I am not a big fan of management books, I believe more in following my gut feeling when running a company than in reading and implementing all kinds of theories. Does that make me a good CEO? Difficult to say, because how do you evaluate a CEO? Based on his behavior? Or based on his results? Probably more the latter than the former, but then the next question is against what to measure the results: what were the objectives and were they the correct objectives?

Today I saw a link on Twitter (forgot who sent it, I clicked on it but did not read the article until after I finished my working day) to an article by Ben Horowitz on how his VC fund evaluates CEOs. Even though I normally don’t read too much about management theories, I found the subject interesting and decided to read the article anyway. I was quite impressed and I recognized a lot of what I see in day-to-day business life. If you’re a CEO (or plan to be one) it’s an excellent read. You don’t often come across VCs that blog openly on how they measure a CEO’s performance.

Ben asks himself 3 questions:

1. Does the CEO know what to do?
2. Can the CEO get the company to do what she knows?
3. Did the CEO achieve the desired results against an appropriate set of objectives?

For the first question he looks at the strategy (‘the story of the company is the proper outcome of all the strategic works’). The CEO should ensure that the story of the company is clear and compelling.  The speed and quality of the CEO’s decision making is also important. As Ben says: ‘Some employees make products, some make sales; the CEO makes decisions. (…) Great decisions come from CEOs who display an elite combination of intelligence, logic, and courage.’

For the second question (can the CEO get the company to do what he knows), it’s all about in how far the CEO can get the company to execute on his vision and decisions. Make sure you have the right talent in the right positions to execute the strategy, and make sure they are motivated and understand the context. Good communication is king.

The last question is about measuring results against objectives. If your objectives are too easily reached a CEO’s performance may look great on paper, but actually he may have underachieved. I have the tendency to put my companies targets very high (I know I am doing this, but I do this on purpose), which makes my life not always easy, but it also forces your staff to get the best out of themselves and out of the company. Maybe not smart in a big corporation with all kinds of political issues, but luckily I don’t have any political fights around me anymore that I need to worry about.

I think many companies try to set there targets too low. It’s natural for people to try to have a low target and then get credits when the target is overachieved. Therefore, Ben writes, ‘the first task in accurately measuring results is setting objectives correctly’. This is of course not possible in reality, especially for start-ups, but as a board you should at least try to set your targets as good as you can. Ben Horowitz gives a great example of how the stock market can suddenly change all your objectives, describing Robin Li’s miserable (!) day when Baidu went IPO and the stock went up from USD 27 to USD 122 on the opening day. I never thought about that, but a stock that goes up so much also makes the expectations on you so much higher. Read the article for all the details, it’s great stuff.

Note: I used ‘he’ when talking about CEOs, but some of the best CEOs that I met are actually women