A McKinsey study shows that new CEOs should let their vision set in quickly in order to see the best return.
Whenever a company brings on a new CEO, the big question always concern what kinds of changes are forthcoming, and how quickly. The findings of a newly-published McKinsey study suggest that the answer to the second part of the question should be, "As soon as possible."
The study was based on 20 years of data from 1,500 public U.S. companies, and it sought to determine the effects of how newly-onboarded CEOs reallocate corporate resources.
The faster a new leader moves in this regard, the study found, the greater the return for shareholders--and the longer the CEO's tenure.
Companies saw both the best returns to the shareholders and longer
Three quarters of CEOs who moved quickly in changing how resources were deployed lasted more than six years in the position, compared to 65 percent of "slow" CEOs. Shareholders saw more than a 2 percent return from "fast" leaders compared to their slow counterparts.
The study also found that CEOs brought from the outside of a company find it easier to shift gears while those promoted internally to the executive chair struggle to make the change. And the data show that executives who make changes in their top management teams early on also see a stronger return in the long run.
The study suggests that that new leaders should take the reins and give their vision prudence. Stephen Hill and Conor Kehoe, the report's authors, suggest four keys to making it happen.
1. Explain the reallocation strategy clearly.
Be upfront with stakeholders, the authors instruct, that reallocation may lead to short-term hits, but let them know the long-term benefits.
2. Be bold.
The study turned up no indications that reallocating too much would ultimately wind up hurting shareholders.
3. "Own" the careers of senior corporate talent.
"CEOs must ensure that they are free to deploy good people to manage new or expanded activities across the corporate portfolio," Hill and Kehoe write.
4. Enlist board support.
A new leader is probably going to have the backing of the board. As such, the CEO should ask their help in implementing his or her vision.
by Adam Vaccaro