CEO Performance Review™
A boardroom simulation for private equity and portfolio company directors facing one of the more difficult questions in ownership.
The company is under pressure. Management has reasonable explanations for the results. Directors do not necessarily see the situation the same way. Succession may be less certain than expected.
The board has to decide what to do.
CEO Performance Review™ puts experienced directors into a realistic CEO performance situation in which they have to interpret the information available, challenge one another's assumptions and reach a judgment.
There is no obvious answer.
The Hardest CEO Decisions Usually Develop Over Time
Most boards do not wake up one morning knowing they have a CEO problem.
A missed target may have a reasonable explanation. A forecast revision may not seem significant on its own. The departure of a senior executive may initially look unrelated. Concerns about leadership can remain difficult to separate from concerns about the business itself.
Over time, however, those issues can begin to look different when considered together.
The board starts asking whether performance is likely to improve, whether the CEO can adapt to what the business now requires and whether more active involvement is needed.
The difficult part is often deciding when concern should turn into action.
By the time the answer is obvious, some of the board's options may already have narrowed.
CEO Performance Review™ gives directors an opportunity to work through that type of decision before it involves one of their own CEOs.
The CEO Decision Gap
Boards can recognize that something is not working without agreeing on what should happen next.
That gap matters.
A CEO may still have support from some directors. Others may see the same information as evidence of a more serious leadership problem. Management may have credible explanations. The cost of making a change may be substantial, while the cost of waiting is harder to calculate.
CEO Performance Review™ puts the board directly into this part of the decision.
It is the point where directors have to move from observation to judgment.
The experience gives directors a way to examine how they reach that judgment before the consequences involve a real CEO, management team or portfolio company.
Imagine This Board Meeting
The company has missed plan again.
The CEO believes market conditions explain much of the shortfall. Some directors agree. Others have become increasingly concerned about execution.
A respected senior executive has resigned.
The board also realizes that its succession options are not as strong as it previously thought.
There is no consensus about whether the CEO needs more support, firmer intervention or a more fundamental reassessment.
The CEO will join the meeting shortly.
What information should carry the most weight?
These are the kinds of questions CEO Performance Review™ is built around.
The actual simulation scenario is not disclosed in advance.
What does the board need to understand before reaching a conclusion?
How much additional time is reasonable?
What should the board say to the CEO?
What Is CEO Performance Review™?
CEO Performance Review™ is an immersive boardroom simulation focused on difficult CEO performance and leadership decisions.
Directors work with incomplete information and differing interpretations of what is happening in the business. They have to decide which facts matter, which explanations they find persuasive and what level of board involvement is appropriate.
Different directors may reach different conclusions from the same information.
That is part of the value of the exercise.
The purpose is not to teach directors a standard answer. It is to give them experience making a difficult CEO judgment when the facts do not point neatly in one direction.
More Than a Discussion About Governance
Most directors already understand the principles of CEO oversight.
The harder question is how those principles hold up when the board has to make a real judgment.
CEO Performance Review™ moves beyond a discussion of best practices. Directors are placed in a situation where they have to decide how they would respond based on what they know at the time.
The value comes from seeing how the board actually thinks when the answer is unclear.
The experience can surface differences that may never appear during an ordinary board discussion.
Where CEO Risk Often Begins
A serious CEO issue does not always begin with poor financial results. It can develop in several ways.
Performance
The company is missing expectations, but directors have to determine whether the problem is temporary, external or related to execution.
Confidence
The board begins to question the CEO's judgment, transparency, forecasting or ability to deliver what has been promised.
Leadership
The company has changed, and the skills required for the next stage may not be the same skills that made the CEO successful in the past.
Succession
The board discovers that its alternatives are less developed than expected if a leadership change were to become necessary.
Alignment
Directors, investors and management can look at the same situation and reach very different conclusions.
CEO Performance Review™ works with these types of board tensions without publishing the specific circumstances or mechanics of the simulation.
What the Experience May Reveal About the Board
The simulation is not only an examination of CEO performance.
It can also show directors how the board approaches a difficult leadership decision.
Different directors may have very different thresholds for intervention.
One director may see a temporary setback. Another may believe the leadership issue has already become significant.
The board may not have a shared definition of lost confidence.
Directors often know when they are concerned. They may be less clear about what evidence would cause them to take a different course of action.
Succession may not be as strong as the board assumes.
A documented succession plan does not necessarily mean there is a credible alternative available if circumstances change.
The same information may carry different weight for different directors.
Forecasts, executive turnover, missed milestones and management explanations can lead experienced directors to very different conclusions.
The board may be more comfortable discussing the CEO than deciding what to do.
That distinction often becomes visible only when directors have to commit to a course of action.
A CEO discussion can expose a broader disagreement about the business.
What initially appears to be a performance issue may reveal different views about strategy, pace, risk or what the company requires from its next stage of leadership.
Waiting Is a Choice Too
Boards understandably spend a great deal of time considering the risk of acting prematurely.
There is another side to the decision.
A prolonged period of leadership uncertainty can affect enterprise value, execution, executive retention, management credibility, succession options and exit readiness.
For a private equity owner, time also has a particular cost.
The question is not simply whether the board should act. It is whether delaying the decision changes the available options.
CEO Performance Review™ gives directors a way to examine both sides of that issue.
In Private Equity, Time Matters
A portfolio company operates within a finite ownership period.
Six months can matter. A year can matter considerably more.
If concerns about the CEO persist, the impact can extend beyond annual performance. Leadership uncertainty can affect the pace of strategic initiatives, the ability to retain executives, management depth, succession planning and preparation for a future transaction.
The board therefore has to consider more than whether the CEO is performing today.
It also has to consider how long it can reasonably wait to reach a conclusion.
That makes CEO performance both a governance issue and an ownership issue.
The CEO Who Got the Company Here May Not Be the CEO Who Takes It Forward
A CEO can perform very well during one stage of a company's development and still face difficulty in the next.
The company may need to scale, professionalize operations, integrate acquisitions, strengthen the management team, expand into new markets or prepare for exit.
Those changes can create a different leadership requirement.
Past success does not automatically answer the question of future fit.
The board has to assess whether the CEO's capabilities continue to match what the business now needs.
CEO Performance Review™ gives directors a setting in which to examine that distinction.
What Directors Can Take Back to the Boardroom
The value of the experience is greater clarity around questions that are often difficult to address before a problem becomes urgent.
Which signals deserve the board's attention?
Directors can compare what they view as ordinary performance variation with what they consider evidence of a deeper issue.
When should oversight become more active?
The experience can expose different views about when the board should become more directly involved.
What would rebuild confidence?
If directors have concerns, they can examine what evidence they would need to see before changing their assessment.
How much time is reasonable?
The board can confront the difference between giving a CEO a fair opportunity to improve and allowing a problem to persist.
How credible are the succession options?
Directors can consider whether the board would have genuine choices if a transition became necessary.
Where does the board already disagree?
Those differences are easier to address before a real CEO situation forces the issue.
Why Do This Simulation Before There Is a CEO Problem?
Once a CEO issue becomes obvious, the board may have fewer choices.
CEO Performance Review™ is not intended to predict the exact leadership challenge a board will face.
It is intended to give directors experience dealing with the conditions that make these decisions difficult: incomplete information, different interpretations, leadership concerns, succession risk and differing views about whether action is warranted.
The board gets to test its judgment before the consequences are real.
Questions Worth Asking Before the Board Has to Answer Them
At what point does underperformance become a leadership issue?
CEO Performance Review™ gives directors a setting in which to consider these questions before a real situation makes them urgent.
What would cause our board to lose confidence in the CEO?
How would we distinguish a problem with strategy from a problem with leadership?
How much time should a CEO have to demonstrate meaningful change?
When does executive turnover become relevant evidence about the CEO?
When should succession planning become more active?
Could we make a CEO change if circumstances required it?
What might we regret not addressing earlier?
Who Is CEO Performance Review™ Designed For?
CEO Performance Review™ is designed for directors and investors with meaningful responsibility for CEO oversight, including:
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Private equity investment professionals serving as directors
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Private equity operating partners
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Portfolio company directors
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Independent directors
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Board chairs and lead directors
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Compensation committee members
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Governance committee members
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Family office directors
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Major investors with board representation
The simulation can be used with an intact portfolio company board or as part of a broader private equity director development program.
Frequently Asked Questions
What is CEO Performance Review™?
CEO Performance Review™ is a boardroom simulation that puts directors into a realistic CEO performance situation. Participants work with incomplete information and differing perspectives while deciding how the board should respond.
How is CEO Performance Review™ different from CEO evaluation training?
Traditional training generally focuses on governance processes, frameworks and best practices. CEO Performance Review™ focuses on judgment. Directors have to make decisions in a situation where the information is incomplete and the appropriate course of action is not predetermined.
When should a board become concerned about an underperforming CEO?
Concern tends to increase when underperformance becomes persistent or material, agreed changes do not lead to sufficient improvement, confidence in management information declines, executive-team problems increase or the CEO's capabilities appear increasingly misaligned with what the company needs next.
When should a board consider replacing a CEO?
A board may need to consider a change when it no longer has sufficient confidence that the CEO can restore performance, execute the strategy, build the required leadership team, maintain credibility or respond meaningfully to board intervention. The board also has to weigh the risks of transition against the risks of continuing with the current leadership.
Why is CEO succession particularly important for private equity boards?
Succession gives the board options. If alternatives are considered only after a transition becomes necessary, the company may face limited internal candidates, a lengthy external search and greater disruption. Earlier succession planning gives directors greater flexibility if circumstances change.
The First Difficult CEO Decision Should Not Be the Real One
Serious CEO issues usually build gradually.
A missed commitment.
A changing explanation.
A senior executive departure.
Continued pressure on performance.
A gradual change in how directors view the CEO.
Eventually, the board has to answer the question:
Is the CEO Still the Right Leader for What Comes Next?
CEO Performance Review™ gives directors an opportunity to work through that question before the company's leadership, value and future are actually at stake.
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