CEO evaluation: a process that worked.

• Author: Muschewske, Robert C.

Ronald A. Matricaria was named the president and chief executive officer of St. Jude Medical Inc. in 1993. St. Jude Medical had achieved record financial performance and possessed an exceptionally strong balance sheet, but shareholders were concerned about future growth and maximization of long-term shareholder value. Recruited from Eli Lilly and Co., Ron's mission was to develop the diversification strategy of a company which had become the global leader in its principal product line, mechanical heart valves.

His charter was clear. He recognized, however, that leading change is always a challenge fraught with potential pitfalls. This certainly could be the case with a board which was very proud of the financial results and market leadership the company had previously achieved. In addition, the chairman of the board was Ron's predecessor as chief executive

The situation called for an open and honest flow of communication between the board and the new chief executive. Installing a CEO evaluation process was one of several initiatives Ron and the board put in place to achieve this objective.

Ron had used my services in executive assessment and development work at St. Jude and liked my approach to integrating and summarizing evaluations of individuals.

The CEO performance evaluation process was developed jointly in 1994, after reviewing a number of case studies and interviewing companies with a similar process in place. In addition to fostering open communication, the CEO evaluation process demonstrates the board's interest in good governance, involves the direct participation of each individual board member, and takes place annually using predetermined and agreed upon performance criteria. It unfolded in the following steps.

Step One -- Development of a CEO Position Description. Shaped by the company's business strategy, a one-page document was created capturing the principal accountabilities of the CEO position at St. Jude Medical (see accompanying exhibit). It reflected the ongoing end results the job was designed to achieve, regardless of specific goals established during a given year. The document was reviewed and approved by the board.

Step Two -- Identification of Specific Goals for 1994. Ron developed a number of specific goals representing high priority performance targets for the year. Among these were objectives to design and implement a diversification strategy, and achieve specified financial performance targets leading to...