The Five Rules Every New CEO Should Follow

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The Five Rules Every New CEO Should Follow

Last week, an executive who was on the verge of being promoted to head his large global publicly traded company asked for my advice on how to be effective as a brand new CEO.  I gave him a list and he was so appreciative that I was motivated to write a blog about it.   There were five recommendations on my list:

1)    Grow the Pie

The most fractious and difficult thing to do in an organization is to take resources away from someone who is used to receiving them.  For this reason, growing the revenue pie is critically important to the success of a CEO’s reign.  If a CEO attempts to reallocate the existing resources in order to improve the organization’s prospects, endless fights and a firestorm of protests will ensue.

If instead, the focus is on increasing revenues, investment capacity will increase and new resources can be funneled to growth priorities without needing to cut absolute resources to non-priority areas. Over time, as the revenues grow, the non-priority areas will become an ever-smaller piece of the puzzle and when the success of the priority areas has been made manifest, the CEO can shut down the non-priority areas without much hassle or fuss.

2)    Follow Due Process

CEOs really don’t have to follow due process.  For example, they have the power to sack anyone they want.  However, it is critically important not to do that because everybody watches with a keen eye and wonders whether they will be objects of arbitrary decisions as well.  Suck it up and suffer until such time as a manager who you would rather remove immediately can be given feedback and a fair chance to improve.  That is a lesser evil than to establish in your team’s mind that you make up your own rules.

3)    Consult Whenever Possible

Consult wherever and whenever possible with your team before making decisions, even if it drags out the decision-making.  This is because your team needs to feel and function genuinely like a team.  As CEO, there will be times when you have to make a decision without any support from your team because from your CEO perspective you can see that it is the right decision and your team can’t.  You can get away with these decisions without destroying the team dynamics, but only if you save it for very rare occasions.

4)    Set High Strategy Standards

The easiest thing for managers to do is to avoid making the explicit choices that are essential for quality strategy. But mediocre strategy results in lots of work for little reward. So it is critical for a new CEO to establish that direct reports have the responsibility for making logically consistent and unique strategy choices in their areas of responsibility. You need to signal that you won’t create their strategy for them but will help if asked — because nothing is more important than having a high bar for strategy.

5)    Maintain a Big Tent

The new CEO needs to signal from inception that the organization will be a big tent that welcomes diversity, not a monoculture with only people who resemble the CEO. It is much harder to find the requisite personnel for a monoculture and the reward if you do find them is that they are less effective!

My favorite ‘CEO’ of all time is former Baltimore Orioles baseball manager Earl Weaver, who won four American League Championships and one World Series with rag-tag assortments of personalities that were arguably the most diverse that baseball has ever seen.  He could always sign or trade for players to fit in his tent because of the breadth and inclusiveness of his definition of ‘fit’. My least favorite is Pete Rose who insisted that every player manifested the ‘Charlie Hustle’ persona for which he was famous in his former life as a superstar player.  Rose traded away players who ‘didn’t fit’ and built monoculture teams that hustled their way to persistent mediocrity.

I encouraged the new CEO to act immediately on these five recommendations because in the rough-and-tumble world of the modern CEO, second chances are rarely given.  And if a CEO starts off reallocating the existing pie, declaring force majeure, acting unilaterally, accepting mediocre strategy and closing ranks to only the comfortable colleagues, the die gets cast pretty quickly.  So make those first few moves deliberately — and in accordance with this list.

by Roger Martin HBR