What separates the merely good CEO from an outstanding performer? In today’s world of digital disruption, with markets rapidly changing and companies being upended by startups, getting this question right has become more important than ever.
In an effort to do just this Russell Reynolds Associates, in partnership with Hogan Assessment Systems, led a research effort to measure the impact of leadership on a company’s growth. The effort was spearheaded by RRA’s Dean Stamoulis who leads the search firm’s Center for Leadership Insight.
RRA and HAS chose an in-depth approach using a proprietary psychometric database of 200 global CEOs using the results of three well-established psychometric instruments: the Sixteen Personality Factor Questionnaire (16PF), which provides an overall measure of adult personality, including interpersonal skills, emotional factors, resiliency and communication style; the Occupational Personality Questionnaire (OPQ-32), which measures management and leadership style and behavior, including how people try to influence others, their approaches to innovative thinking, and self-motivation; and the Hogan Development Survey, which measures areas for development or potential derailing factors in managers and executives, including their decision-making style and independence of thinking.
They compared the trends with another global sample of 700 CEOs and with a separate sample of non-CEO executives in their proprietary database of 9,000 senior leaders. (To make the performance link, according to Stamoulis in the Harvard Business Review, the reseachers applied a quantitative hurdle of 5 percent compound annual growth rate during the CEO’s tenure.)
While the study confirmed that CEOs in general are more likely to be risk takers than other executives. They also found six other traits that differentiate the typical CEO from other executives on a statistically significant basis:
1. Drive and resilience
2. Original thinking
3. The ability to visualize the future
4. Team building
5. Being an active communicator
6. The ability to catalyze others to action
They did not find that leaders are consistently extroverted or self-promoting.
While this study is broadly accurate, there are other nuances that may be equally important. According to researchers at McKinsey the best-performing CEOs “move boldly and swiftly to transform their companies.” Michael Birshan, a McKinsey partner involved in a study of 599 CEO transitions, argues that, “chief executives in underperforming companies are much more successful in generating outsized returns if they pull multiple levers at once.”
For example, he says, “If you’re in an underperforming situation, use the whole playbook, throw the kitchen sink at it. The data shows that chief execs inheriting poorly performing companies, who made four or more strategic moves in the first two years, achieved, on average, annual TRS growth 3.6 percentage points ahead of peers. But their less bold counterparts who used one or two or three moves were only 0.4 percent ahead. So there’s a real difference if you’re behind in going bold and going hard.”
A third perspective
The good CEOs, says Ram Charan, a preeminent adviser to CEOs and boards, “know it takes more than analytics. They take in a lot of information from many sources and then crystallize a point of view. They sort and sift the information and select the handful of factors that matter most—usually no more than six—from the myriad possibilities. That’s what they’ll base their decision on. They cut through the complexity to get to the heart of the matter, without getting superficial. And they do it without losing sight of the customer.”
Clearly, there are definitive markers for best-in-class business leaders. They value substance and going straight to the core of the issue. They have a greater focus on the organization, outcomes, results and others than on themselves. But at the top of the list, observes RRA’s Stamoulis, “should always be the ability to embrace effective and appropriate risks and the ability to act on opportunities in high-stakes situations— especially when the “right” action is not initially clear. These are the headlining traits that separate CEOs from other senior executives.”