School principals are second only to teachers among school-based factors that influence student achievement and they are critical to attracting and retaining effective teachers and other school staff. Yet in the past, federal policymakers haven't given school leadership much attention. This reauthorization of the Elementary and Secondary Education Act (ESEA) should ensure that all 50 states develop definitions of principal effectiveness and next-generation principal evaluation systems that identify effective leaders based on student achievement and other rigorous measures of outcomes and practice. It should also ensure that states hold principal preparation programs accountable for preparing leaders that are effective in schools. While defining and evaluating principal effectiveness is not sufficient to ensuring strong leadership, it is a critical step to creating a coherent, statewide vision of effective school leadership that can inform other policies. States will also need to use these systems to drive all aspects of their human capital systems--from certification to compensation to professional development. Practitioners and researchers are continuing to learn about the best measures of effective leadership and next-generation evaluation systems. Therefore, this memo is intended to offer general principles for principal evaluation that signal the important elements that should be included. It is clear that ESEA needs to set forth the conditions that will allow for a dramatic improvement in teaching and learning and provide incentives as well as the freedom for states, districts, and schools to change and innovate. (Contains 3 endnotes.)