Episode #266: What The Best CEOs Do

Achieving Aspirational Performance

Some of the most impactful transformation work that I saw in large industrial firms came as a result of McKinsey’s involvement: everything from procurement to capital productivity, and operational performance.

Last year, three McKinsey partners published a book titled, CEO Excellence: The six mindsets that distinguish the best leaders from the rest.

After examining more than 20 years’ worth of data on 7,800 CEOs from 3,500 public companies, they conducted detailed interviews with 67 high-performing CEOs and synthesized their findings in this book. 

The CEOs interviewed include household names like Mary Barra (GM), Jamie Dimon (JPMorgan Chase), Herbert Hainer (Adidas), Reed Hastings (Netflix), Kaz Hirai (Sony), and Satya Nadella (Microsoft).

In this episode, I look at some of the conclusions that were drawn in the book, and discuss them in a way that provides an enlightening summary, from my humble perspective. My hope is that this will help you transition to the most senior ranks of leadership.

WHAT THE BEST CEOS DO

EPISODE #266 TRANSCRIPT

RARE ACCESS TO THE CAPTAINS OF INDUSTRY 

You probably know I'm a big fan of the global consulting firm, McKinsey. It's the Rolls-Royce of consulting, and along with Boston Consulting Group and Bain, they are collectively known as the MBB firms. I even produced a podcast episode on this a little while ago, Ep.220 Management Consultants: Are they worth it?

Some of the most impactful transformation work that I saw in large industrial firms came as a result of McKinsey's involvement: everything from procurement to capital productivity, and operational performance. I'm a regular consumer of their research papers and articles.

Last year, three McKinsey partners published a book titled CEO Excellence: The Six Mindsets That Distinguish the Best Leaders From the Rest. In putting the book together, they looked across more than 20 years’ worth of data on 7,800 CEOs from 3,500 public companies. And it wasn't just localized to the US, as a lot of research is. It spanned 70 countries and 24 industries to identify CEOs whose actions have led to breakaway success.

They conducted detailed interviews with 67 of these high performing CEOs and synthesized their findings into the book. The CEOs interviewed include household names like Mary Barra from General Motors, Jamie Diamond from JP Morgan Chase, Herbert Hainer from Adidas, Reed Hastings from Netflix, Kaz Hirai from Sony, Satya Nadella from Microsoft: this is the who's who list, right!?

In today's episode, I look at some of the conclusions that have been drawn in the book and discuss them in a way that hopefully provides an enlightening summary from my humble perspective. I hope that it's going to help you to transition to the most senior ranks of leadership.

I'll start by talking a little bit about the six CEO mindsets. I'll then go on to explore the performance imperative. And I'll finish by looking at some of the more interesting findings from the interviews with the world's top CEOs.

So, let's get into it!

THE DRAWBACKS OF RESEARCH

I want to start with a little disclaimer. I'm going to make some comments on the findings of the McKinsey book from my perspective, but I will say that, without a doubt, these CEOs have a lot more experience than me. They've operated at a much higher level and at much greater scale, and they've delivered sustained performance over time.

Don't take my commentary as anything other than a ringing endorsement of their views. My intention is simply to make the findings a little more relatable for those of you who aren't yet running a Microsoft-sized corporation.

I also think it's really important to mention one critical flaw in all research of this kind, and that’s attribution bias. One of my favorite books is The Halo Effect by Phil Rosenzweig. In the Halo Effect, he debunks a whole lot of so-called ‘management wisdom’ from classics such as Tom Peters' In Search of Excellence and Jim Collins' Good to Great.

Rosenzweig concludes that they're based on misguided thinking and flimsy research. They try to compensate for this fundamental flaw with weight of volume: e.g. number of research assistants, the size of the dataset, etc… But this does nothing to overcome the inherent flaws.

His core assertion is that, when you take a successful business and then ask people to retrospectively explain why it was successful, that's always going to be subject to individual bias. People will emphasize things that were front of mind for them. They'll tend to oversimplify a range of highly complex, interrelated factors.

Now, Rosenzweig isn't saying that there's no merit in the findings, just that they're more a product of storytelling than rigorous research. I think we need to be more aware of the inherent flaws in research methodologies, and the fact that the incessant drive for academics to publish new research in order to maintain their reputation (not to mention their funding) can produce some perverse behaviors.

Many highly acclaimed research papers have been discredited and retracted. There's a group of statisticians who look for flaws in academic research findings. If you're interested, it's definitely worth checking out their website, Data Colada.

Fraud in academic research isn't exactly a new phenomenon, but now a lot more of it's being identified and exposed. In 2002, only 119 academic papers were retracted due to faulty or manipulated data and methodology. In 2022, over 5,500 papers were retracted.

If you know me at all, you'll know that I'm a huge fan of irony. One of the most recent takedowns, rich with irony, was the exposure of feted Harvard Business School Professor, Francesca Gino. The data in her research base was found to have been manipulated and falsified. And the irony? Gino is an expert in… morality! Her research seeks to understand and make sense of moral questions like, why do some people lie? What reward drives others to cheat? What factors influence moral behavior?

But, back to the Halo Effect. Phil Rosenzweig has five insights in his book to act as a more realistic guide to how real business performance can be achieved:

1. Good strategies involve risk, and no strategy is foolproof;

2. Execution is uncertain: what works well for one company may not be effective for another company;

3. Chance plays a much greater role in success than managers may want to admit;

4. Bad outcomes don't always mean that managers made mistakes. Likewise, favorable outcomes don't necessarily mean that the managers made brilliant decisions; and

5. The best managers act as if chance is irrelevant. Persistence and tenacity are everything.

SIX KEY CEO MINDSETS

I thought it was important to cover that off, as I suspect McKinsey's research is more about CEO storytelling than rigorous methodology. But even though we can recognize that the interviews with the 67 CEOs are prone to attribution bias, they're as close as we're ever likely to come to getting real insight on performance from some of the best.

Something that I found incredibly interesting was the distillation of the six primary CEO accountabilities and the associated mindsets that drive these critical foundations for company performance. The six accountabilities are defined as:

1. Setting the organization's direction

2. Aligning the organization

3. Mobilizing the business through its leaders

4. Engaging the board

5. Connecting with stakeholders, and

6. Managing personal effectiveness.

Excellent CEOs lead on all six fronts at once and they act as the integrator across all dimensions. The six corresponding mindsets that bring these accountabilities to life are:

1. Set a bold direction for the company by reframing the game, redefining success, and making big moves

2. When aligning the organization, treat the ‘soft’ stuff--culture, talent and org design--like you would the ‘hard’ stuff: as elements that can be measured and managed

3. Solve for team psychology by hiring individuals who will constitute a great team

4. Engage the board by building a foundation of trust with your directors and investing in their knowledge and capabilities

5. When setting the organization's direction, start with why does the company exist? What's its purpose in the world?

6. Manage your own effectiveness, spending time and energy on what only a CEO can do.

I really love this description. I used to say that my job as CEO was to set the tone, the pace, and the standard for the company, and whereas all of those elements are captured in the six mindsets, the description is both more complete and more accurate. Thanks very much for that, McKinsey!

As the book notes, there's a tendency for your perspective to be very different once you’re in the CEO's chair: people aren't necessarily going to tell you what you need to hear. They're more likely to tell you what you want to hear, and they're more likely to engage in impression management than genuine robust challenge of where you are taking the company. Being awake to this dynamic is critical in being able to function effectively as a CEO.

On the eve of my ascendancy to the CEO role, I got some great advice from a colleague of mine, Michael James, who said, "Just remember Marty, all your jokes are going to be just a little bit funnier now”.

LISTENING… REALLY LISTENING!

Two of the common themes in CEO Excellence are:

• The need to listen to those around you, and

• The need to think about ‘team’ more than ‘self’.

Let's deal first with the listening piece, because this is critical. It goes a lot further than simply listening to the information you're exposed to. In CEO Excellence, a number of CEOs spoke about undertaking a broad-based listening tour when they first took on the role. I've got to say, my listening tour at CS Energy went for five years.

If you only get your inputs from direct, formal channels like financial reports, performance reviews, and what your executive team feeds you, you are going to be ill-informed… there's no doubt about it. I used to regularly visit our operational sites and talk to people at all levels--and there were six levels, on average, throughout the company.

I would listen to everyone's perspective, putting it into the context of the person who was giving it to me. I would calibrate all the information I received, and use it to find inconsistencies in the formal information flows. This gave me the ability to be much more judicious in my questioning of my direct reports and others who brought me the sanitized information through the formal hierarchy. I've got to tell you, I developed an awesome bullsh!t detector.

One of the more useful things I did to get myself up to speed was to ask every one of my direct reports to present their portfolio to me on my first week in the job, and I gave them very little guidance on what to present. There was no template. I wanted to see what they thought was important for me to know. To say these were incredibly revealing is an understatement. I worked out where my direct reports’ focus was. I understood their sense of urgency (or lack thereof). I worked out how they presented key facts and how accurate their commentary was to support those facts.

I highly recommend this process, when you take on a new leadership role at any level. By the end of your first week, you'll have a pretty good idea of what you're dealing with.

ORGANIZATION, OR SELF? (OR BOTH?)

The second concept that was a real theme in the book is the need to frame your challenge more around the team and the organization than yourself. A self-focused view is where you think, “it's all about me”, as opposed to the broader view of the organization that you are there to serve. The book contrasts and shows how these views differ, in relation to the categories that would be key to a CEO's performance.

For example, in terms of vision, the self-focused view is, “What legacy will I leave?”, whereas the organizational view is, “What organizational purpose do I serve?”… In terms of leadership, “What are my non-negotiable expectations of others”, as opposed to “Who does the company need me to be?” From a team perspective, the self-focused view of “Who on my team will complement my weaknesses?”, whereas the more organizational view is, “What conditions will I need to put in place to maximize my team's success?”

I could go on, but I really think there's room and necessity for both viewpoints. Let's not be fooled by this noble, altruistic focus of the organizational view. I reckon there's a truckload of virtue signaling in that one. Whilst it may ultimately be what you want, it's also incredibly important to examine the world from the perspective of self.

I've seen a lot of CEOs who simply lack self-awareness. For example, the question, “Who on my team will complement my weaknesses?”, which is a predominantly self-focused view, is actually a really important question to consider. I'd really encourage you to look at all angles, and work out what you need to do to optimize the integration between organization and self.

ACCOUNTABILITY: EVEN MORE CRITICAL FOR THE CEO!

What's at the heart of exceptional performance? The very first thing for a CEO (or any senior executive) is to really understand the business and what it needs to move forward. It has to be sustainable and profitable in the long term. The CEO's preoccupation should be the perpetuation of the organization and strangely, in a world where average CEO tenure in Fortune 500 companies is just over five years, this means thinking about where the company will be long after you are gone.

This poses some important strategic questions for the CEO.

• What will you buy and sell?

• Where will you invest differentially?

• How will you improve productivity?

• Where will you create more differentiation?

• How will you reallocate capital?

Now, I could talk for hours on each of these, but suffice to say each is a whole topic that the CEO needs to address, bringing all the expertise and insight of the organization to bear.

One critical factor that was mentioned in the book, but wasn't elevated to the status of the six mindsets was accountability. As you know, I'm a massive believer in the role of strong, single-point accountability in company performance. It’s the key to execution excellence–there's no doubt in my mind.

Does the weight of accountability shift for the CEO? As chief executive, you’re accountable for everything that happens in that company: even when it happens as a result of a really poor decision that's made five levels below you at 2:15am on a Tuesday morning: you own it!

This is why it's so important to put in place the right leadership and culture, so that the right decisions are made when you can't see them being made–because that’s most of them!

When I say you're accountable for everything, it goes even further than this. It's not just the decisions that are made in the organization going forward from the day you commence. It's also everything that happened in the past as well. You own that too! This can be really hard to get your head around, and it's one of the great paradoxes of leadership: The higher up you go, the more accountability you have, but the less direct control you can exert.

LESSONS FROM CEOs AT THE TOP OF THEIR GAME!

Let's finish with some key lessons from the world's best CEOs. This is how we're going to achieve aspirational performance.

1. Tempo rules. Only the CEO can set the tempo for the organization. When you first take on a CEO role, you need some early wins. Never underestimate the power of organizational momentum. In my language, it requires a culture of excellence over perfection. And as a CEO, who sets the tone, the pace, and the standard, I was always unreasonable with timeframes. I just knew that no one would move faster than me, so I had to set the pace and create a vacuum behind me for people to fill.

2. Play ‘big ball’. I love this concept, and the book distills it down to three key elements. The first is time management: set clear boundaries and stay extremely disciplined. The second is talent: Put ‘A players’ in critical roles, help ‘B players’ to succeed, and move the ‘C players’ on. The final piece is operating rhythm: Combine accountability with urgency and targeted coaching.

3. Develop ‘dual awareness’. This requires a CEO to integrate the concept of both the internal and external environments. It's one of the ways the CEO role differs from any other. Awareness and management of all the stakeholders can put you in some pretty interesting rooms… with customers, shareholders, labor unions, suppliers, company directors, regulators, politicians--the list goes on. All of these demands have to be balanced with the need to create a high-performance culture that drives the business forward: the focus on internal capability and organizational effectiveness.

4. Be adaptable. Adaptability allows us to be faster and better at learning, and it orients us toward the opportunities ahead, not just the challenges we’re facing now. This is an extension of the concept of resilience: whereas resilience enables you to weather the storm, adaptability lets you thrive through it and create the future. 

The book talks about the adaptability paradox. This is the concept that, when we most need to learn and change, we stick with what we know–often in a way that stifles learning and innovation. This requires a CEO to have a learning mindset under pressure. The book calls for CEOs to demonstrate what they call deliberate calm. I call it grace under pressure.

FIVE TACTICS TO PREPARE FOR AN UNCERTAIN FUTURE

Finally, the book gives five tactics to prepare for an uncertain future.

1. Practice wellbeing as a foundational skill. I suspect we can all take a lesson from that.

2. Make purpose your north star: and, define your personal non-negotiables.

3. Experience the world through an adaptability lens: rather than having a status quo mindset, you need to have an adaptable learning mindset… rather than a fixed mindset, think about growth… rather than thinking about expertise, bias towards curiosity... rather than being reactive, think about being creative… rather than thinking with a scarcity mindset, have an abundance mindset, and so forth.

4. Build deeper and more diverse connections. This is absolutely a no regrets move. Pay full attention to the person in front of you… allow yourself to be vulnerable… show empathy… meet others with compassion. These are all the things we already know about, but often fail to do while we’re busy running the business.

5. Make it safe to learn. You have to reframe failures. The best way I found to do this was to create really clear boundaries: “Here's where you can go, here's where you can't go”. As long as people were playing inside those boundaries, happy days! If they made mistakes, that was a learning opportunity. 

But, if they chose to go off piste and then screwed up, well that was going to be a slightly different conversation. As long as people know the rules, and know what latitude they have, you're going to see some real creativity and innovation emerge.

WE EACH HAVE OUR OWN VERSION OF CEO EXCELLENCE

There's so much we can learn from CEOs who are at the top of their game. But we all play a slightly different game, depending on where we are–and context is everything. What works in one company simply won't work in another. And, although each situation is completely unique, there are common patterns that persist. This is why it's so important to be able to learn from past experience and use it to adapt to the future.

Instead of discarding the answers that don't fit our narrative, and writing them off by saying, "Oh, well we're different.", think about how you can learn from and adapt the wisdom of others who've gone before. Very few of us are going to end up as CEOs of Fortune 100 companies, but we can all create our own version of CEO Excellence.