New CEOs face a strategic choice. Should they settle into the job, spend a while getting to know their businesses, and then start shifting the portfolio? Or is it better to act quickly and boldly early?
New research from the Mckinsey stable shows that “chief executives who reallocated corporate resources early in their tenures:
- generated materially stronger returns for shareholders than those who waited.
- seem to have prolonged their own time at the top. and
- a similar decisiveness in changing the composition of the top team also brought disproportionate longer-term rewards.”
According to the report, those “active” CEOs who were”late starters (those who were slow to reallocate capital during the first three years of their mandate but then picked up the pace of change) did not find themselves as well rewarded by the market.” So what does this mean for the leaders?
It seems that CEOs who ‘add or subtract members of their executive committees within the first year of their tenure are likely to survive longer and to achieve higher total returns to shareholders in their first three years.’
The analysis shows that “the greatest impact comes from moving swiftly to change the top team rather than from the actual number of changes.”
Perhaps more alarmingly for the top table a clear indication that “if CEOs combine this decisive approach to top talent with a rapidly implemented capital-reallocation strategy, the results are even more dramatically positive.” Such action impacts those lower down the food chain.
Lower down the food chain
The article accompanying this research suggest that “the key to allocating resources actively lies not just in acquisitions and disposals but also in the undoubtedly more difficult challenge of taking capital away from mature, often well-performing businesses and reinvesting it in faster-growing alternatives.” Ergo, no department who needs a manger? (see also my blog on “Strategy class, which one are you“ for comment on how and why this is a desirable strategy)?
Tips for survival
For CEO’s there is one clear message, have your strategy lined up before you join (nothing new there) but how should the current incumbents react? Here are four ideas to get you started:
- The CEO can not do it alone – he need someone, become indispensable or get out;
- It is almost certain that new ideas will be heard – radical thinking and new products will emerge and now is the time for your ideas – pitch it wrong and you need the headhunters, get it right and you are under the coat tails of the new CEO;
- Do not rely on your current supporters within the board to manage your promotion but they may support you in an extrinsic move, so keep the network alive; and
- Listen for clues on the emerging strategy and then align yourself to that before realigning with your champions and former supporters.
You an read the summary report form Mckinsey Insights here
About the report authors
McKinsey & Company is a global management consulting firm, trusted advisor to the world’s leading businesses, governments, and institutions.
The authors Stephen Hall and Conor Kehoe are directors in McKinsey’s London office with credit to Mladen Fruk, Martin Hirt, Devesh Mittal, Reinier Musters, and Kurt Strovink.
The content of this blog is my interepration of the report and not the view of McKinsey & Company.