CEO Excellence

Introduction

Excellence is never an accident. —Aristotle

At the annual Leadership Forum hosted by McKinsey & Company in the picturesque waterfront town of St. Michaels, Maryland, thirty soon-to-be CEOs were gathered in the conference room. On this rainy fall evening, the retreat’s first day, everyone snapped to attention as the moderator, Vik (one of your coauthors), posed an intriguing question: “What does a CEO really do?”

It was unsettling. As CEO counselors, we know that how a person performs in the CEO role matters. CEOs who rank in the top 20 percent of financial performance generate, on average, 2.8 times more total return to shareholders (TRS) during each year of their tenure than do average performers. More concretely, if you invest $1,000 in a Standard and Poor’s (S&P) 500 index fund and over ten years your investment grows at historical averages, your investment will make you just under $1,600. If you invest in the companies led by the top quintile highest performing CEOs, you’ll gain more than $10,000. That’s a big difference.

Who Are the Best CEOs of the Twenty-First Century?

What Separates the Best CEOs from the Rest?

These six responsibilities aren’t unique to the best CEOs—they just describe fully what the job is

What is unique to the best is the mindset with which they approach each of the six responsibilities, and the actions they take on each sub-element. These are what enable great CEOs to, in the words of Eaton’s former CEO Sandy Cutler, “play big ball, not small ball. By that I mean spending time on things that no one else can in ways that magnify your effectiveness without getting mired in things that don’t make a difference.”

Why CEO Excellence Is Elusive

As our research concluded and our findings crystalized, three things in particular struck us more deeply than we’d imagined: how unique the role really is, the number of contradictions a CEO faces, and the sheer amount of work involved in doing the job well

On the first point, virtually every CEO told us that they thought they were well equipped for the job because of their experience in having led large business units or functions, only to find that to simply not be the case. It wasn’t that managing a profit and loss statement, setting a strategy, or leading a team was radically different than what they’d done before. What took them aback was how the top job is the only role in an organization that is literally peerless. A CEO is accountable for everything. In the words of Dick Boer, former CEO of Ahold Delhaize, parent company of Stop & Shop and other food retailers, “When you run a business unit or a region, at the end of the day you have peers and you’re on a team. As the company CEO, it’s solitary. You can’t say, ‘Look, I can’t do it because…’ No. It’s you. You can’t blame anyone anymore, for anything. It’s you to blame.”

Beyond the solitary nature of the role, the second major challenge was best expressed by Jacques Aschenbroich, the CEO of Paris-based global automotive supplier Valeo, who articulated it for us: “The CEO role is the intersection of all contradictions.” Interview after interview brought to light the kinds of contradictions Aschenbroich was referring to. Delivering short-term results versus investing in long-term performance. Taking time to gather facts and do analyses versus moving fast to capture opportunities. Respecting the past and creating continuity vs. disrupting the future. Maximizing value for shareholders versus delivering impact for other stakeholders. Having versus having humility to ask for and receive feedback. You might say that F. Scott Fitzgerald’s observation that “the test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function” applies fully to the role of the CEO. As we’ll see in the chapters to come, the best CEOs masterfully reconcile these apparent contradictions to create positive and mutually reinforcing outcomes.

DIRECTION-SETTING MINDSET

Be Bold

Boldness has genius, power, and magic in it. —Goethe

In today’s complex world, many CEOs try to minimize uncertainty and guard against making mistakes. It sounds sensible. After all, the old adage that “discretion is the better part of valor” would seem to make sense for a job that has such a huge impact on a company’s stakeholders. Ultimately, however, such a cautious mindset has proven to deliver results that follow the dreaded “hockey stick” effect, consisting of a dip in next year’s budget followed by the promise of success, which never occurs.

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.

Knowing just how low the odds of success are, the best CEOs apply boldness to each of the three dimensions of direction setting—vision, strategy, and resource allocation, as we’ll discuss in the chapters that follow.

CHAPTER 1

Vision Practice Reframe the Game

Your playing small does not serve the world. —Marianne Williamson

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 table below shows how some of the CEOs we interviewed boldly reframed their game:

Table 1: What does winning look like for our company?

The “reframe the game” visions in the table above may look obvious after the fact, but getting to the right one is harder than one might think.

In the rest of this chapter we will explore how the best CEOs get it right—creating a game-changing vision for their organizations. They do so by

… finding and amplifying intersections

… making it about more than money

… not being afraid to look back to look forward

… involving a broad group of leaders in the process

Find and Amplify Intersections

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.”

Make It about More than Money

When investors would punish Adidas for having a lower profit margin than Nike, he’d respond calmly that Adidas’s product development costs were higher because they were going to make the best performance product. “We will never disappoint an athlete with our product that they are wearing,” he says. “If we help them make their dream come true—winning an Olympic gold medal, the French Open, etc., then we have achieved more than just revenue numbers.”

Look Back to Look Forward

Reframing the game doesn’t necessarily mean creating a vision that departs from a company’s heritage. 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.

Involve a Broad Group of Leaders

The best CEOs create a game-changing vision for their company. When it comes to sharing it with the organization, however, they rarely dictate their views. Why?

As Medtronic’s Bill George puts it, “people support what they help create.” In fact, they’re some five times more supportive than those who aren’t involved. The underlying psychology relates to our desire for control, which is a deep-rooted survival instinct.

CHAPTER 2

Strategy Practice Make Big Moves Early and Often

You can’t cross a chasm in two small jumps. —David Lloyd George

What was US president John F. Kennedy’s vision for the United States? On May 25, 1961, before a joint session of Congress, he stated it clearly: “To win the battle that is now going on around the world between freedom and tyranny.” What was his strategy? A series of big moves, one of which has become synonymous with the very idea of taking a giant leap forward: the moonshot. During his speech that day he not only asked for funding to put a man on the moon, but also for three related big moves: increasing unmanned space exploration, developing a nuclear rocket, and advancing satellite technology. These asks were in addition to a handful of other needle-moving actions being pursued by his administration such as setting up the Peace Corps, creating new civil rights legislation, and reinventing economic cooperation with Latin America.

Kennedy’s story shows how a “be bold” mindset applies not just to vision but to the strategies employed in pursuit of it.

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:

Buy and Sell. The best CEOs execute at least one deal per year on average, and over a ten-year period these deals cumulatively amount to more than 30 percent of a company’s market cap. The top CEOs are as bold about selling as they are about buying, which can also take the form of spinning off businesses

Invest. If you want your company’s investments to be big enough to move the needle, your capital expenditures to sales ratio needs to exceed 1.7 times the industry median for ten years

Improve Productivity. The most successful companies reduce administrative, sales, and labor costs more deeply than others, and in so doing achieve 25 percent more productivity improvement than their industry’s median over a ten-year period.

Differentiate. The best CEOs improve their business models and create pricing advantages in ways that are big enough to change a company’s trajectory

Allocate. This move is deemed big when a company shifts more than 60 percent of its capital expenditures among business units over ten years.

As we explored where this courage comes from, we found the best CEOs…

… are exceptional futurists

… keep an eye on the downside

… act like an owner

… regularly apply “heart paddles”

Be an Exceptional Futurist

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. Doing so enables them to place bets before these trends become conventional wisdom and to maintain conviction when others inevitably criticize their choices to invest in markets that may not exist or technologies that are considered long shots.

Keep an Eye on the Downside

To be clear, boldness doesn’t mean recklessness. Excellent CEOs fully understand the risk/reward trade-offs of potential big moves. Explains Dupont’s Ed Breen, “One thing I always study the most is the downside scenario. 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? I always feel angst over that more than anything. I would never make a decision where I was risking too much. But if I can live with the downside scenario and I still end up being better off, that’s a good risk/reward.”

Act Like an Owner

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.

Regularly Apply “Heart Paddles”

Big moves bring with them big risk. The best CEOs know, in the spirit of hockey Hall of Famer Wayne Gretzky’s observation, “You miss every shot that you don’t take,” that the bigger risk is to be timid in the face of uncertainty. Excellent CEOs get comfortable with acting boldly by having a clear point of view on the future, fully understanding the risk/reward trade-offs, acting like an owner, and applying “heart paddles” throughout their tenure.

CHAPTER 3

Resource Allocation Practice Act Like an Outsider

Insanity is doing the same thing over and over again, but expecting different results. —Rita Mae Brown (often attributed to Albert Einstein)

Thinking like an outsider when it comes to reallocation means a CEO isn’t wed to tradition, encumbered by internal loyalties, or willing to bow to short-term pressures. Instead, they regularly ask themselves what a new CEO with no emotional ties or history would do if brought in to take over the company. Practically speaking, this translates to allocating resources by…

… starting with a zero base

… solving for the whole

… managing by milestones (not annual budgets)

… killing as much as they create

Start with a Zero Base

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.

Solve for the Whole

We’re going to look at your investment plan from top to bottom. We’re going to put all the plans together, and we’re going shave off the stuff at the bottom and we’re going to double down on the things that we all collectively know we need to go after as a corporation.

Manage by Milestones (Not Annual Budgets)

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.

Closely monitoring investments on a milestone-driven basis, however, doesn’t mean that budgets should be constantly moved around. As long as the big moves still make sense, the milestones are being met, and the actions taken are delivering results for the company, the best CEOs stay the course.

Kill as Much as You Create

Talking about resource allocation in broad terms risks oversimplifying the choices facing CEOs. 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.

At this point we hope it’s clear how the mindset of “be bold” propels the best CEOs to take radically different direction-setting actions in the face of the business world’s ever-increasing volatility, uncertainty, complexity, and ambiguity. Below is a summary of the bold actions that characterize excellence in setting direction for a company—actions that our research shows make it more than six times more probable to become a top quintile performer.

If you run a small business or a nonprofit, these lessons in boldness likely still apply in many ways. Ask yourself: Are you pursuing a direction that (1) fills an unmet need, (2) uses your unique capabilities, (3) is driven by a noble purpose, and (4) can be monetized (if that’s relevant to your situation)? Have you involved a group of people in shaping the vision and who are therefore emotionally invested in wanting to help you? Are you taking actions that are unquestionably big “needle movers”? Have you redirected time, energy, talent, and finances away from lower priority pursuits toward taking these actions? For most, answering these questions in the affirmative will undoubtedly increase the odds of achieving breakthrough success.

ORGANIZATION ALIGNMENT MINDSET

Treat the Soft Stuff as the Hard Stuff

When dealing with people, remember you are not dealing with creatures of logic, but creatures of emotion. —Dale Carnegie

Once a CEO sets a direction for the company’s future, the probability that the plan will become reality is low. Many studies, including our own research, conclude that only one in three strategies is successfully implemented. The reasons for failure are rooted in the reality that change is rarely an intellectual problem, it’s an emotional one. The “soft stuff”—issues related to people and culture—account for the vast majority (72 percent) of the barriers to success.

This finding is hardly revelatory. It’s precisely what management guru Peter Drucker was referring to over fifty years ago when he purportedly said, “Culture eats strategy for breakfast.” Most CEOs understand this and readily acknowledge that the soft stuff is hard to get right. Accordingly, they ask their chief human resources officer (CHRO) to ensure there’s a good plan in place to handle the organization and talent-related changes needed to execute the strategy. These CEOs, however, generally don’t expect the same level of robustness and coherence in people-related plans as, for example, the CFO might provide in laying out a financial plan—after all, this is the soft stuff.

The best CEOs don’t follow this pattern. They don’t just acknowledge that the soft stuff is hard, they vow to treat the soft stuff as the hard stuff. And they make sure that every senior leader, not just the CHRO, owns the people-related implications of the strategy. KBC’s Johan Thijs puts it thusly: “You have to fix both sides as the CEO: The easy part is technical; the difficult part is people. You might fix the technical issues: finding capital, liquidity, profitability, and so forth. But over time if you can’t solve the mindset issues, you’ll go back on the same route because the mindset is goin to drive you again over a cliff.”

The impact of choosing a “treat the soft stuff as the hard stuff” mindset and taking the actions it calls for is dramatic: The odds of a strategy being successfully executed more than double from 30 to 79 percent, and the impact of that execution is 1.8 times greater.25 These differences in performance are driven by the best CEOs taking radically different approaches with respect to each of the three sub-elements involved in aligning an organization: culture, organizational design, and talent.

CHAPTER 4

Culture Practice Find the One Thing

Culture is coded wisdom. —Wangari Maathai

The starkest example of a focus on “the one thing” is Paul O’Neill’s experience while he was CEO of aluminum producer Alcoa (O’Neill went on to serve as the seventy-second US secretary of treasury). When he took the company’s reins it was in a state of decline. Investors were worried about profit margins and revenue projections. In his first address to shareholders, O’Neill famously began, “I want to talk to you about worker safety”—confident that higher revenues and lower cost would be a by-product. When grilled by investors on inventory levels and plant utilization, his response was simple: “If you want to understand how Alcoa is doing, you need to look at our workplace safety figures. If we bring our injury rates down, it won’t be because of cheerleading or the nonsense you sometimes hear from other CEOs. It will be because the individuals at this company have agreed to become part of something important: They’ve devoted themselves to creating a habit of excellence.

inding the one thing, as important as it is, means nothing if the culture doesn’t actually shift to embrace it. So what role do the best CEOs play in making the desired culture change happen? They…

… reshape the work environment

… make it personal

… make it meaningful

… measure what matters

Reshape the Work Environment

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. The best CEOs demand that culture change efforts address each of these four shapers of environment.

Make It Personal

Virtually everyone to whom we spoke was surprised by how much their role modeling mattered. DBS’s Piyush Gupta shares, “When you’re CEO, you’ve got to realize that every time you say or do something, it’s got a massive consequential effect. The whole company pivots.” On one hand, this means leaders need to be careful and thoughtful lest they send unintended messages through half-baked ideas or comments. On the other hand, this dynamic creates a huge opportunity to shape the culture—something that the best CEOs do with great acumen.

Make It Meaningful

The best CEOs are willing to take meaningful actions, often in the face of resistance, that signal just how serious they are about culture change.

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?”

Measure What Matters

Albert Einstein reputedly had a poster in his office that declared, “Not everything that counts can be counted, and not everything than can be counted, counts.” Culture has long been grouped into the realm of those things that can’t be counted. In keeping with the mindset of putting equal rigor and discipline into the soft stuff as into business performance, excellent CEOs look for ways to measure cultural change.

Culture can be a hard topic to get one’s head around. It’s so broad that, in the words of McKinsey & Company’s former managing director Marvin Bower, it can be described simply as, “the way we do things around here.” That’s why the best CEOs home in on “one thing” culturally that will make the biggest difference to business performance. By taking such a laserlike approach, they can rigorously reshape the employee work environment and measure progress in a disciplined way. And the best CEOs reinforce the effort by showing, through actions and words, that they can change themselves.

Getting the culture right is but the first leg of a three-legged stool used to support an organization’s delivery of vision and strategy.

CHAPTER 5

Organization Design Practice Solve for “Stagility”

Design is intelligence made visible. —Alina Wheeler

As organizations have become larger and more global and face even fiercer winds of change in the form of complex stakeholder demands, technology advances and disruptions, digitization and democratization of information, and an ever-escalating war for talent, the rigidity of the hierarchy has become a liability. Just like master architects, the best CEOs have found ways to build flexibility into their organization’s design while maintaining strong structural integrity.

Achieving stagility doesn’t happen by chance, nor does it happen overnight. Sometimes it doesn’t happen at all. Many of the CEOs we spoke to shared that while they’d made progress, they never fully cracked the code. There was, however, a clear pattern of methodically enabling agility anchored by a strong organizational backbone. More specifically, the best CEOs…

… stop the pendulum swing

… emphasize accountability

… think helix, not matrix

… make “smart” choices

Stop the Pendulum Swing

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? By centralizing, a company can improve efficiency and control risk. Decentralizing can increase customer responsiveness and foster innovation.

Emphasize Accountability

Large, global organizations striving for the “just right” balance between centralized efficiencies and local customer responsiveness tend to adopt what’s often referred to as a matrix organization structure.

In a matrix reporting structure, individuals report to more than one supervisor or leader through relationships described as solid-line or dotted-line. A single employee may report to both a functional business leader (e.g., engineering, manufacturing) whose job it is to solve for synergy and standardization and a business unit leader (e.g., a product, geography, or customer-segment owner) whose job it is to ensure the functional capabilities come together in a tailored manner to deliver just the right result for the customer

Think Helix, Not Matrix

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.

With a Goldilocks answer to centralization and accountability clear in a more “helix-like” than “matrix-like” manner, the foundation is set to determine what elements of the organization design will be stable and what will be agile. When it comes to making these choices, a smartphone analogy can be helpful. Think of choosing the stable elements as equivalent to choosing the hardware and operating system for your device. These provide a stable base on which you will then put numerous apps (the agile elements) that can be installed, upgraded, and discarded as needed to continually make life easier and better.

CHAPTER 6

Talent Management Practice (Don’t) Put People First

Judge a fish by its ability to climb a tree and it will spend its whole life believing that it is stupid. —Unknown (often attributed to Albert Einstein)

Not all of the excellent CEOs we spoke to embraced such a strict methodology, but all approached the topic of talent with a notably high level of rigor and discipline that enabled them to focus their personal time and energy on the highest impact areas of talent management. As GE CEO Larry Culp states, “Your people decisions are really where all your leverage is. As a CEO, you absolutely have to get those right. And you can’t do that at a distance.” To make the right people decisions, the best CEOs…

… clearly define high value roles

… don’t forget the “left tackles”

… find “unusual suspects”

… actively build the bench

Clearly Define High Value Roles

We’ve helped numerous CEOs work with their CHROs and CFOs to develop a more rigorous understanding of the roles that drive their company’s strategy.

Once the most valuable roles are identified, the best CEOs make sure that each is well defined, with a clear description of what work needs to get done and a list of the necessary skills and attributes to succeed.

Aside from role-specific attributes, the best CEOs also have a short list of “must have” characteristics they see as important for all leaders. “Enthusiasm, smarts, flexibility, and results orientation, coupled with clear alignment with the company values.

Don’t Forget Your “Left Tackles”

In business, the quarterbacks, wide receivers, and running back equivalents are most often thought of as the P&L leaders in a company.

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.

One left tackle role most CEOs only appreciate after having faced off with the analyst and investor community is the Chief Financial Officer (CFO).

Find the Unusual Suspects

The best CEOs typically see to it that their top thirty to fifty value-creating, protecting, and enabling roles are filled with “best fit” talent both for the short and long term. Yes, this means that a CEO’s direct reports aren’t necessarily given the freedom to choose their own teams. Instead, the best CEOs see the top echelons of leaders as “enterprise talent.”

Build the Bench

Placing the right talent in critical roles is the beginning not the end of the CEO’s role in managing talent.

This means spending lots of time with leaders in the most important roles. 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.” Dupont’s Ed Breen shares.

The benefits of putting rigor and discipline into talent management are many, and account for why our discussions with the best CEOs were not characterized by what otherwise is often cited as a CEO’s biggest regret: moving too slowly on low performers in key roles, even when it was clear a change was needed.

We’ve now seen how the best CEOs’ “treat the soft stuff as the hard stuff” mindset translates into action. It’s fair to say that of the CEO’s many responsibilities, this is the most difficult to get right, even by the best. Some confessed that they never really felt like they got it as right as they wanted it. Below is a summary of how those who felt successful in doing so brought rigor and discipline to the critical organization-alignment tasks: culture, organization design, and talent management. In doing so, they unlocked more than twice the probability of successful execution and almost twice the magnitude of performance levels achieved.

Even if you’re not the CEO of a major corporation, in executing your vision and strategy it’s important to emphasize the “soft stuff” as much as the “hard stuff.” To know if you’re doing so, ask yourself: What’s the most important behavior change needed to unlock success? To what extent am I personally acting as a role model by telling a deeply compelling story, aligning incentives, and building the confidence and skills of others? Are accountabilities clear, and is work organized in a way that isn’t overly rigid but also prevents chaos? Is the best-fit talent in the most important roles? Do I have a reliable way to measure if the “soft stuff” is moving in the right direction, and do I course-correct accordingly? If you do the hard work of getting good answers to these questions, executing your strategy becomes far easier.

MOBILIZING LEADERS MINDSET

Solve for the Team’s Psychology

Imagine how hard physics would be if particles could think. —Murray Gell-Mann

The dynamics of a top executive team can make or break a company. Investors know this—it’s why they cite the quality of the top management team as the single most important nonfinancial factor in evaluating a new IPO (initial public offering, in which a private company sells its shares to the public). Their instinct is backed by the data: When a top team works together with a common vision, a company is twice as likely to have above-median financial performance. As leadership expert John Maxwell once said, “Teamwork makes the dream work, but vision becomes a nightmare when the leader has a big dream and a bad team.”

Despite the clear benefits, more than half of senior executives report that their company’s top team is underperforming. CEOs are often out of touch with this reality: On average, fewer than one-third of CEOs report that they have problems with their teams.38 This disconnect isn’t an intellectual one, but a social one: Individual and institutional biases and awkward group dynamics can diminish the effectiveness of a team. Often, teams consist of opinionated leaders who represent different perspectives, vie for influence, fight over the allocation of scarce resources, and in some cases compete with one another for the top job. Even though they put on their “I’m here for the team” face in meetings, they’re often watching their backs and maneuvering behind closed doors to make sure their agenda—not necessarily that of the company—is being met.

The best CEOs recognize this challenge and acknowledge that it’s their leadership that will determine whether their team’s work will live up to its potential and propel the company forward. When thinking about how to get the most out of their leaders, many CEOs start with questions such as, “How often should we meet?” and “What should be on the agenda?” The best, however, think less about what the team does together, and more about how the team works together. They obsess with solving for the team’s psychology and let the mechanics of coordination and execution follow.

This focus on how the team works together versus what it does together brings to the fore such factors as composition, effectiveness, and operating rhythm. While this section mainly deals with the top team in big corporations, the lessons learned here apply to teams of any size, in any kind of organization.

CHAPTER 7

Team Composition Practice Create an Ecosystem

The strength of the team is each individual team member. The strength of each member is the team. —Phil Jackson

But how exactly do the best CEOs like Asher-Topilsky determine who should be on the team and who shouldn’t? They…

… staff the team with an eye to aptitude and attitude

… act fast but fairly regarding those who don’t belong

… stay connected while keeping their distance

… build a leadership coalition beyond their immediate team

Staff for Aptitude and Attitude

As discussed in chapter 3, the right conversation about who should be on the team starts with roles, not people. What kind of senior team will move the company forward? What knowledge and skills are necessary? What experiences are needed? What attributes and attitudes aren’t negotiable? What about diversity, equity, and inclusion? Against this backdrop, the best CEOs carefully compose their top team.

One aptitude virtually all of the best CEOs look for is the ability to balance the short and long term.

When it came to attitudes, being a team player was universally sought by the best CEOs.

The overall composition of the team is an important consideration as well.

Having a good attitude combined with the right aptitude isn’t just nice to have; it’s essential for every member of the team. When it isn’t present, the best CEOs take action and while doing so they act fast but fair.

Act Fast but Fair

Aside from the clear-cut cases where a senior leader obviously won’t make it or is killing the team dynamic, the best CEOs apply a fair and disciplined approach to give struggling leaders a chance to step up. “Conventional CEO wisdom states that you should move faster on people,”

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?

Stay Connected While Keeping Distance

To ensure that team members become and stay A players, the CEO must play a hands-on role with each individual. Michael Fisher, CEO of the nonprofit Cincinnati Children’s Hospital Medical Center (Cincinnati Children’s), explains, “You invest time and energy with each, recognizing they’re all individuals. Their needs are going to be different, and their strengths and gaps are going to be different. You applaud and cheer them on where they have those strengths and put them in situations where they can most effectively use them. But also give feedback along the way, on some sort of regular cycle.

Connecting one-on-one doesn’t mean making team members feel like family, however.

When it comes to conversations with individual team members about their performance, the best CEOs, in the words of Dupont’s Ed Breen, “Grade behaviors first—and after that, grade results.”

Build a Coalition Beyond the Immediate Team

While we’ve focused thus far in this chapter on the top team in the organization, the best CEOs also create a sense of teamwork with a larger leadership coalition.

Engaging leaders further down the pyramid can be done individually, but also should happen as a group or in subgroups.

Building a broader leadership coalition not only gives CEOs more leverage in driving the organization forward, but it also puts pressure on the top team members who must respond to the leaders below them whom the CEO has trained to have the same vision about the direction of the company.

When it comes to putting together a team, the best CEOs look for leaders who aren’t just interested in being all-stars, but also want and have the skills to build an all-star team. They then put the conditions in place for each team member to be successful, while maintaining enough distance to objectively judge and act on their performance. They also proactively engage leaders beyond their immediate team.

CHAPTER 8

Teamwork Practice Make the Team the Star

Talent wins games, but teamwork and intelligence win championships. —Michael Jordan

The best CEOs build high performing teams by…

… ensuring that their team does work that only it can do

… clearly defining what it means to be a member on the “first team”

… combining dialogue, data, and speed in decision-making

… investing regularly in team building

Do Work That Only the Team Can Do

Priority work for the top team typically includes: corporate strategy (priorities, targets, M&A), large-scale allocation of resources, identifying synergies and interdependencies across business units, validating decisions that significantly affect all employees, assuring delivery of company financial targets, providing direction for major company-wide projects, reinforcing the desired company culture (including individual and collective role modeling), and building the company’s leadership bench strength (which includes providing feedback to one another).

What teams should not focus on are topics that can be done better in individual functions, lines of business, or smaller subsets of the group. For example, quarterly business performance reviews are done with a subset of corporate leaders (e.g., CEO, CFO, and CHRO) and individual businesses, unless there is a cultural reason to combine the reviews into one session.

Ecolab’s Doug Baker summarizes what’s required of the CEO: “My role is making sure the top team does the big things really well. Our job is to focus on what can make the company successful, and what can kill us. All the rest is email.”

Define the “First Team” Norms

Once there’s clarity on what topics team time will be spent on, the next step is to gain the same degree of clarity on how those topics will be tackled, which 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.

Having established the first team mindset, the next step the best CEOs take is to make sure their teams understand how decisions will be made. While methods vary, all emphasize data, dialogue, and speed.

Combine Data, Dialogue, and Speed

“In God we trust, all others bring data” is a famous quote often attributed to management scientist W. Edwards Deming. The quote espoused his fundamental philosophy that data measurement and analysis are essential to making good management decisions.

Combining dialogue and data in decision-making is straightforward in concept, but, too often, is far from a panacea in practice. Why? Without the right balance, swift decision-making can be hindered and action can grind to a halt. Teams can quickly descend into analysis paralysis: the perpetual desire to see more and more data before a decision is made. Another potential affliction: what might be called a “consensus coma” in which there are seemingly endless rounds of group meetings, allowing for everyone, even those not qualified to do so, to weigh in.

Invest in Team Building

Courage is often required to pursue team building in the face of the inevitable naysayers. As GM’s Mary Barra concedes, “When we started to explicitly focus on building a high-performing leadership team, people were saying, ‘Mary’s making us do therapy.’ I’d say, ‘No, I’m not, I’m just investing in your leadership and in this team.’ ” In the end, however, it’s worth it. As Barra, who applied at GM all the team-building approaches discussed in this chapter, puts it: “To a person today if you asked, ‘What is one of the reasons why we’ve been able to drive success?’ they’d say it’s because of our high-performance teamwork.”

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.

To promote ever-increasing levels of teamwork, the best CEOs tend to four areas that most managers leave to others. First, they ensure that their team’s time is focused on the work that only it can do together. Second, they’re serious about the top team being every team member’s first team. Next, in top-level decision-making they stay in the triangle formed by data, dialogue, and speed. Finally, they invest regularly in team building, often using a facilitator or team coach to enable more rapid progress.

CHAPTER 9

Operating Rhythm Practice Get into a Groove

The best way to learn is through the powerful force of rhythm. —Wolfgang Amadeus Mozart

Not every CEO does what Ørnskov does, but all of the best have just as clearly defined operating rhythms that are purpose-built for their organization. Associated with these are four clear roles and responsibilities…

… setting the template and tempo for how the organization is run

… connecting the dots between various decision-making bodies

… acting like an orchestra conductor

… demanding disciplined execution

Set the Template and Tempo

For the best company CEOs, the key is to have a regular rhythm of reviews covering organizational, operational, and strategic issues

Although every company’s operating rhythm is unique, there are many commonalities among those used by the most successful CEOs. For example, there’s usually a check-in with the senior team as a group, typically weekly. JPMC’s Jamie Dimon explains how he uses his Monday morning meeting with his management team, which forms the foundation of his operating rhythm. “In that meeting, there’s no agenda because it’s my team’s responsibility to bring their issues to the table. Everything’s got to be on the table. It could be a client issue; it could be someone wants permission to do something; it could be they want a bunch of people to interview someone for a job; it could be a risk issue. If you work for me, you can’t say, ‘Well, you didn’t bring it up.’ I walk in with my list every Monday and I expect others to have theirs.”

Most operating rhythms also include meetings between the CEO and individual business units and functions. They occur quarterly, at minimum, the purpose being to review performance against plans.

Quarterly business reviews aren’t the only time that CEOs will meet with their top team members. Regularly scheduled one-on-one meetings are also part of the mix. For some CEOs these take place weekly, others every fortnight, and still others monthly. Time spent with each team member depends on how well they’re performing and how much the CEO can help.

Connect the Dots

Once the tempo is set, the CEO must bear down to ensure not only that the operating rhythm works, but that the management processes are effective. First and foremost is playing the role of chief dot-connector.

What kind of things don’t other people see? Some common examples are how finance can push executives to agree to both “base” and “stretch” targets in the budgeting process; meanwhile at year’s end HR treats meeting the stretch target as the basis for compensation. Once this happens, executives learn to consistently “sandbag” their targets—setting expectations low so that they’re sure to exceed anticipated results.

Conduct the Orchestra

Along with connecting dots, the best CEOs also play the role of an orchestra conductor amid the day-to-day operating rhythm of the company.

The way a CEO conducts should evolve with each phase the business is in.

Demand Disciplined Execution

The best conductors listen closely to every note from every instrument, and if anything is out of time or out of tune, they act on it. Doing the equivalent as a CEO requires that a disciplined approach be taken to the meetings that determine the operating rhythm.

For the best CEOs, a disciplined approach starts with having the right information beyond the high-level financials.

The best CEOs ensure that granular data is comparable across the organization’s various units.

Beyond ensuring the right information is available, the best CEOs also demand discipline in how meetings are conducted. 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.”

Some 2,500 years ago, Chinese military strategist Sun Tzu wrote in The Art of War, “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.”50 A well-designed operating rhythm connects strategy and tactics in a synchronous way that allows the company to execute efficiently and the CEO to know what’s happening and to get involved where it matters most.

Getting it right isn’t easy, however, as JPMC’s Jamie Dimon reinforces: “Most companies don’t execute well. This is about execution and getting disciplined, like it’s exercise. It’s about getting to the specifics, looking at the right measures and making the right decisions.” In keeping with Dimon’s observation, the best CEOs put their companies in a groove by setting the template and tempo for how the organization is run, connecting the dots between decision-making bodies, playing an orchestrating role, and demanding disciplined execution of the strategy.

As we’ve seen, the best CEOs place heavy emphasis on solving for the team’s psychology and let the mechanics of coordination and execution follow. Below is a summary of how doing so translates into three main dimensions of mobilizing the leadership team—composition, effectiveness, and operating rhythm. As we shared at the beginning of this section, the rewards are tangible: With the right mindset and applying the related practices at this level, a company is twice as likely to achieve above-median financial performance.

Even if you’re not a CEO, solving for the psychology of your team is a clear pathway to great performance. Ask yourself: Does every one of my team members have the right aptitude and attitude? If not, are you courageously acting fast but fair to remediate the situation? If an outsider came in, would they keep this team—and if not, does it mean you’ve grown too close? Does the team do only the work that it can do when it meets, or is team time spent on low-priority things that could be done outside the room? Is your team the “first team” for all who are on it? (And if not, why not?) Are discussions characterized by both data and dialogue, and do decisions get made in a timely manner? Are you investing methodically in team building? Have you created an efficient and effective annual operating rhythm of meetings? Do you connect dots for people, orchestrate the right interactions, and roll up your sleeves as needed to ensure progress is being made in priority areas?

The mindsets we’ve covered thus far related to direction-setting, aligning the organization, and mobilizing leaders are all in areas many leaders are familiar with, even if they’re not the chief executive. We now turn to, as GE’s Larry Culp put it, “those relationships that are unique to the CEO role that can make or break you”—the interactions with the board and the many external stakeholders who need to be managed.

BOARD ENGAGEMENT MINDSET

Help Directors Help the Business

Be strong enough to stand alone, smart enough to know when you need help, and brave enough to ask for it. —Ziad K. Abdelnour

Although board models differ due to ownership structures and a mix of practices in various parts of the world, the ways in which the best CEOs put into practice the “help directors help the business” mindset are fairly common across the three key dimensions of board engagement: relationships, capabilities, and meeting effectiveness.

CHAPTER 10

Board Relationships Practice Build a Foundation of Trust

Money is the currency of transactions. Trust is the currency of interactions. —Rachel Botsman

The best CEOs create the same virtuous cycle that Banga created: By building trust early he had the flexibility to make bold moves that improved performance, which, in turn, deepened trust. Beyond reliably doing what they say they’ll do, excellent CEOs build and maintain trust with the boards by…

… choosing radical transparency

… building a strong relationship with the board chair

… reaching out to individual directors

… exposing the boa

The adage “trust arrives on foot and leaves on horseback” applies to all relationships. When it comes to board relationships, the best CEOs find ways to make it arrive on horseback, and never leave. They do so by choosing to be radically transparent with the board on the good, the bad, and the ugly, establishing individual relationships (with a focus on the board chair), and exposing the board to management.

We’ve now discussed how CEOs establish and maintain a foundation of trust with individual directors. As trust builds, so does a chief executive’s ability to help the board add value to the business.

CHAPTER 11

Board Capabilities Practice Tap the Wisdom of Elders

I can do things you cannot. You can do things I cannot. Together we can do great things. —Mother Teresa

Although Dimon’s Bank One experience is an extreme one, all boards need at least some fine-tuning over time. The best CEOs are clear on how much change is needed and they influence shifts by…

… explicitly delineating the roles of the board and management

… specifying the desired profile of directors

… educating the group

… encouraging the board to continuously renew itself

Like any team, a board is ideally made up of individuals with the right skills and will to win. Unlike most teams, however, the members of boards typically spend less than 10 percent of their time working together.62 The best CEOs not only work with their board chairs or lead directors to get the right people on the team—they also put the conditions in place for collective success by explicitly delineating the role of the board vis-à-vis management, specifying the board member profiles that will best help the business, proactively educating the group, and finding ways to encourage the board to continually renew itself.

Beyond establishing a baseline of trust and influencing the right board composition, there’s one more vital step in helping directors help the business—making the most of board meetings themselves.

CHAPTER 12

Board Meetings Practice Focus on the Future

Don’t let yesterday take up too much of today. —Will Rogers

Companies hold board meetings anywhere from four to ten times a year, and for those meetings to be productive and forward-looking, the best CEOs…

… start with a private session

… promote a forward-looking agenda

… walk in board members’ shoes

… let the board run itself

If care isn’t taken, board meetings can be spent disproportionately looking at the dashboard and the rearview mirror. The best CEOs ensure that the board’s eyes are also trained on the horizon so that their expertise can be fully tapped to navigate the road ahead. They do so by starting meetings with a private session during which they can preview important topics. They also ensure strategy, culture, and talent are on the agenda, not just fiduciary items. Additionally, they experience what it means to be a board member by being a director in another company, gaining a “walking in their shoes” understanding of how boards operate while also acquiring practical insight into how other companies operate. Beyond that, they steer clear of the work of the board for both practical (time investment) and philosophical (ensuring independence) reasons.

We’ve now discussed what Best Buy’s Hubert Joly calls “the biggest change and challenge” for new CEOs: engaging the board. DBS’s Piyush Gupta sums up the mindset that differentiates the best from the rest. “Most people, and most boards actually, think of themselves as governance bodies,” he says. “I’ve had a very different approach. I believed from day one that the board is a partner to the business.”

Below is a summary of how the mindset of helping the board help the business translates into three main dimensions that CEOs should influence while engaging the board—capability, relationships, and meetings. Getting board effectiveness right is a high-value endeavor: Research shows that it’s strongly correlated with better performance and higher market valuations, and it also acts as a repellent to unwanted activist investors.

Even if you’re not a CEO of a big public company, many lessons from those who are still apply. Ask yourself: Who is my independent advisory board (even if informal) that both advises me and holds me accountable for my commitments? What are the skills these people have that are important to me, and are any missing? Are they connected with, and do they understand, my context well enough for their guidance to be relevant? How radically transparent am I with them about where I am and what I need? Do we talk in some depth both about managing risks and capturing opportunities? Whose advisory board am I on and what have I learned as a result?

STAKEHOLDER CONNECTION MINDSET

Start with “Why?”

Everyone’s important. Trouble is trying to figure out why. —Emory R. Frie

While it’s hard enough running a business and managing a board, today’s CEOs find that they must interact with stakeholder groups more often than they ever could have imagined. As Microsoft’s Satya Nadella puts it: “The job is all about customers; it’s all about partners; it’s all about your employees, your investors, governments. It’s all about all of them, all the time.” In fact, how well a business performs can be linked to how well a CEO handles such interactions. Research shows that a company’s relationships with external stakeholders can influence as much as 30 percent of corporate earnings.65 Further, stakeholder engagement can impact a company’s fortunes significantly and unexpectedly. What happens when a crisis hits varies dramatically based not just on how a leader responds to the situation, but also on what they’ve done beforehand to build trust and credibility (or not) with various stakeholder groups.

Most CEOs understand this reality, and in turn ask their public relations departments to help them maintain good relationships with stakeholders. The focus is predominately on who to talk to, about what, and when. The best CEOs, however, start with the question of “why?”: Why is our company worthy of operating in society? Why are we relevant to each of our stakeholders? Why are each of our stakeholders relevant to us? Why are they choosing to do whatever they might be doing? By deeply understanding the motivations, hopes, and fears of their constituents, excellent CEOs create strong bonds with the outside world that help the business prosper in the long run.

In the chapters that follow, we’ll discuss the ways in which a “why?” mindset translates into practice in each of the three dimensions of the role of dealing with stakeholders: embracing social purpose, shaping strong relationships, and leading through moments of truth.

CHAPTER 13

Social Purpose Practice Impact the Big Picture

Definiteness of purpose is the starting point of all achievement. —W. Clement Stone

The best CEOs create the kind of “shared prosperity” that Mwangi describes by…

… clarifying their company’s societal “why?”

… embedding it into the core of the business

… using strengths to make a difference

… making a stand when it’s warranted

Clarify the Societal “Why?”

The notion of an organization having a social purpose is anything but new. On March 8, 1960, Dave Packard, cofounder and later CEO of Hewlett-Packard, addressed HP’s training group. “I want to discuss why a company exists in the first place,” he began. “In other words, why are we here? I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company’s existence, we have to go deeper to find our reasons for being.” Packard proceeded to share his view that firms exist to “make a contribution to society.” He went on to explain how HP had a responsibility to make a major contribution to the advancement of science.

Embed Purpose into the Core

Some critics roll their eyes at CEOs who talk about social purpose, questioning whether it has any real bearing on how the company operates. They have a point. Given the public pressure to talk about a company’s social purpose, many CEOs are increasingly engaging in “woke-washing.” That’s when a company says it backs a good cause but continues to do harm to vulnerable communities. By contrast, 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.”

Use Strengths to Make a Difference

As with social purpose statements, many look at CSR/ESG reports cynically. The best CEOs welcome the scrutiny because they know that purpose is reflected in their company’s soul. DSM’s Feike Sijbesma explains, “We abandoned our CSR report and integrated all our activities and angles into our annual report. The core of our business needed to make money by contributing to a better world. I wanted purpose, CSR if you want, in the core of our competencies and businesses. This helped sustainability become both our purpose and business model. Sustainability became sustainable.” Sijbesma’s ethos has landed the company on Fortune’s Change the World list three years running for its leadership in corporate sustainability and Sijbesma himself was awarded the UN Humanitarian of the Year award while CEO.

Make a Stand When Warranted

The best CEOs don’t confuse their personal passions for their company’s principles. It’s critical for CEOs to get the views of their senior team, board, and rank-and-file employees on when they should speak as an individual and when as a representative of all the company’s constituents and stakeholders.

Today, more than ever, social purpose has a business purpose. The best company builders, however, have always known profits and purpose are inextricably linked. In keeping with Viktor Frankl’s observations back in 1946, social purpose has far more impact beyond the higher profits it can bring.

The best CEOs capture the full impact that social purpose can deliver by first getting razor sharp on their company’s societal reason for existing (their “why?”). They then embed their purpose into the core of how the business operates.

A clear sense of social purpose provides a strong foundation on which to build stakeholder relationships. Creating the right connections, however, requires that CEOs stay as attuned to their stakeholders’ “why?” as their own.

CHAPTER 14

Stakeholder Interaction Practice Get to the Essence

You never really understand a person until you consider things from his point of view. —Harper Lee

As with all of the CEOs we spoke to, Voser found the grueling task of stakeholder engagement to be fruitful: “The biggest pleasure of all was that I could open doors that nobody else could open,” he says. Not every CEO experiences managing the external world in the same way the best do, however. Overall, less than 30 percent of CEOs feel they engage effectively with external stakeholders. Those that get it right share a number of commonalities in that they…

… contain the time spent “Outside”

… understand the other party’s “why?”

… gather as many good ideas as possible from the interactions

… maintain a single narrative across all stakeholders

Contain the Time Spent “Outside”

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, but with a high standard deviation.

Once they set the amount of time they want to spend with outside stakeholders, the best CEOs prioritize those meetings based on which interactions help the company live its purpose, deliver on its strategy, and manage short- and long-term risks

Understand Their “Why?”

We devoted the last chapter to the importance of grounding stakeholder engagement in a clear understanding of a company’s “why?” In the same vein, the best CEOs go out of their way to go beyond the “what” and understand their stakeholders’ “why?” Doing so enables more profound connections to be made, conflicts to be resolved, and, at minimum, a baseline of respect to be created from feeling heard and understood

Harvest New Ideas

Most CEOs engage their stakeholders with a clear objective in mind, typically to make a decision, reach an agreement, or achieve an understanding. The best CEOs always have a further objective, which cuts across all of their stakeholder interactions: to harvest new ideas that can make the business better.

Inspiration can come from stakeholders other than customers. Suppliers, partners, and even politicians can spur powerful new thinking

Maintain a Single Narrative

With so many stakeholders to interact with, the best CEOs know it’s a fool’s errand to try to manage different messaging for each. 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 (as we discussed in the last chapter), but in relation to all aspects of the business.

Managing the Outside is an essential part of managing a business. “Relationships with our stakeholders—governments, dealers, suppliers, unions, and communities—aren’t a nice-to-do,” confirms GM’s Mary Barra. “That’s part of running the company well.” As we’ve seen, engaging stakeholders requires an inordinate amount of work, which can consume a significant amount of a CEO’s time. Make no mistake that it’s hard work, too. Whereas a CEO has direct authority over employees, they have none over the many stakeholders who can influence the company’s destiny. Further, stakeholders are scrutinizing companies more than ever, and activists are developing increasingly sophisticated tools to attack management.

That said, the best CEOs, as Esquel’s Marjorie Yang puts it, “mitigate the common trap of spending too much time with external groups and not enough time with their own colleagues.” They build a container that sets boundaries and optimizes time spent with stakeholders and make each interaction as productive as possible by understanding and connecting with the other party’s “why?” In addition, the best CEOs approach every contact outside the company as an opportunity to harvest new ideas to take back to make their businesses better. Finally, excellent CEOs maintain a single narrative over time with all stakeholders—enhancing credibility and adding simplicity to managing an otherwise complex external landscape.

The value of strong relationships with stakeholders is always important, but when a crisis strikes, stakeholder relationships become make-or-break.

CHAPTER 15

Moments of Truth Practice Stay Elevated

There’s no harm in hoping for the best as long as you’re prepared for the worst. —Stephen King

A crisis can end an otherwise great CEO’s tenure, or it can be deftly used to propel the company to new levels of postcrisis performance. The swing factors between the two extremes are the extent to which a CEO…

… stress-tests the company regularly

… creates a command center when a crisis hits

… maintains a long-term perspective

… shows personal resilience

Stress-Test the Company Regularly

Virtually every company uses some form of forecasting methodology to predict the future. The better companies do such forecasting based on a “best,” “middle,” and “worst” case scenario. By contrasting the extremes, contingency plans can be made to mitigate downsides and maximize upsides. The best companies go one step further and also stress-test their company’s ability to respond to a small number of “black swan” events: crises that are rare, severe, but often obvious in hindsight.

Stress-testing on multiple fronts can reveal patterns across various scenarios that CEOs and their teams can use to create crisis-management playbooks.

Even if a crisis doesn’t arise, regular stress-testing can reveal opportunities to make a business more resilient.

Beyond business challenges, stress-testing also shines a light on the importance of managing Peter Drucker’s “meaningful Outside” stakeholders that we discussed in the previous chapter. As Baker says, “You’ve got to build goodwill with stakeholders when you don’t need it. Look at it as a currency you’re saving up over time. I sat on the board of U.S. Bank. They built a ton of currency in the form of trust and credibility with regulators before the financial crisis. They did it by being transparent, not getting into subprime lending, and overall being a good citizen. This changed how they were perceived and it influenced how they were treated when the crisis came. If you’ve built goodwill, you’re innocent until proven guilty, instead of the other way around.”

Create a Command Center

When a crisis hits, here’s what CEOs should expect: There might have been serious damage to the community, customers, livelihoods, and/or the environment.

In the middle of this chaos, too often companies only issue cryptic statements to the outside world as they wait for more facts and hope that things turn out to be not as bad as they seem.

A key role of the command center is to coordinate and enable good communications internally and externally.

Maintain a Long-Term Perspective

If you’re the captain of a battleship and are hit by a torpedo, what do you do? The best send a portion of their crew to contain the hull breach but themselves stay on the bridge, increase speed to full, and deploy the rest of the crew to keep fighting the war. When a crisis hits a company, a similar ethos applies. Many crises directly affect one or two parts of an organization, and it’s up to the CEO to keep everyone else focused on driving the business forward. CEOs need to provide a broad sense of calm and perspective so all employees can continue to do their best work. Even when the whole organization is affected, “What people need in a crisis is not just constant communication,”

Show Personal Resilience

A crisis is a moment of truth not just for the institution, but also for its leader. When a debacle hits, the best CEOs know that their stakeholders’ anger will likely center on them and in ways that affect their family and friends. They must prepare for one-sided reporting, parody on social media accounts, protestors showing up at their home, and their family being targeted online. The spotlight rarely fades away in a matter of days, weeks, or even months—it often last years.

Being resilient enough to depersonalize the role, respond to individual criticism in a thoughtful and measured manner, and stay grounded in the company’s values isn’t easy. The best CEOs know that the process is greatly aided by sleep, short breaks (as Hainer role-modeled in going for a walk to gain perspective), nutrition, exercise, and quality time with loved ones.

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. While putting all this in place, these CEOs take a long-term view, have the resilience to withstand personal attacks, thoughtfully respond to criticism, and keep the company’s “why?” in the forefront of decision-making.

We’ve now discussed how the best CEOs navigate the tricky and sometime treacherous role of engaging with their stakeholders. Among the many insights and examples, we learned about Shell’s Peter Voser, who went to great lengths—including traveling to far parts of the world at a moment’s notice—to engage with his most important stakeholders. We saw how Lockheed Martin’s Marillyn Hewson successfully reacted to President-elect Trump’s negative tweet about the F-35 program by understanding the “why?” behind his comments, and how Mary Barra skillfully navigated GM through its ignition crisis by being transparent with all parties involved.

Below is a summary of how the mindset of connecting on the “why?” with stakeholders—a mindset that research suggests materially affects up to a third of corporate earnings—translates into three main dimensions of stakeholder engagement: demonstrating social purpose, shaping strong relationships, and leading through moments of truth.

Even for readers who may not be CEOs, these lessons can be valuable for navigating the “Outside” of an organization or a project. Ask yourself: Am I fully cognizant of how what we’re doing will have a big-picture impact on society? What are the tangible things I can point to that indicate we’re making progress to that end? How are we using our strengths to give back to society? Are we speaking out on social issues that matter to us? Do we limit time spent engaging stakeholders to what is appropriate? Who are my most important stakeholders and what is the “why?” behind what they do? What new ideas have I harvested from stakeholder interactions? Am I telling a consistent story across stakeholders? Are we “stress-tested” against inevitable crises that will happen? Do I have a personal resilience plan in place that will enable me to keep perspective and have sound judgment during a crisis? Every leader can benefit from having good answers to such questions.

We’ve now discussed five CEO mindsets and practices that separate the best from the rest. We just spoke about maintaining personal resilience amid moments of truth, which moves us seamlessly to the topic of leading oneself—having a personal operating model that enables a CEO to keep all the plates spinning that need to be spun.

PERSONAL EFFECTIVENESS MINDSET

Do What Only You Can Do

There is nothing so useless as doing efficiently that which should not be done at all. —Peter Drucker

The various CEO responsibilities we’ve discussed in this book often require a soul-crushing schedule. To meet this challenge, the best make sure they’re both psychologically and physically fit—no easy task. As Majid Al Futtaim’s Alain Bejjani puts it, “Leading yourself is the most difficult and the most daunting task. It requires the most courage.”

Daunting is right—so much so that not every CEO we spoke to felt they could give advice on the topic. As one CEO said to us, “I felt like I was walking through land mines every day. I didn’t thrive, I just didn’t get blown up. It’s a lot of work.” Having said that, they also recognized that—more than with any of the other areas—managing personal effectiveness was under their control. As Mastercard’s Ajay Banga pointed out, “If you, as the CEO, can’t figure out what matters to you, and if you’re not willing to make the time for it, then it’s your problem. Nobody can help you.” In fact, this topic was seen as so essential and difficult that many of the CEOs we spoke to suggested it should be the first chapter of any discussion about the job. We’ve left it to the end only because we felt it was important to first deeply understand the assortment of responsibilities placing demands on a CEO’s energy. After all, almost 50 percent of chief executives say that the role is “not what I expected beforehand.”

The choices the best CEOs make to manage their personal well-being and effectiveness are precisely that—personal. There are, however, some commonalities. In the words of Galderma’s Flemming Ørnskov: “People are successful operating in very different ways. But if I look at the CEOs I admire and know well, I think they all display discipline.” Ørnskov’s observation raises the question: 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.”

The best CEOs “do what only they can do” in managing the three crucial dimensions of personal effectiveness: using time and energy, choosing a leadership model, and maintaining perspective.

CHAPTER 16

Time and Energy Practice Manage a Series of Sprints

I must govern the clock, not be governed by it. —Golda Meir

Rørsted’s approach certainly isn’t for everyone, but as we looked across how all of the best CEOs control their time and energy we found a number of commonalities. By and large, they…

… keep a “tight but loose” schedule

… care enough to compartmentalize

… infuse energy into their routine

… tailor their support staff to their needs

Keep a “Tight but Loose” Schedule

It comes as no surprise to find that the best CEOs are extremely structured about how they use their time.

To keep on top of a busy schedule and the demands of the job, some CEOs turn to an old-fashioned technique: making a list. “Even now I handwrite quarterly objectives for myself,”

With all the demands on a CEO’s time, any effective system requires learning when and how to say “no.”

Time management is essential, but also relatively mechanical. Managing one’s mental and emotional state is vital to using the time effectively, and it starts with the ability to compartmentalize.

Care Enough to Compartmentalize

In psychology, the concept of “being in the moment” is vital to high performance. At its core, it means that one isn’t preoccupied with thoughts of the past, future, or other events in ways that would detract from being the best one can be.

Being fully in the moment applies as well to home life. Doing so is vital given the impact the job can have on family.

While at home, there are also methods to keep non-urgent work at bay.

The best CEOs also proactively protect vacation time.

Infuse Energy into Your Routine

Leading researchers in the field of energy management have long asserted that managing energy levels is as important as managing time, and can have a bigger payoff. As Best Buy’s Hubert Joly points out, “In physics, we learned that energy is finite. It’s not true in human dynamics. Energy is something you create out of nothing.”

Beyond managing their energy during the workday, excellent CEOs also find ways to recharge their batteries outside of work.

Excellent CEOs also know that recovery time is important for others as well.

Tailor Your Support to You

To get to the kind of outcome Nadella describes, it’s crucial for the CEO to have a strong office staff. The best CEO’s personal team always includes a talented, dedicated administrative assistant, if not two, who manages the calendar and logistics for travel and events. The assistant explicitly helps the CEO manage their time by making sure it’s focused on priorities and they look after the boss’s energy by building needed recovery time into the schedule.

A CEO shouldn’t manage their role as a continuous sprint or, like holding a glass of water in the air for a day, they’ll likely end up in an ambulance. At the same time, a marathon isn’t really an apt analogy either, as there’s little room for slow and steady in the highest echelons of the business world. Interval training—alternating short, high-intensity bursts of activity with periods of rest and recovery in between—fits the bill. It allows for more work to be done in a shorter period of time as part of a sustainable pattern.

The best CEOs do this by keeping a “tight but loose” schedule—one that is highly structured but flexible enough to deal with unplanned issues. They compartmentalize, making the conscious choice to be in the moment with those they’re with whether at work or at home. They infuse energy into their routine, avoiding energy troughs and ensuring enough recovery time is built into their schedules so they won’t burn out. Finally, they tailor their personal support structure to their needs and preferences, which allows them to maximize their impact on the company.

We’ve discussed what CEOs do to manage their time and energy. The best put the same discipline into showing up as mindful leaders day-in and day-out.

CHAPTER 17

Leadership Model Practice Live Your “To-Be” List

Doing is never enough if you neglect being. —Eckhart Tolle

The best CEOs, like Fisher and Smith, have a number of things in common when it comes to how to “be” at work. They…

… act in a way that is consistent with their strengths and values

… adapt their leadership to what the company needs

… embrace and act on feedback in the spirit of continuously growing as a leader

… provide hope for the future in all situations, no matter how dire

Show Consistency of Character

Consistency of character means following the same principles in all circumstances. Consider the role of being a parent. When children observe their parents compromising their principles—“Junior, even though we ask you to tell the truth, it’s okay to say you’re younger than you really are to get a discount at the movie theater”—they learn to do the same. Kids also learn to predict a parent’s inconsistency and figure out how to get around the rules. By waiting until a parent is busy or tired, they can slip things by. Leadership is similar in that all eyes on are on the person in the most senior role. Best Buy’s Hubert Joly, whose book is titled The Heart of Business: Leadership Principles for the Next Era of Capitalism, describes the dynamic at play: “It’s important to lead not just with your head but also your soul and your heart. When CEOs act consistently in these ways, their principles get translated to the organization, not top down but organically.”

Adapt to What the Company Needs

Being consistent doesn’t mean that CEOs should be inflexible. Without betraying their core values the best are willing and able to modify how they lead if the circumstances demand it.

Seek to Continuously Grow

Given the level of scrutiny directed at CEOs, one might think that they’re swamped with continuous feedback. This couldn’t be further from the truth. As we’ve discussed, the CEO role is peerless. While the board oversees the CEO, no one closely observes their daily behavior. As a result, CEOs generally receive very little direct coaching and are increasingly isolated from constructive criticism. “When you get the top job, people always put their best face on when they come to see you,”

Continuous learning takes courage. “We have this image of the CEO as the superstar,” Best Buy’s Hubert Joly explains. “The notion of vulnerability in a leader is a recent notion. We have to accept our imperfections. If we expect perfection of ourselves and of people around us, it’s very dangerous. We’re going to become angry. 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.”

Always Give Hope

In Richard Boyatzis, Frances Johnson, and Anne McKee’s book Becoming a Resonant Leader the authors discuss how neurological and psychological research has shown that the leader’s mood is quite literally contagious, spreading quickly throughout a company. When issues arise, if the CEO is angry, fearful, or uncertain, those feelings will permeate through the company. On the flip side, if CEOs look for opportunity, have hope, and show resolve, the organization will follow suit.

Best-selling American writer Kurt Vonnegut famously coined the phrase, “I am a human being, not a human doing.” Indeed, when most people take a quiet moment to reflect on what leaders they’re most inspired by, the answer rarely seems based on leaders’ specific acts of “doing” but rather, the nature of their “being.” This is why the best CEOs strive for continual clarity as to who they want and need to be in the role.

The starting point is to connect with one’s convictions and to stay authentic to a set of core beliefs regardless of the circumstance. At the same time, the best are willing to adapt their leadership style to suit what the company needs from them, as long as it doesn’t violate their core beliefs. To make such a shift, they proactively seek feedback since they’re unlikely to receive honest and constructive advice otherwise. All the while, they ensure employees have hope for the future.

We’ve now discussed how CEOs approach the doing and being aspects of personal effectiveness. We’ll conclude our discussion by stepping back and seeing how the best CEOs keep their role in perspective.

CHAPTER 18

Perspective Practice Stay Humble

A large chair does not make a king. —Sudanese proverb

The best CEOs keep their job and themselves in perspective by…

… never making it about themselves

… embracing servant leadership

… creating a diverse “kitchen cabinet”

… displaying genuine gratitude for the opportunity to sit in the chair.

Don’t Make It About You

Make no mistake, maintaining an attitude of “it’s not about me” while holding one of the most powerful positions in world—one that brings with it an element of celebrity—isn’t easy. This may explain why the best CEOs go one step further and embrace a servant leadership mindset.

Embrace Servant Leadership

Hastings’s experience sheds light on the paradox of servant leadership—a leader serves because they are the leader, meanwhile they are the leader because they serve.

Another way for a CEO to engage in servant leadership is to think of the organization as an inverted pyramid with the customers and frontline workers on the top of the chart and the leader on the bottom.

Create a Diverse “Kitchen Cabinet”

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.

Feel Gratitude

Gratitude is another word that most wouldn’t quickly equate with CEOs, but when it comes to the best, they should.

Gratitude for the role isn’t just a “feel good” emotion. Psychology tells us it also relates to improved health and increased ability to deal with adversity, and it increases one’s ability to build strong relationships. In turn, a virtuous circle is created: CEOs who feel gratitude tend to perform better, and in having a positive impact, their gratitude only increases.

There’s no question that great CEOs are productive, successful, and confident. It would be easy to assume they’re therefore cocky, arrogant, and easy to dislike. This couldn’t be further from the truth. The best CEOs proactively take steps during their tenure to maintain a humble perspective. They realize that in the scheme of one’s lifetime, the time spent in the role will very likely be relatively small, and that holds for even the most successful and longest tenured. They’re also aware that humility isn’t a box to be ticked: It’d be easy to be proud of showing humility. The goal isn’t to succeed at being humble so much as to surrender to it.

To accomplish that surrender, the best CEOs never make it about themselves. They take concrete steps to stay grounded in their role as a servant leader. They create a diverse kitchen cabinet to ensure they’re getting the truth and not getting caught up in themselves. Finally, they display a deep and genuine sense of gratitude for the opportunity to lead at the very highest levels and are keenly aware of the obligations that come with such a position.

We’ve now discussed how the best CEOs manage their personal effectiveness, which is essential for keeping all of the different plates spinning. Though everyone’s personal management model is unique to them, the best CEOs apply a “do what only I can do” mindset to the three dimensions they can control: using time and energy, choosing a leadership model, and maintaining perspective.

These lessons from the best CEOs in managing personal effectiveness are applicable to any leader. What are your priorities and is your time allocated appropriately to them? Do you fill your schedule so full that unexpected events throw you into a panic? Are you able to be fully present in every interaction, or are you preoccupied with the past or future? How have you structured recovery time into your routine? What gives you energy and are you making enough time for those things? What mechanisms help you manage your time and energy? What qualities of character as a leader do you embody? How do you get feedback on who you are as a leader and what do you do with it? Do you generate energy for others by defining reality and giving hope? Do you have a small group of advisors who are a candid sounding board? At the end of the day, is it all about you or are you driven by the humble pursuit of a greater good?

We’ve now covered the mindsets and practices that separate the best from the rest. However, understanding the key parts of an engine (e.g., the crankshaft, connecting rod, camshaft, valves, cylinder, and piston) doesn’t explain how an air-fuel mix ignites to create a power stroke that generates the force required for movement. The question remains: How do they all fit together?

Conclusion

Your big picture will never be a masterpiece if you ignore the tiny brush strokes. —Andy Andrews

Looking ahead, these issues—and many more we can’t even imagine—will keep consuming the attention of our leaders. Whatever the future brings, we believe, however, that the best CEOs of the future will be even more…

… Ethically accountable: The real-time transparency and activism that social media brings will hold CEOs to higher standards of personal and company conduct, diversity and inclusion, philanthropy, leadership principles, and corporate culture.

… Diverse: CEOs who reflect greater diversity in gender, race, ethnicity, and class will finally put a nail in the coffin of the outmoded “CEO as the hero” image and will adopt best practices such as servant leadership, continuous growth, and humility.

… Resilient: Escalating demands on a CEO’s time and energy combined with increasing public scrutiny will make the role increasingly frustrating and exhausting. Having a thick skin and an effective personal operating model will no longer be table-stakes to thrive but to survive.

… Impactful: As CEOs are called on to serve as societal leaders, using their voice to advocate for policies that benefit many stakeholders, the impact they can have in the role will increase, making the job both more fulfilling and challenging.

We started our search for CEO excellence by narrowing down the pool of twenty-first-century CEOs to the very best. We now realize that the screens we used were nothing more than a proxy for how well a leader helps others achieve things that they never imagined they’d be able to do. That’s something every leader can aspire to, and we hope that this book has increased your ability to do so in whatever leadership position you may hold.

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