News and Views
May 14, 2020
Posted in: WATSON Speaks
We’re thrilled to be partnering with the Ontario Chamber of Commerce (OCC). WATSON’s Governance Advisor, Natasha Himer, will be presenting an exclusive webinar to the OCC Chamber Network’s board of directors and senior management teams, “Effective Governance: A Solid Foundation is More Important Now Than Ever.”.
May 6, 2020
Posted in: WATSON Views
Is CEO evaluation the last thing on your mind right now? We get it. In the face of ongoing disruption and change, it might feel like a make-work exercise that can be pushed to the next quarter, or the quarter after that… While boards are dealing with more urgent and pressing matters right now, their CEOs are stepping up in a very real and challenging moment of leadership. CEOs need feedback and recognition, especially through unchartered times. For now, a message of appreciation and support will help, but eventually CEOs will need specific, actionable feedback to perform at their best. And there is much for all of us to learn from how we show up and perform in a crisis. While your CEO evaluation process might look different this year, it will be a critical step in shaping the path forward for your organization.
While it might not feel like a priority right now, it will be important to evaluate your CEO this year in a thoughtful, fulsome way. When this happens and what it looks like will vary based on your current context and past practice. At some stage, you need to tell the CEO how they performed, recognize accomplishments, and identify areas to strengthen performance and impact. You also need the opportunity as a board to step back and consider their long-term career trajectory and the organization’s future leadership needs, which may be shifting as a result of the current context. This doesn’t need to happen immediately, but it should be on the board’s radar.
In the short-term, consider doing a quick check-in on performance whenever the time feels right – ideally as the initial push in this crisis settles into something more stable and long term for your organization. Tell the CEO how they are doing, recognize their efforts to date, check in on their wellness and resiliency, and coach them on how to lead through the next phase of response.
Once things settle a bit, consider when you would usually evaluate your CEO, taking into consideration anything else that is hinging on the process (e.g., pay, succession, external reporting, etc.). Determine the right timing for a more fulsome look at CEO performance, with sensitivity to what the organization is dealing with right now. Figure out the timing that makes sense for your organization and get buy-in from the CEO and board to make it happen. Recognize that you may need to adjust the process given your organization’s new reality – interviews and debriefs will be conducted by phone or video, participants asked to provide feedback may not have the time to commit, and performance criteria may shift to recognize the significant changes in context and focus.
If you are following leading practice, you would have already established what success looks like. Typically, this might entail:
- Delivering on strategic objectives/priorities
- Fulfilling the core accountabilities of the role (e.g., building and developing a strong team, setting and managing the budget, ensuring efficient and effective operations, etc.)
- Showing up as a leader in terms of behaviours and values
Good strategies anticipate that there will be unexpected challenges to weather in a year, and CEOs are expected to problem solve and adapt as they face new challenges. When typical challenges confront organizations, you don’t move the goalposts on the CEO – this is an expected part of the role and doing business. However, this year is unprecedented, and boards need to be more thoughtful in terms of how CEO success is measured in light of changing circumstances.
If your business has been completely disrupted by external forces, measuring against the original plans won’t feel right. This is a year when most boards will have to exercise some discretion. A thoughtful CEO evaluation in this context might include:
- Consideration of how the CEO and organization faced this period of crisis and uncertainty
- Review of the original agreed-upon objectives or measures and how the organization fared against them, acknowledging that in many cases the organization and CEO cannot be held to this standard of performance (this is intended for completeness, especially for organizations where this level of rigour is expected, and in consideration of the CEO’s performance before COVID-19)
- Feedback on how the CEO and organization handled what arose for them this year
- The organization’s readiness and response, and the impact/results – did the organization respond quickly and thoughtfully and outperform its peers? Was it slow to respond? How did the organization’s processes, systems, and people perform in the face of change?
- How did the CEO communicate and set the tone for the organization, its employees, customers, stakeholders, etc.?
- Early learnings for the future
- What lessons can we apply to strengthen processes, practices, behaviours, risk frameworks, etc.? For example, has this exposed weakness in the crisis response system? Has it illuminated the fact that the executive bench is light? Has it allowed the organization to innovate quickly, highlighting previous barriers?
- How is the CEO positioning the organization for recovery and future success?
Depending on your organization, there may be pay or other incentives tied to performance against agreed-upon criteria. In the best of times, this is a complex decision. It will now be further impacted by financial performance and stakeholder considerations – both the realities and the optics. In some organizations, providing some reward to the CEO to recognize exceptional leadership through the crisis – even if the organization’s original objectives were not achieved – will make sense (for example, if an organization outperforms peers or benchmarks by a notable amount due to strong leadership). In other organizations, rewarding the CEO financially would be absolutely the wrong move, regardless of performance, and could be detrimental to the organization (for example, if key stakeholders and/or employees have experienced pain and economic loss, providing additional reward to the CEO will not be well received). Organizations may need to think differently about CEO compensation, finding other ways to recognize achievement or delaying rewards until the organization is in a better position. In making their decision on compensation, boards should exercise judgement and consider:
- What makes sense for the organization in its current context?
- What are the impacts on stakeholders (direct and indirect) and what would their views be?
- What is the long-term impact on engagement, alignment, and motivation of the CEO and/or other executives?
- What is the bigger picture for the employee base? What challenging actions has the organization taken, and what would the right leadership look like here?
- What are the potential (and possibly unexpected) long-term repercussions?
With so much on the shoulders of CEOs and their boards right now, it is a good year to streamline the process and seek support to share the load. Even if it might not feel like a priority, the process itself can trigger important conversations, uncover blind spots, and align the board and CEO. It also sends the message that how we lead during difficult times is important and requires care and feedback to do it properly. Do what feels right for your CEO and organization, but do something.
April 29, 2020
Posted in: WATSON Speaks
Rachel O’Connor, WATSON Practice Lead, Leadership & Performance, will be a web panelist on Compensation and Performance Management for Executives and Directors: Trends, Changes and Practices, a webinar sponsored by The Directors College and McMaster University’s DeGroote School of Business, on May 5, 2020.
- How should we measure CEO performance this year? Can we do a meaningful CEO evaluation?
- Should we pay bonuses earned for 2019, even if we are now in a crisis?
- How should we adjust director pay?
- What should we do about LTI plans given our current low share price?
- Should we change our performance (and STI) measures now, mid year, to reflect the fact the goal posts have moved?
Register here: https://zoom.us/webinar/register/WN_H9auL4irRHOeBNxiUjUarw
Posted in: WATSON Views
It’s a new world, with rapid change, new challenges, and new opportunities. In the coming year, boards will be helping their organizations develop new and innovative strategies, overseeing culture and talent in a time of profound workplace change, and navigating a rapidly shifting world economy. They might hire a new CEO, contemplate a merger with another organization, or oversee significant changes to their business model. Most likely, they will be doing all of these things remotely, relying on virtual board meetings and other technology instead of interacting in a physical boardroom.
Under the new reality, boards are going to be working in a radically different environment – so why would we assume that the way forward is to replicate traditional board practices and force fit them to this new paradigm? With COVID 19, board practices have already been shifting, with more frequent meetings, regular briefings from the CEO, and access to real-time updates. As we look forward, in addition to thinking about what they should be focusing on, boards must also think about how they are going to do their work. With continued health risks and social distancing, many directors, particularly those who fall within high-risk categories, will be reluctant or unable to travel and engage in traditional board meetings. As a result, boards will need to evolve – or even fundamentally shift – how they function in order to tackle the important work ahead. In order to create effective board culture and dynamics, have meaningful conversations, and continue to provide value, boards will need to be intentional about their board practices.
Applying existing meeting practices to a videoconference is a fine short-term solution. But longer term, boards and organizations need to assess and adjust how they are meeting remotely to ensure the quality of dialogue is sustained. With a shift away from in person meetings, boards need to think about how to structure virtual meetings for optimal engagement.
Anyone who has attended a full-day videoconference knows it feels very different from a full-day in person board meeting. We anticipate boards will reassess their meeting rhythm and adjust their forward calendars, shifting to shorter, more frequent meetings with ample time for breaks built into agendas. Not only does this allow the board to stay up to speed as their organization quickly adapts to changing circumstances, it promotes greater engagement and focus when relying on technology to interact.
With a shift to the board’s forward calendar, meeting agendas will also need to evolve. Rather than shortening the length of each discussion topic, we anticipate meetings will be focused on different areas and leverage different technologies to support the nature of the conversation. For example, boards might meet first for a compliance-oriented meeting to review quarterly financial statements and receive regular reporting, using an online platform that supports information sharing and group discussion. The board might meet separately to discuss emerging strategic issues, drawing on a more collaborative tool that enables breakout groups and virtual whiteboards for brainstorming. Boards might draw on online polling technology to quickly capture votes in real time during meetings. They may also shift communications between meetings to a chat-based forum where directors can share resources, discuss emerging issues, and submit questions.
Moving to virtual meetings will also require a shift in how individuals show up and participate. While watching a screen is typically a passive activity, directors need to engage actively in videoconferences while keeping contributions concise and focused. This means closing all other windows and disabling notifications to avoid distractions, thinking consciously about body language and tone, and preparing clear notes and questions in advance of meetings. For management, this means bringing even more discipline to presentations, highlighting the top three to five insights from pre-reading materials. For board or committee chairs, this requires a new toolkit of facilitation skills to manage the flow of conversations, generate genuine engagement, and ensure value is added (stay tuned for our upcoming article on how chairs can create the right environment for board discussions in this new paradigm).
Committee meetings may follow suit with more frequent meetings or may meet more sporadically and report to the board in specified meetings when there are important committee items to discuss and report on. We may also see broader changes to committee reporting practices, an area boards often struggle to structure in a focused and efficient way. One great idea we’ve seen is a committee report podcast or video shared before the meeting for information, with any recommendations from committees put on the board agenda for discussion and decision-making.
Another area that will require an innovative approach is board social time. Board dinners, offsites, and informal conversations during coffee breaks are important opportunities for directors to connect, get to know each other, and build relationships. We strongly believe that social time is critical to build trust and a positive culture. Building culture online is possible but requires creativity and intentionality. Ask directors to join meetings early to create a forum for small talk, be more intentional in having a regular check-in question at the beginning of meetings so directors can connect on a personal level, host a virtual social hour or pre-meeting board dinner focused on education (or purely for social engagement).
Governance professionals will also need to expand their repertoire and become adept at collaborating with chairs and executives on structuring agendas, choosing virtual platforms, and supporting effective workflows. We have all experienced hiccups at the start of a virtual meeting or found ourselves in a situation where the platform gets in the way of good process or content. Whether designing a virtual AGM, making board meetings seamless in terms of technology, or ensuing security and confidentiality across all platforms, governance professionals will need to be knowledgeable, well-supported by experts, and ready to engage.
As with any new board practice, shifting to virtual meetings will be a process of trial and error. It will require directors to be patient and open to new ways of doing things. It will also require a thoughtful feedback process to gauge how new practices are working, ensuing they are given enough time to adjust and adapt, while also being nimble if things aren’t working and new solutions are required. Regardless of the changes made to accommodate virtual meetings, directors will need training on how to use new technology, proactive communication from the corporate secretary through the transition, and strong leadership from the board chair. Organizations will also need to be highly attuned to cybersecurity risks related to using different online tools, as well as any legal requirements around confidentiality and privacy.
Along with any new challenge comes new opportunity. We see the potential for boards to become more nimble and adaptive, develop new habits to add more strategic value, and streamline some of the mechanics of board meetings. We are encouraged by the many thoughtful and innovative ways organizations of all shapes and sizes have stepped up to tackle challenges. With that same level of intention and ingenuity, we look forward to seeing the many ways boards adapt and step up to lead in new and different ways.
We hope you find a useful idea or consideration to bring back to your board. If this article sparks any questions, or a new idea to help your board have the right conversations and build culture in this new paradigm, shoot us an email and let us know what you’re doing – we always love to hear the great ideas that work in your boardroom.
Have a governance question? We are here to help.
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