It is unfortunate that the mentality of regional investors and business owners focuses on short-term profitability rather than building an enterprise for long-term sustained growth in revenue and profitability. This mind set influences the majority of regional chief executive officers (CEOs) to focus on achieving short-term performance targets, unaware of the knock-on effect of such an action on the long-term success of the organization they are leading.
To appreciate the challenge facing today’s CEOs, it is best to start by appreciating the job description. As a CEO, the main remit is to deliver on the board of directors’ approved business plan with focus on delivering financial targets; the organization performance is typically reviewed on quarterly basis by the board of directors to provide the CEO with the required guidance and support.
To assess how well a CEO is performing in his job, he needs to design his own measurement systems that reflect the desired corporate performance targets both in the short and long-term. During the execution process, the CEO position at the top of the organization pyramid is a very lonely place with no one to advise him on what to do and give him feedback when making inappropriate decisions or communicating poorly. Even when a CEO asks for honest feedback, non-flattering comment may stall a promising career. Even when a company uses 360-degree feedback, no one penalizes the CEO if he doesn’t act on the feedback.
Considering the frequency of interaction with the BoD who oversees the CEO’s performance, BoD members are unaware of the day-to-day activities and over time they become disconnected. After all, they look primarily at share price and company strategy. They are seldom interested in, or even qualified to comment on, the CEO’s daily conduct or performance.
Since the CEO’s daily actions define the company’s future results, he needs to establish key performance measures that help him assess his own performance. Indeed, sloppy measurement could lead to the CEO feeling falsely confident. Share prices alone are inadequate and inappropriate as a low share price tells something’s wrong, but it doesn’t help figure out what’s wrong.
The prime duties of the CEO should be setting the company vision, formulating the business strategy, building culture, allocating capital and leading his team during the strategy execution process. Whilst the last of these duties is easy to measure, the first three duties are more of a challenge.
Having vision alone isn’t enough, communicating the vision is prime responsibility, as only when employees absorb and share the vision, they can establish how their daily job supports the vision. Employees’ failure to link their job to the vision is an indication that the CEO’s communication has failed or hasn’t helped his team to translate vision into actual tasks. CEOs can monitor their success as visionary leaders by establishing that the work force has linked their jobs to the company’s vision.
To assess success in culture building, a CEO may conduct surveys about openness, values, and morale. The outcome of such a survey can be used to develop a measure of culture. If employees are satisfied and attracting and retaining top talents to the organization is not a challenge, the CEO can be sure that the culture plays a large role. On the other hands, if to top performers are leaving the company, this raises a cause for concerns. CEOs should not underestimate the power of walking around and counting smiles, as if employees are enjoying themselves, it would show.
The duty of CEOs as team-builders can often be measured through the team effectiveness, as teams usually know when they’re effective and can rate their team using assessments that measure specific behaviors. Regular team self-assessments can help the CEO track the team’s progress and sharpen his abilities to keep team spirit alive.
Capital allocation is probably the easiest to measure, since financial data are often made public and most feasible; e.g. earnings and share price. The challenge is how the CEO can link such measures to his actual decisions. Working closely with his chief financial officer, the CEO can devise financial measures specific to his business. However, sometimes traditional measures are most appropriate, such as economic value added or return on employed assets.
In view of the above, CEOs are encouraged to agree with their BoDs a long-term business strategy as well as short-term objectives, set key performance indicators related to their own performance and track them on regular basis. If necessary, the CEO may establish business-specific measures that enable him to link his decisions with company outcomes. Eventually, the CEO is expected to create more value for money invested in the company. Otherwise, shareholders would prefer to invest their hard earned cash elsewhere in more profitable opportunities.
(Yahya Shakweh is a vice president at Advanced Electronics Company, Saudi Arabia. The views expressed in this article are the author’s personal opinion. He can be reached on e-mail: [email protected] )
