How To Navigate Each Phase Of The CEO Journey

The myth of the omnipotent CEO is ever-present in today’s discourse on leadership—as is its counterpart, the corporate villain whose failings are all too clear. This mythologizing is highly flawed, popularizing badly misguided notions about how CEOs succeed. People hear about the highest of highs and the lowest of lows, and precious little about the messy middle characterizing the path from point A to B.

As advisers to both new and long-serving CEOs, we’ve seen the reality first-hand: Even the highest performers don’t start the job as fully formed forces of nature. Many had serious deficits they worked hard to correct and still struggled mightily with the evolving challenges of the role, not only in the early going but throughout their tenures.

We saw an opportunity to reframe the common narratives about superior CEO performance. Rather than listing the characteristics of high-performing leaders, we sought objective data about the stages of development CEOs traverse to excel. We analyzed the individual performance of every 21st century CEO of the S&P 500. Then we had in-depth conversations with more than 100 CEOs around the world. Our research, detailed in our new book, The Life Cycle of a CEO: The Myths and Truths of How Leaders Succeed, reveals a groundbreaking road map for CEO success.

The constant in a leaders’ journey is that there are challenges. How they manifest evolves over time, from the experience candidates bring to the CEO position to how they must constantly adjust and reinvent themselves on the fly. The good news? It’s possible to predict the challenges CEOs are likely to face at critical inflection points throughout their tenure. Is it possible to prepare for anything and everything? No. But we’ve identified ways for CEOs to navigate these challenges and bend the performance curve toward greater, more lasting success.

At the start: Get aligned with your board

While CEOs feel the first year in the job is like drinking from a firehose, it’s a period when leaders often are swept up in a powerful “honeymoon” tailwind of optimism: in the 20-year period we analyzed, companies on average outperformed the U.S. benchmark Standard & Poor’s 500 equity index by 10 percent in a CEO’s first year. CEOs may not truly grasp the issues that need to be confronted because everything appears important and urgent. In particular, this early period is the time for CEOs to invest in building relationships with the board as a whole and individual directors. Boards, more than the CEO, can develop inflated and unrealistic expectations in this “launch” period, which the CEO needs to manage before inevitable challenges arise. Many CEOs lamented not working harder early on to get to know directors and build alignment. “What I tell every CEO is, ‘You don’t want to be out on a limb by yourself. You want to make sure that you and the board are in alignment, particularly in these early days,’” Cheryl Grisé a director for MetLife and ICF, told us.

Prepare to hit a “buzzsaw”

Here’s the bad news for CEOs who enjoyed a honeymoon period in their first year in the role: we found 73 percent realized lower returns in their second year. And it wasn’t a small slump, with CEOs caught in a downdraft losing 21 percent of total return to shareholders (TSR) on average. “Somewhere in the first 12 to 18 months you are going to run into a buzzsaw,” Enbridge CEO Greg Ebel told us. “You won’t know what it is.”  In this period even more than others, perception matters: often the core problem is the perception of mediocre performance, which makes powerful, persuasive and frequent communication with boards, shareholders and analysts a CEO priority. No matter how often a CEO is communicating at this stage, it’s probably not enough. Stakeholders are looking for assurance that the CEO and leadership team are on top of the challenges they face. The most effective CEOs treat questions about performance, whether from the board or shareholders, as opportunities to demonstrate how well they have assessed and addressed issues. They provide detailed information about the logic behind the company’s decision-making or their assessment of results.

Take advantage of the upswing

Smart moves and investments in building trust with the board and stakeholders during their first two years often begin to pay off for CEOs in their third year, when investors can see positive outcomes and signal support. The most successful CEOs leverage that confidence to reinvigorate their tenure and reinvent the business by launching large-scale initiatives such as pursuing merger and acquisition opportunities, stepping up research and development, launching important new products or pursuing ambitious global growth. Hubert Joly told us he developed a mindset of thinking of his career in terms of chapters, which spurred his pursuit of a “next-phase” strategy for Best Buy to build on the success of his turnaround strategy. “The length of my chapters is typically three or four years,” he said, “because it takes a few years to get where you’re going. Then you pause and say, Where do we want to go next?”

This period is an important inflection point for CEOs, where we see a significant divergence between high performers who embrace reinvention and vigorously invest in growth and low perfomers who don’t. We found 25 percent of CEOs are out of office by the end of their third year, and the highest “dropout” rate is year four, when 10 percent leave. By the end of year six, half of all CEOs from year one have departed.

Beware of complacency—your own and in the organization

Our research found a gradual deterioration or stagnation of company performance is common around five years into a CEO’s tenure. For two-thirds of CEOs, performance is lower on many measures in years six to 10 than in their first five years. Some gave up the gains of their first five years entirely. The critical lesson? CEOs must avoid status quo bias, remaining vigilant about threats and opportunities and continuing to push change and growth, both individually and for their companies. High-performing CEOs in this stage combated complacency in every way. Nigel Travis, the long- serving CEO of Dunkin’, told us he took his team through exercises designed to get them thinking differently about the business, for example considering how a private equity firm would see value in the company. They regularly examined potential disruptors to the business—from catastrophic events to longer-term developments such as shifting demographics and advances in technology. Travis also regularly tapped into outside perspectives, including meeting with MBA students and seeking out critiques from analysts and investors. “It really enhances your understanding of the competition and broadens your external perspective enormously,” he said.

Pay it forward

There’s long been a rule of thumb that 10 years in the role is about the limit for CEOs. Our research lays that myth to rest: while just 26 percent of CEOs are still serving for more than a decade, 58 percent of those who do beat the S&P 500 in these years—a larger percentage than at any other stage of the Life Cycle. At this point in their tenure, CEOs must balance the dual mandate to keep pushing hard to drive performance while also preparing to hand over the reins—a tricky and often psychologically challenging responsibility. That stands to reason: after so many hours and years working in the job, many CEOs find that it is core to their identity. Some fear the loss of relevance, status or power, especially when they don’t know what’s next. But the most successful CEOs find a new “why” for themselves, disentangling their role as CEO from their identity. This requires a mindset of focused concern around ensuring a smooth transition that maximizes the odds of ongoing success, while recognizing the temptation to stay too long, like an athlete reluctant to walk away from the spotlight. Former CVS CEO Larry Merlo beautifully expressed this orientation, telling us he felt good about stepping down because he could say to his successor, “The seeds of transformation are planted. I left you a strategy you can finish out. That gives you enough time to write the next chapter.”

There is no strict formula for CEO success. Outperformance is never assured, even for the most experienced and skilled CEOs. The single most important insight we gleaned from the six years we spent researching and writing The Life Cycle of a CEO is the need for leaders to prepare as best they can and then be willing to start anew every day. Even the most successful CEOs go through periods of doubt and failure and the feeling of being overwhelmed by the internal and external demands they face. CEOs, now freed from the mythologizing of the past, can chart their own path, recognizing the role’s inherent challenges and frustrations, learning and adapting, and taking advantage of the moments that matter.