Major Oversight

Trustees are still reluctant to evaluate a CEO’s performance, despite a call for measurable results

The head of a social-service charity in Boston has no doubts that she has made a difference to her organization.

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Evaluating the Chief Executive: Resources for Trustees

But she has never heard that from her board — nor has she been told if her accomplishments were in keeping with the trustees’ goals. The board has never given her a formal evaluation of her performance.

“I wish they took more seriously how hard I work,” she says. “They love what I do. They value me. But I would like much more performance-specific feedback about my strengths and areas for growth and improvement.”

Still, the charity leader, who has been chief executive for more than a decade, says she has never demanded a formal evaluation and probably never will. She feels that it would be wrong to force the board to provide one — and says the subject is so touchy that she declined to allow her name to be used.

Such views are not uncommon. Though charities are increasingly looking for ways to measure their own performance and results, relatively few organizations have formal procedures for evaluating the work of their chief executive.

One reason: The task must fall to the board of directors, who may feel that they lack the expertise to evaluate the charity’s executive. Adding to the difficulty are the personal and professional ties that trustees often have to the chief executive — who in many cases invited them to join the board in the first place.

While trustees are not required by law to review a chief executive’s performance, experts say serious problems can crop up when reviews aren’t done routinely. Chief executives who are not evaluated sometimes end up focusing on goals that the board doesn’t think are important; more seriously, they can cover up embezzlement or other illegal activity.

These days, charities have even more reason to do regular reviews of their chief executives. A new federal law that punishes trustees for awarding excessive compensation has prompted more attention to evaluations: Many boards want to be able to justify the executive director’s compensation to the Internal Revenue Service.

Even so, many charity boards do not do evaluations until their organization is in a crisis, says Tim Wolfred, a non-profit management consultant in San Francisco. “They let it glide for a few years and then try to do an evaluation coming out of anger, so it’s not done objectively,” he says. “The executive director may see it as an attack.”

Because evaluations of the chief executive are complicated and time-consuming, some boards consider delegating the task to a small committee of trustees. But that misses the point, says Atlanta consultant John Carver, author of Boards That Make a Difference.

“The evaluation process is so close to the bone of the organization in terms of where it’s going, you don’t want to farm it out to a committee,” says Mr. Carver. “The board is a body that speaks with one voice,” he adds. “It has no authority otherwise.”

Some trustees have used performance reviews to get a better understanding of the organization they oversee. A growing number have started to conduct what are often referred to as 360-degree evaluations, a format borrowed from the for-profit world. By consulting senior staff members, a charity’s clients and constituents, affiliated non-profit organizations, and, in some cases, a group’s donors or grant makers, the board gets a more well-rounded view of the organization — and of how the chief executive is doing.

The approach is particularly helpful for trustees who have never governed a non-profit organization or who don’t feel strongly grounded in the management and leadership issues that the chief executive must master.

While the process of gathering information from so many sources is often very useful in identifying strengths and weaknesses, advocates of the 360-degree approach caution that opinions from people outside the board should not carry the same weight as trustees’ own observations.

Nathan Garber, chief executive of Across Languages, a Canadian charity in London, Ontario, that provides translation services to social-service organizations, says a 360-degree review was very helpful to him. The board sent questions about the chief executive and the organization as a whole to staff members, freelance interpreters, organizations with similar missions, government grant makers, and charities that use the group’s services.

Mr. Garber says getting feedback from all sides confirmed that he was heading in the right direction. And Jan Devereux, who chaired the board during the assessment, says she and her colleagues learned that the organization was better known and respected across Canada and in other countries than it had realized.

“I don’t think the board itself had an appreciation of how much of a leader Nathan was beyond our particularly small agency,” says Ms. Devereux.

While Mr. Garber’s experience was positive, 360-degree reviews can be controversial. Some say that by consulting staff members, a board risks turning evaluations into popularity contests. In extreme cases, chief executives could make decisions to appeal to employees instead of considering the greater good of the institution.

Others argue that staff members work much more closely with the executive director than board members do, and they are more likely to see how that person handles the day-to-day management of the organization.

Kevin Smith, chief executive of the Minnesota Opera, in Minneapolis and St. Paul, says that his board performs an annual review based in part on the opinions of staff members who interact with him regularly.

“The most powerful information comes from the staff,” he says. “You certainly learn about your communications strengths and weaknesses, your management strengths and weaknesses.”

He adds: “The C.E.O. is always on their best behavior with the board. But in the trenches, on a day-to-day basis, the staff can tell where you are failing to provide leadership.”

The mostly positive reviews make him feel appreciated, he says, but what helps him the most are the criticisms.

For instance, he says his staff members said in one review that he needed to articulate his ideas more clearly, that he tended to be too diplomatic and not explicit enough about his opinions.

Another staff member complained that he had not provided sufficient artistic leadership for the company. “My response was to elevate our artistic manager into an artistic director, and that worked out really well,” he says.

Even so, some non-profit leaders worry that asking staff members for their opinions of the chief executive could open up opportunities for angry employees to get revenge, or provide a way for employees to butter up their boss.

One solution is to build in a buffer. Rick Moyers, executive director of the Ohio Association of Nonprofit Organizations, in Columbus, says board members should never interview staff members directly about the executive director’s performance. Instead, a third party — a consultant or volunteer — should do the job and pass the information on to the trustees.

“If board members talk directly to the staff, that encourages relationships that can be positive — or it can undermine the executive director,” he says. “It also could lead to a ‘he said, she said’ situation.”

Whether to get opinions from staff members is not the only point of controversy in 360-degree reviews. Seeking advice from grant makers during an executive director’s assessment carries its own set of risks.

If the review questions are not handled carefully, grant makers could become suspicious that the charity is in trouble. What’s more, “it has the potential to undermine the C.E.O.’s credibility with the funder,” says Mr. Moyers. “It depends on how it’s handled, but the worst case could be that the funder thinks the C.E.O. is in jeopardy or is not a fully authorized member of the organization.”

Still, Jan Masaoka, director of the Support Center for Nonprofit Management, in San Francisco, says grant makers can offer valuable insights about the chief executive. “Are the funders saying, ‘She’s always late,’ or, ‘Those grant proposals are exceptionally informative and useful’? That kind of feedback is very helpful.”

Ms. Masaoka speaks from first-hand experience. The Support Center consulted its foundation and corporate supporters during its last review of her.

The tactic did more than provide useful feedback, Ms. Masaoka says. “An unexpected benefit was that the funders appreciated that we were doing that.” She says they were impressed by the trustees’ commitment to the organization and that they cared about the grant makers’ opinions.

Aside from the question of who should be asked to assess the chief executive, one of the touchiest subjects in evaluation is how to relate a review to salary decisions.

Alex J. Plinio, president of American Field Service, USA, in New York, argues that compensation decisions and performance reviews should be conducted at different times. Otherwise, compensation tends to be the dominant theme on everyone’s mind during the evaluation, and it can be hard to get frank appraisals, he says.

Mr. Moyers of the Ohio Association of Nonprofit Organizations agrees.

“When you’re having a conversation about performance that is also about money, it works against the idea that you’re supposed to have an open conversation that’s free from external pressures,” Mr. Moyers says.

Others say it makes little sense to separate pay decisions from performance reviews. Says James Abruzzo, managing director of A. T. Kearney, in New York, “Compensation drives behavior. That’s just the way it is.”

Concern about salary issues is one reason many small groups avoid evaluations altogether, says Howard B. Schaffer, a spokesman for the Public Education Fund Network, in Washington, and a member of several boards. Trustees, he says, often think, “‘Jeez, if we go through a performance review, we are going to have to pay this person more.’ And then they worry about where are we going to get this money from?”

Once trustees have decided whom to involve in a review and when to do it, they need to decide how to present their findings. Some boards come up with a grade or rating, which can be a concise way to sum up how a chief executive is doing.

But Ms. Masaoka of the Support Center says that boards should be careful about doing such ratings. Many evaluation forms, she says, are designed as checklists, giving equal weight to each question and leading to distortions if they are totaled to arrive at a grade.

For example, she says, “standard forms tend to place the same amount of importance on financial strength and on speaking well in public. So you can have an A on nearly everything except an F on finance and it tends to even out to an A-minus.” Since financial skills are essential to managerial success, a solid review might want to call more attention to that F, she says.

Instead, many experts recommend that evaluation forms be used more generally to start a discussion of how the executive and the organization have progressed and what their shortcomings are.

Mr. Plinio of American Field Service says such a discussion “helps create understanding, cement relationships, and bring clarity to the organization’s purpose.”

Meg Sommerfeld contributed to this article.