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About 40% of new CEOs fail within 18 months. Here’s what separates the best from the rest

March 11, 2022, 1:00 PM UTC

Good morning! Fortune leadership editor Ruth here, filling in for Aman.

Snarled supply chains, geopolitical instability, labor shortages, cybersecurity threats, social justice, sustainability, and a seemingly endless pandemic. These are just some of the many affairs that today’s CEOs must adeptly maneuver as they navigate a rapidly shifting and uncertain world.

Amid heightened public scrutiny and increased activism that often play out online, sparking corporate backlash in minutes, it’s no wonder that CEO turnover is high. About 30% of Fortune 500 CEO tenures have lasted fewer than three years over the past two decades, while some 40% of new CEOs are deemed failing in their first 18 months, according to the Center for Creative Leadership.

By all accounts, the role of CEO has become increasingly difficult, and it requires a constant balancing act of various priorities, according to McKinsey senior partners Vikram Malhotra, Caroyln Dewar and Scott Keller, who coauthored the book titled CEO Excellence, publishing March 15. 

In conducting research, the authors started with a pool of more than 2,400 corporate leaders, before narrowing it down to a core group of 67, to analyze the six critical responsibilities that differentiate the best CEOs from the rest. One of those dimensions? An ability to skillfully engage the board.

“Boards are not shy about moving when they see failure occurring,” Malhotra tells Fortune. “And if you’re not bold and you’re not aggressive, you will likely fail and you will fail quickly.”

Board collaboration is paramount to the efficacy of a CEO. But for many, it’s easier said than done. 

Engaging corporate boards is one of the most unnerving challenges for CEOs, largely, because directors are at the pinnacle of governance—they’re the CEO’s boss. As an added layer, CEOs rarely, if ever, have a say in who’s on the board and how it operates, the authors note.

Many CEOs make the mistake of trying to manage their board or keep them at a distance. The vast majority of successful CEOs, however, take a considerably different approach to board interactions. “They are really focused on asking themselves, ‘How can I help my directors help the business?’” Malhotra says. These CEOs leverage their boards in three ways, he says:

No. 1: Communicate openly

Top CEOs believe in the concept of radical transparency. “ I don’t mean you have 600 pages that you throw at the board and hope they’ll use it to educate themselves,” says Malhotra. Rather, these CEOs take the time upfront to inform the board of what’s working and what isn’t. 

Ivan Menezes, chief executive at Diageo, employs a strategy called 7+7, Malhotra says. At the start of each board meeting, Menezes lays out seven areas in which the company is excelling and seven areas that need strengthening. “It should be a balanced menu of what’s going well and what isn’t going right, and not trying to hide anything from the board,” Malhotra says.

No. 2: Future-proof the board

The best CEOs work in tandem with the board chair to appoint directors who can address what the company will need tomorrow—not what it needed yesterday. Together, CEOs and lead directors should determine what skills the board needs to help the business weather future storms, such as regulatory skills, marketing skills, A.I. skills, or even HR competency.

“CEOs should help get the necessary skills on the board so that they can lean on directors as they have issues down the road,” Malhotra says. 

No. 3: Seek help

Skilled boards not only provide CEOs with a wealth of knowledge, but, relative to most consultants, they are significantly cheaper, too, Malhotra says, citing Ajay Banga, executive chairman and former CEO of Mastercard. “So why not leverage them?” 

Most board members, he adds, want to be helpful. The tension comes when CEOs fail to seek out the board’s expertise on important matters. “Boards then feel as though things are being kept from them so they begin to probe in many different areas,” Malhotra says.

In short, the best CEOs find ways to build trust with directors, who are a proxy for the company’s shareholders and must act in their best interests.

Ruth Umoh
@ruthumohnews
ruth.umoh@fortune.com

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