New CEOs frequently face a conundrum. While the people around them publicly express high hopes for what they’ll be able to achieve, in private those same people are skeptical. Buoyed by outward expressions of support and eager to make their mark, CEOs steam ahead with bold new initiatives before they’ve won the full support and trust of all stakeholders, and this can get them into trouble.
The speed trap is seductive. After all, the conventional wisdom is that CEOs have roughly 90 days to prove themselves to their organizations. But our experience and research reveal that gaining the confidence of all stakeholders — something that’s crucial to their ability to effectively drive change — takes a full two years. And only by focusing strategically and purposefully on building trust during that period can CEOs genuinely create the conditions for long-term success.
Furthermore, when CEOs focus tactically on confidence building during their first two years, they set off a virtuous cycle that leads to a remarkable and consistent increase in the enterprise multiples of their companies in the years that follow, as shown in the chart below. We call this increase the confidence premium.
Top Performers Take Off in Year Three
The chart below shows value creation over the course of CEOs' tenure, as represented by the change in companies' enterprise multiples. For the first two years, as confidence is being built, there is little or no difference, but after that a "confidence premium" grows continuously.
So how can new CEOs start building confidence amid a blank slate? We’ve identified six key practices that top executives can apply systematically:
- Set a deliberate pace
-
Pick your battles strategically
- Align your team
- Engage stakeholders at the right time
- Communicate clearly and relentlessly
- Better yourself
In this article, we explore what these practices entail and how CEOs can apply them, drawing on the personal experiences of our co-author Mahesh Madhavan and other CEOs.
Read the full article on hbr.org