Chief Executive Officer (CEO)

In the largest research effort of its kind, McKinsey found that CEOs who insist on rigorously measuring and managing all cultural elements that drive performance more than double the odds that their strategies will be executed. And over the long term, they deliver triple the total return to shareholders that other companies deliver.

Doing this well involves thoughtful approaches to role modeling, storytelling, aligning of formal reinforcements (such as incentives), and investing in skill building.

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They [CEOs] also firmly prohibit members from putting their interests ahead of the company’s needs, holding discussions that consist of “theater” rather than “substance,” “having the meeting outside the room,” backsliding on decisions, or showing disrespect for one another.

Source: McKinsey

Learn more in the alignment and friction prevention category.

Relevant resources:

• Organizational friction
• Organizational anatomy
• Fix organizational bugs

The board’s mission on behalf of shareholders is to oversee and guide management’s efforts to create long-term value.

Research shows that sound corporate governance practices are linked with better performance, including higher market valuations. An effective board can also repel activist investors.

Despite these upsides, many CEOs regard their companies’ boards in the way one CEO described his company’s board to us: as a “necessary evil.” The chairperson leads the board, and even in cases where that role is held by the CEO (as is common in North American companies), the board’s independence is essential. Nevertheless, excellent CEOs can take useful steps to boost the quality of the board’s advice to management such as the following:

Effectiveness: Promote a forward-looking agenda

To get the most from their time with the board, excellent CEOs collaborate with board chairs on developing a forward-looking board agenda.

Such an agenda calls for the board to go beyond its traditional fiduciary responsibilities (legal, regulatory, audit, compliance, risk, and performance reporting) and provide input on a broad range of topics, such as strategy, M&A, technology, culture, talent, resilience, and external communications. Board members’ outside views on these topics can help management without compromising executives’ authority.

In addition, the CEO should make sure that the board and management take up related activities, such as reviewing talent and refreshing the strategy, at the same times of year.

Relationships: Think beyond the meeting

Excellent CEOs develop and maintain a strong relationship with the chair (or lead independent director) and hold purposeful meetings with individual board members.

Establishing good relationships and a tone of transparency early on enables the CEO to build trust and to clearly delineate responsibilities between management and the board.

Building relationships with individual board members positions the CEO to benefit from their perspectives and abilities, and privately discuss topics that may be difficult for the larger group to address.

Excellent CEOs also promote connections and collaboration between the board and top executives, which keeps the board informed about the business and engaged in supporting its priorities.

Capabilities: Seek balance and development

Excellent CEOs also help their boards help the business by providing input on the board’s composition.

For example, the CEO might suggest that certain types of expertise or experience—be they related to industries, functions, geographies, growth phases, or demographics—would enable the board to better assess and support the business.

Source: McKinsey - The mindsets and practices of excellent CEOs

CEOs can also help improve the board’s effectiveness by ensuring that new members complete a thorough onboarding program and creating opportunities for the board to learn about topics like changing technology, emerging risks, rising competitors, and shifting macroeconomic scenarios. First-time board members usually benefit from a structured introduction to what it means to be an effective board member.

Source: McKinsey

Stakeholders may include employees, investors, the board, etc.

Cognitive and organizational biases worsen everyone’s judgment. Such biases contribute to many common performance shortfalls, such as the significant cost overruns that affect 90 percent of capital projects.

We also know that biases cannot be unlearned. Even behavioral economist Dan Ariely, one of the foremost authorities on cognitive biases, admits, “I was just as bad myself at making decisions as everyone else I write about.”

Nevertheless, CEOs sometimes feel as though they’re immune to bias (after all, they might ask, hasn’t good judgment gotten them where they are?).

Excellent CEOs endeavor to minimize the effect of biases by instituting such processes as preemptively solving for failure modes (premortems), formally appointing a contrarian (red team), disregarding past information (clean sheet), and taking plan A off the table (vanishing options).

They also ensure they have a diverse team, which has been shown to improve decision-making quality.

Source: McKinsey

Perspective: Guard against hubris

It’s easy for CEOs to become overconfident. While they must push ahead in spite of naysayers at times, they can also tune out critics once they learn to trust their own instincts. Their conviction can increase because subordinates tend to say only what bosses want to hear. Before long, CEOs forget how to say “I don’t know,” cease asking for help or feedback, and dismiss all criticism.

Excellent CEOs form a small group of trusted colleagues to provide discreet, unfiltered advice—including the kind that hasn’t been asked for but is important to hear.

They also stay in touch with how the work really gets done in the organization by getting out of boardrooms, conference centers, and corporate jets to spend time with rank-and-file employees. This is not only grounding for the CEO, but also motivating for all involved.

Finally, excellent CEOs keep their role in perspective by reminding themselves it is temporary and does not define or limit their self-worth and importance in the world. Whereas Steve Jobs advised college graduates, “Stay hungry, stay foolish,” we urge CEOs to “Stay hungry, stay humble.”

Source: McKinsey - The mindsets and practices of excellent CEOs

Annual accounts.

The purpose of reviewing and nudging priorities, development and support efforts is to ensure continous and ongoing focus, growth and assistance of both teams and individuals.

Use the organizational priorities, development and support reports in order to review the current state of the organization and decide where you want to make a push for improvement during the upcoming week.

Structural capital is the knowledge that remains in the organization when the people go home. It commonly consists of descriptions of processes, roles, policies, etc. Basically, it's the know-how of the organization, written down.

Any team expected to fulfill a purpose, requires know-how on how to effectively, efficiently and predictably deliver on that purpose.

That know-how can exist in the head of individuals (human capital), but writing it down (thereby turning it into structural capital) makes it more easily available, alignable and improvable by everyone.

As CEO, it is your responsibility to follow up on and ensure that team leaders identify, develop and expose the structural capital the team needs to succeed.

Read more about leadership support.

The best CEOs take special care to ensure their management team performs strongly as a unit. The reward for doing so is real: top teams that work together toward a common vision are 1.9 times more likely to deliver above-median financial performance.

In practice, CEOs swiftly adjust the team’s composition (size, diversity, and capability), which can involve hard calls on removing likeable low performers and disagreeable high performers and on elevating people with high potential.

Source: McKinsey

Almost half of senior leaders say that their biggest regret is taking too long to move lesser performers out of important roles, or out of the organization altogether.

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The best CEOs think systematically about their people: which roles they play, what they can achieve, and how the company should operate to increase people’s impact.

Source: McKinsey

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Deliberately developmental organizations don’t just accept their employees’ inadequacies; they cultivate them. Both Bridgewater and Decurion give a lot of attention to finding a good fit between the person and the role. But here “good fit” means being regularly, though manageably, in over your head—what we call constructive destabilization. Constantly finding yourself a bit at sea is destabilizing. Working through that is constructive.

At both companies, if it’s clear that you can perform all your responsibilities at a high level, you are no longer in the right job. If you want to stay in that job, having finally mastered it, you’ll be seen as someone who prefers to coast—and should be working for a different kind of company.

Source: Making business personal

Check out the skillset Organizational identity and the process of improving existence clarity within the organization.

Organizational clarity is the degree to which the employees of the organization understand why the organization exists, where it's going, and their role in achieving objectives and impacting the mission. Organizational clarity is made up of:

• Goal clarity - What are we doing?
• Role clarity - How are we doing it?
• Existence clarity - Why are we doing it?

Learn more about organizational clarity.

Organizational transparency is the practice of sharing information regarding the organization's operations to its people with the intent of creating clarity, trust, and accountability.

Check out the profile Leaders who want to develop a great organization for more information about the skills required in undestanding and practicing this responsibility.

Explore the topic of Organizational development.

The best CEOs take a methodical approach to matching talent with roles that create the most value.

A crucial first step is discovering which roles matter most. Careful analysis typically produces findings that surprise even the savviest CEOs. Of the 50 most value-creating roles in any given organization, only 10 percent normally report to the CEO directly. Sixty percent are two levels below, and 20 percent sit farther down. Most surprising of all is that the remaining 10 percent are roles that don’t even exist.

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The best CEOs ensure that their own role is included so that the board has viable, well-prepared internal candidates to consider for succession.

Source: McKinsey

Moments of truth: Build resilience ahead of a crisis

Good CEOs ensure that their companies have an effective risk operating model, governance structure, and risk culture.

Great CEOs and their boards also anticipate major shocks, macroeconomic events, and other potential crises. There’s good reason to do this: headlines that carried the word “crisis” alongside the names of 100 top companies appeared 80 percent more often from 2010 to 2017 than they did in the previous decade.

Excellent CEOs recognize that most crises follow predictable patterns even though each one feels unique. With that in mind, they prepare a crisis-response playbook that sets out leadership roles, war-room configuration, resilience tests, action plans, and communications approaches. They seek opportunities to go on the offensive, to the extent they can. And they know that stakeholders’ anger will likely center on them, in ways that can affect their family and friends, and accordingly develop a personal resilience plan.

Source: McKinsey - The mindsets and practices of excellent CEOs

Read more about the concept of organizational debt.

Inverted: Avoid a dysfunctional organization.

Check out the survey How healthy is our team/organization or the Team health category in general.

As the top-most leader of the organization, it is ultimately your responsibility to ensure that the different managers within the organization are skilled and effective in practicing leadership and organizational development.

Explore the skills and concepts associated with developing a great organization.

Role clarity is the extent to which employees have a clear understanding of their own roles and the roles of others.

Ensuring and following up on role clarity within individual teams is a responsibility best delegated to individual team leaders, but as the CEO, you have the overall responsibility to ensure that this actually happens, and the general responsibility of making sure that everyone in the organization understand both their own roles, and the roles of others.

Read more about role clarity and its effect on on a healthy organization in this article.

Use the platform features Unclear expectations and Mentorship to identify specific role expectations that are poorly understood or require support.

Team leaders should be responsible for clearly communicating the development potential of their team members. This ensures that everyone in the organization are continously being driven towards their development potential. Everyone, except the CEO, that is.

As the CEO, you should be the most knowledgable person of how to develop a great organization. Unfortunately, this means that you can't expect the people around you to identify and communicate your potential, simply because they don't hold the neccessary skills to point out what you're missing.

Instead, you should constantly be pushing yourself to discover, understand and operationalize concepts relevant for maintaining a healthy, high-functioning and relevant organization in modern day society.

CEOs should limit their involvement in tasks that can be dealt with by others and reserve time to deal with unexpected developments. The best CEOs also teach their "close employees" to help manage the CEO’s energy as thoughtfully as their time, sequencing activities to prevent “energy troughs” and scheduling intervals for recovery practices (for example, time with family and friends, exercise, reading, and spirituality). Doing so ensures that CEOs set a pace they can sustain for a marathon-length effort, rather than burn out by sprinting over and over.

Social purpose: Look at the big picture

Many corporate social responsibility programs are little more than public-relations exercises: collections of charitable initiatives that generate good feelings but have minimal lasting influence on society’s well-being.

Excellent CEOs spend time thinking about, articulating, and championing the purpose of their company as it relates to the big-picture impact of day-to-day business practices. They push for meaningful efforts to create jobs, abide by ethical labor practices, improve customers’ lives, and lessen the environmental harm caused by operations.

Visible results matter to stakeholders; for example, 87 percent of customers say that they will purchase from companies that support issues they care about, 94 percent of millennials say that they want to use their skills to benefit a cause, and sustainable investing has grown 18-fold since 1995.17 And not demonstrating such results isn’t an option—wise CEOs know they will be held to account for fulfilling their promises.

Source: McKinsey - The mindsets and practices of excellent CEOs

Interactions: Prioritize and shape

Excellent CEOs systematically prioritize, proactively schedule, and use interactions with their companies’ important external stakeholders to motivate action.

CEOs of B2B companies typically focus on their highest-value and largest potential customers. CEOs of B2C companies often like to make unannounced visits to stores and other frontline operations to better understand the customer experience that the business provides. They also spend time with their companies’ 15 or 20 most important “intrinsic” investors (those who are most knowledgeable and engaged) and assign the rest to the CFO and the investor-relations department.

Other stakeholder groups (such as regulators, politicians, advocacy groups, and community organizations) also will require a portion of the CEO’s time. The efficacy of these interactions isn’t left to chance. Excellent CEOs know what they want to accomplish, prepare well, communicate audience-tailored messages (always centered on their company’s “Why?”), listen intently, and seek win–win solutions where possible.

Source: McKinsey - The mindsets and practices of excellent CEOs

Vision: Reframe what winning means

The CEO is the ultimate decision maker when it comes to setting a company’s vision (where do we want to be in five, ten, or 15 years?).

Good CEOs do this by considering their mandate and expectations (from the board, investors, employees, and other stakeholders), the relative strengths and purpose of their company, a clear understanding of what enables the business to generate value, opportunities and trends in the marketplace, and their personal aspirations and values.

The best go one step further and reframe the reference point for success. For example, instead of a manufacturer aspiring to be number one in the industry, the CEO can broaden the objective to be in the top quartile among all industrials.

Such a reframing acknowledges that companies compete for talent, capital, and influence on a bigger stage than their industry. It casts key performance measures such as margin, cash flow, and organizational health in a different light, thereby cutting through the biases and social dynamics that can lead to complacency.

Strategy: Make bold moves early

According to McKinsey research, five bold strategic moves best correlate with success: resource reallocation; programmatic mergers, acquisitions, and divestitures; capital expenditure; productivity improvements; and differentiation improvements (the latter three measured relative to a company’s industry).

To move “boldly” is to shift at least 30 percent more than the industry median. Making one or two bold moves more than doubles the likelihood of rising from the middle quintiles of economic profit to the top quintile, and making three or more bold moves makes such a rise six times more likely.

Furthermore, CEOs who make these moves earlier in their tenure outperform those who move later, and those who do so multiple times in their tenure avoid an otherwise common decline in performance.

Not surprisingly, data also show that externally hired CEOs are more likely to move with boldness and speed than those promoted from within an organization. CEOs who are promoted from internal roles should explicitly ask and answer the question, “What would an outsider do?” as they determine their strategic moves.

Source: McKinsey - The mindsets and practices of excellent CEOs

Resource allocation: Stay active

Resource reallocation isn’t just a bold strategic move on its own; it’s also an essential enabler of the other strategic moves.

Companies that reallocate more than 50 percent of their capital expenditures among business units over ten years create 50 percent more value than companies that reallocate more slowly. The benefit of this approach might seem obvious, yet a third of companies reallocate a mere 1 percent of their capital from year to year.

Furthermore, research using our CEO database found that the top decile of high performing CEOs are 35 percent more likely to dynamically reallocate capital than average performers.

To ensure that resources are swiftly reallocated to where they will deliver the most value rather than spread thinly across businesses and operations, excellent CEOs institute an ongoing (not annual) stage-gate process. Such a process takes a granular view, makes comparisons using quantitative metrics, prompts when to stop funding and when to continue it, and is backed by the CEO’s personal resolve to continually optimize the company’s allocation of resources.

Source: McKinsey - The mindsets and practices of excellent CEOs

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