CEO Excellence: The Six Mindsets That Distinguish the Best Leaders from the Rest - by Carolyn Dewar, Scott Keller, and Vikram Malhotra
Date read: 2022-04-11How strongly I recommend it: 8/10
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McKinsey & Co. identified the top 200 CEOs and identified what made them most successful. Although tailored for CEOs, the lessons in this book can be applied to almost any leadership level.
Contents:
- RESEARCH
- DIRECTION-SETTING MINDSET
- ORGANIZATION ALIGNMENT MINDSET
- HELIX ORGANIZATION STRUCTURE
- MOBILIZING LEADERS MINDSET
- BOARD ENGAGEMENT MINDSET
- STAKEHOLDER CONNECTION MINDSET
- PERSONAL EFFECTIVENESS MINDSET
My Notes
In the past two decades, 30 percent of Fortune 500 CEOs have lasted less than three years, with two out of five new CEOs failing in their first eighteen months on the job.
From 2000 through 2019, the average CEO tenure in the United States decreased from ten years to less than seven. In the same time frame, turnover rates globally have increased from roughly 13 percent to almost 18 percent.
In the end we added fifty-four CEOs to our list to make it a round two hundred with a diversity of industries, geographies, genders, races, and ownership structures represented.
Stunningly, we estimate that the economic value created by this group of two hundred leaders in excess of their peers is approximately $5 trillion. That’s equivalent to the annual gross domestic product of the world’s third largest economy, Japan.
From our interviews six key responsibilities emerged: setting the direction, aligning the organization, mobilizing through leaders, engaging the board, connecting with stakeholders, and managing personal effectiveness.
The best CEOs recognize this dynamic and, in turn, approach setting the direction of their company with a different mindset. They embrace uncertainty with a view that fortune favors the bold. They’re less a “taker” of their fate and more a “shaper”—constantly looking for and acting on opportunities that bend the curve of history. CEOs who embrace this mindset are well aware that only 10 percent of companies create 90 percent of the total economic profit (profit after subtracting the cost of capital) and that the top quintile performers deliver thirty times more economic profit than the companies in the next three quintiles combined. And here’s the kicker: The odds of moving from being an average performer to a top-quintile performer over a ten-year period are only one in twelve.
As we spoke to the most successful CEOs, we were struck by how they similarly reframed what winning meant for their companies. They didn’t just raise aspiration levels; they changed the definition of success.
The best CEOs build their vision by looking for where various aspects of their business and the market intersect. Hubert Joly, the former CEO of electronics retailer Best Buy, explains that setting the right course is, “at the intersection of four circles: what the world needs, what you are good at, what you are passionate about, and how you can make money.”
“The goal wasn’t to be the biggest and the richest, it was to start creating products that help athletes perform better, so the runner can run faster, the tennis player and the soccer player can play better. If we did that and provided good service to our consumers, the financials would follow. All we had to do was help people achieve their personal best, and by doing so we’d also be making the world a better place. I wanted to give the company the belief that this is more than just a revenue game and we are more than just a revenue company.”
Looking back at the boldly framed visions, it’s striking that none of these successful companies focused on achieving financial outcomes—profits were an outcome of achieving their vision.
Our research found that the best CEOs often dig back into a company’s history to find out what originally made it successful and then take that central idea and expand it in ways that open up new opportunities.
Smith’s advice to new CEOs is to have “a vision that is so clear a leader doesn’t have to do anything but get out of the way.
The vast majority of excellent CEOs we spoke to found ways to include their employees when setting their vision, with similarly impressive results. Majid Al Futtaim’s Alain Bejjani says, “We aimed to have the most inclusive process possible. Doing so built a broad sense of ownership, and we also found that some of the most insightful answers came from people we wouldn’t normally have approached for input, which in hindsight would have been a significant loss.”
It was somewhat disconcerting to find that the best CEOs used the terms vision, mission, and company purpose as largely interchangeable. What matters for them is to have a clear and simply articulated North Star for the company that redefines success, influences decisions, and inspires people to act in desired ways.
Like Kennedy, the best CEOs boldly make big strategic moves early and often during their tenure.
McKinsey ran the numbers to determine which big strategic moves yield the highest probability of a company’s jumping from an average to a top profit generator. The research shows the following five strategic moves matter most, as long as they’re pursued with a “man on the moon” kind of boldness:
Virtually every CEO we spoke to emphasized the importance of having a clear point of view on where the world is going. They keep careful track of shifts in technology, changes in customer preferences, new competitors, and threats on the horizon.
I started reading more about all kinds of subjects, including unrelated subjects, to combine the unrelated things into something new—not only in technical innovation but also in business. I also started traveling a lot and building a network, connecting with a lot of people in business, science, and society.”
If I don’t get this perfectly the way I think it’s going to go, what is my downside scenario? And can I live with it?
“If you make a given decision, you can’t just consider the first domino you trip, which is probably a good outcome,” he shares. “What could be the second-, third-, fourth-, fifth-, sixth-, and seventh-order consequences? We would go down the decision tree and see what outcomes could occur as things played out. If we came across one that, no matter how remote it was, we couldn’t survive it if it showed up, we made another decision.
When top CEOs are faced with making big, bold decisions, they say that the best way to arrive at the right answer is to think like an owner.
Think of it as applying ‘heart paddles’ to the organization. The average lifetime of an organization in 1935 was ninety years, in 2015 it was eighteen years. You have to ask the question: ‘Why should we exist ten years from now?’ It’s an existential issue to change enough, regularly enough. If you’re not doing this, you’re not going to be around.”
It starts with last year’s budget or some other form of historical baseline (the “anchor”). This means that capital is likely to get distributed based on the way it always has been in the past. If Sally’s division got a 2 percent bump this year, she’ll probably get the same next year (or not far from it). But what if the “anchor” is replaced by zero? No investment is taken as a given—every investment is scrutinized, alternatives explored, and approval justified by how it helps deliver against the company’s strategy and vision. This is what we mean by taking a “zero-based” approach to resource allocation. It’s a more arduous approach, but the best CEOs believe it’s well worth it.
Barra’s approach of questioning everything and ensuring that every major investment reflects her company’s vision, strategy, and financial goals was echoed by virtually every excellent CEO to whom we spoke. For example, Medtronic’s Bill George talked about the importance of “the ability to see things through a fresh set of eyes” and LEGO’s Jørgen Vig Knudstorp shared, “You’re never going to have a chance unless you radically reallocate resources, so with that we started producing a product portfolio every year that was fifty to seventy percent new.”
But if the capital reallocation process isn’t based on a corporate calendar, what is it based on? The best CEOs use performance milestones. They release additional tranches of investment only when there is strong evidence that previous tranches are yielding results. Each milestone forces periodic debate over whether to continue or not.
“We’ve got metrics around every big program. We ask the question of where we are on cost. We regularly ask whether we still think we’re getting the right return on the program. This way we can track every program and see how it’s doing, and we always do a postmortem one year after the project is completed.”
In reality, allocation comprises four fundamental activities: seeding, nurturing, pruning, and harvesting. Seeding is entering new business areas, whether through an acquisition or an organic start-up investment. Nurturing involves building up an existing business through investments, including acquisitions that strengthen the original business. Pruning takes resources away from an existing business, either by giving some of its annual capital allocation to others or by putting part of the business up for sale. Finally, harvesting is selling or spinning off whole businesses that no longer fit a company’s portfolio.
We found, however, that the best nurtured and pruned their business nearly three times more often than the rest.
“Bill used to ask me every Monday, ‘What ties did you break last week?’ Organizations can be stuck if you don’t break ties. For example, we had Play Music and YouTube Music—similar music products. At some point, somebody has to make a decision; it unlocks so many resources. Asking leaders questions and breaking ties are ways of empowering people. And it’s equally important that my leaders are breaking ties on their teams as well.”
“I knew I had to transform Alcoa, but you can’t order people to change. That’s not how the brain works. So I decided I was going to start by focusing on one thing. If I could start disrupting habits around one thing, it would spread to the entire company.”
Some will question the wisdom of having such a narrow focus. What about all of the values statements and leadership models that HR creates with their multiple dimensions? Aren’t those important as well? Yes they are, but the best CEOs invariably dwell on the elements that will make the biggest difference and encapsulate those in a pithy word or phrase that they consistently invoke. Ana Botín, who oversees two hundred thousand employees at Banco Santander, routinely drives home her company’s cultural mantra through a single phrase: “Simple, Personal, Fair.”
So what shapes an employee’s work environment? There are four primary influencers. It’s the stories that are told and the questions that are asked. It’s the formal mechanisms that govern how work gets done (structure, processes, systems, incentives). It’s the role modeling employees observe (from the CEO, senior team, and others they consider influential). Finally, it’s the extent to which people have confidence in their ability to behave in desired ways.
Brad Smith embodied this approach as he drove a cultural focus on design thinking and experimentation at Intuit. “We had to shift our mindsets,” says Smith, “to treat success and failure the same way—as an opportunity to learn. I began to very publicly talk about mistakes I’d made. I began to publish my performance reviews on the glass window of my office. I even sent emails out to all employees saying, ‘Here is my written performance review from the board. These are the three things I’m working on, and I need your help. So when I’m visiting your office, if you see me do this, please correct me.’ ”
In getting the word out to a diverse audience, it helps to have a handful of highly memorable and instructive phrases that sit beneath the governing principle of the “one thing.” Walmart’s founder, Sam Walton, famously enshrined the company’s customer service aspiration into its “10-foot rule”: Whenever an employee is within ten feet of a customer, they’re expected to look them in the eye, smile, and ask, “How can I help you?”
Organizations that have both stable and agile elements are three times more likely to be high-performing than those that are agile but lack stable operating disciplines, and more than four times more likely to be high performing than those that are stable, but lack agile elements.
Stability and agility aren’t a trade-off to be made; both should be present just as in a modern high-rise building—hence, our coining the combination “stagility.”
The concept of “just the right amount” is what the best leaders look for when confronted with the inevitable CEO-level question of: How centralized should the organization be?
In the words of Ken Powell, former CEO of consumer goods giant General Mills, “Where does being central add or create the most value? And what has to be done locally?”
The origins of the matrix go back to the 1960s and President John F. Kennedy’s “man on the moon” goal. Project managers were responsible for costs and schedules, and engineering managers were responsible for technological development of the projects. Both reported equally to the general managers. The success of the US space program, which beat President Kennedy’s time line by a year while orchestrating a safe moon landing, became a significant catalyst for the widespread adoption of the matrix in the corporate world.
As we listened closely to how the best CEOs create accountability within a complex and multidimensional matrix, we realized they didn’t actually think in terms of a matrix at all. It struck us that a more apt representation is a helix.
In a helix organization, it’s not a “dual hard line” or a “dotted line” reporting structure. Rather, it’s a “split hard line” where an employee reports to two different leaders for two different purposes (thus the two intertwined strands).
Employees report to a geographic leader (e.g., the head of Europe) who owns the primary P&L, local client relationships, and is product-line agnostic. They also report to a product leader (e.g., the head of Commercial Risk) who’s responsible for developing world class, innovative products and solutions and building the firm’s ability to deliver them to clients.
The geography leader owns the P&L and therefore can decide how many people to hire in a product area. The product leader, given their expertise, will recruit and hire the needed personnel. Once on board, new hires look to the geography leader to place them on a client service team, set their individual goals and objectives, and oversee their day-to-day work. Meanwhile the new hires look to their product leader to provide them with the training, tools, and professional development they need to keep their careers on track.
Explicitly making choices as to what will be stable and what will be agile is the key to breaking the otherwise predictable cycle of going through large-scale redesigns every couple of years. Instead, high-performing organizations continuously reorganize themselves around a stable core. Their stability makes them as reliable in performance as a high-end smartphone, and their agile apps drive continuous improvement ahead of less flexible competition.
Consider the CEO of an average-performing health care company. When we asked, “Who are your top twenty most talented leaders?” he shared his list with us. We then asked, “What are the twenty most important roles in the company?” and he shared that list, though with a speed that suggested he hadn’t given that answer nearly as much thought. Finally, we asked, “How many people on the first list are filling roles on the second list?” He went pale. He didn’t have to do the math to know that the answer wasn’t one that the board or shareholders would be happy to hear.
Of the fifty most valuable roles in a typical corporation, we found that only 10 percent are positions that report directly to a CEO; 60 percent exist at the next level down; and 20 percent are at the level below that.
The most valuable person on a football team after the quarterback is the left tackle (or if the quarterback is left-handed, the right tackle), a player who doesn’t touch the ball at all. Why? Because they protect the quarterback from getting sacked or even injured by the other team’s pass rushers whom he can’t see because they’re coming at him on his blind side. The best CEOs dig deeper and ensure enough rigor and discipline is applied to finding the “left tackle” positions that protect and enable value to be created.
“It’s very important to have the best CFO that you can get. They can take so much of the day-to-day off your shoulders. They become your right-hand person. People sometimes don’t understand the importance of a good CFO.”
To fill the top fifty or so most valuable jobs, they demand that HR provide robust information on the knowledge, skills, attributes, and experiences of, say, the top two to three hundred leaders in the organization. Such an exercise is key to unearthing many new candidates—including some “unusual suspects”—who have the potential to fill the most important positions.
With this information, the best CEOs expect that at least five viable candidates will emerge for each of the most valuable roles. Two surprises typically await when this is done with rigor. The first is that as many as 20 to 30 percent of people they previously handpicked to place in priority roles are actually a relatively poor fit.
The second surprise of a thorough talent review is that there are far more potential candidates for key roles than most CEOs would have initially conceived.
Brad Smith at Intuit reports, “Thirty percent of my time was coaching and growing our talent in one-on-ones and town hall meetings, and having chats with managers important to the business who aren’t my direct reports.”
The best CEOs also have their head of Human Resources put the processes in place to build a strong bench. Piyush Gupta at DBS shares: “For every job, mine included, we work through what is the slate, who could do the job, who could do the job in three or five years? We then case manage 100-odd people. Who needs to move, what should we move them into, how do we get them the exposure and growth they need to get from point A to point B? It’s very well structured.”
JPMC’s Jamie Dimon puts a fine point on the issue: “When someone asks me how I can demote a wonderful person, a loyal, ‘pillar of society’ out of a role where they aren’t the best fit, the answer is simple. They’re no longer doing a good job. If we were ‘loyal’ to them by leaving them in the job, we’d be hugely disloyal to everyone else and to the company’s clients. That, right there, is the hardest part about talent management.”
I’ve come to the conclusion that for the most senior positions, you have to have a person who can execute and drive the results today, but they also have to be looking over the horizon and planning for the future.”
“Teamwork is often code for ‘get along,’ ” he says, “but teamwork sometimes means standing alone and having the courage to say something. The best team player is the one who puts up their hand and says, ‘I don’t agree, because I don’t think what you’re doing is in the best interest of the client or the company.’ ”
Before removing someone from the team, the best CEOs make sure that the following questions can be answered in the affirmative: Does the team member know exactly what’s expected of them: i.e., what the agenda is and what jobs need to be done to drive that agenda? Have they been given the needed tools and resources, and a chance to build the necessary skills and confidence to use them effectively? Are they surrounded by others (including the CEO) who are aligned on a common direction and who display the desired mindsets and behaviors? Is it clear what the consequences are if they don’t get on board and deliver?
“If you get too close to everybody, then you wind up not making tough choices and compromising for mediocrity. People need to respect that, finally, you are the boss.” Adidas’s Kasper Rørsted takes a very black-and-white stance on the issue so as to be able to cleanly enforce needed accountability: “At work, I want to be friendly, but I don’t want to make friends. Eventually, I have to be able to make unbiased decisions.”
The best CEOs, in the words of Dupont’s Ed Breen, “Grade behaviors first—and after that, grade results.” JPMC’s Jamie Dimon explains why: “You have to acknowledge that failure is okay. There are good mistakes: You argued for it, you thought it through, you talked to the right people, and you were wrong.
Diageo’s Ivan Menezes makes a point to have one-on-one catchups with the top eighty people in the organization twice a year. “They are our senior leaders,” says Menezes. “We discuss everything, from business, to family, to their development, to how they’re doing and how they’re feeling. It’s unstructured but very valuable.”
Brad Smith made this the norm at Intuit: “I broadcast my staff meeting with my twelve direct reports to the top 400 leaders in the company. The 400 would dial in and hear us go through the agenda together, listen to the questions I was asking, and understand the principles we used to make a decision. It began to accelerate our velocity. Everyone learned how to make the right decisions on their own.”
Only 6 percent of top HR executives, those whose job includes helping to ensure good teamwork takes place, agree with the statement that “Our executive team operates as a well-integrated team.” Further, when executives are asked to assess how effectively their top team works together versus its potential, they rate it only a five on a scale of ten.
Thermo Fisher Scientific CEO Marc Casper shares his philosophy: “One of the reasons for our success is the ‘ruthless prioritization’ of what we work on together. We’re okay with letting things be mediocre that aren’t on our list of priorities. That’s perfectly fine. The key to success is that we focus our time and energy on what really matters.”
It starts by establishing the mindset that the top team is every member’s “first team.” The best CEOs are unequivocal on this issue. This means that everyone is expected to put the company’s needs ahead of those of the business unit’s or function’s. Said another way, the mindset of a top team member is not: “I’m on the team to represent my function or business,” but “I’m on the team so I can represent the company to my function or business.”
Brad Smith describes a method he used to ensure decisions were data-driven at Intuit: “Our decision-making principles insist on evidence. One of the mottos at Intuit is, ‘Because of (blank), I believe we should do (blank).’ If it’s not based in evidence, it’s an opinion, and we discount it. By pushing for evidence-based assertions instead of opinions, we’ve been able to sharpen our decision-making.”
As we’ve seen, the best CEOs combine a series of facilitated off-sites, team and individual coaching, and reflective exercises to improve teamwork. As teams become higher performing, taking time to reflect on working norms becomes a habit.
A common analogy is that managers are thermometers, and leaders are thermostats. Managers react to their environment, deal with the here and now, and measure and report results. Leaders influence their environment. They alter people’s beliefs and expectations. They cause action, they don’t just measure it. They are continually working toward a goal. When it comes to teamwork, the best CEOs are without question thermostats.
When a CEO creates a clear and effective operating rhythm, every member of the top team can synch the rhythm of their specific area with that of the company as a whole.
Beyond the weekly meeting, most great CEOs conduct a more formal monthly senior team meeting. At Valeo, for example, Jacques Aschenbroich brings his team together for four or five hours. The agenda reviews progress against strategic, operational, and organizational issues, as well as trends in the external environment.
Netflix’s Reed Hastings shares his view of the orchestrator role: “You need to build the decision-making muscles throughout the organization, so that the leader makes fewer decisions. I’ve said before, ‘A perfect quarter for me would be one where I’ve made no decisions.’ I haven’t yet had that. Every quarter, I’ve had to make some decisions, but that’s the goal.
Dimon continues, “No matter the issue, I’m going to expect that you will have already looked at our peers: what Goldman Sachs does, what Morgan Stanley does, and what Bank of America does. I shouldn’t have to ask whether you’ve looked at what our peers are doing, what the best practices are, and anything like that. A lot of companies don’t do this, and they really don’t know what their competitors are doing. They’re just guessing. We do a real deep dive.”
JPMC’s Jamie Dimon explains, “Very rarely do I allow a presentation. It’s all pre-reads and recommendations. We prepare in advance so that we’re using meeting time to make decisions.”
“I tell everyone they’re not allowed to do an exercise just for me. They should do this analysis to run their business. If you think my question is a complete waste of time, you are required to tell me that, too.”
“When in doubt, share,” advises GE’s Larry Culp. Excellent CEOs know that it will cost them to keep the board in the dark in such situations.
“With the board, I was completely transparent on good news and bad news. I had this principle that bad news needs to travel as fast, and probably faster, than good news. And so, the minute you’re transparent with your board, it makes them comfortable. And then you can ask for their help.”
“So, for the first six to nine months, I personally met with each board member at their place of business, took time to have dinner, got to know them a little better, and talked about the business in depth.”
“In between board meetings, schedule work calls to board members so that by the time a half a year goes by, you’ve talked to every board member one-on-one for half an hour outside of a board meeting. Let them ask any question they want.
“I want the board to have a relationship with management.” As a result, the executive team typically plays an active role in board meetings.
“My board pushes back a lot,” Ferguson shares. “So my role is to help my colleagues understand that it doesn’t mean they aren’t supportive of our work. It simply means they’re doing their job.”
Beyond presentations during the board meeting itself, the best CEOs create other opportunities to further expose the board to the company’s managers. U.S. Bancorp’s Richard Davis shares his method: “We do something that we call a gallery walk. It involves cocktails where the senior leadership team is in the room with a few of their direct reports. The board’s role is to move between little groups of three or four, almost as if it’s speed dating. In each group the senior leader talks for a few minutes, bragging about their direct reports. Now, as a board member, I not only know the head of compliance, but I also get to meet her top three people. And because we’re not watching them make a presentation there’s no nervousness or lost time; they’re just having a cocktail and talking about themselves.”
“The board has three primary functions: One is succession planning—hire and fire the CEO—and the second is to approve the strategy of the company—where we want to be five or ten years from now. Third is to monitor and manage risks through the audit, governance, and compensation committees.”
As Netflix’s Reed Hastings explains, “We don’t want the board formulating strategy, because if they’re wrong, it’s fatal. Because then they’re not the judge, right?… If it’s their strategy, they can’t be impartial. You want the board to really understand what the management team’s doing, and you want them to be a good judge of the results and to make the changes necessary to hold them accountable.”
“We adopted some systematic ways to influence the board’s makeup, without doing the board’s job. One tool is the capability matrix. It lists across the top the skills and domains needed on the board to deliver our strategy of being a platform company in the cloud with design thinking. Down below, it lists every director’s name.”
“By having directors self-assess whether they bring that skill or experience in the room. Then we actually draw circles around the gaps to identify the capabilities we need.”
Top CEOs encourage the chair to regularly evaluate board performance. Brad Smith describes how the process works at Intuit: “The board has an annual evaluation process run by an outside counsel. We all fill out the same forms that ask questions like: ‘How do you think the committees are performing? How do you think the board overall is performing? What areas can be made better?’ We also do anonymous 360 feedback. That gives us insight into questions such as: ‘What does this particular board member bring that is highly relevant to the company and advancing our cause? What is the one thing that would make this board member even more effective? Are there any superstars and any laggards?’ That process has actually led us to discussions about replacing directors.”
“When the mindset of the board is to prevent you from failing, the discussions tend to focus on failure,” he observes. “It’s important to focus on the future. That will help capture opportunity, drive growth, and take the company forward, instead of just managing risk.”
“I tell all of the new CEOs I talk with to take the first hour of the board meeting in executive session with just you and the board. No other internal members of the company should be present. Just recently one of them told me it was the best advice—it gives board members a better perspective of what you’re dealing with, so they give you better guidance.”
“I focused on what I was worried about and the challenges we were facing,” he says. “My sole reason for that was to create a culture of transparency so that directors wouldn’t spend their time hunting for problems. We want them to do that, by the way, but we also want them to know that the management team’s true inclination is to bring problems to the board. That creates a totally different culture: You earn their trust and they hold you to a high standard. It elevates the dialogue and the impact.”
Every CEO’s strategic framework is different, but as long as they include elements of strategy, culture, and talent, the board agenda will then naturally include the most important forward-looking topics.
Note that one talent-related topic CEOs often fail to bring up with the board—especially early in their tenure—but should is their own succession planning. While they won’t have anything to do with the selection of the next CEO when the time comes, the best CEOs take a leadership role in developing potential candidates.
For a CEO, there’s no better way to understand what it means to be a board member than to become a director at another company. Experiencing a board meeting from the other side of the board table is a profound learning experience, allowing one to borrow from what works and avoid what doesn’t.
I’ve had conversations with some of my counterparts in which they literally spend twenty percent of their time on their board. No. It’s better to have four or five high-quality board meetings than a sub-quality ten. It’s better to focus on the top issues that matter and let details get discussed in committees.
“Never, ever, ever meddle with your board’s process. I mean, just never, ever get into it. If the board says, well, what do you think about who should be on this committee, say, ‘I’m going to leave that to you.’
“Purpose should not be confused with specific goals or business strategies,” he explained. “Whereas you might achieve a goal or complete a strategy, you cannot fulfill a purpose; it’s like a guiding star on the horizon—forever pursued but never reached.
Microsoft’s Satya Nadella speaks to what great CEOs aspire to: “Somebody once said that you can only trust people who think, say, and do the same thing. By the same token, you can only trust companies that are thinking, saying, and doing the same thing. That’s the consistency you need.”
They test their strategy, products and services, supply chain, performance metrics, and incentives to make sure they mesh with their purpose. They also regularly ask themselves, “What would our most critical stakeholders say are areas where we’re being hypocritical?” and “What is not currently being measured or reported that society will hold us accountable for in the future?”
Across all the excellent CEOs we spoke to, we found that an average of 30 percent of their time was spent with external stakeholders in one form or another.
It’s important to note that such allocations typically change as a CEO’s situation changes. “I focused on my colleagues and internal initiatives more early in my tenure,” U.S. Bancorp’s Richard Davis shares. “Once I had the right team in place that I trusted, the amount of time with external stakeholders went up.”
“It goes beyond just listening to what they say,” she shares. “If you take time to understand why they’re saying what they’re saying, you can help shape their longer-term thinking.”
At Aon, Greg Case picks up new product development ideas regularly from client conversations—risk products for cybersecurity and intellectual property theft being two examples. Case explains his philosophy: “You, of course, interact with clients to try and actually serve them, but you also interact with clients to understand how you want to change.”
The best CEOs find it both productive and liberating to employ a single narrative when interacting with the Outside, not just on a company’s social purpose, but in relation to all aspects of the business.
“My big ‘a-ha’ in all of this is that sometimes as a leader you think you have a decision to make when you really don’t, because there’s only one right thing to do. Yes, you need to think it through, but you really don’t have a choice. A lot of times, people will say, ‘We’ve got this issue. It’s going to have this kind of impact on our financials.’ And I reply, ‘What’s the right thing to do? If it’s going to be a hit to the financials, that’s not great, but what’s the right thing to do?’ ”
As Barra did at GM, the best CEOs immediately activate a cross-functional “command center” team that is empowered to tackle both primary (interrelated legal, technical, operational, and financial challenges) and secondary (reactions by key stakeholders) threats. These teams are typically small and agile, with a full-time senior leader, very high levels of funding, and adequate decision-making authority to make and implement decisions within hours rather than days.
“When I reflect on crises in my career, there are three lessons for CEOs that come to mind,” Ahold Delhaize’s Dick Boer shares. “First, do not chair or lead your crisis team. Let them report out to you. This gives you the space and time to oversee all the elements of the business, not only the crisis. Second, show confidence in your organization—show that you’re in control, that you know what you’re doing, and that you’ll take care of your people and your customers. Third, think of what’s next even when the storm is still around you, because there’ll be opportunities and other situations you have to manage as a consequence of the crisis that you might not have thought about.”
Boer’s insights reflect then-senator John F. Kennedy’s observation: “When written in Chinese, the word crisis is composed of two characters. One represents danger and the other represents opportunity.”
In their book Leadership on the Line, authors Ron Heifetz and Marty Linsky advise leaders to periodically get off the dance floor and up on the balcony.81 A crisis will by definition draw a CEO onto the dance floor so they can face reality, solve pressing problems, and push for operational change. The best CEOs also find ways to maintain a view from the balcony so they can see patterns, find hope on the horizon, and look for opportunities. They stress-test their company on a regular basis, and therefore enter a crisis as prepared as possible and build a full-time command center team to establish the facts, direct traffic, and problem-solve the issues at hand.
Discipline around what? Many CEOs answer that question with: “My job is to do what needs to be done.” That isn’t how the best CEOs think, however. Rather, their mindset is: “My job is to do what only I can do.” Caterpillar’s Jim Owens explains that the key to personal effectiveness is: “Prioritizing the most critical issues that only the CEO can solve and delegating any remaining tasks.”
Majid Al Futtaim’s Alain Bejjani sets a stretch target for how much time is not booked: “My aspiration is actually to be free seventy percent of the time, so I can think, reflect, and have the capacity to deal with important things as they come up.
“If I can become redundant, as in, the vast majority of things can be done the way I expect without my being in the room, I will have succeeded as a CEO. It’s a sign that we’ve developed the strength, brains, and muscles that are needed for the organization to thrive.”
“Compartmentalization is essential. If you bring every burden to every meeting, if you let the day start to pile up on you, if you’re known to be tougher and more irritable at the end of the day than the beginning of the day, then you don’t know how to compartmentalize. You just have to take everything as it is and isolate, manage it; isolate, manage it. And I think, at the end of the day, the best CEOs will find themselves able to do that, while not forgetting anything, but simply not adding to the burden. People start seeing that you’re disciplined and focused.”
What is also often new is that many CEOs add a chief of staff (COS) to help manage the complexity of the job. Many CEOs start out thinking they don’t need a COS, but then change their minds once they feel the weight of the job.
Banga also changes his chief of staff every eighteen months to two years. He chooses someone for the slot who has high potential, wants to have a new career path, and can benefit from the learning and mentoring opportunity.
“The first powerful lesson I learned was the difference between victory and winning. When you go to war, lose all your soldiers but win the battle, and you come back home the only survivor—that is winning, okay? But when you go to war, and you win the battle, and all the soldiers come back home—that is victory. So most times when I’m faced with situations, I ask myself, ‘Do I want victory or do I want to win?’ I’ve come to the conclusion that victory is a better form of winning than just winning itself.”
The notion of “situational leadership” was introduced almost fifty years ago by Dr. Paul Hersey, author of The Situational Leader, and Kenneth Blanchard, author of The One Minute Manager. The thesis is that if leaders are able to adapt their style to the situation—while maintaining their authenticity—they’ll be able to achieve superior results. LEGO’s Jørgen Vig Knudstorp sums it up: “It’s important to figure out what kind of CEO the company needs.”
Avoid asking general and broad questions; rather, ask the question you want the answer to. “That’s how you’re going to get real feedback,” he says.
Reed Hastings reveals that at Netflix, “I run a question by my top fifty people: ‘If you were CEO, what would be different at Netflix?’ They write a couple of sentences or paragraphs that’s put on a shared spreadsheet document.”
To all, I posed three questions: ‘What’s getting better than it was six months ago? What’s not making enough progress or going in the wrong direction? And what’s something you’re afraid no one is telling me, that you believe I need to know?’
Dupont’s Ed Breen says he tells up-and-coming CEOs to join one or two groups where they can get together off the record with other CEOs and talk through key topics.
It’s okay to want zero defects in a process. But wanting a zero-defect process is different from expecting zero defects in a person.”
The word humility can evoke different impressions. Merriam-Webster’s Collegiate Dictionary defines humility as freedom from pride or arrogance. Note that it doesn’t say anything about lack of confidence or competence. As British writer and lay theologian C. S. Lewis once wrote, “True humility is not thinking less of yourself, it’s thinking of yourself less.”
One group we haven’t yet touched on that can help keep a CEO grounded and humble is a kitchen cabinet. The term comes from US president Andrew Jackson who convened a small group of informal advisors in the White House kitchen. These people gave him discreet advice beyond what his formal cabinet members provided. Jackson’s wise use of this shadow group helped him become recognized as one of America’s great practical politicians. Similarly, a CEO’s kitchen cabinet provides him or her with discreet and confidential feedback and advice beyond what can be obtained from formal coaches or forums.
The best CEOs build a kitchen cabinet that is typically composed of highly capable thinkers and listeners—able to ask thoughtful questions and share wise and diverse views. They also must be able to keep confidences so that sensitive topics related to personal leadership, colleagues, employees, customers, investors, and other stakeholders can be openly discussed. Further, they should be as objective as possible, with the CEO’s and the company’s best interests in mind, not their own. Itaú Unibanco’s Roberto Setúbal adds an important characteristic: “It’s important to have people close to you who aren’t afraid of you.” Mastercard’s Ajay Banga puts a premium on having diverse perspectives. “I wanted the views of people who didn’t look like me, walk like me, go to the same schools, have the same experiences, or the same backgrounds,” he explains.
Diageo’s Ivan Menezes similarly describes the importance of having CEOs from other companies in his kitchen cabinet: “As you get into the job, it is incredibly lonely at first. I found it very helpful to have a set of peers to talk to, outside of your board and shareholders and management team. Building and maintaining a trusted group would be immensely valuable for any new CEO.”
This brings us to our final observation regarding great CEOs: They have a good filter for what in their environment is signal and what is noise. This aptitude will be even more crucial in the future amid what will undoubtedly be an ever more raging torrent of trends, ideas, and information.