"The Life Cycle of a CEO
By Claudius A. Hildebrand and Robert J. Stark
PublicAffairs, 320 pages, $30
Chief executives have distinctive life cycles -- like butterflies and frogs -- and each phase has certain qualities worth identifying and paying attention to. That, at least, is the thesis of "The Life Cycle of a CEO: The Myths and Truths of How Leaders Succeed."
Claudius Hildebrand and Robert Stark, both business consultants, base their book on a massive research project they undertook aimed at analyzing the performance of "every twenty-first-century CEO of the S&P 500 throughout the years of their tenure." They ended up studying more than 2,000 chief executives, tracking their experience over time. The statistics drawn from the study tell a striking story.
I was a skeptic when I first heard about this research last year from Jim Citrin, at the search firm Spencer Stuart, where Mr. Hildebrand also works, when he presented the core findings to a roomful of corporate leaders. As is often the case, the distinction between correlation and causation seemed murky.
Do CEOs really perform better than average in their first year? Or do they just enjoy a honeymoon with markets that boosts total shareholder return?
And do they really achieve peak performance in years 10-14? (When Mr. Citrin mentioned that particular statistic, there were groans from already-weary CEOs in the audience.)
Or is it only the rare CEO with a consistent pattern of over-performance -- think Jamie Dimon or Warren Buffett -- who is allowed to stay in office so long?
Fortunately, "The Life Cycle of a CEO" adds to such findings by presenting the anecdotal experience of many successful chief executives. Their stories seem to confirm many of the results of the research project and also provide compelling bits of wisdom that may help chief executives generally navigate the career-waves. The cycles can be easily summarized.
Launch. In year one, new CEOs not only enjoy a honeymoon but also pick some low-hanging fruit to improve performance. Hilton's Chris Nassetta, for instance, quickly discovered that the company's "culture was a wreck," as he put it, and instituted a requirement that every company manager spend three days a week working on the front line -- at the desk, in the kitchen, doing housekeeping. He also put in place an employee-evaluation process. Even though, in year one, the weight of the job is daunting, new CEOs on average outperform the S&P 500 by 10%.
Calibration. In year two -- also known as the sophomore slump -- 73% of the CEOs who had a successful start in year one do worse, with their total shareholder return, on average, dropping 21%. It's a slump that some CEOs never emerge from, as we have seen in the recent ousters of CVS's Karen Lynch, Starbucks's Laxman Narasimhan, Disney's Bob Chapek and Walgreens's Rosalind Brewer.
Reinvention. Years three to six are the period during which the early moves of successful CEOs start to kick in, building trust inside and outside the company. Messrs. Hildebrand and Stark look at Larry Merlo's year-three decision at CVS, back in 2014, to stop selling tobacco products, giving up $2 billion in annual revenue. The move helped redefine CVS as a health company, and by the end of Mr. Merlo's fourth year the company's share value was up 200% over the beginning of his tenure, versus 56% for the S&P 500.
Pepsi's Indra Nooyi describes her sense of confidence during the reinvention years: "I really had my legs under me as CEO." GM's Mary Barra, in her fourth year (2017), launched a company-redefining goal of "zero crashes, zero emissions, and zero congestion." It's at the reinvention stage, say Messrs. Hildebrand and Stark, that the market begins "to differentiate which CEOs to put its faith in."
Complacency trap. Years six to 10 are a time of both celebration and danger. Chief executives begin to believe their own press and find it harder to evaluate the policies that made them successful. Greg Ebel, formerly the CEO of Spectra Energy and the current CEO of Enbridge, says that during this period "you get a little bit full of yourself, and the board's really trusting you." Says Dan Garton, who was CEO of American Eagle Airlines in 2010-13: "You're no longer calling somebody else's baby ugly." The problems that exist are now problems you helped create.
It's at this stage that CEOs need to stay humble and be willing to question their own previous decisions. Nigel Travis, the long-serving CEO of Dunkin' Brands (2009-18), says that, as a goad to such reassessment, "about once a year I would say, 'Okay, we've been taken over by a PE [private equity] firm. What are they going to do?' " At Netflix, Reed Hastings staged formal debates among employees to challenge long-held assumptions.
Legacy. If you survive the complacency trap -- many CEOs do not -- you are ready to soar in years 10 and beyond. Here's where the conventional wisdom, which holds that 10 years is the optimum length of CEO tenure, falls most noticeably short. The authors found that 58% of those who made it beyond year 10 beat the S&P 500, a higher percentage than at any other stage. And the results in the legacy years were "also a good deal less volatile than performance in any other stage." Mark Hoplamazian, now in his 18th year as CEO at Hyatt, emphasized to the authors that, as they put it, "he can make key decisions more quickly and is more sure-footed in his decision-making."
Every company is unique, of course, and every chief executive's experience different. But "The Life Cycle of a CEO" documents patterns that all leaders -- and all those aspiring to lead -- need to know.
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Mr. Murray is president of the Dow Jones Leadership Institute." [1]
1. The Evolution Of Leadership. Murray, Alan. Wall Street Journal, Eastern edition; New York, N.Y.. 08 Nov 2024: A.13.
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