COVID-19 and other recent global crises have necessitated a redefinition of the role of 21st century leaders. In this episode, we explore what it takes to be an excellent CEO in today’s ever-changing and challenging global environment. With our guests, we will look at the changes in the modus operandi of modern CEOs and their leadership toolkits. This conversation was hosted by Gautam Kumra, Chairman of McKinsey Asia, with special guests Carolyn Dewar, senior partner in the San Francisco office, and Vik Malhotra, senior partner in the New York office and Chairman of the Americas. Carolyn and Vik were among the co-authors of the best-selling book, CEO Excellence: The six mindsets that distinguish the best from the rest. For more conversations on the Future of Asia, subscribe to our podcast.
Gautam Kumra: I am Gautam Kumra, Chairman of McKinsey Asia, and you're listening to the Future of Asia Podcast series. The Asian century has begun. The region is now the world's largest economy. As Asia's economies evolve further, the region has the potential to fuel and shape the next normal. In each episode, we are going to feature conversations with leaders from across the region to discuss what Asia's rise means for businesses across the globe. Join us.
The pandemic, among other changes to the modus operandi of CEOs in the 21st century, has necessitated a redefinition of the role of the modern CEO. Today, we look at how the role has changed and what it takes to be an excellent CEO in today’s environment. Joining me on the podcast are Carolyn Dewar, senior partner in the San Francisco office, and Vik Malhotra, senior partner in the New York office and Chairman of the Americas. They are coauthors of the book, CEO Excellence: The six mindsets that distinguish the best from the rest. And together they have over half a century’s worth of experience transforming corporate strategy and driving leadership change. Thanks for joining me today.
Vik, can you tell us about the book and the methodology you used to collect the insights?
Vik Malhotra: The book came about because we really wanted to determine what makes for truly excellent CEOs. Are there some defining characteristics? Are there some defining attributes that really stand out that aspiring CEO candidates and other leaders around the world might learn from. We had a body of research from looking at thousands of CEOs over time to support this, but we wanted to supplement this with some powerful interviews. We set out to interview a series of CEOs who could give us additional insights, perspectives, and importantly, stories about things that they had done that have brought some of their best attributes as CEOs to life. So, we looked globally at CEOs who have been active during the past 20 to 25 years or so—that’s roughly 4,500 CEOs.
We then said we wanted CEOs who had been in tenure for at least six years, so that we had a real track record to judge against. We also looked at CEOs who had been largely top-quintile performers, and sometimes second-quintile, in terms of shareholder returns over that period. We made a few adjustments, and this got us down to a group of 200 CEOs from the initial 4,500. We reached out to several of these 200 and fortunately 67 of them agreed to be interviewed for the book. So what you find in the book is a lot of the McKinsey research on what makes for excellent CEOs, but it’s very much supplemented by the learnings and stories from these 67 exceptional CEOs.
Gautam Kumra: How has the corporate landscape changed during the 21st century? What does that look like in Asia?
Vik Malhotra: It is clear that globally corporations are playing a bigger and bigger role in the economy. It’s true with large corporations and small businesses—they are increasingly the engines of the economy. They account for 72 percent of GDP in OECD countries and are becoming increasingly more important in emerging economies. They are undoubtedly central to our economies. They are also incredibly important to sustainable, inclusive growth going forward. Corporations are increasingly relevant as the world evolves. They’re also important when it comes to things like advancements in technological enablement—they’re the heart and soul of investments occurring in technology. They also lead the world when it comes to pushes on productivity, enhancing how we as individuals, companies, and countries can be more productive and therefore help society grow in a sustainable, inclusive way. So the contributions that they make from a technological and productivity point of view are critical as well.
And finally, I would say that corporate leaders globally—in a world that is increasingly more divisive—are seen as important voices around topics like purpose and social good, and topics that broaden beyond just simple corporate returns. In fact, that’s an important role that corporations of all sizes are playing in our economies and society today.
Carolyn Dewar: To build on this, corporate leaders and CEOs are being put in incredibly important positions, given the potential impact of the companies that they lead, right? And that also goes across stakeholders. So, to Vik’s point—the Forbes Global 2000 CEOs have 70 million employees reporting to them. They operate in almost every country in the world; they affect the communities that they operate in. I think CEOs and other leaders are increasingly aware of the impact of their decisions and they feel both the responsibility of that and the scrutiny of making sure that their decisions factor in all of the stakeholders that they impact day to day.
Gautam Kumra: How is the role of a CEO evolving, and why?
Carolyn Dewar: Maybe we should start first with what the role is, and then we can talk about how it’s evolving. I think many elements of the role are enduring, right? And as we looked across the 67 CEOs, even across geography, and industry, and ownership structure, there were six elements that stood out that were consistent across all of them. They have to set the direction of their organization, manage the organization itself and its effectiveness, get their team right, and work out the operating model from the top. They have to engage with their boards and external stakeholders and manage their own time and energy. As we looked across these six responsibilities, a couple of things really stood out. The first is that, across those responsibilities, they are the ultimate integrators. And this goes to the point of why the CEO role is so unique and so demanding. I think it was Satya Nadella (CEO of Microsoft) who gave us the quote, “The reason it’s so lonely is an information asymmetry problem; no one else sees everything that you see.”
The role of the CEO really is to integrate across these six elements, recognize the interdependencies, and make sure that the sum is greater than the parts. And then, within each of these six, the big insight we had was that it wasn’t so much all the individual behaviors that made a difference, like that this CEO did it one way, someone else did it another. There were some prevailing mindsets that the truly excellent CEOs had. There was a unique mindset on how they thought about their roles in each of these six arenas that set them apart and guided their behavior. We can go through those mindsets, but even just the notion of, “How you think matters as much as what you do,” stood out. That was really striking to us.
Vik Malhotra: I think if you look back over time, as Carolyn said, many of the attributes of CEO excellence that we discovered were enduring and timeless. However, there are two things in my mind that have absolutely changed for today’s CEOs, relative to the CEOs of yesteryear. The first of these is the pace of change.
The pace of change is faster today than it has ever been. And it’s only increasing, whether it is because of technological disruption, regulatory change, social change, or the changing needs of consumers; the list goes on and on. The pace of change is just accelerating; a CEO’s ability and the need to move quicker and make decisions faster has gone up dramatically relative to history. The second thing that has changed dramatically are the external demands on CEOs. CEOs today—excellent CEOs today—are spending more and more time externally with stakeholders. These stakeholders range from customers, to regulators, to trade unions, to social causes; you name it. They are spending more time externally and therefore their bandwidth has had to increase dramatically in terms of what they do internally, as well externally. So, I think there are a couple of big areas where there are real differences relative to yesteryear.
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Gautam Kumra: Given that context, what does CEO excellence mean today?
Vik Malhotra: Carolyn talked about the six elements of CEO excellence and the six different things that CEOs are required to do today. In many ways, it’s like spinning six plates at once. One of the analogies that we often use is that excellent CEOs today are not just good at one thing. They’re not just a Michael Jordan in basketball or a Serena Williams in tennis. They equate to the very best decathletes we’ve ever seen in the world where they are world-class in multiple disciplines in terms of what they do and how they perform.
So this ability to manage and balance lots of different things, set direction, manage organizational effectiveness, engage with the board, use personal energy, connect with stakeholders, choose and lead their teams—it’s the ability to do all of that at once that distinguishes the best from the rest.
Gautam Kumra: Thank you, Vik. In my mind, CEOs in Asia need to focus on five key capability areas to win going forward. First is the area of growth. I think everybody’s focused on growth coming out of the recovery. And the recovery, as we know, has been uneven and thrown up a series of challenges on sustainability and inclusion. I think CEOs need to think about not just organic growth, but also how to execute programmatic M&As and new business building. In fact, half of the CEOs who I talked to pointed to new business building as being one of the top three priority areas for them. The second area is that of talent. We are going through the world’s biggest talent reshuffle. I think it’s more important than ever to define a clear value proposition for attracting, retaining, and developing talent. A key element of this is defining a sense of purpose. More than ever, I think employees are seeking a sense of personal meaning in what they do, and companies have an imperative to define that meaning and the difference they’re making in the world. Third is the area of sustainability. I think 80 percent of the world has announced net-zero plans and will need to spend almost $300 trillion over the next 30 years. This will be an expensive and a tricky transition, and CEOs need to find their own navigation paths. Fourth is the area of technology and digitization.
I think Asia is at the forefront of this. We have some of the most digitally savvy customers. We have super apps being built and the Cloud is transforming businesses—CEOs need to be personally savvy and build the digital portion of their organizations. And finally, to do it all, they need to move with speed. Shortening business cycles, speeding up decision making, delegating, removing silos, and encouraging working models that are akin to digital natives are going to be critical to gaining speed.
Vik Malhotra: One of the elements that I would call out is the whole bucket of setting the direction of the company—a mindset that emerged for this was one of, “Be bold”. The very best CEOs are very bold in setting their companies’ directions and, frankly, they spend a disproportionate amount of time on this than other CEOs do. So, one of the counterintuitive findings was that they may spend as much as a third of their time on the direction of the company—both the big-picture direction and the operational strategies of the company. In particular, one of the things they do that we found intriguing was that they don’t just think about what the next S-curve of the company might be. They really think about reframing the vision in a big, bold way. To give you an example, Ajay Banga, the Executive Chairman of MasterCard, moved the vision from being, “Beat our competitors” to the notion of, “Kill cash,” because cash was [85 percent] of the whole payments market. So, he really reframed the vision in terms of what the company ought to do. The top CEOs also spend a disproportionate amount of time on resource allocation, whether it’s capital allocation, expense allocation, or talent—they really spend a lot of time thinking about where their resources are going. They ask, “What are we investing against?” and, “If we disproportionately invest in certain areas over multiple years, that is going to give us a real competitive advantage.” The counterintuitive views here on setting the direction were very much around the amount of time they spend here, the detail they get into, and the energy that they’ve put into operational strategies—resource allocation in particular.
Gautam Kumra: Thank you, Vik. What are your thoughts on this, Carolyn?
Carolyn Dewar: Another area that really struck us in these interviews with truly excellent CEOs was their mindset and orientation towards the board. Sometimes the prevailing wisdom is that the board is something to be managed, right? Something you have to bring along; that they’re there to do their duty. The truly top CEOs had quite a different view. They thought of it as, “How do I help the directors help the business? I need to engage with the board; this is a resource available to me.” Jamie Dimon (CEO of JPMorgan Chase) and Hubert Joly (Former CEO of Best Buy) talked about radical transparency with the board, sharing the good and the bad all the way along—so that when they do have to come to them with a tough decision or in a crisis, the board has that foundation of knowledge and is in touch enough with the business, as well as having a foundation of trust, to be able to really work through hard things. Ivan Menezes, CEO of Diageo, talked a lot about tapping into the wisdom of his board and said, “Wow, if you have the right folks on the board, it’s an incredible resource of expertise, so make sure you have voices on that board who can bring experience with where you want to take the company.” It was quite a profoundly different way of thinking about the board and something that really struck us.
Vik Malhotra: One of the other areas we found out that excellent CEOs really focus on is aligning the organization. The key counterintuitive finding here was that they treat the soft stuff—culture, talent, things like that—the same as the hard stuff. What do I mean by that? They define what they want to shift from a culture point of view or a talent point of view. They measure it, they put metrics around it, they role model it, they live it. And so, as much as they might measure strategy or financial performance, they also measure and treat the soft stuff—culture and talent specifically—like the hard stuff. Culture is one of my favorite ones. One of the things that they tend to do is they don’t try to move the culture of the organization along five or eight or ten different dimensions. They usually pick one or two things to truly move the company on. Take Kazuo Hirai when he was CEO of Sony—his strategy was geared to the notion of the “wow” factor. He wanted to bring the wow factor to bear in their products and into the customer experience of their services. So, Hirai-san found ways to measure and ensure that the company talked about the way they acted in the same way that they behaved. By doing that time and time again, he moved the culture of the company towards something that really made a meaningful difference in terms of its overall performance. Another great example is Satya Nadella who wanted to shift the company from its old mindset to one that was more focused on growth. So, he preached the growth mindset time and time again in the company; he found ways to measure it and bring it to life. And that became the rallying cry for Microsoft in his early years. So now they tend to move the culture on one dimension at a time and they do it by measuring the soft stuff very much like you might the hard stuff.
Carolyn Dewar: One more area where we were struck by what distinguished the best CEOs is how they thought about their own personal effectiveness. There are limitless polls that have been done on the time and energy of CEOs and those who’ve really mastered the role and focus on doing what only they can do. That sounds simple in theory, but it’s difficult in practice. There were two practices that CEOs applied. One is the notion of managing their own energy and that of their organization in a series of sprints. The CEO role isn’t just a sprint because you aspire to be around for a long time. And it can’t just be a marathon because, frankly, the expectations of early wins and early delivery don’t allow for that very, very long pace without results. And so, these CEOs found ways to manage these bursts of energy and performance through their days, their months, and their years. They looked at their calendars and sat with their assistants and their team to say, “What gives me energy? What drains me? And how do I make sure that I schedule out my week and my month and my year so that I can keep up the pace?” Right? They also considered, “I have moments of intensity and then I have to switch gears and find something that restores or energizes me.” They have to change channels and compartmentalize in an extraordinary way. They might go from a difficult regulatory meeting to walking into a town hall to boost the spirits of 2,000 employees. So being mindful about how you manage those types of issues was something that these CEOs were really deliberate about and had mapped out in many cases a year in advance. The second area was more about how they showed up in those moments. Michael Fisher, the CEO of Cincinnati Children’s Hospital, coined a term: “The to-be list is as important as the to-do list.” He would look at his schedule for the day and literally write down answers to these questions on a piece of paper, “What are the two or three ways of being that will be important for me as a CEO today? Do I need to be inspiring? Do I need to really push the team and make sure that they’re delivering? Do I need to be innovative and open to new ideas?” He would change these types of questions throughout the week. It’s not about being inauthentic; it’s about recognizing the extraordinary amplification of how he shows up in the room and being thoughtful about the tone he wants to set, because that has ripple effects for everyone.
Gautam Kumra: Thank you, Carolyn. The whole corporate landscape in Asia is changing in three fundamental ways. The first is the real race between the incumbents and the attackers. I think the incumbents are under more pressure than ever to be able to transform their business models and remain competitive. Whereas the attackers are really taking many sources of value away. Second, I think that in general there’s a massive productivity imperative. You know, there are fewer than 20 percent of companies that are covering the cost of capital. There is a massive need to improve productivity and generate more economic profit. And a lot of the productivity, if you look at markets like Korea and Japan, for example, will come through adopting digital and innovation. And finally, I would say it’s the rise of unicorns. Asia now represents more than 20 percent of the world’s unicorns and the pace at which these new companies are getting born and getting skilled is unprecedented.
Gautam Kumra: Thanks, Vik, and Carolyn, for joining us today.
Vik Malhotra: Thank you, Gautam. It’s a privilege and honor. Thank you for having us.
Carolyn Dewar: Thank you so much, Gautam. It’s a pleasure to be here.
Gautam Kumra: Stay tuned for the next episode.
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