five of a CEO’s strengths, because they are criticalcomponents to excelling in the CEO role. Decision-making,which directors overwhelmingly stated was their CEO’s greateststrength, is important, because you don’t want a CEO with‘analysis paralysis.’ But ‘planning skills’ – which also made thetop three in CEO strengths – are really what CEOs should bedelegating, not focusing on themselves.”• Little weight given to customer service, workplace safety,and innovation in CEO evaluations. While accounting,operating, and stock price metrics are assigned high value byboards, other factors generally hold little worth when boardsrate their CEOs. “Seeming important things such as productservice and quality, customer service, workplace safety, andeven innovation are used in less than 5% of evaluations,” saysProfessor Larcker.• CEOs and boards believe the evaluation process is balanced.Eighty-three percent (83%) of directors and 64% of CEOsbelieve that the CEO evaluation process is a balancedapproach between financial performance and nonfinancialmetrics, such as strategy development and employee andcustomer satisfaction. “Unfortunately, the truth of the matteris that the CEO evaluation process is not that balanced,” saysProfessor Larcker. “Amid growing calls for integrating reportingand corporate social responsibility, companies are still behindthe times when it comes to developing reliable and validmeasures of nonfinancial performance metrics.”• CEOs failing to engage boards. “Board relationships andengagement” tied with “mentoring and development skills”as the #1 weakness in CEOs. “This serious disconnectbetween management and the boardroom has multiplenegative ramifications,” says Mr. Miles. “Board engagement isabsolutely vital to the function of the CEO – and to the healthof a company. How can the board understand what’s going onin the company if the CEO is not engaging?”
  4. 4. 2013 Survey on CEO Performance Evaluations 2• Directors lukewarm when comparing their CEOs against peergroup. Forty-one percent (41%) of directors believe that theirCEO is in the top 20% of his or her peers, while 17% believethat their CEO is below the 60th percentile. “For almost halfof directors to say that their CEO is just ‘in the top 20 percent’is not exactly a ringing endorsement,” says Mr. Miles. “Theboard hires the CEO – they should believe that they have theindividual in that job who is absolutely the best, or can quicklybecome the best. The fact that nearly 20% of directors feelthat their CEO ranks below the top 40% means that a lot ofCEOs should be preparing their resumes.”• Disconnect in how CEOs and directors regard the evaluationprocess. Sixty-three percent (63%) of CEOs versus 83% ofdirectors believe that the CEO performance process is effectivein their companies. “Nearly a third of CEOs don’t think thattheir evaluation is effective,” says Professor Larcker. “Thesuccess of an organization is dependent on open and honestdialogue between the CEO and the board. It is difficult to seehow that can happen without a rigorous evaluation process.”• 10% of companies say they have never evaluated their CEO.“Given their fiduciary duties, it’s strange that any companywould not evaluate its CEO,” says Professor Larcker. “TheCEO performance evaluation should feed all sorts of boarddecisions, including goal setting, corporate performancemeasurement, compensation structure, and successionplanning. Without an evaluation of the CEO, how can theboard claim to be monitoring a corporation?”• CEOs highly likely to agree with the results of theirperformance evaluation. Only 12% of CEOs believe thatthey are rated too high or too low overall, and almost half(49%) do not disagree with any area of their performanceevaluation. “Shareholders have to wonder at the objectivity ofthe evaluation process,” says Professor Larcker. “It’s hard tobelieve that boards are pushing CEOs on their evaluations ifthey pretty much agree with their evaluation.”• Only two-thirds of CEOs believe that their own performanceevaluation is a meaningful exercise. “Even though a highpercentage of directors and CEOs think that the CEO evaluationprocess is meaningful, this number really should be 100%,”says Mr. Miles. “Every board has the power to meaningfullyevaluate the CEO – whether doing it themselves, or bringing insomeone to do it, or some combination thereof.”• Directors unlenient on violations of ethics but more forgivingof CEOs with legal or regulatory violations that occur on theirwatch. “A significant minority of directors – 27 percent – saythat unexpected litigation against the company would have noimpact on their CEO’s performance evaluation,” says ProfessorLarcker, while “approximately a quarter of directors (24%)say that unexpected regulatory problems would also have noimpact.” By contrast, all directors (100%) say that their CEO’sperformance evaluation would be negatively impacted byethical violations or a lack of transparency with the board.
  5. 5. 2013 Survey on CEO Performance Evaluations 3Survey Questions1. How often does the board of directors formally evaluate theperformance of your CEO?CEOs and Directors Combined. PercentageHave never been evaluated 9.9Less frequently than one time a year 6.8One time per year 75.3Two times per year 4.3Four times per year 3.1More frequently than four times per year 0.62. Who is primarily responsible for leading the process for theformal evaluation of the CEO performance?CEOs and Directors Combined. PercentageChairman (if different than the CEO) 36.1Lead independent director 13.9Head of the nominating and governance committee 8.9Head of the compensation committee 15.2Entire board of directors as a group 15.8Outside consultant or advisor 2.5Other 7.63. Do you engage an outside consultant or advisor tosupplement the review process?CEOs and Directors Combined. PercentageYes 21.4No 78.64. How satisfied are you with the services provided by thisoutside consultant or advisor?CEOs and Directors Combined. PercentageVery satisfied 38.2Moderately satisfied 58.9Neither satisfied nor dissatisfied 0Moderately dissatisfied 0Very dissatisfied 2.9
  6. 6. 2013 Survey on CEO Performance Evaluations 45. Who establishes the criteria or metrics that your companyuses to assess the performance of your CEO?CEOs and Directors Combined. PercentageChairman 22.2CEO (if you are not the CEO) 4.9Lead director 3.1Board of directors as a group 71.0Outside consultant or advisor 6.2Human resources 3.7General counsel 0.6Major Investors 3.7I don’t know 1.9Other 11.76. On a scale of 0 to 100, what weighting do you placeon this metric?Assign a number from 0 to 100 for each selectedmetric; your total should add to 100. CEOs andDirectors Combined. MeanAccounting, operating or stock price performance 41.1Strategy development 17.0Customer service / satisfaction 4.2Employee satisfaction / turnover 2.5Product or service quality 4.4Workplace safety 1.5Innovation 3.7Leadership skills 14.6Succession planning / internal talent development 4.9Other 6.1
  7. 7. 2013 Survey on CEO Performance Evaluations 57. What impact would each of the following have on youroverall evaluation?Assign each according to a scale of: very negative impact,moderately negative impact, no impact. CEOs DirectorsUnexpected financial restatement Percentage 52.1 62.1Very negative impact 43.7 33.8Moderately negative impact 4.2 4.1No impactUnexpected litigation Percentage 21.1 12.0Very negative impact 52.1 61.3Moderately negative impact 26.8 26.7No impactMissed forecast of revenues or earnings Percentage 23.9 32.0Very negative impact 69.1 58.7Moderately negative impact 7.0 9.3No impactMajor negative PR event Percentage 36.6 16.0Very negative impact 53.5 77.3Moderately negative impact 9.9 6.7No impactUnexpected regulatory problem* Percentage 23.9 21.3Very negative impact 42.3 54.7Moderately negative impact 33.8 24.0No impact* Such as with the Environmental Protection Agency/OSHA/Foodand Drug Administration, etc.Unexpected resignation of senior executive team members Percentage 11.3 10.7Very negative impact 50.7 62.6Moderately negative impact 38.0 26.7No impact
  8. 8. 2013 Survey on CEO Performance Evaluations 6Negative results from workplace engagement survey Percentage 18.3 8.0Very negative impact 53.5 76.0Moderately negative impact 28.2 16.0No impactEvent in which CEO violates ethical principles or personalconduct standards Percentage 91.6 98.7Very negative impact 4.2 1.3Moderately negative impact 4.2 0No impactCEO lacks transparency with the board of directorsDirectors Only. PercentageVery negative impact 86.3 Moderately negative impact 13.78. Which individuals are interviewed as part of thereview process?Select all that apply. CEOs and Directors Combined. PercentageCEO 48.2Board members 74.1Executives one level below the CEO 40.7Executives two levels below the CEO 6.8Executives three or more levels below the CEO 2.5Customers 6.8Suppliers 1.2Analysts 2.5I don’t know 31.1Other 7.49. How amenable is your CEO to the process of being reviewed?Directors Only. PercentageVery cooperative 64.0Moderately cooperative 20.0Neither cooperative nor uncooperative 8.0Moderately uncooperative 8.0
  9. 9. 2013 Survey on CEO Performance Evaluations 710. Does the CEO do a self-evaluation as part of theformal review?Directors Only. PercentageYes 74.7No 25.311. When is the information in the evaluation shared withthe CEO?Directors Only. PercentageBoth in the middle and at the end of the process 20.0Only at the end of the process 80.012. How is this information shared?Directors Only. PercentageVerbally 44.0In writing 2.7Both verbally and in writing 53.313. Who reviews the evaluation with the CEO?Select all that apply. Directors Only. PercentageChairman of the board (if different than the CEO) 51.2Lead independent director 22.0Head of the nominating and governance committee 9.8Head of the compensation committee 26.8Another outside director 2.4Entire board of directors as a group 24.4Outside consultant or advisor 2.4Other 4.914. Do you agree with the following statement: “The CEOevaluation process [My evaluation process] is a meaningfulexercise? CEOs Directors Percentage 25.0 60.0Strongly agree 39.8 28.0Agree 19.1 6.7Neither agree nor disagree 13.2 5.3Disagree 2.9 0Strongly disagree
  10. 10. 2013 Survey on CEO Performance Evaluations 815. Do you agree with the following statement: “The CEOevaluation process is a balanced approach that focuseson financial (stock price and accounting) performance andnon-financial (strategy development, leadership, employeeand customer satisfaction)” CEOs Directors Percentage 18.6 48.0Strongly agree 45.6 34.7Agree 24.3 12.0Neither agree nor disagree 8.6 5.3Disagree 2.9 0Strongly disagree16. How would you rate your personal understanding of thestrengths and weaknesses of your CEO?Directors Only. PercentageExcellent understanding 78.7Moderate understanding 20.0Very little understanding 1.317. Do you agree with the following statement:“There is no way that the board can really understandmy performance”?CEOs Only. PercentageStrongly agree 5.8Agree 11.6Neither agree nor disagree 14.5Disagree 50.7Strongly disagree 17.4
  11. 11. 2013 Survey on CEO Performance Evaluations 918. What are the biggest strengths of your current CEO?Select all that apply. Directors Only. PercentageDecision making skills 69.5Board relationship and engagement 47.6Planning skills 46.3Team building skills 43.9Communication skills 41.5Motivational skills 39Sharing leadership / delegation skills 39Persuasion skills 35.4Interpersonal skills 32.9Compassion / empathy 26.8Mentoring skills / developing internal talent 23.2Listening skills 23.2Conflict management skills 19.5Other 12.2I don’t know 2.419. What are the biggest weaknesses for your current CEO?Select all that apply. Directors Only. PercentageBoard relationship and engagement 24.4Mentoring skills / developing internal talent 24.4Sharing leadership / delegation skills 22Listening skills 20.7Conflict management skills 18.3Planning skills 14.6Team building skills 13.4Interpersonal skills 13.4Compassion / empathy 12.2Decision making skills 11Communication skills 11Persuasion skills 11Motivational skills 7.3Other 11I don’t know 3.7
  12. 12. 2013 Survey on CEO Performance Evaluations 1020. Which of the following areas of your evaluation do notreflect your personal opinion of your performance.Select all that apply. CEOs Only. PercentageNone of these 48.8Decision making skills 15Sharing leadership / delegation skills 11.3Listening skills 11.3Conflict management skills 11.3Compassion / empathy 11.3Planning skills 10Mentoring skills / developing internal talent 10Communication skills 10Team building skills 8.8Persuasion skills 7.5Motivational skills 6.3Interpersonal skills 6.3Other 521. Do you agree with the following statement:“The best board evaluator is someone that either is a CEOor has recently been a CEO”CEOs Only. PercentageStrongly agree 14.3Agree 40.0Neither agree nor disagree 21.4Disagree 18.6Strongly disagree 5.722. Do you agree with the following statement: “I am generallyrated too high or too low on my performance evaluation”CEOs Only. PercentageStrongly agree 2.9Agree 8.7Neither agree nor disagree 63.8Disagree 20.3Strongly disagree 4.3
  13. 13. 2013 Survey on CEO Performance Evaluations 1123. How would you evaluate the effectiveness of the CEOperformance [your performance] evaluation process? CEOs Directors Percentage 40.0 15.5Very effective 42.6 47.9Somewhat effective 6.7 16.9Neither effective or ineffective 8.0 12.7Somewhat ineffective 2.7 7.0Very ineffective24. How would you rank your present CEO relative to his or herpeers [your performance relative to peers] in your industry? CEOs Directors Percentage 9.9 6.7The absolute best 56.3 41.2Top 20 22.5 34.721-40 8.5 10.741-60 1.4 4.061-80 1.4 2.7Bottom 20
  14. 14. 2013 Survey on CEO Performance Evaluations 12Descriptive Statistics Methodology: Survey conducted in February and March 2013.Respondents were asked to consider each question from thestandpoint of the corporation they are most closely associatedwith. Respondents were screened to include only CEOs andnonexecutive directors. CEOs include a small number ofexecutives with joint president and/or COO titles.Note: Percentages may be rounded to achieve 100.0 percentDemographic Data: Total Population – Directors and CEOsWhat is your primary professional background? PercentageGeneral corporate executive background 46.8Academia / Government service 3.6Accounting or auditing 2.2Commercial banking 1.5Consulting 3.6Engineering 3.6Finance 15.4Investment management 5.8Law 3.6Technology 5.1Other 8.8What is the revenue for the company that you are most closelyidentified with? Percentage<$500 million 50.0$500 million to $1 billion 11.0$1 billion to $5 billion 16.2$5 billion to 10 billion 8.8$10 billion to $20 billion 4.4>$20 billion 9.6Gender PercentageMale 78.7Female 21.3Age Percentage31 to 40 3.641 to 50 19.751 to 60 42.461 to 70 27.7>70 6.6
  15. 15. 2013 Survey on CEO Performance Evaluations 13What is the industrial sector for the company that you are mostclosely identified with? PercentageBusiness Services 8.1Chemicals 1.5Commercial Banking 2.9Commodities 0.7Communications 5.1Computer Services 13.2Electronics 12.5Energy 7.4Financial Services (other than commercial banking) 8.8Food and Tobacco 7.4Industrial and Transportation Equipment 3.7Insurance 2.9Other Manufacturing 7.4Other Services 11.8Retail Trade 2.2Transportation 0.7Utilities 1.5Wholesale Trade 2.2Respondent: Director or CEO PercentageCEO 49.4Outside Director 50.6
  16. 16. 2013 Survey on CEO Performance Evaluations 14About the SponsorsAbout Stanford University’s Rock CenterFor Corporate GovernanceThe Arthur and Toni Rembe Rock Center for CorporateGovernance is a joint initiative of Stanford Law School and theStanford Graduate School of Business, created with the ideathat advances in the understanding and practice of corporategovernance are most likely to occur in a cross-disciplinaryenvironment where leading academics, business leaders, policymakers, practitioners and regulators can meet and work together.The Rock Center’s goal is to conduct research and tap this wealthof expertise to advance the practice and study of corporategovernance. The Rock Center works closely with the Center forLeadership Development and Research.About Stanford Graduate School of Business, CenterFor Leadership Development and ResearchThe Center for Leadership Development and Research mission isto advance the intellectual understanding of corporate governanceand executive leadership by engaging academics, regulators,practitioners and professionals, bridging the gap between theoryand practice. We aim to strengthen governance and leadershipas independent areas of teaching and scholarship in businessschools worldwide and to generate new insights into fundamental“big issues.”About The Miles GroupThe Miles Group develops talent strategies for organizations,teams, and individuals — focusing on high-performance,world-class leadership. Headquartered in New York, The MilesGroup advises top global corporations through CEO succession,executive transitions, board assessment and training, and talentdevelopment. The firm’s coaching and advisory services enableleaders to raise the bar on their own performance, as well ascreate an environment for success throughout the organization.
  17. 17. 2013 Survey on CEO Performance Evaluations 15About the AuthorsDavid F. LarckerDavid F. Larcker is James Irvin MillerProfessor of Accounting at the GraduateSchool of Business of Stanford Universityand professor at the Stanford Law School(courtesy). He was previously the Ernst &Young Professor of Accounting at theWharton School of the University ofPennsylvania and Professor of accountingand information systems at the J. L.Kellogg Graduate School of Managementat Northwestern University. He received bachelor’s and master’sdegrees in engineering from the University of Missouri – Rolla anda doctorate in business from the University of Kansas.David is senior faculty at the Stanford Rock Center for CorporateGovernance and Morgan Stanley Director of the Center forLeadership Development and Research. He is also a trustee of theWells Fargo Advantage Funds.David has published many articles and book chapters ontopics such as executive compensation, corporate governance,measurement of intangible assets, and strategic businessmodels. He received the Notable Contribution to ManagementAccounting Literature Award in 2001. He is the coauthor ofCorporate Governance Matters: A Closer Look at OrganizationalChoices and Their Consequences. In 2012, he was named tothe NACD Directorship 100 as one of the most influential peoplein the boardroom and corporate governance community. He hasserved as a consultant to numerous organizations on corporategovernance and design of executive compensation contracts.Email: dlarcker@stanford.eduBrian TayanBrian Tayan is a member of the Center for LeadershipDevelopment and Research at the Stanford Graduate School ofBusiness. He has written broadly on the subject of corporategovernance, including the boards of directors, successionplanning, compensation, financial accounting, and shareholderrelations. Tayan is co-author of Corporate Governance Matters:A Closer Look at Organizational Choices and Their Consequences.Stephen MilesStephen Miles is the founder and chiefexecutive officer of The Miles Group.Previously, he was a vice chairman atHeidrick & Struggles and ran LeadershipAdvisory Services. With more than 15years of experience in assessment,executive coaching, top-level successionplanning, organizational effectiveness andstrategy consulting, Stephen specializes inCEO succession and has partnered withnumerous boards of global Fortune 500 companies to ensure thata successful leadership selection and transition occurs. He hasalso led many chairman successions and board effectivenessreviews, partnering with boards of directors to help them withtheir overall effectiveness, committee effectiveness and individualdirector effectiveness.Stephen is a recognized expert on the role of the chief operatingofficer, and has consulted numerous companies on theestablishment and the effectiveness of the position and supportingthe transition from COO to effective CEO. He is a coach to manyCEOs and COOs around the world, and his clients cut across allindustry sectors.Stephen and his CEO advisory services were profiled in theBloomberg BusinessWeek article “The Rising Star of CEOConsulting.”Prior to The Miles Group and Heidrick & Struggles,Stephen held various positions at Andersen Consulting.Stephen is author and co-editor of the best-selling business bookLeaders Talk Leadership. He also co-authored Riding Shotgun: TheRole of the Chief Operating Officer, as well as the cover article in theMay 2006 issue of Harvard Business Review on the same topic.Email: smiles@miles-group.comMichelle E. GutmanMichelle E. Gutman, associate researcher, is a member ofthe Center for Leadership Development and Research at theStanford Graduate School of Business, and at the Rock Center forCorporate Governance at Stanford University. She is a founder andadvisor to Stanford Women on Boards, an initiative to increasethe representation of outstanding Stanford-affiliated women onfiduciary boards of directors. Follow Stanford twitter feeds:@StanfordCorpGov & @StnfrdLeadrship for research news.
  18. 18. 2013 Survey on CEO Performance Evaluations 16Contact InformationFor more information on this report, please contact:Katie Pandes, Stanford Graduate School of BusinessPhone: 650-724-9152Email: pandes _ katie@gsb.stanford.eduStanford GSB Center for Leadership Developmentand Research:http://www.gsb.stanford.edu/cldr/Rock Center for Corporate Governance at Stanford:http://rockcenter.law.stanford.edu/The Miles Group:http://miles-group.com/