What
makes a CEO ‘exceptional’?
We
assessed the early moves of CEOs with outstanding track records; some valuable
lessons for leadership transitions emerged.
New CEOs face enormous challenges as they start assembling a
management team and setting a strategic direction in today’s volatile
environment. To provide some guidance for transitioning CEOs, we looked at the
experiences of exceptional CEOs, those defined as the very top performers in
our data set of roughly 600 chief executives at S&P 500 companies between
2004 and 2014.
Our focus was on the top 5 percent of the
CEOs in our sample as a whole whose companies’ returns to shareholders had
increased by more than 500 percent over their tenure. We contrasted this group
both with our full sample and with a subset of CEOs whose companies achieved
top-quintile performance during their tenure as compared with their peers.
The exceptional group includes some
leaders who managed remarkable performance in part due to unusual
circumstances, for example, by guiding a company through bankruptcy proceedings
and then returning it successfully to the public markets. It also includes CEOs
who were able to deliver the highest returns through strategic repositioning
and operational discipline over many years, within more normal industry and
economic conditions. Overall, the exceptional CEOs were neither more nor less
likely to be found in particular industries, to lead companies whose size
differed from the mix in the broader S&P 500, or to join particularly high-
or low-performing companies. Here are three lessons that emerged from close
scrutiny of these exceptional leaders.
The
outsider’s edge
In our earlier
research, we found that on average,
CEOs who are hired externally tend to pull more strategic levers than those who
come from within and outperform their internal counterparts over tenure. Our
research on exceptional CEOs reinforced this finding: these CEOs are twice as
likely to have been hired from outside the company as the average CEO in our
data set, and roughly 1.5 times as likely to have been external hires as the
other top-quintile CEOs.
Still, 55 percent of the exceptional CEOs
were internal hires. Clearly, insiders can move aggressively and achieve
outstanding results. Doing so often means cultivating an outsider’s point of
view to challenge the company’s culture with greater objectivity and overcome
the organizational inertia that sometimes limits an insider’s span of action.
Strategic
actions
The findings offered additional insights
on how CEOs may gain a clear-eyed perspective for action. In our sample as a
whole, CEO’s joining low-performing companies derived the biggest benefits from
conducting a strategic review. Our exceptional CEOs did not join struggling
companies in disproportionate numbers, but they were significantly (about 60
percent) more likely to conduct a strategic review in their first two years on
the job versus the average CEO in our sample.
Informed by this view of the company’s
past—and potential future—performance, this elite group was bolder than other top-quintile
CEOs, far surpassing them in the average number of strategic moves they made in
their first year. Changing strategic direction typically requires freeing up
resources, often in part by cutting costs in lower-priority parts
of the company. While cost-reduction programs are, according to our earlier
research, a no-regrets move for all CEOs, the exceptional CEOs were
significantly more likely to launch such initiatives than the average CEO,
thereby building strategic momentum.
Organizational
balance
In our research on CEOs overall,
organization redesign appeared to be a critical part of the typical
high-performing CEO’s tool kit, and management reshuffles were particularly
important for CEOs taking over lower-performing companies. Our sample of
exceptional CEOs, though, was less likely than the average CEO to undertake
organizational redesign or management-team reshuffles in the first two years in
office. This could be a function of the strategic game they were playing: they
may have inherited high-performing companies (which can be hurt by reshuffles)
or prioritizing, since there are only so many initiatives and changes that
organizations and people can absorb in a short space of time. Indeed, since the
exceptional group contained an above-average proportion of outsider CEOs
launching fundamental strategic rethinks, the data may reflect a sequencing of
initiatives, with structural change following strategic shifts.
By definition, not all CEO’s will be
exceptional. Yet for any CEO starting a transition, there is much to learn from
the best. Adopting an outsider’s view will yield the unbiased insights needed
for breakthrough moves. Likewise, investing in a robust strategic review will
provide a surer perspective for setting a strategic direction. A grounding in
the organization’s context, meanwhile, will help calibrate the speed and scope
of change. Those in our sample do much of this at the highest level, setting a
benchmark for every CEO aspiring to a successful debut.
By Michael Birshan, Thomas Meakin, and Kurt Strovink
http://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/what-makes-a-ceo-exceptional?cid=other-eml-nsl-mkq-mck-oth-1705&hlkid=75bd53fa07154d55a2b89c9694a7dd9a&hctky=1627601&hdpid=ee275a77-0921-4c53-8821-efba5504042e
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