Questions of organizational structure and strategy are perennial issues though they don't usually grab the headlines. But when they do – as in the uproar over corporate governance – these issues can change the way executives think about and carry out their work. For instance, McKinsey's work in governance, organizational design, and leadership is leading some CEOs to reassess their own role and prerogatives in the organization.

"In the traditional model, you're the boss, and you do pretty much what you want," says Colin Price, director in the London office. "But as we've seen, CEOs are far more regulated by their operating environment than they think. In effect, they are given a license to operate by investors, regulators, employees, and other leaders of the company. Misunderstanding the nature of that license and the boundaries in which they operate has led to the failure of some celebrated executives." This new view of executive leadership is likely to influence the way investors and boards assess CEO performance for years to come.

Of course, even as CEOs formulate new rules of the road for executive leadership, they must continue to deliver results.  In doing so, they will confront four long-term challenges:

	Performance management – enhancing individual and team performance (including executive teams), assessing, developing and rewarding talent, and building a performance culture
	Organizational design – building effective operating systems, defining the role of the corporate center, identifying appropriate structures and spans of control
	Governance – assuring a voice for investors, establishing the right balance of power between the board and executive team, measuring board effectiveness
	Post-merger management – when the occasion arises, implementing an organization plan that captures combined strengths and supports the goals of the deal

McKinsey takes an integrated approach to these challenges, clearly linking a company’s organizational agenda to its business agenda. "Many companies know they need to transform performance, but don't realize that it’s usually an organizational issue, not just a cost or sales issue," says Tom Saar, a partner in the Sydney office. “Organization is the X-factor. The most exciting and lasting organizational transformations come about when individuals and work groups change their mindsets and behaviors. It means digging out the real root causes and then crafting solutions that address not only formal processes and systems but also the ways people think and act.”

The change process begins with a frank appraisal of organizational culture and performance. “The best results flow from an understanding of what the organization is all about,” says David Fubini, a partner in the Boston office. “Effective leaders honestly assess their company’s strengths, weaknesses, and aspirations. They determine what needs to change, what should remain the same – and what, for better or worse, probably won’t ever change. CEOs then can tailor solutions that best serve the company, build an organization people can commit to, and avoid battles that probably can’t be won.”