Contributor, Korn Ferry Institute
This Week in Leadership (Nov 22 - Nov 28)
Surging COVID cases have leaders debating their return-to-office plans. Plus, business books for the holidays and tips for launching a second career.
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For decades, the best description of a CEO came from, not surprisingly, Jack Welch.
“Being a CEO is the nuts!” the longtime General Electric boss wrote in his biography, “Straight from the Gut.” “It’s as good as it gets! You get paid a lot, but the real payoff is in the fun.” The fun, for Welch and his contemporaries, usually involved a lot of wine, private jets, and lots and lots of golf. Sure, CEOs had to make money for shareholders and keep customers happy, but it isn’t like those groups were breathing down CEOs’ necks. In the last half of the 20th century, it wasn’t uncommon for a CEO to last as long as 15 years; as recently as 2014, the average tenure was still 10 years at S&P 500 companies.
But being a CEO is not quite as fun these days, of course. Indeed, most are under pressure to deliver results virtually every year or even quarter—or they are being shown the door or resign. Already, some of the biggest names in the business have stepped down this year, and analysts have cited performance as a big factor. Sure, the pay is still good, but few top executives ever want to being branded failures.
CEO tenure has fallen to about eight years—and now 40 percent of all CEO departures are performance related, according to one Dartmouth University study. Yet no one—except maybe some hedge-fund traders—believes short-term performance should be the primary benchmark for a CEO. “Increasingly, boards are realizing there are multiple dimensions to CEO evaluation beyond a singular focus on stock performance,” says Tierney Remick, vice chairman of Korn Ferry’s Board and CEO Services practice. CEOs themselves are realizing there are other stakeholders to be served beyond simply the shareholders too, she says. And it’s taxing: Leading major business transformations is part of a CEO’s job description, but dealing with the transformation of the CEO job itself is not.
While experts debate what specific metrics to measure, there’s a building consensus on what behaviors and actions a CEO can take to help get the best out of the organization. Building the talent bench, for one, is critical to improving the organization’s short- and long-term performance. It’s also cost-effective. Hiring the wrong person for a senior management role costs, on average, $1.2 million, according to a 2016 Korn Ferry study.
Experts also say CEOs need to avoid a mentality of hitting short-term earnings targets at all costs. Even if activists are pressing for the short term, investors are actually more tolerant of planning far ahead than most CEOs realize. According to the Aspen Institute, long-term investors, which make up about three-quarters of the US public markets, are much more concerned if a CEO announces spending cuts on innovation and research than they are if the CEO decides to stop providing future quarterly earnings guidance.
But surprisingly enough, many experts say the biggest driver to performance, in both the short and long term, is to make employees feel engaged at work. Ultimately, engaged employees are the ones who want to rally around the company’s purpose and have enough information to make smart decisions. According to multiple studies, engaged employees are more likely to exceed their managers’ expectations and increase customer satisfaction while at the same time are less likely to leave. And a 2016 Korn Ferry study found that the most highly engaged organizations achieve 4.5 times greater revenue growth than the lowest-engaged firms do. “It sounds simple, but you have to rely on other people to get things done,” says Remick.
Though important, this shift will take some time. Most CEOs don’t have a great track record of improving their employees’ engagement—for decades they didn’t really have to be. But with the time-clock now ticking, experts say the smart CEOs of the future will think of themselves as ambassadors or even politicians. Great politicians, after all, drive performance by inspiring others, says John Smythe, a UK-based consultant and author of “The CEO: Chief Engagement Officer.” “The leader,” he says, “must make the challenge personal.”