As the highest ranking executive in a company a CEO is responsible for its strategy and success (and more). But what makes a great CEO?
Spoiler: the traits you think make a CEO exceptional are probably not the ones that do.
- The Roles and Responsibilities of a CEO
- What Makes a Great CEO?
- What Skills and Experience are Needed to Become a CEO?
The Roles and Responsibilities of a CEO
The day-to-day of a CEO working at a startup is going to be very different from one working at a multinational corporation.
Even so, we can create a general list of things that CEOs are responsible for:
- Shaping the strategy and direction of the company
- Determining the company’s culture, values, and behavior, and modeling the values the company professes to hold
- Building a strong senior executive team
- Acquiring venture capital or investment from other sources like incubators
- Deciding how the company’s capital should be allocated
- Maintaining regulatory compliance including with the SEC (Securities and Exchange Commission)
- Understanding and making decisions about operations
- Change management and leadership through crises
- Management of public perceptions: A CEO’s word can move stock prices
What Makes a Great CEO?
In short, it’s not what you think.
According to a 10-year study summarized in Harvard Business Review, many of the common assumptions about what makes for a great CEO are, in fact, incorrect.
Video: Elena Lytkina Botelho discusses the findings of the CEO Genome Project.
The project’s leaders are Elena Lytkina Botelho and Kim Rosenkoetter Powell.
Debunking Stereotypes of Successful CEOs
For instance, the most successful CEOs are not charismatic extroverts who are Ivy League alums that have never made material mistakes in the past.
Rather, researchers discovered that:
- Introverted CEOs are more likely to surpass the expectations of their board and investors.
- 45% of CEO candidates have had at least “one major career blowup that ended a job or was extremely costly to the business.”
- Educational background (or the lack thereof) did not correlate to actual performance in the workplace — only 7% of high-performing CEOs studied went to an Ivy League school, and 8% did not graduate from college.
These revelations are fascinating: they cause us to take a step back and reconsider the image of a powerful and successful CEO.
Fortune 500 Boards Suffer from False Premises, Too
Even Fortune 500 boards are laboring under the same failed assumptions about what makes for a great CEO hire.
The CEO Genome Project noted that “what makes candidates look good to boards has little connection to what makes them succeed in the role.”
Indeed, there may be a failed feedback loop here: boards look at bios of Fortune 500 CEOs and seek to hire individuals with similar backgrounds.
Four Behaviors That Characterize Exceptional CEOs
But more interesting was the finding that “successful chief executives tend to demonstrate four specific behaviors that prove critical to their performance.”
And that these behaviors can be learned by anyone:
- Making decisions with speed and conviction
- Engaging for impact, or excelling at bringing others along
- Being proactive and adapting ahead of time
- Reliably delivering and producing results
1. Making Decisions with Speed and Conviction
Great CEOs recognize that making a bad decision is better than making no decision. High-performing CEOs stand out, not for making the best decision in every instance, but being more driven and decisive in general.
Our brains have learned to associate pain with wrong decisions. To compensate, we might avoid decision making unless we’re certain.
Decisive CEOs recognize that they can’t wait for perfect information.
Engagement and Communication
With that said, effective CEOs are not making decisions in a vacuum. In addition to the usual information gathering you would expect, CEOs engage in discussions with key stakeholders and trusted advisors and listen to the perspectives of many.
Finally, once a decision has been made, the CEO does not waver.
Per Art Collins, the former chairman and CEO of Medtronic, “Employees and other key constituencies will quickly lose faith in leaders who waffle or backtrack once a decision is made.”
2. Engaging for Impact: Excelling at Bringing Others Along
While the CEO is ultimately responsible for decision making and the results of that decision, it is important that they get people on board with their decisions.
This requires top-notch communication skills and influencing strategies, as well as the ability to listen to and identify detractors and their concerns.
After all, emotional contagion is a very real thing, and even the mood of a CEO can impact how employees feel and act.
Methods of Engagements
The methods by which a CEO chooses to engage key stakeholders are many, but they include things like:
- Roundtable meetings where a small ground of people meet with the CEO and can, therefore, ask questions and chat about all things related to the company
- Employee forums, which are similar to the roundtable meetings but available to a large group like the entire organization
- Rounding, where the CEO goes around the company’s offices and meets with each department individually
- An open-door policy, where the CEO’s door is always open and people are free to come and go, ask questions or voice concerns
Regardless of the methods chosen by the CEO, the key is openness, visibility, and sufficient comfort between stakeholders and the CEO (especially those in positions of lesser authority, such as employees).
3. Being Proactive and Adapting Ahead of Time
It is always better to be proactive than reactive, and business is no exception. As such, a CEO that is proactive and adapts to changes facing the company ahead of time are likely to perform better than those who do not.
According to Dominic Barton, a global managing partner at consulting firm McKinsey & Company, CEOs need to deal “with situations that are not in the playbook”.
As a CEO you are constantly faced with situations where a playbook simply cannot exist. You’d better be ready to adapt.”
4. Reliably Delivering and Producing Results
A CEO, above all, must reliably deliver good results for the company.
Per the Harvard Business Review, 94% of strong CEO candidates scored high on “consistently following through on their commitments.”
Furthermore, reliable CEOs are 15 times more likely to perform well and twice as likely to get hired.
Effective Goal Setting By CEOs
But, there’s more to just meeting goals as expected. Part of the CEO’s job is to know what types of goals they should set and what is realistic for the company given the current circumstances.
This requires a close look into:
- Plans that have been made
- Engagement with customers, employees, and board members
- Fast assessment of the business as a whole
Video: What does a successful CEO look like? The pedigreed Jeffrey Immelt of General Electric, who oversaw a steep decline in G.E. stock? Or former garbage man Don Slager who rose to CEO of Republic Services Inc. and led it to double equity value? (For a different take on Immelt, see “Don’t Blame Jeff Immelt for G.E.’s Stock Woes.”)
What Actions Do Out-Performing CEOs Take Early On?
McKinsey & Co. researchers have found the following characteristics and actions of new CEOs correlate with exceptional performance.
Strategic Reviews For Low-Performing Organizations
Outperforming CEOs were more likely than other CEOs to conduct a strategic review in their first 2 years. However, the biggest benefits from these strategic reviews came in low-performing organizations.
Cost-Reduction Programs: Funding New Strategic Moves
Outperforming CEOs were more likely to engage in cost-reduction programs in order to free up capital for new strategic moves.
The Outsider’s Mindset: Question Assumptions
Outside hires had a greater propensity to act, according to McKinsey than internal hires. Indeed, exceptional CEOs are twice as likely to come from the outside the company.
But whether you’re an internal or external hire, you can strive for the outsider’s mindset by questioning commonly-held assumptions.
What are the Traits of Excellent CEOs?
We now understand the actions of a great CEO, but what are the traits that make great CEOs stand out from their peers?
Well, according to the Harvard Business Review, best-in-class CEOs tend to:
Show a greater sense of purpose and mission, while demonstrating passion and urgency.
While some may see these traits as “intensity, impatience, and an eagerness to move forward,” a McKinsey study recently observed that this is actually the opposite of the worst thing a CEO can do: nothing. CEOs should have the ability to embrace the appropriate risks while acting and capitalizing on key opportunities.
Value substance and focusing on the core of the issue.
There are a time and place for the details, but above all, the job of the CEO is to hone in on and understand the larger picture and context.
They can separate the wheat from the chaff (that is, they identify, prioritize, and focus on what matters), allowing them to focus on the most important issues facing the company.
Great CEOs know how to identify problems worth solving and opportunities worth capturing.. When making tough calls, this is important.
Focus more on the organization and its outcomes and results than on themselves.
When we picture a CEO, we may imagine a brash, self-important person, but it turns out that the best CEOs are those who are relatively modest, humble, and capable of working well with others.
The CEO does not know everything his or her staff knows, and to compensate for this limitation, they have a tendency to seek and to draw out the best thinking in others.
Video: Jim Whitehurst likes to describe himself as a “recovering know-it-all-CEO.” In this revealing TED talk, he explains how he handled the challenge of moving from being CEO at Delta to being CEO at Redhat, a technology firm that prizes candid assessments from employees, including push-backs against a CEO’s ideas.
Further Desirable Characteristics
In addition to these major traits, a CEO should demonstrate the following characteristics you would expect from any solid leader:
- Drive and resilience: In addition to being driven and decisive, a good CEO should have the skills to cope and bounce back from failed efforts.
- Original thinking and the ability to imagine the future: To be proactive requires the constant scanning of the future. But a CEO who is forward thinking is likely to act in a way that benefits the company as a whole.
- Capable of building a good team: A good CEO strives to surround himself or herself with the best possible team and devise ways to reliably access the best input from his team members.
- Communicating actively and the ability to motivate others: A CEO is always communicating. Whether they are speaking to the company’s owner, board members, customers, or employees, the CEO is primarily concerned with addressing the needs of each party. By communicating well, CEOs can “bring people along”, encourage active engagement from key stakeholders, and influence the internal and external perception of the company.
Video: May the best ideas win: In this fascinating video, CEO Ray Dalio explains how his firm uses technology and “radical transparency” to surface the best ideas in the firm.
What Skills and Experience are Needed to Become a CEO?
CEOs need a strong skill-set related to business leadership.
While soft skills are part of that set, CEOs without strong finance and technical backgrounds may have difficulty fostering innovation, charting smart strategic moves, navigating market crises, identifying hidden talents among staff, and creating sustainable growth.
Outperforming CEOs have in-depth knowledge of their industry and related markets, a sophisticated grasp of business strategy, and soft skills.
Finally, being a CEO is, above all, a job requiring soft skills. In addition to addressing the expressed needs of customers, employees, and board members, the CEO is responsible for creating an environment where all parties can do what they need to to the best of their ability.
The CEO should be able to foster a positive corporate culture since this is an underlying element of success.
As the person responsible for guiding the company, strategic thinking is crucial for a CEO.
For one, they will need to decide between strategic approaches, like competing in crowded markets by driving costs down or creating new demand and “uncontested market space.”
Once the vision is in place, the CEO’s decision-making skills will be needed to help ensure that the necessary goals are met.
Next, the CEO should be familiar with corporate governance best practices. They should be familiar with the rules, practices, and processes by which the company is controlled.
Technical and Financial Knowledge
Financial knowledge — including what economic and market forces might affect the company’s industry — is crucial when planning how resources should be allocated; where costly supply chain disruptions might occur; and even for foreseeable risk planning.
Below we’ve answered some common questions about CEOs. Have a different question? Feel free to share it in the comments section below and we’d be happy to answer it.
What is the fastest path to becoming a CEO?
Becoming a CEO is not a fast path — even those who landed in the corner office faster than usual took, on average, 24 years to get there.
Here are three key things you can do to accelerate your CEO career, drawn from the 10-year study we cited at the beginning of this article.
- To get ahead, you sometimes have to move backward or sideways. The experience you gain and the lessons you learn through such voluntary “demotions” can be invaluable.
- Take advantage of an opportunity that presents itself to you, even if the role is well beyond anything that you have done before. Daring leaps can gain you invaluable experience.
- Take on a big mess — regardless of whether it is an underperforming business or bankruptcy. Tackling something that needs to be fixed (and fixed fast) is an opportunity for you to demonstrate your leadership skills.
How many CEOs are there in the United States?
It is almost impossible to nail down a hard number. Obviously, there are high-profile CEOs working with Fortune 500 companies, but even the tiniest startup could have a CEO.
How much does a CEO make?
According to Glassdoor, the average salary for a CEO of a company listed as part of the S&P 500 was $13.8 million. This information is publicly available since such companies have to disclose full financial information to the SEC.
PayScale says that the average CEO salary is just under $160,000. Because we have no way of knowing what private companies pay their employees, we have to rely on tools like PayScale for salary-related information. The downside, however, is that all salaries are self-reported and there is likely to be some bias in the people who report salaries.
Beyond salary, a CEO’s compensation may include perks like stock options and bonuses.
Research has shown that things we typically associate with a successful CEO — such as charisma, extraversion, a clean background, Ivy League education, high self-confidence, gender, and a high IQ — are not predictors of exceptional CEO performance.
Rather, great CEOs all exemplify certain behaviors that can be cultivated by anyone — including you.
Contributing Editor: Sherrie Gossett