CEO Monitoring and Evaluation: The Basics...Monitoring September 12, 2010 Policy Governance is a...

Monitoring September 12, 2010

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CEO Monitoring and CEO Monitoring and Evaluation: The BasicsEvaluation: The Basics

Richard StringhamRichard Stringham

�� Effective monitoring is based on the Effective monitoring is based on the board having first established the board having first established the criteria upon which the CEO will be criteria upon which the CEO will be evaluated (4,6,7)evaluated (4,6,7)

�� These policies are developed by the These policies are developed by the board as a wholeboard as a whole (3)(3)

�� Policies are grounded in the board's Policies are grounded in the board's understanding of its responsibility to understanding of its responsibility to act in the interests of the ownersact in the interests of the owners (1)(1)

Relevant PrinciplesRelevant PrinciplesPolicy Governance Source Document

�� Policies based on boardPolicies based on board’’s governance s governance position of accountability for the whole position of accountability for the whole organizationorganization (2)(2)

�� Board delegates all accountability for the Board delegates all accountability for the operating organization through the CEO operating organization through the CEO (8)(8)

�� Board holds the CEO accountable for Board holds the CEO accountable for achieving any reasonable interpretation achieving any reasonable interpretation of its policiesof its policies (9)(9)

�� Board establishes policy in which it Board establishes policy in which it instructs itself on the process it will use to instructs itself on the process it will use to monitor (5)monitor (5)








�� The board monitors organizational The board monitors organizational performance through fair but systematic performance through fair but systematic assessment of whether a reasonable assessment of whether a reasonable interpretation of its Ends policies is being interpretation of its Ends policies is being achieved and a reasonable interpretation of its achieved and a reasonable interpretation of its Executive Limitations policies is being avoided. Executive Limitations policies is being avoided. If there is a CEO, this constitutes the CEO's If there is a CEO, this constitutes the CEO's evaluationevaluation (10)(10)


Owners’ Values, Wants and Needs

Policies

Delegation

Monitoring

Accountability

Perpetual Ownership Linkage Plan™

Board Enrichment Strategy™

The Accountability Culture™In the Accountability Culture™ the board is always aware that it governs on behalf of, and is accountable to, the owners. It fulfills this accountability by developing policies that govern operations, delegating to the CEO, and then holding the CEO accountable for the delegated areas.

What to Monitor?What to Monitor?

�� Achievement of Ends Achievement of Ends

�� Compliance with LimitationsCompliance with Limitations

Each predetermined!







Board

states

policy CEO’s

Interpretation

CEO plans:

Strategic and Tactical

(Financial, HR, PR, etc)

CEO implements

plans, adjusts as needed

Monitoring

Data

What the Board SeesWhat the Board Sees

Source: John Carver

Any Reasonable Any Reasonable InterpretationInterpretation

ANY reasonable interpretation range

CEO Board

member A

Board

member B

�� May be different than the interpretation May be different than the interpretation preferred by board members individually or preferred by board members individually or collectivelycollectively

�� CEOCEO’’s interpretation must have rationales interpretation must have rationale

�� Board must assess and make a decision (via Board must assess and make a decision (via motion) determining if it falls within the range motion) determining if it falls within the range of reasonable interpretationof reasonable interpretation

Any Reasonable Any Reasonable InterpretationInterpretation







�� Focused on the reasonable interpretation of the Focused on the reasonable interpretation of the policy language (i.e., free of superfluous policy language (i.e., free of superfluous information)information)

�� Clear, key data readily recognizedClear, key data readily recognized

�� Representative, unbiasedRepresentative, unbiased

�� Comparative where appropriate:Comparative where appropriate:

�� Trends over timeTrends over time

�� Similar organizationsSimilar organizations

�� Known standardsKnown standards

Evidence should include data that is:Evidence should include data that is:

{{ Monitoring for ComplianceMonitoring for Compliance

Executive Executive LimitationsLimitations

Board Policy: Board Policy: oo [The CEO shall not:] Allow Board members, staff and [The CEO shall not:] Allow Board members, staff and

individuals engaged in activities on behalf of the individuals engaged in activities on behalf of the organization, or the organization itself, to be uninsured organization, or the organization itself, to be uninsured against liability in an amount comparable to the average for against liability in an amount comparable to the average for similar organizations. similar organizations.

Report: Report: oo We have insurance for coverage of $2 million liability.We have insurance for coverage of $2 million liability.

EL Monitoring ReportEL Monitoring Report







�� CEOCEO’’s explicit s explicit reasonable interpretation reasonable interpretation of the boardof the board’’s policy statements policy statement

�� EvidenceEvidence of compliance with the of compliance with the reasonable interpretation of the policyreasonable interpretation of the policy

Components of a Components of a Monitoring ReportMonitoring Report

Board Policy:Board Policy:

[The CEO shall not:] Allow Board members, staff and individuals [The CEO shall not:] Allow Board members, staff and individuals engaged in activities on behalf of the organization, or the engaged in activities on behalf of the organization, or the organization itself, to be uninsured against liability in an amoorganization itself, to be uninsured against liability in an amount unt comparable to the average for similar organizations. comparable to the average for similar organizations.

InterpretationInterpretation::I interpret that this means that coverage is provided through: I interpret that this means that coverage is provided through:

A)A)Directors and Officers Liability Insurance policy, and Directors and Officers Liability Insurance policy, and

B)B)Commercial General Insurance policyCommercial General Insurance policy

Evidence:Evidence:As of Feb 2012, our insurance coverage has increased:As of Feb 2012, our insurance coverage has increased:

A)A)Directors and Officers Liability Insurance for $3 million (was $Directors and Officers Liability Insurance for $3 million (was $2 2 million) million)

B)B)Commercial General Insurance coverage for $6 million (was $5 milCommercial General Insurance coverage for $6 million (was $5 million).lion).

EL Monitoring Version IIEL Monitoring Version II

oo Addresses the BoardAddresses the Board’’s policys policy

oo Clarifies which Clarifies which alternative alternative from a range of from a range of possible interpretations the CEO has possible interpretations the CEO has chosenchosen

oo Speaks to what will be observed that will Speaks to what will be observed that will demonstrate compliance (regardless of demonstrate compliance (regardless of who is inspecting for evidence).who is inspecting for evidence).

oo Supported with rationale to demonstrate Supported with rationale to demonstrate the reasonablenessthe reasonableness of the interpretationof the interpretation

CEOCEO’’s interpretation of the s interpretation of the BoardBoard’’s Policys Policy







Board Policy:Board Policy:The CEO shall not:] Allow Board members, staff and individuals eThe CEO shall not:] Allow Board members, staff and individuals engaged in ngaged in

activities on behalf of the organization, or the organization itactivities on behalf of the organization, or the organization itself, to be self, to be uninsured against liability in an amount comparable to the averauninsured against liability in an amount comparable to the average for ge for similar organizations. similar organizations.

Interpretation:Compliance will be demonstrated when we have Directors and Compliance will be demonstrated when we have Directors and

Officers Liability insurance and Commercial General Insurance Officers Liability insurance and Commercial General Insurance coverage in amounts at or slightly greater than the average of coverage in amounts at or slightly greater than the average of Alberta health care professional regulatory organizations with 1Alberta health care professional regulatory organizations with 1500 500 to 3000 members based upon a comparison conducted at least to 3000 members based upon a comparison conducted at least every two years. every two years.

These organizations are reasonably comparable based upon our These organizations are reasonably comparable based upon our similar liabilities under the same legislation as other health similar liabilities under the same legislation as other health professions in the province and our similar number of members. professions in the province and our similar number of members. [State the source of unbiased insurance expertise] has advised t[State the source of unbiased insurance expertise] has advised that hat rates do not climb enough to warrant a review more frequently rates do not climb enough to warrant a review more frequently than every two years. than every two years.

EL Monitoring Version IIIEL Monitoring Version III

Interpretation:Interpretation:Compliance will be demonstrated when we have Directors and Compliance will be demonstrated when we have Directors and

Officers Liability insurance and Commercial General Insurance Officers Liability insurance and Commercial General Insurance

coverage in amounts at or slightly greater than the coverage in amounts at or slightly greater than the average of average of Alberta health care professional regulatory Alberta health care professional regulatory organizations with 1500 to 3000 members organizations with 1500 to 3000 members based based upon a comparison conducted at least every two years. upon a comparison conducted at least every two years.

These organizations are reasonably comparable These organizations are reasonably comparable based upon our similar liabilities under the same based upon our similar liabilities under the same legislation as other health professions in the legislation as other health professions in the province and our similar number of members. province and our similar number of members.

[State the source of unbiased insurance expertise] has advised t[State the source of unbiased insurance expertise] has advised that hat rates do not climb enough to warrant a review more frequently rates do not climb enough to warrant a review more frequently than every two years. than every two years.


Comparable organizations

…and Rationale


Officers Liability insurance and Commercial General Insurance Officers Liability insurance and Commercial General Insurance coverage in amounts at or slightly greater than the average of coverage in amounts at or slightly greater than the average of Alberta health care professional regulatory organizations with Alberta health care professional regulatory organizations with

1500 to 3000 members 1500 to 3000 members based upon a comparison based upon a comparison conducted at least every two years. conducted at least every two years.

These organizations are reasonably comparable based upon our These organizations are reasonably comparable based upon our similar liabilities under the same legislation as other health similar liabilities under the same legislation as other health professions in the province and our similar number of members. professions in the province and our similar number of members.

[State the source of unbiased insurance expertise] [State the source of unbiased insurance expertise] has advised that rates do not climb enough to has advised that rates do not climb enough to warrant a review more frequently than every warrant a review more frequently than every two years. two years.


Frequency of comparison

…and Rationale







�� No interpretationNo interpretation

�� Dictionary definitionsDictionary definitions

�� Restating the boardRestating the board’’s policys policy

�� Rationale for the boardRationale for the board’’s policys policy

�� Lacking statement of what will demonstrate Lacking statement of what will demonstrate compliancecompliance

�� Lacking rationaleLacking rationale

�� Not addressing the policyNot addressing the policy

�� Addressing only part of the policyAddressing only part of the policy

Interpretations ErrorsInterpretations Errors

�� Begin with the more specific policy/policiesBegin with the more specific policy/policies

�� Each policy should be interpreted within the Each policy should be interpreted within the context of the broader level policy within context of the broader level policy within which it is containedwhich it is contained

�� Move up to the next layer of policy and Move up to the next layer of policy and determine if the broader level policy is determine if the broader level policy is comprehensivelycomprehensively interpreted by the more specific interpreted by the more specific policiespolicies

Interpretations: Interpretations: Layer by LayerLayer by Layer

Evidence should include data that:Evidence should include data that:��Demonstrates compliance with the reasonable Demonstrates compliance with the reasonable interpretation of the policy, interpretation of the policy,

��Has clear language for the boardHas clear language for the board

��Is free of superfluous informationIs free of superfluous information

��Is representative, unbiasedIs representative, unbiased

��Makes comparisons where appropriate:Makes comparisons where appropriate:�� Trends over timeTrends over time

�� Similar organizationsSimilar organizations

�� Known standardsKnown standards

EvidenceEvidence







Board Policy:Board Policy:[The CEO shall not:] Allow Board members, staff and individuals [The CEO shall not:] Allow Board members, staff and individuals engaged engaged

in activities on behalf of the organization, or the organizationin activities on behalf of the organization, or the organization itself, to be itself, to be uninsured against liability in an amount comparable to the averauninsured against liability in an amount comparable to the average for ge for similar organizations. similar organizations.


Officers Liability insurance and Commercial General Insurance Officers Liability insurance and Commercial General Insurance coverage in amounts at or slightly greater than the average of coverage in amounts at or slightly greater than the average of Alberta health care professional regulatory organizations with 1Alberta health care professional regulatory organizations with 1500 500 to 3000 members based upon a comparison conducted at least to 3000 members based upon a comparison conducted at least every two years. every two years.

These organizations are reasonably comparable based upon our These organizations are reasonably comparable based upon our similar liabilities under the same legislation as other health similar liabilities under the same legislation as other health professions in the province and our similar number of members. professions in the province and our similar number of members. [State the source of unbiased insurance expertise] has advised t[State the source of unbiased insurance expertise] has advised that hat rates do not climb enough to warrant a review more frequently rates do not climb enough to warrant a review more frequently than every two years. than every two years.


Evidence:Evidence:Insurance coverage is based upon the findings of an Oct Insurance coverage is based upon the findings of an Oct 2010 survey of six Alberta health profession organizations 2010 survey of six Alberta health profession organizations in the province with membership ranging from 1630 to in the province with membership ranging from 1630 to 2850. An inspection of the insurance policy files on March 2850. An inspection of the insurance policy files on March 12, 2012 confirmed that the following coverage has been in 12, 2012 confirmed that the following coverage has been in place throughout the reporting period: place throughout the reporting period:

I report compliance.I report compliance.

EL Monitoring Version III EL Monitoring Version III (cont.)(cont.)

Oct 2010 Survey Average Actual Coverage

Directors and Officers Liability Insurance

$ 1.8 million $2 million

Commercial General Insurance

$3.8 million $4 million

�� Not giving evidence aligned with the Not giving evidence aligned with the interpretationinterpretation

�� Evidence addresses only part of the Evidence addresses only part of the interpretationinterpretation

�� Confusing internal policies and procedures Confusing internal policies and procedures with actual conditionswith actual conditions

�� Numbers without comparisons or contextNumbers without comparisons or context

�� Data dumpsData dumps

�� ““TrustTrust--me me ””reportsreports

Evidence ErrorsEvidence Errors







{{ For Reasonable Achievement For Reasonable Achievement

Ends MonitoringEnds Monitoring

�� The pigeon took flight half an hour agoThe pigeon took flight half an hour ago

�� The pigeon has completed 20,000 wing flapsThe pigeon has completed 20,000 wing flaps

�� Pigeon is on course, still has the letter, and is half Pigeon is on course, still has the letter, and is half way to destinationway to destination

�� It is now 6 pm and letter has been delivered to It is now 6 pm and letter has been delivered to intended recipientintended recipient

�� Signed affidavit verifying letter has been receivedSigned affidavit verifying letter has been received

�� Another board member has phoned the recipient Another board member has phoned the recipient and verified letter was receivedand verified letter was received

Evidence of Achievement in Ends MonitoringEvidence of Achievement Evidence of Achievement in Ends Monitoringin Ends Monitoring

Ends Monitoring ReportEnds Monitoring ReportEnds Policy: Ends Policy: The public is aware of what our profession does.The public is aware of what our profession does.

CEO Interpretation:CEO Interpretation:We have communications and educational activities to We have communications and educational activities to increase public awarenessincrease public awareness

Evidence:Evidence:��The public side of the web site contains information The public side of the web site contains information about our areas of practice and typical activities it about our areas of practice and typical activities it performs. performs. ��We submitted articles to local newspapers outlining the We submitted articles to local newspapers outlining the role of our profession. role of our profession. ��Our communication plan includes a strategy to provide Our communication plan includes a strategy to provide an information brochure about our profession in strategic an information brochure about our profession in strategic locations frequented by the public. locations frequented by the public.







Ends Monitoring Version IIEnds Monitoring Version II

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Level of

Achievement

2005 2006 2007 2008 2009

Year

Reasonable interpretations over timeReasonable interpretations over time

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

Level of

Achievement

2005 2006 2007 2008 2009

Year

Alternative interpretationsAlternative interpretationsof results over timeof results over time







Monitoring Report Cover Monitoring Report Cover SheetsSheets

Formal motion indicating:Formal motion indicating:

��Board has read the report and has assessed it as a) Board has read the report and has assessed it as a) demonstrating compliance/achievement of b) a demonstrating compliance/achievement of b) a reasonable interpretation of the boardreasonable interpretation of the board’’s policiess policies

What the board does with a What the board does with a satisfactory monitoring satisfactory monitoring reportreport

�� Assess seriousness of performance issue and Assess seriousness of performance issue and act accordinglyact accordingly

�� Determine a date for reporting Determine a date for reporting compliance/reasonable achievementcompliance/reasonable achievement

�� Schedule monitoring accordinglySchedule monitoring accordingly

�� Place decisions into formal motion Place decisions into formal motion

NonNon--compliance or lacking compliance or lacking reasonable achievementreasonable achievement







The Board has read the report and has assessed it The Board has read the report and has assessed it as demonstrating compliance of a reasonable as demonstrating compliance of a reasonable interpretation of the boardinterpretation of the board’’s ELs EL--7 policies with 7 policies with the exception of item 4. The board expects to see the exception of item 4. The board expects to see compliance with item 4 by [date] at which time a compliance with item 4 by [date] at which time a monitoring report for that item shall be presented monitoring report for that item shall be presented by the CEO.by the CEO.

Example of motion Example of motion recognizing nonrecognizing non--compliancecompliance

�� Executive reports (i.e., under the CEOExecutive reports (i.e., under the CEO’’s s authority)authority)

�� External audit (i.e., expert directly accountable to External audit (i.e., expert directly accountable to the board)the board)

�� Direct inspection (i.e., by the board or one or Direct inspection (i.e., by the board or one or more board members) more board members)

Methods of MonitoringMethods of Monitoring

�� CEOCEO’’s interpretation must be useds interpretation must be used

�� If, source is other than an internal (CEO) report, If, source is other than an internal (CEO) report, then they should provide an opinion of the then they should provide an opinion of the reasonableness of the CEOreasonableness of the CEO’’s interpretations interpretation

�� As with internal reports, other sources of As with internal reports, other sources of monitoring are to gather and examine evidence monitoring are to gather and examine evidence in comparison to policyin comparison to policy

Regardless of theRegardless of theSource of MonitoringSource of Monitoring







{{ CEO Performance = CEO Performance = Organizational PerformanceOrganizational Performance

CEO EvaluationCEO Evaluation

1.1. Preparatory work re appraisal assigned or Preparatory work re appraisal assigned or retained by board?retained by board?

2.2. Collection of compensation options assigned or Collection of compensation options assigned or retained by board?retained by board?

3.3. Prepare a summary of boardPrepare a summary of board’’s recorded s recorded assessments of monitoring reportsassessments of monitoring reports

4.4. Review monitoring reports and identify trends in Review monitoring reports and identify trends in performanceperformance

5.5. Should the board supplement internal reports Should the board supplement internal reports with external audits or direct inspections? with external audits or direct inspections?

6.6. If committee identifies concerns in step 5, ensure If committee identifies concerns in step 5, ensure that the board makes the decision accordingly.that the board makes the decision accordingly.

Suggested Process for Suggested Process for CEO Performance AppraisalCEO Performance Appraisal

7.7. Arrange for external audit or direct Arrange for external audit or direct inspection as determined in step 6. inspection as determined in step 6.

8.8. Obtain necessary information regarding Obtain necessary information regarding market, inflation, etc.market, inflation, etc.

9.9. Committee (if used) provides board with Committee (if used) provides board with information and options.information and options.

10.10. Board decision including what will be Board decision including what will be communicated to CEO re a) overall communicated to CEO re a) overall performance trend and b) compensationperformance trend and b) compensation

11.11. Board or delegate communicates to CEOBoard or delegate communicates to CEO

Suggested Process for Suggested Process for CEO Performance Appraisal CEO Performance Appraisal (cont.)(cont.)







Richard StringhamRichard Stringham

[email protected]@governancecoach.com

www.governancecoach.comwww.governancecoach.com

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