Aller Anfang ist schwer. (Germany)Meaning: All beginnings are hard.
As with most learning, youâll get more out of our CEO School, if you do a little pre-reading. And, as with most books, we wonât begin at the beginning but before it. Letâs get the essential background and key facts and figures out of the way first, so that we can all start learning in the same place and from the same base. But before we even do that, letâs take a look at a job ad.
Wanted: An Outstanding Professional Leader
Skills: Must be a gifted communicator who knows exactly when to stop communicating and start taking action. Only big-picture thinkers with an eye for detail need apply. Also must be able to see clearly into the future , so as to deliver both short- and long-term gains for investors and all other stakeholders . (Note: please supply your own crystal ball.) Essential to be able to spot, nurture and challenge talent . (Note: please supply your own mind-reading equipment.)
Experience: You are a proven financial and strategic wizard who is prepared to take risks âbut not in a risky kind of a way. In addition, you know absolutely everything about the businessâbut without thinking you know everything (which would be disastrous). You have changed jobs at least ten times and worked in multiple geographies and functionsâbut must be able to demonstrate continuity of experience.
Attributes: This is a job for a gregarious team player, well fitted to coping with the loneliness of life at the top. Applicants should also have ruthless empathy , expert common sense, rigorous creativity and unerring good luck. The successful candidate can expect a punishing schedule of long hours and global travel , during which he or she will be expected to exhibit boundless and indefatigable energy.
Salary: Will attract relentless attention for being too high.
Yes, the role of the Chief Executive Officer (or, depending on where youâre sitting, Managing Director, President, Head Honcho or just plain Big Boss) is challengingâif not downright self-contradictory at times. And the rewards, though usually generous, will be subject to endless scrutiny.
All the same, the title of CEO is much prized and has spread like wildfire through the English-speaking nations and beyond. Itâs a surprisingly young term, in fact. The first Chief Executive Officers popped up in mid-1950sâ America, and by the mid-1970s, most heads of major US corporations were known, more familiarly, as CEOs. As the 1980s progressed, the good old pinstriped, bowler-hatted, pipe-smoking British Managing Director made way for a dynamic, thrusting new breed of âleaderâ, and by the turn of the millennium, CEO was the dominant term on UK business cards too. Next stop the world.
1.1 Whatâs a CEO Anyway?
Whatever you call it, the job weâre talking about is basically that of the most senior manager within a company . Itâs distinct from the governance and oversight role taken by the external board of directors , although the CEO usually sits on the board and may also be its chair. Of course, this is an oversimplification of a global pattern that has many local variationsâwhich explains why some of our 20 co-authors do not have the job title CEO. But simple is good enough for our purposes.
So much for defining a CEO. How do you define a good CEO ? We agree with our co-authors that it takes a number of factors to make a good business leader. First, a good CEO needs to remain at the top for a significant period of time, if only because, otherwise, there wouldnât be enough data to judge his or her performance. As Vladimir Rashevsky of SUEK (Russia) told us: âYou need at least seven years to leave your mark on a company.â
Rashevsky comes from a country where a staggering 30% of CEOs of the largest companies leave within a year of starting their job. Things are probably a little better in America, where the median tenure of Fortune 1000 bosses in office in 2015 was 3.5 years, but the trend is downwards. The equivalent figure for 2010 was five years, and for 1980 it was seven years. In other words, CEO longevity is not what it used to be. Many business leaders just donât stay long enough to qualify for the label âgood.â Yet the ones who are good usually stay longer than Rashevskyâs suggested seven years. The average tenure of â100 best-performing CEOs in the worldâ identified by Harvard Business Review in 2016 is 12 years.
Not that the length of tenure is everything. Richard Rushton of Distell (South Africa) told us: âI think that the very big danger with long-serving CEOs is that they start to believe their own storiesâand that can be dangerous in a changing world. The longer you serve as CEO, the greater danger that you donât see the wood from the trees.â As with all key performance indicators, the number of years in post should be treated with caution.
Second, no matter how long you stay in the job, you must systematically beat the competition and achieve superior operational and financial results to qualify as a good CEO . In his interview with us, Constantino Galanis of QuĂmica Apollo (Mexico) insisted:
The most important factor has to be growth. And this growth should be higher than the average. Last year we had 35% growth, this year we also plan on 35% growth. This is what enables our company to get ahead, spend money on research and development or diversification. Itâs what enables us to generate new ideasâand bring them to the table and to the market. Even in downtimes we aim for healthy growth.
Third, you have to deliver superior returns to the shareholders of your company . And to do so on a continuous basis. Jeff Immeltâs predecessor at GE Jack Welch became legendary for improving corporate earnings every quarter for most of his 20 years at the helm. Not all our CEOs manage to repeat his record, but they all recognise the crucial importance of this element of their performance.
Both operational performance and value creation for shareholders have to be sustainable in the long term, even if the concept of âlong termâ depends on where youâre sitting geographically. As Chul-Kyoon Lee of Daelim Industrial Co. (Korea) observed, âWe survived 77 years. In Korea very few companies are this old. And we are looking for another 120 years. As CEO, I need to have a corporate foundation for the future for both shareholders and for employees.â
We believe that this âfoundation for the future â perspective is crucial for understanding what makes a good CEO, and it adds the lastâand probably most importantâdimension to assessing achievement: effective succession. Good CEOs leave the company in good enough shape for their successor to carry on doing the same. When our INSEAD colleagues, Herminia Ibarra, Urs Peyer and Morten Hansen, first compiled the top 100 Best-Performing CEOs in the World for Harvard Business Review in 2010, based on long-term performance over entire length in post, they admitted that the âultimate gold-plated list would comprise CEOs whose companies performed well not only during their tenure but after it.â Whatâs more, they noted that they could find very few cases of a highly ranked CEO passing the baton to a successor who was also highly ranked.
Effective succession clearly does not come automatically. For various reasonsâfrom rational desire to keep power indefinitely to deep, dark, subconscious âfear of deathâ after leaving the top job âmost CEOs are reluctant to engage in a comprehensive programme of succession planning and development . As former CEO of BP John Browne noted during an interview (a few years after stepping down): âNobody leaves early enough⌠Try and remember that as you go through your tenure. I forgot it. I think a lot of people forget it. Remembering when to bow off the stage is more important than knowing when to go on the stage.â
Of our 20 interviewees only a few were willing to talk about their succession planning. In fact, Abdel F. Badwi of Bankers Petroleum (Canada), who was actively engaged in finding a replacement for himself at the time when we met with him, spoke of the difficulty of finding and handing over to the right person. âWe were in a search for a CEO, so this is very fresh in my mind,â he sighed, when we asked him questions about the must-have attributes, skills, knowledge and experience of CEOs. But he didnât have any simple answers for usâand perhaps that would be too much to ask for at this stageâbefore his successor has proven himself.
So, instead of expert insights, here are two true stories to demonstrate what we mean by effective succession planning.
A Tale of Two Successions
Danaher is an American multinational corporation operating in the fields of design, manufacturing and marketing of industrial and consumer products. Itâs one of those compani...