Good corporate governance covers a wide range of factors. One area that gets a lot of attention is in the setting of KPIs (key performance indicators) where the Board can hold the CEO to account. But perhaps the executive accountability needs a revamp, from negotiated KPIs to clearly knowing what performance is doing (and why) and also about the progress made towards agreed goals of change.
These KPIs typically take the form of targets. Perhaps, a target set of the quarterly cost to income ratio (which is the measure for the KPI). Or the dollar value of sales, maybe the level of employee engagement or perhaps the annual Net Promoter Score.
This approach is perceived as being good practice. And it has merit if done well. However most KPIs are not defined well and often negotiated. Targets are more often achieved, than not. Additionally, it’s a curious thing that the Board will hold the CEO, personally accountable for getting these targets, and yet the CEO has full control of the data that produces the targets.
So what could leadership teams be accountable for..? Surely it’s not just getting a set of numbers, KPIs that provide a yes/no answer at a given point in time. Nor can it be short terms targets. Organisational leadership needs to be more about building a business for the future. progressive milestones might be okay but KPIs are rarely set that way.
CEOs and Executive Team Accountabilities
On reflection, and in my view, it seems to me that leaderships are accountable for two core things. Firstly, knowing how performance is going now and; secondly, making progress towards a set of goals that are about the change from today, to what the organisation needs to be in the future.
Let’s expand on these two points.
1. Understanding of what performance is doing now, and why.
Organisational leaders need to have a deep understanding of what performance is doing now, and why. It’s not enough to produce a set of numbers. We have to know how these numbers are produced and be able to demonstrate a causal relationship in the achievement.
This is about truly knowing and understanding the complex interplay between the policies, processes and procedures. Then how these organisational attributes dovetail in with the culture that delivers value for the customer and in turn produces the results and numbers.
Knowing what performance is doing and why, brings higher levels of predictability and the ability to deliver on purpose.
2. Making progress towards future goals
Once we know what performance is doing and why, then we can turn our attention to where we want to be in the future. And this is the second area where CEOs and their leadership teams can be accountable , for making progress towards a set of goals that are about the change from today, to where and what the organisation needs to be in the future.
Getting change is much harder that maintaining the status quo, or business as usual. Therefore the progress towards a set of goals is best when we have clearly defined results that we are looking to make progress towards, and measures that provide feedback on the impact our initiatives or projects are having on the result. Good practice, according to Franklin Covey is two-to-three goals per period.
Good corporate governance covers a wide range of factors. The setting of KPIs between the Board and the CEO, typically has room for improvement. But instead of these targets that can be negotiated and (potentially) manipulated. Perhaps leadership teams should really be account for two things:
(1) Knowing how performance is going now and can demonstrate the causal relationships between performance and results; and
(2) making progress towards a set of goals that are about the change from today, to where and what the organisation needs to be in the future.
Learn more about the performance measurement process method in this article.