'Taking inventory' of the CEO: an effective assessment process will ensure the development of stronger CEOs. Here is a model of a comprehensive and fair process.

• Author: Burchman, Seymour
• Position: PERFORMANCE EVALUATION

FACTS. OBJECTIVITY. Certainty. Measurability--the most critical tenet of management, right? Any student of economics can tell you that earnings are produced only when sales and costs are understood and well managed. The MBA graduate can expound on the merits of using management science and quantitative analysis as a support tool for making critical decisions. And the CEO of any corporation can speak to the importance of creating and measuring expectations of profitability--literally down to the penny.

But directors and chief executives will also suggest, if given the opportunity to speak about what's really important, that no manager can develop into an effective leader without requisite focus on professional development. Too often, scant attention is paid to evaluating a CEO's leadership and management capabilities because many boards (not to mention shareholders, investors, and the media) focus the bulk of their energies on financial results. While a focus on results is understandable, it is critical for boards to be aware of their CEO's strengths, weaknesses, and necessary areas for improvement in leadership and management.

Having worked with many CEOs over the past 25 years, we know that they have both incredible strengths and undeniable shortcomings. Boards are generally aware of the need for development at even the highest levels of corporate America. By their own admission, many board members agree that measuring a CEO's abilities to establish strategic direction, build a management team, and lead effectively are more critical than measures of operational performance. Yet most boards still tend to rely on financial and stock performance as the means for evaluation, rather than attempting to assess a CEO's individual performance. Surveys find that about two-thirds of companies have a formal process in place for evaluating the CEO, but few profess to formally assess the CEO's developmental needs.

A systematic approach to leadership/management assessment--coupled with a clear developmental plan--will help to ensure stronger CEOs and healthier long-term futures for organizations. We discuss below the challenges related to performing CEO assessments, the five key contributing factors to a successful assessment, a range of helpful assessment criteria, and the important considerations at each phase in the assessment cycle.

The main obstacles

Why do boards have a difficult time measuring leadership/management performance? First, defining and agreeing on the most appropriate assessment measures is a challenge. After all, how does one define, let alone measure, leadership or strategic ability? Assuming that a compensation committee chair can come up with definitions, who is to say that each director won't have his or her own views? A lack of accepted standards theoretically presents each board with an opportunity to uniquely define its standards for the leadership/management performance of its CEO, but it also creates the challenge of requiring the board to reach consensus on both competencies for assessment and specific behavioral indicators that evidence these areas.

Determining who should participate is the second challenge. Though all directors should certainly participate in any assessment of CEO performance, we believe that boards should also include a separate evaluation by a group of selected members of senior management (typically at least the CEO's direct reports). This is because management is often able to provide more detailed observations and insights--based on day-to-day exposure--than those that are attainable at the board level. Because it is not always easy to find a group that will be completely unbiased and representative, the board or committee administering the assessment process needs to be sensible--but fair--in its selection of respondents.

A self-appraisal

In our experience, the most successful assessments also include a CEO's appraisal of his own performance. This is true for several reasons:

* The comparison between the CEO's view of himself and the view held by the board/management is a valuable source of insight. To the extent that there are differing perceptions and assessments of performance, the board has an opportunity to review whether it is clearly and fairly setting expectations of the CEO. Similarly, the CEO has the opportunity to question whether he is being completely honest and open-minded about his areas for improvement.

* The CEO is ultimately responsible for her own performance, and this opinion certainly should be expressed. Most CEOs have earned their responsibilities by having an appreciable amount of self-awareness, and their opinions--backed up by specific evidence--deserve a "place at the table."

* Most CEOs are aware that they have some room for improvement. Our experience suggests...