Assessing Management Performance

The good news is: you're not alone. Many co-op boards of directors and managers find the prospect of a formal management performance appraisal very uncomfortable to face.

The reasons cited for this reluctance tend to fall into three categories: 1) the difficulty of developing a truly objective evaluation process, 2) an understandable aversion to any additional paperwork, and 3) a concern that the formal appraisal session itself could prove to be awkward, unpleasant, and unproductive for all parties concerned.

The bad news is: to avoid management evaluation is to neglect one of the most important functions of the board and to truly jeopardize the future of the co-op.

Possibly no other area within the cooperative contains as much potential for either success or disaster as does that of board/general manager relationships. Regardless of the type or size of co-op, at the heart of the problems that arise between boards and general managers is fundamentally a lack of communication concerning what the board wants the manager to do or what aspects of the manager's performance need to be changed.

Possibly no other area within the cooperative contains as much potential for either success or disaster as does that of board/general manager relationships.

Ask any former co-op manager why s/he left the position and chances are you'll hear, "the board -- they didn't provide me with any direction and expected me to be much more professional with the co-op's staff than they were with me." Ask any co-op board why they let a skilled manager go and chances are you'll hear, "He or she didn't live up to our expectations. S/he didn't do what the co-op needed." Coops continue to invest tremendous amounts of their members' resources in re-training new management -- only to watch them leave. Truly, for co-ops to survive, skilled management must be nurtured and encouraged to flourish with the co-op.

A Matter of How Formal and How

The issue here is not whether boards of directors should evaluate the performance of their chief executives, but rather just how formal the process should be and how it should be done. Indeed, virtually every action a board considers or takes is, in one way or another, a reflection of its appraisal of the performance of its manager. The real problem is that most managers get no real, direct insight into their board's assessment of their performance until there is a crisis or confrontation. All too frequently, this insight comes too late to prevent a complete breakdown of the board/manager relationship.

In fact, it is becoming more and more common to find co-ops where every employee receives a formal annual performance appraisal except the manager. Oftentimes, whatever the board has to say about the manager is said in executive session while the manager waits (anxiously) outside the boardroom. The only real appraisal that the manager receives from the board, other than an annual salary adjustment (or lack of it), may be an occasional word of appreciation or honest criticism from a director.

While this scenario may seem to be a bit exaggerated, it is actually quite commonplace. This appalling lack of straightforward dialogue between boards and managers has two primary effects. It spares some people some anxious and uncomfortable moments in giving praise or criticism. Secondly, it severely reduces the effectiveness of both elected and hired management. The net effect is that it has resulted in some very real personal and professional tragedies for managers and for co-ops -- tragedies that could have been prevented.

Given the critical importance of the board/manager relationship and its documented fragility in today's demanding economic environment, co-op boards can no longer afford to operate without some type of formal manager appraisal system -- however imperfect, time-consuming, or awkward. At the risk of offending some readers, it must also be noted that the "reasons" cited earlier for not formally appraising management performance are nothing more than rationalizations -- and rather flimsy ones at that. The overwhelmingly positive evidence provided by a growing number of co-ops which have already instituted formal manager appraisal programs simply cannot be denied.

Pick a System, Any System

It is not our purpose here to prescribe any particular appraisal technique. Dozens of different approaches, each with its own strengths and weaknesses, are being used by boards throughout the country. They range from exhaustive "report card" style systems, which analyze the manager's job in painstaking detail and require the board to rate the manager in literally hundreds of different functional areas, objective setting exercises, in which the manager is rated almost exclusively on his or her achievement of mutually-agreed upon results within a specified period of time. Perhaps the simplest system was suggested by a director from the Northwest who said he just drew a vertical line down the center of a sheet of paper. To the left of the line, he listed "What I Like" about the manager's performance and to the right "What I Don't Like." As subjective as this approach might seem, it would no doubt provide many managers with far more evaluation than they are now receiving from their boards.

Regardless of the approach, however, no managerial performance appraisal system can be completely effective unless it incorporates a number of key elements:

  1. It must be candid and honest. While objectivity is, of course, desirable, it is not nearly as important as honesty. As much as we might like to have it otherwise, management remains as much an art as it is a science, and it is unlikely that good management will ever be reduced to a set of readily quantifiable items. Board members are elected to provide their insight and expertise and have every right to their "gut-level" feelings and perceptions regarding the manager's performance. Right or wrong, objective or not, if the board is dissatisfied with the manager's style, the manager should be advised of this dissatisfaction and given an opportunity to modify his or her behavior.

  2. The appraisal should be presented in writing. An oral summary of past achievements, weaknesses, and goals for the future is bound to be limited in scope and detail. Under the pressure of an "eyeball-to-eyeball" exchange between the manager and the board, emotions will undoubtedly enter into the picture, the discussion will wander, comments will be cut short, and there will be little opportunity for reflection on the part of either party. Equally important, a written appraisal report can be retained for future reference; this may have practical as well as legal implications.

  3. The appraisal form itself should be relatively simple. A point to remember is that the longer and more detailed the form, the more cursory the answers to individual questions will tend to be. If directors are required to spend hours wading through a 15-page form, they will be justifiably disinclined to make the necessary effort to do the job right. This is to be avoided at all cost. Moreover, with more complex systems, the gist of directors' comments is likely to get lost amid hundreds of questions, weighted averages, and elaborate scoring systems.

  4. The comments given should be as specific as possible. This is a maxim of any type of evaluation system. While it is somewhat helpful for the manager to know that the board rates him or her "outstanding" or "unsatisfactory" in the area of advising and assisting the board of directors, for example, it would be much more meaningful to know specifically what is outstanding or unsatisfactory about the manager's performance in this area. While semantic differential scales (e.g., systems that rate a manager "poor, fair, good, excellent," etc.) or numerical ratings do have their place, high or low ratings should always be accompanied by an explanation of why that rating was deserved.

  5. The full board should participate in the appraisal process. In some circumstances, a co-op board delegates its manager evaluation to its executive committee, the president, or to a committee of a few directors. This is not a good practice, for two reasons. To begin with, the accountability system of a co-op makes management performance review one of the most important functions of a board. The law says a corporation (cooperative or private)"... shall be managed under the direction of a board of directors." Obviously, to protect the members' assets and be as responsible as possible, a voluntary board of directors will choose to hire skilled professionals to oversee and coordinate the day-to-day matters. Providing direct, formal feedback to this individual is one of the most significant activities of a board.
          Secondly, as far as the manager's tenure is concerned, it is the opinion of the full board that really counts. This being the case, it is essential that every board member have an opportunity to participate. The formal appraisal should accurately reflect both the board's overall rating of managerial performance and any specific comments from individual directors that could be helpful to the manager. The comments of new board members are every bit as important as those of senior directors; our businesses cannot afford long "trial periods" for directors to sit idly by waiting to familiarize themselves with the co-op's operations.

  6. Consider various systems and the input of various parties in designing an appraisal process. In contrast to the previous statement, it is recommended that one individual or a committee of the board should be responsible for designing the appraisal process. Designing the process includes making clear the objectives of the process, researching various systems and identifying the one that best fits the coop's current needs, writing and preparing the written forms, distributing all materials, identifying the person to compile and summarize the comments, communicating the board's expectations to that person, scheduling the process and overseeing its execution. And, by all means, allow the manager significant input into the design of the process; give him or her a chance to identify relevant areas for evaluation to meet his or her needs.

  7. The appraisal should be kept as impersonal as possible. The true purpose of any appraisal system should be increased communication and mutual understanding between directors and managers. One-on-one confrontations and personal recriminations serve no useful purpose. In the final analysis, one board member's opinions of the manager are no more or less important than any other board member's opinions. It is the totality of the board members' perceptions that must concern the manager.
          The most straightforward approach is for the entire board to present its written evaluations to the board president, the corporate auditors or legal counsel, an outside consultant or any other individual who can be trusted to be impartial and unbiased. That individual simply compiles and summarizes the results for the manager. The emphasis here is on conveying all the pertinent information in a condensed but accurate form-not on selectively editing or "filtering the information. As mentioned earlier, if the appraisal is not honest, it is not worth doing.

  8. The appraisal of the manager should be separated, to the extent possible, from labor negotiations. Managerial performance appraisal and overall employee compensation planning are very separate issues, and they need to be addressed separately. When the manager makes wage and salary recommendations affecting the co-op's staff, it should be clear that he or she has no direct personal interest in the adoption of those recommendations by the board.

  9. The focus of the appraisal process should be the future, not the past. While a review of past performance is valuable, it cannot, by itself, serve as a guide for future action. Regardless of the format used, the appraisal process should give each director an opportunity to comment on possible future goals and objectives for the manager. These should be discussed and negotiated with the manager. Objective-setting is not a one-way street, and the manager's input is essential. Once agreed on by both the board and manager, however, these objectives can provide a reasonable basis for evaluating managerial effectiveness when the next appraisal period comes around.

This brief nine-point checklist is by no means complete, but it provides some guidelines for designing and conducting a performance appraisal of co-op management. This is a sensitive and rapidly evolving area in co-op management and must be approached with professionalism and a high degree of mutual respect.

In closing, let us point out that the adoption of a formal manager appraisal system will not necessarily guarantee a strong and healthy board/manager relationship. There is simply no panacea for the problems and pressures which confront co-op management teams today. It is clear, however, that mutual respect, understanding, and a sense of common purpose between boards and manager are absolutely essential if cooperatives are to survive and thrive. Unfortunately, that elusive "sense of common purpose is sorely lacking at far too many co-ops these days. Whatever its limitations, a more formal approach to manager appraisal offers one of the best opportunities for boards to more effectively meet their responsibilities to both their managers and their memberships.

A final thought: Any board of directors willing to invest the time and energy needed to conduct a truly comprehensive appraisal of its manager's performance should also be willing to spend the same amount of effort in the systematic assessment of its own performance as an executive body. (See the article on evaluating the board in the previous issue of Cooperative Grocer). That is a tall order. But it is a maxim of organizational effectiveness that benefits arise from an honest, open assessment of a group's strengths and weaknesses.

See other articles from this issue: #009 February - March - 1987