Sam Goldwyn once said that a movie should start with an earthquake and then build to a climax. CEO tenures are a bit like that, too. Expectations for the first two years are extremely high—and the bar only rises after that.
Much has been written about a leader’s first hundred days or first year in office—the earthquake portion of the tenure—but little attention has focused on how chief executives should build on that first phase. To address this gap, my colleagues and I decided to examine how successful CEOs approach their middle years. How do they continue to have impact on their organizations? In what ways do they shift their priorities? Do they spend time with different stakeholders, or engage the organization in different ways? And how do their mindsets and ways of working evolve?
To find the answers, we started by identifying 146 CEOs of large-cap companies who left their posts between 2011 and 2016 after serving at least six years (the median term for an S&P 500 chief executive). Next, we narrowed in on a subset of leaders whose companies outperformed their industries during their time at the helm or had high total return to shareholders (TSR) performance. We interviewed 22 of these CEOs, seeking to learn how their priorities, mindsets, and approaches to leadership had evolved. What strategic and organizational moves did they focus on in mid-tenure? What do they wish they did differently?
Some of the findings surprised us. There is a common perception that new CEOs shake up their companies and develop bold strategies, then focus their middle tenure on the execution of what they set in motion. We didn’t expect the story to be so simple in this era of rapid change and widespread disruption, but we were nevertheless struck by the remarkable consistency in the frequency and type of actions successful leaders take in both early and middle years. While we saw considerable variation among individual CEOs, overall there was little difference in the rates at which early- and mid-tenure leaders made strategic moves. The main exception was in conducting strategic reviews, which new CEOs are three times more likely to do than mid-tenure CEOs. As well, the latter more often undertake geographic expansions than their early-tenure counterparts.
From these conversations and our subsequent analysis, it became clear that, despite the similarity in the frequency of strategic moves, the rationales behind them are very different. Our findings suggest that a CEO’s tenure has distinct stages and, as in the storyline of a good movie or play, what makes a strong first act does not necessarily translate into success in Act 2. “There are dramatic differences between the early phases of the CEO run, the mid-term, and the latter stages,” John Chambers, Executive Chairman and former CEO of Cisco, told us. “My management style evolved at each of the stages, and I had to reinvent myself at each one.”
We also discovered that, far from just executing on their early plan, top leaders tend to hit the pause button at the start of mid-tenure (roughly around year three), re-examine the company’s context, reassess their agenda, and then continue to actively shape the strategy and the organization. By their third or fourth year at the helm, several CEOs reported feeling the need to change the pace and seek new answers to the same questions. “Organizations tend to be echo chambers,” says former Home Depot CEO Frank Blake, “and you’re not going to mid-course-correct yourself if you don’t candidly reflect on where you went wrong and, more importantly, why you were wrong.”
All in all, five core themes emerged in how successful CEOs approach their mid-tenure. First, they guard against losing momentum, reinvigorating the organization’s aspirations and leadership, and creating urgency around big goals. They turn their attention to embedding a strong culture and operating processes that enable the company to raise its metabolic rate. They also shift how they engage with the organization, developing more of a coaching approach to talent, and seek closer connections with the frontlines and external sources of fresh insights to guard against isolation in a “CEO bubble.” Finally, they reset their lens toward the long term, focusing deliberately on succession planning and tapping the “political capital” they had built up in the preceding years to tackle riskier but potentially transformative initiatives.
In this blog, I’ll tackle the first theme on the importance of maintaining a high level of ambition. In subsequent posts, I will share with you our findings on the other four themes, as well as offer more details from the conversations with a few select CEOs.Don’t take your foot off the gas
The early years in the CEO’s tenure can be tumultuous as you address urgent issues and set your imprint on the company. By midterm, as stability sets in, the organization risks sliding back into what Ellen Kullman, a former CEO of DuPont, calls “the old normal.” Having assumed leadership during the financial crisis, Kullman instituted wide-ranging portfolio and operating changes, but once the crisis had passed, the pace of organizational change began to flag. So she traveled to plants and offices around the world to reinforce the new vision, and formed a corporate planning group to conduct inside-outside assessments of each business. In the middle years as CEO, Kullman told us, “you’ve got to infuse the will to continue to focus on the changing environment, and say that if you aren’t moving, somebody is going to run you over.”
Years three and four are a critical juncture for reassessing and reinventing the business. Often, the strategy needs to be reset or evolved, be it due to shifts in external circumstances or simply because the CEO has gained new insights about business opportunities or threats. “In business, there is no resting place,” says Steven Burd, former CEO of Safeway. “You are constantly adapting to changing conditions. And the time to get ready for the next change is while you’re still doing well and have the resources to commit.”
Several CEOs warned that it can be challenging to maintain the momentum of the early years. “I recognized that I was beginning to play defense,” said former Akamai Technologies CEO Paul Sagan. “There is a risk of being cautious, because the more successful you’ve been, in theory the more you have to lose by overplaying your hand.” Yet especially in high-growth sectors such as technology, where you are one bad product cycle away from losing leadership, constant reinvention is essential.
But as digital disruption spreads through numerous sectors of the economy, such vigilance is increasingly universal. Former Delta Airlines CEO Richard Anderson (who now leads Amtrak) put it in apt words: “Capitalism is fundamentally destructive. If you don’t continue to improve, you will lose.”
It helps to regularly review the business with fresh eyes. Gordon Moore and Andy Grove, who led Intel in the 1980s and 1990s, famously imagined getting fired by the board and asked themselves what a new CEO would do. The astonishing (but correct) answer: Get out of memory chips—the technology that had defined the business. In a similar vein, Burd told us that at one point in his mid-tenure, the Safeway board suggested he come to work on Monday as if it were his first day on the job. “It caused me to dismiss the existing guidance, take out a clean piece of paper, and develop the next leg of the growth strategy,” he said. Burd formulated a new plan centered on remodeling stores to better fit consumers’ lifestyles and repositioning the company in relation to its competitors. He also undertook a large acquisition, and launched several spin-off businesses.
While continuing to make ambitious strategic moves that will keep the company in sync with the changing environment is essential to a successful middle tenure, it can’t be perpetual motion for the sake of change. Ensuring the organization’s internal “operating system” runs smoothly is another essential key task for mid-term leaders, one that I will cover in an upcoming blog.