Here is a brief excerpt from an article written by Michael Birshan, Thomas Meakin, and Kurt Strovink for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.
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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.1
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 [two of three] 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 (Exhibit 1), 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.
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 (Exhibit 2).
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.
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Here is a direct link to the complete article.
Michael Birshan is a partner in McKinsey’s London office, where Thomas Meakin is an associate partner; Kurt Strovink is a senior partner in the New York office.
The authors wish to thank Max Eskell, Madjdy Kassem, Devesh Mittal, and Blair Warner for their contributions to this article.