Episode #132: What Do CEOs Do?

Episode #132 Transcript

What do CEOs Do? A day in the life

Hey there and welcome to Episode 132 of the No Bullsh!t Leadership podcast. This week's episode; What Do CEOs Do? A day in the life. I'm quite often asked what CEOs do and there's no really good answer. There are so many variables, industry, company size, external market forces, customer segmentation, ownership structure, all can have a significant impact on what the CEO role is at any given point in time and what it needs to achieve for the organisation. On top of this, every day, can be vastly different. Some days are a strategic dream, as you get to play in the space that you see yourself adding the most value as a CEO. Other days, well let's face it, you're just standing with everyone else wading through a river of shit. That's why some of the most important attributes for a CEO to possess are adaptability, change tolerance and mental agility.

Add to these the ability to communicate and align the people in the organisation around a compelling value proposition, and you're starting to get close. To give a sense of how all this hangs together, I'm going to look at both the theory and the practise of what CEO roles should deliver and how that dictates how you spend your time. But like any role, there are forces that pull you in many directions and just like really tall trees, these forces have felt much more strongly at the top, than they are at the bottom. So I'm going to start by exploring what a CEO is supposed to do in theory. I'll then talk about some of the things that have to be built into a CEO's agenda as non-negotiable imperatives. And I'll finish with some examples of the many ways a CEO's day can unfold. So let's get into it.

The title Chief Executive Officer or President or Executive Chairman or Managing Director is given to the singularly most senior management representative of a company. Now, quite often, the CEO will report to a board of directors or some other form of committee that provides governance oversight on behalf of the company's owners. But except for the case of some quite rare circumstances, the CEO is the most powerful and influential person in determining what a company does and how it performs. Now I know that people say that the board of directors sets strategy and allocates funds and assesses risk, and that's true, but in practise, it's the CEO who holds most of the sway. The board can only make decisions and take action on the things that the CEO brings to it. Boards and committees only have limited control over what happens, despite what the textbooks say. For this reason, it's critical that the CEO looks to the long term value proposition of the organisation.

This role is all about perpetuation of the organisation. How do we ensure that this organisation is competitive, growing and profitable well into the future? Now, interestingly, with executive compensation and benefits the way they are in corporate America and other predominantly capitalist systems, a short-term focus can readily emerge. Very few CEOs will choose a long-term strategic investment strategy if it means missing a short term incentive payment goal. This creates quite a dilemma. The CEO role, by its nature, requires you to balance long-term and short-term objectives, and to make the right bets on what will create value. So this brings me to two really important concepts that apply profoundly at the chief executive level. The first, is time horizon focus. A CEO should be looking out a long way into the future. Where will my company be in five years time? How big will it be? What markets will we be in?

What type of leadership capability will we possess? Where will our profitability come from? What will be the trends in our customer base that we hope to capitalise on? And what are we doing now that plays into a declining market? The second concept, is breadth of accountability. As chief executive, you own it all, no exceptions. So someone five levels below you does something stupid on a night shift in a remote location, that damages one of your company's key assets, guess what? You own it. One of your employees embezzles money from the company. You own it. Poor judgement by one of your market traders results in significant financial losses. Yep. You guessed it. You own it. It's all down to you and you'd better be comfortable with that concept if you want to be a chief executive.

So let me take a few moments to relate this to my personal experience as chief executive of a major business. At a party one Saturday night, a few years ago, the wife of one of my friends asked me the question. "So Marty, what do you do?" Now I tried it out the usual line about being chief executive officer of an energy business. And she said, "Yes, I know that Marty, but what do you actually do?" Now this was a much harder question. I spent the next 5 or 10 minutes fumbling around talking about how busy and important I was, but at the end of it I'm sure she was none the wiser than she was before I started talking. Not long after that, I was sitting on a panel discussion at a business conference in Sydney, where I was describing my habit of not interfering in the work of my executives, as they had to be empowered to make their own decisions.

The facilitator, a very well-known and respected journalist, immediately shot back at me. "So what do you do then, Marty? Just play golf?" Now I spent some time thinking about this. What is the essence of the CEO role? And I eventually managed to break it down to a relatively simple concept. My job as CEO is to set the tone, the pace and the standard for my business. Let's just have a quick look at each. Tone is about the behavioural and cultural norms that you establish. It lets people know what's okay and what's not okay. And it sets the parameters of your expectations. Regardless of what's happening next to you or above you and your organisation, you have an obligation as a leader to set the tone for your team. This is done by establishing clear expectations and first setting the positive tone. The need for every individual to display personal integrity, be accountable for outcomes and deliver value.

All of these cues come from the leader and they need to be continually reinforced. And as the CEO, this is where it all starts. But every organisation develops bad habits over time. And what becomes acceptable is sometimes well be on the limits of normal conduct. So making it clear what you won't tolerate is a key part of setting the tone for the organisation. We often hear the expression 'tone from the top', and that's one of the primary functions of the CEO role.

The second important element is setting the pace. People will always be happy to go slower than they could. Even your best people like targets to be readily achievable, and tend to set deadlines that are less challenging than they're actually capable of meeting. So to break this habit, you need to bring a sense of urgency to everything your organisation does. Now for me when I was CEO, everything happened too slowly. So I set unreasonable expectations for the pace that the organisation should move at. The opportunity cost of doing things differently, safer, faster, and more efficiently, drove me onward. Because every day that we weren't improving, we were getting further behind the performance benchmarks we were chasing. Every day that we didn't improve our safety culture, brought us a day closer to one of our people having a serious injury. This weighed on me really heavily as CEO, and I had to be careful not to allow my drive for pace, to turn into frustration. Many people thought we were already moving too quickly. But when we had productivity benchmarks, showing that we needed to improve by more than 80% in some areas, to reach top quartile performance, that was a huge worry. Speeding up the decision making process was a massive focus for me. As people tended to get frozen by their perfectionism, in that read fear of failure.

Now the final element is setting the standard. What does good look like? If you aren't constantly reinforcing the high standards you're trying to achieve, you're giving tacit approval to whatever's happening within your team, regardless of whether or not you agree with it. Just remember the standard you walk past is the standard you set. And just talking about the standard in inspirational hyperbole, isn't helpful, unless you intend to enforce that standard. If you talk it up and then you don't follow through, it's even worse than admitting your standard is low, because then, people start to believe their own bullshit. The standard you set has to be enforced in everything you do, and you've got to be serious about it.

Alright let's talk about some of the non-negotiable imperatives for a CEO. I've come up with eight key areas here and there may well be more, but these are the eight that occurred to me the most from my experience. So number one, setting and communicating the strategic direction. The CEO is accountable for establishing the organization's purpose and strategy, in conjunction with the board. Now, if this isn't crystal clear at the top, then it only gets worse, further down the line. A definition of clear strategic intent, that can be interpreted and implemented through all the layers of the organisation, is basically CEO 101, but you'd be surprised at how many companies don't have this.

Number two, painting within the lines of risk tolerance and risk appetite. Now, the CEO is the custodian of the company's risk, appetite and answers to the shareholders on this one. Any investment of resources has to be within the boundaries of what the organisation is prepared to absorb if things go wrong. This way, you don't make stupid bets on sexy projects, that cause disastrous outcomes, if they don't pan out. Spending appropriate resources to reduce the potential of any emerging risk is a key chief executive imperative, which starts at the top and flows through the line.

The third area is in articulating value. Which things drive the most value for the business and which things don't? Once again, extreme clarity is required on what the value levers are that we're trying to pull to make the company successful. This also gives clarity around what not to do, which is one of Michael Porter's key insights. As he said, "Strategy is about making choices and choosing what not to do is sometimes equally important in delivering value". So don't waste time and energy on shit that is marginal at best.

The fourth area is ensuring investment is appropriate and optimised. Now a CEO's ability to ensure the efficiency of shareholder resources invested in the business, is critical. As my good friend and strategy guru, Andrew McDonald says, "There's no such thing as a good or bad asset. There's just what you paid". So making sure you invest the right amount into your company's assets, based upon the return they can earn in the market, is basically a no brainer.

The fifth area is capability building and enablement. Your job as CEO is to build the capability of the organisation so that it's strong and it meets the needs of the future. Relying on the expert knowledge of your people is a rather flimsy strategy. How do we build the capabilities that we'll need in the future to compete in tomorrow's market, not just today's?

Number six, driving organisational improvement. Now, I always had a huge appetite for operational improvement. This is why I know that my sweet spot is in turnaround situations. Improving the things that obviously lag is a key value driver.

That's why benchmarking is critical. How do we compare to others who we're competing against? If you retain a focus that's purely internal, you could convince yourself that things are being done as well as they possibly could be, because your people are going to tell you that they already are, and you might be inclined to believe them. Once you learn what the best companies are doing, and you can see the size of the gap that exists between you and them, that should give you all the motivation you need, to drive performance improvement.

Number seven, creating structure and process for accountability and performance. Just remember in order, strategy, then structure, then people. Aligning the organisation's structure and processes to execute on the strategy you've developed is a critical function of the CEO role. Now I'm a firm believer in the axiom that any structure will work. But if you can optimise the way your organisation is set up to deliver outcomes, it can make a huge difference to performance.

And finally, number eight, watching the performance score board. Once you set the value drivers and performance targets, you need to hold your people to account for delivery. It's not your job to do your people's job for them, but it's your job to make sure that they do theirs. To make sure that performance is there and act decisively if it's not.

Having said all that, I'd just like to give you a few sample scenarios from my life as a corporate CEO. To tee off, I have to say that the best days are the boring ones. For example, a Monday of good meetings. So perhaps we'd start first thing on a Monday morning with a half day strategy meeting with my executive leadership team, which we do once a month. Perhaps after that, there would be several one-on-ones with individual executives, maybe a briefing later in the day from the head of HR, because we're looking at progress from a workforce pain negotiation. Maybe a call from a joint venture partner about an upcoming maintenance overhaul of a shared asset. And then perhaps, you know, if I've got a clear day, some management by walking around, the informal conversations with people around the office. Sometimes the boring days are the best, trust me. Then, there's the days you know always come eventually, and hope they don't come too often.

For example, you wake up to find a story has broken in the media overnight, that negatively impacts the business. So you cancel whatever meetings you thought you were going to have that morning. You go and seek advice from your media and public relations teams. You craft a bunch of responses. You accept and decline various invitations for interviews, depending on the credibility of the media outlet. You ensure you have all your facts lined up. You inform all stakeholders, taking time to talk them through the implications, and what your plan is for sorting it out. And after that storm blows over, you circle back on the most critical parts of the day you had to miss, based on value rather than urgency. Another example of the days that you hope don't come too often, are incidents that either damage assets or create potential harm to people. So failure of operating assets is a key one that happens quite regularly. When a power station trips, it's not like a computer.

You can't just do a control alt delete. Like these are really, really complex pieces of machinery. And quite often there are market implications. So you have to look at the nexus between your contractor's supply position and your ability to meet those commitments in the market. This can have a material impact on whether you make or lose money at that time. Every man, woman, child, and animal wants to know what's going on. These require immediate attention from the top, even though there are leaders throughout the organisation's layers, with accountability for different elements of the problem. Then there are board meeting days. Now, at least these are planned well in advance. Although the board may not have as much influence as the CEO in how things turn out, it's critical that the CEO and the board are aligned. Board meetings and board subcommittee meetings happen on a regular basis. And ensuring the board's kept appropriately informed and abreast of risks and major developments, is a serious CEO obligation. So preparing papers for the board, ensuring they get accurate and timely information, and that they're enabled to engage at the appropriate level is one of the trickier parts of being a CEO. Then there are the big ongoing issues. Commercial disputes, litigation, supplier and customer relationship issues. One dispute, with a coal mine that we had years ago, sucked up a lot of my time as CEO. It was a historically intractable issue. The miner was losing a lot of money fulfilling a contract that we were trying to enforce. It basically cost them more to deliver the coal to us than they were actually being paid for it, and it was a long-term contract. Negotiating commercial settlement, while deep in multiple streams of litigation, was a high profile, high value issue. And it required a huge focus for me as CEO, because it went to long-term company value.

If we didn't achieve a sustainable solution, the value of our power station assets could be impaired by hundreds of millions of dollars. Huge amounts of time was spent in board meetings, negotiation, strategy meetings, litigation manoeuvring, relationship building with key players on the other side, brainstorming innovative solutions, data gathering, physical intelligence, stakeholder management, you name it. It was hugely sapping. When we resolved the issue in 2017, by enabling the sale of the mine to a third party, it was the single biggest value lever that the company had ever pulled in its history. So although it required me to frequently be in the weeds, the issue was high enough value to warrant my direct involvement. And no, I didn't micromanage the teams who were working to resolve the issue. And I didn't spend any time on the golf course either. So we can talk all day about the theory of what a CEO does, but then the minute you wake up that can be out the window.

We spoke earlier about the CEO's objective for having a time horizon that looks five plus years out into the future. And that's great in theory, but for me, there were days when I wasn't looking more than five hours out. At the end of the day, if you can do the things you need to do to set the right tone, pace and standard for your organisation, you'll be doing pretty well.

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