What sets the world’s best CEOs apart

April 7, 2022

Here is an excerpt from the transcript of a podcast sponsored by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.

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Are you a great CEO, or just a good one? New research shows that the leaders who truly excel have a set of distinctive mindsets and practices.
In this episode of the Inside the Strategy Room podcast, McKinsey senior partners Carolyn Dewar and Scott Keller discuss the six dimensions that separate exceptional CEOs from the rest of the pack. In their conversation with Strategy & Corporate Finance communications director Sean Brown, they also provide guidance on how current and future leaders can join that elite group. This is an edited transcript. You can listen to the episode on Apple Podcasts, Spotify, or Google Podcasts.
Sean Brown: Hi, I’m Sean Brown. Welcome to Inside the Strategy Room. In this episode we are talking to two partners who work day in and day out counseling chief executives. They and their colleagues recently published an article on the mindsets and practices of the best CEOs which summarizes their research and lengthy experience.
Carolyn Dewar is a senior partner in the San Francisco office who co-leads our global CEO and board excellence work. She is also an expert on culture dynamics. Scott Keller, a senior partner in our Southern California office, co-leads our CEO and board excellence work with Carolyn. He serves Fortune 100 CEOs and their top teams on multi-year change programs and coaches CEOs through transitions.Thank you, both, for joining us. Let me start with a fundamental question, Scott. What exactly did you study, and why?
Scott Keller: By way of context, Carolyn and I, given our backgrounds, have the opportunity to attend various leadership retreats that provide people who are a few years out from becoming a chief executive with opportunities to learn about global trends and to hear from former or current CEOs. One time, we attended a retreat where, on the first night, the CEO was very clear and crisp, saying there are three things CEOs do that really a make a difference: set the vision, drive execution, and manage stakeholders. The next morning, another CEO, a very successful one, shared his view on what it takes to be a great CEO. “Look, three things you need to do as a CEO: You have to tell the story, shape the culture, and put the right talent in place.” That night, yet another CEO offered her three rules. “I have to decide what businesses we are in, allocate resources, and create a high-performing team. That, to me, is the essence of being a great CEO.” And I remember on the final day, Carolyn and I said to each other that each CEO was very compelling, but it was hard to distill something universal or non-subjective from all of them.
That led us to also explore the academic world. We found one body of research that looked at traits of great CEOs—things like being a great relationship builder, resilience, decisiveness. But in our experience counseling CEOs, many of those traits are the reasons why they became CEOs; the traits are not as instructive in guiding what they should do to be excellent in the role.
Another body of research examined how CEOs spend their time. One of the more influential of these was by Harvard Business School’s Nitin Nohria and Michael E. Porter, which found, among other things, that 72 percent of CEOs’ time is spent in meetings and 75 percent of their time is scheduled in advance. Other research explored how all-encompassing the CEO role is: you will do some work during 80 percent of your weekend days and 70 percent of your paid vacation days. That is all helpful information, but it doesn’t speak to the the quality or effectiveness of the time spent. It also did not differentiate between how mediocre CEOs spend their time versus great CEOs.We wanted to add to the body of research out there. How do the truly excellent CEOs think and what do they do as they go about the role?
Sean Brown: How did you approach these questions? Did you conduct empirical analysis?
Carolyn Dewar: We thought it was important to not just be anecdotal, so we assembled a database of information on 7,800 CEOs, correlating their performance and other attributes of their tenure with decisions they made. We track some companies over a 25-year period, through multiple CEOs. The database is also global in nature, covering more than 70 countries, and spans 24 industries, because we wanted the insights to be broadly applicable.
We have been exploring several segments of a CEO’s tenure: those who are a couple years out and are preparing for the role, the first year or two in the CEO position, mid-tenure CEOs who have hit their stride and want to maintain their momentum, and those at the end of their tenure planning to pass the reins. What we have found in the research is that excellent CEOs play six roles at once (exhibit). Part of the art and science is understanding what the CEO needs to do on each of those dimensions to be great.Sean Brown: The CEO role actually encompasses six different roles? Why don’t you take us through.Carolyn Dewar: Corporate strategy, that’s the one folks tend to start with because it’s backed by management science. There are templates. There are ways of thinking about strategy challenges. For a capable but average CEO, that means using performance metrics for the organization such as being the best in the industry and winning customer share. If we are number three in the market and want to move to number one, what do we do?

Those who are truly distinctive, or excellent as measured by their performance and tenure in role, play the corporate strategy somewhat differently. Their mindset is to beat the odds. Beating the odds is a theme throughout our strategy thinking and it centers on being bold in the areas that matter most. There are three practices, or habits, of excellent CEOs that we see on this dimension. The first one is reframing what winning means. There is one CEO we worked with who led an industrials company. The company had always framed itself as wanting to be the best in aerospace; they saw that as their piece of the industrials pie. When this CEO came in, he reframed the ambition to say, “We need to think bigger. We’re going to be the best among all industrials.” That really lifted the waterline of the peer set, and it was amazing to see the organization rise to that new vision.

The second piece is around bold moves. If you have elevated the vision sufficiently, what strategic moves will you will make to realize it? It turns out there is a discrete set of bold moves that matter most. There are organizational pieces as well such as, how will you fundamentally shift the DNA of the organization? There is a Fortune 20 CEO who felt he had missed the boat in a huge wave of change coming through the industry. He said, “Look, I knew that big wave was coming but I didn’t make a move in my first year as CEO because I felt I had to get the organization on board with my leadership first.” The reality is, you set the tone and metabolic rate for your tenure in that first year. By the time this CEO, in years two and three, tried to take the organization in a new direction, the organization wasn’t willing to follow.

The last piece is quite tactical, relating to the boldness with which you allocate resources. Research shows that most organizations, even if they set a bold vision, only tweak the budgets, plus or minus what they had last year. Excellent CEOs take more of a clean-sheet approach. They say, “If I were to reallocate 10 percent of my budget each year to what we say matters most to our future, what would that look like?”

Sean Brown: That’s great. Your second CEO dimension is organizational alignment. What do you mean by that?

Scott Keller: CEOs trying to take their companies in new directions know that they have to change the organization. On talent, for one, you have to act on your lower performers and elevate your strong ones. You know, half of senior leaders say their biggest regret is not moving on low performers fast enough.

But there is another level at which to think about talent. What we see excellent CEOs do is to think about roles. What roles in the organization create or protect the most value? In the first conversation with a CEO client, we ask them to list their 20 most talented people and the 20 roles that create the most value. Then we ask, “How many of those roles are filled with that top talent?” What really separates the excellent from the good is this mindset that says, “I will put equal rigor and discipline in this realm of the organization as I put on corporate strategy or any more quantitative operational area.” When the CEOs we work with do that, they realize their list missed about half the critical roles. And the reason is that typically only about 20 percent of the most value-creating roles report to the CEO, about 60 percent are two levels down, and about 10 percent are even lower. And when a new strategy is involved, 10 percent typically don’t yet exist! So, these leaders end up creating a talent management engine for the critical few most important roles to ensure a robust pipeline.

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Here is a direct link to the complete article.

Carolyn Dewar is a senior partner in McKinsey’s San Francisco office, and Scott Keller is a senior partner in the Southern California office. Sean Brown is the firm’s global director of communications for strategy and corporate finance, based in McKinsey’s Boston office.

I highly recommend Carolyn Dewar, Scott Keller, and Vikram Malhotra’s CEO Excellence: The Six Mindsets That Distinguish the Best Leaders from the Rest, published by Scribner (March 2022)

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