How to stay a high-performing company CEO after the first few years in the job?

What's the best approach for a CEO to avoid seeing a downturn in their performance and risk losing their job after a few years in post?

Of course, much depends on the many, specific organisational dynamics and external influences at play beyond just the skills of a CEO. But some good pointers were given in an interesting article I really liked in a recent issue (May 2023) of McKinsey Quarterly (Staying ahead: How the best CEOs continually improve performance), together with some other related research. I'd like to offer a short overview below, together with added comments of my own.

It's very clear from research over recent years that UK company CEOs tend not to be in their jobs beyond five years or so. According to the 2022 'Board index' report from executive search consultants Spencer Stuart, CEO tenure was on average just 5.4 years in 2022 (a fall from 5.6 years in 2021), with 38% in post for 3 years or less, 35% between 4 and 6 years, and only 27% for seven or more years. This echoed research from professional advisory firm PwC a few years earlier (2017/18) that found that the median length of service for CEOs at the top 300 British businesses was just 4.8 years. And the key, related finding from that survey was that the median figure had fallen significantly from around 8.3 years in the 2010's.

In PwC's following global 2018 'CEO Success' study of the CEOs at the world's 2,500 largest companies, CEO turnover reached a record high of 17.5% in 2018. Tellingly, that year dismissals for 'ethical' lapses (e.g. fraud or sexual misconduct by CEO or other employee) exceeded dismissals on account of financial performance or board struggles.

No doubt increased pressure over recent years in terms of corporate accountability has made CEOs' jobs tougher and contributed to their reduced tenure. Key factors suggested by researchers at PwC included higher standards of governance and corporate behaviour expected by the general public and regulators; much greater public transparency of companies' actions through social media and 24/7 news channels; pressures from more globalised competition; and the general scale and pace of social, political and technological change. Probably also, I suggest, the huge salary and final pay-offs many corporate CEOs get may make them a bit more willing to accept a reduced tenure, if/when that happens!

The danger zone: the middle stretch of a CEO's tenure

It's not too surprising, really, that things can get riskier for a CEO after a few years in the job. As the McKinsey article argues, if a CEO starts strong and is successful early on (doing key things like set a bold vision, implementing some big strategic moves, putting in place good talent and accountability mechanisms, and securing the trust of stakeholders), there is - understandably - the risk that his/her initial levels of energy are not sustained and that earlier levels of confidence and self-esteem (from getting results and enhoying colleagues' admiration) turn into complacency or arrogance.

The consequence can be that the CEO becomes less attentive or objective at keeping track of external and internal changes, other people in the organisation also become complacent, and then things start to slide generally.

So, how can CEOs avoid this potential complacency trap and sustain performance through the 'middle' years of their role? The McKinsey authors suggest four approaches:

Keep learning more

If a CEO has been successful in an early period, it's vital he/she avoids basking in that success and admiration and, instead, maintains an active programme of external and internal engagement with other people to spend time listening, learning and spotting potential changes, threats or opportunities.

External stakeholders, obviously, include key groups like customers, suppliers, agents, partners and investors. Examples of wider types of contact are industry associations, media/industry opinion leaders, relevant academic bodies, think tanks, and interesting companies in other markets which may be sources of 'transferrable' ideas. A particular tactic the McKinsey authors urge is for CEOs to join one or two external groups where they can meet other CEOs to have off-the-record discussions about issues and exchange experiences.

Learning from inside an organisation for a CEO is equally important, of course. This should include having regular, informal 'listening' conversations with people from right across the different parts and levels of an organisation. A useful technique quoted is for a CEO, when they are out and about meeting colleagues, to ask searching, open questions like "what is something you're afraid no one is telling me that you believe I need to know?"

Take an outsider's perspective

By this the McKinsey authors mean that CEOs should periodically undertake (at least every couple of years) a thorough, holistic analysis and review of all aspects of their organisation as if they were coming in from the outside with fresh eyes or taking up the role for the first time. This contrasts with the common, traditional tendency of many CEOs to simply refresh strategy for their organisation based on the prior year's assumptions and established ways of doing thinings. Instead, CEOs should not feel wedded to the past or feel encumbered by established views.

Part of the wide-ranging analysis, the authors believe, should be an 'outsider's perspective on the CEO's own leadership style and approch. This should ideally involve a 360 degree feedback exercise involving commentary and opinion from a broad range of stakeholders. Of course, for this task it can be very helpful to use an external facilitator or coach (as I do for clients).

Define the next 'S-curve'

Between three and five years into their tenure, CEOs should form a view on what should be the next upward 'wave' of strategic growth for their organisation. The authors refer to the concept of the strategy 'S-curve', which refers to the typical path value creation from any strategy takes (slow initial progress as initiatives are launched, then a rapid ascent as those initiatives come on-stream, and then a plateau as value from those initiatives falls away). The advice is that long-lasting, successful CEOs create and drive a cadence of change over time for their organisation, based on steering from one S-curve to another.

In doing this, of course, CEOs should avoid simply deciding themselves what is to be their organisation's new S-curve. Rather, it's crucial that a CEO gets others - not least the executive team and other levels of management - widely involved in shaping strategy and devloping specific action plans.

Make the organisation crisis and future-proof

No matter how well a CEO runs an organisation over initial years, the chances are - the McKinsey authors believe - an organisation will face some unexpected crisis or significant shock sometime during the CEO's ongoing tenure. So, a good CEO needs to ensure their organisation has a strong, proactive approach to risk identification and mitigation as well as strong arrangements in place well ahead for dealing with a crisis when one occurs. A good crisis-handling playbook will include the definition of key leadership protocols (e.g. a central control-team), action plans and communciation approaches for different stakeholders.

Beyond just preparing for a likely crisis, the authors make the more substantive point that a CEO should make their organisation more generally prepared for the future. In particular, they stress the need to assess and build the strength of the organisation's 'talent bench' by spending time and energy on coaching , retention, performance management, and succession planning, especially for the most 'value-creating' jobs.

Equally, good CEOs need to think about 'future-proofing' themselves in terms of looking after their ongoing, personal health and fitness, plus - sensibly, preparing themselves (particularly their mindset) for after the time they eventually do exit their organisation (voluntarily or not!).

The CEO 'life-cyle'

For successful CEOs who do manage to follow the above types of approaches, the possibility is there to stay in their job for a lot longer than the average company CEO. On this point, further research carried out by Spencer Stuart for the Harvard Business Review (amongst several hundred S & P 500 CEOs) to identify the best financially-performing CEOs in the world in 2019, revealed that the average tenure of the very top-performing leaders was a massive 15 years - more than double the average for all CEOs across the S & P 500 at that time.

Most interestingly, that research led Spencer Stuart to propose the 'CEO life-cycle' model - the idea that there are five potential stages that a long-serving and successful CEO passes through over his/her tenure. These stages are:

i) the Honeymoon - an exuberant, positive first year likely to be one of high performance; ii) the Sophomore Slump - a short period of a year or so when initial exuberance dies down and colleagues' enthusiasm lessens a bit due to unmet, early expectations in some aspects of the CEO's work; iii) the Recovery: if they survive the slump, most CEOs enter a period of favourable tailwinds with their earlier moves starting to pay off and he/she has gained the trust of colleagues; iv) the Complacency Trap - this is a period (as referred to above) of mediocre results and stagnation, lasting possibly 3-5 years; and finally v) Golden Years - after about 10 years CEOs who survive the previous stages typically go on to deliver several years of assured, high performance, helped by proven ability to handle the company, find new value, handle any ad-hoc crises, and manage the board and stakeholders well.

An obvious issue arising from this model - given that a CEO's performance is likely to go through ups and downs - is the difficulty for a board of knowing when exactly to get rid of a CEO whose performance is showing disappointing signs: how to tell if the CEO is suffering a short-term negative blip or a longer-term capability problem? there is, of course, no standard or foolproof answer.

One view could be - given how a new CEO's likely dip in performance could typically be after about five years - that a board should only appoint a new CEO for a fixed initial contract period of, say, five years - so their company obviates that likely downturn coming later! It is the case already today, of course, that in many large corporates many top excutives do have fixed-term contracts, but there is the opportunity perhaps to consider more widespread adoption.

A sensible, core approach for any CEO, though, is surely that board members and CEO should always aim to keep a close, open and constructive dialogue between each other - especially during the first 18 months of tenure - so that there is good mutual understanding of everyone's latest views and expectations and board directors can give their CEO as much proactive support as possible to try and maintain high performance levels.

Don't forget organisational culture and adaptability

Of course, no single study or article - including those outlined above - can identify all potential factors that can influence a CEO's performance or their length of tenure. Every organisation's circumstances are different. But there were a few key areas I thought rather lacking in the McKinsey article. Notably, the need for CEOs to manage the culture of their organisation well and keep their organisation (continuously) adaptable over time. These two areas are very much the essence and to the fore in best-practice 'change leadership' nowadays.

Relevant attributes of culture and adaptability, for example, include: that an organisation has a strong, driving purpose; it continually scans the environment and is quick to spot opportunities; it maintains a very strong focus on customers (and other stakeholders); it operates around well-connected teams; it has a co-operative and flexible stucture; it uses agile ways of working; a culture that stresses learning, innovation and change; and it has distributed and fast decision-making proceses with an empowered workforce.

Such organisational qualities should, ideally, be matched by a senior leadership team who think and manage in an 'adaptive' way (e.g. have a growth mindset, are tolerant of uncertainty, and have a readiness to learn/change) and an overall workforce that has a high, general level of 'resilience' (e.g. can accept change, positively manage their individual health, and are ready to seek help from others when needed).

The obvious point being here that any CEO can't do his/her job alone: they need an organisation, management and workforce that can appropriately support and complement the CEO. A CEO's own performance - and tenure - depend absolutely on what's around him/her!

CEO tenure and CEO performance: a telling relationship

This article has looked at the relationship between a CEO's length in post and typical performance. The studies quoted clearly suggest there's a definite, likely pattern, with the 'middle' years being a critical time and the tendency with a typical company CEO to last in post just for about five years on average. For those CEOs who do survive longer, the Spencer Stuart life-cycle model suggested that several, following years of assured performance might be enjoyed (but I doubt the model's assumed, single pattern over a long period of 15 years is always true).

The overall, key message, I think, is that, although every organisation is different, boards need to be aware of how a CEO's performance is likely indeed to go through ups and downs and so, in order to try and keep performance as optimal as possible, directors should aim to keep a close, open and constructive dialogue with their CEO and give as much support as possible - until there is no more hope and it really becomes time to say 'good-bye'!