With industries transforming at a dizzying pace, the role of CEO takes on more significane than perhaps ever before. But what goes into the making a great CEO?
Words by Mainak Dhar
Who or what is a good CEO? What does such a person actually do?
Few three-letter acronyms are as revered and yet as misunderstood, as the word ‘CEO’.
When I began my career, as it is for many people starting out in the corporate sector, it stood as a symbol of achievement, of ‘having arrived’, with all the privileges and perks that come with it. To those who are mid-career, it’s a prize to be won, a race which is often defined less by ‘who wins’ (ultimately, how many people actually become CEOs?) but by constantly peering over your shoulder to see who might be getting ahead of you in the rat race. To many of those outside the corporate world, it stands for a badge of honour, worn by distinguished-looking people who occasionally share pearls of wisdom in media, and earn big pay checks.
So, who is a good CEO?
Is it the person who occupies the big office? The one who reviews performance? The one who sets targets? The one who holds everyone accountable?
That was the model of CEO 1.0. The archetypical alpha male (yes, part of CEO 1.0 was that there was little diversity in the boardrooms); a hard-charging taskmaster who drove results. The one who was looked up to with reverence and awe.
Is that still relevant?
The bottom line is that the bottom line still matters. Businesses ultimately run and exist to add value to their stakeholders. That includes consumers, customers, and of course, shareholders. No business can invest, innovate, raise funds, and indeed pay the bills if it does not generate the expected financial returns through sustained performance.
So, to be a good CEO, performance matters, and always will. It will always be an important metric of what a CEO does.
That’s the first P of being a good CEO.
However, along the way something changed. Not that performance became less important, but that people started caring more about how that performance was delivered. This was due to many factors.
The liberalisation of the Indian economy in the early 1990s, meant myriad new opportunities opened for young people. There was a change in generational attitudes to work and employment from a mindset of ‘building a stable career’ to one of experimentation and seeking fit. The advent of the internet and social media democratised information and levelled many traditional definitions of hierarchy and influence. The intern had the same character limit on Twitter as the CEO and when you could see your CEO’s personal life on Facebook, he/she was no longer some unapproachable, indecipherable icon, but just another human being. The advent of the start-up boom enabled by technology and funding made many young people both find new career opportunities and ask why they should serve a distant and unempathetic CEO when they could be their own CEO.
That led to CEO 2.0, when a new and critical P became part of how a CEO’s role was defined: people.
Yes, people were always important. Every CEO will say that a critical part of their job is managing people. But what’s changed is that from ‘managing’ employees as resources, the focus has shifted to understanding employees as people, and helping them succeed. This has become especially acute with the generational gap between many CEOs and their younger employees, who want to be inspired, coached, and mentored, not just be issued marching orders to, and evaluated. That also brought with it the impetus to be more inclusive, to have board rooms better represent the customers, consumers, and employees they serve, not just be an ‘old boys club’. Much more needs to be done, but much has changed as well.
Over the last few years, there’s been yet another shift in the role of a CEO and the value they add. A new P has joined the party.
Purpose.
Put simply, why the business exists and why it adds value to the world and the community around it beyond just being there to sell something and make money.
For some time, Purpose was something leaders bandied around as a buzzword or put on mission statement posters to inspire new hires. Social impact was something a small ‘CSR team’ did on the side to ensure compliance requirements were being met in terms of CSR spending.
That’s changed.
The world around us has changed in terms of the awareness of the impact we are having on the environment and the responsibility all of us must step up and make a difference. Many CEOs and businesses have embraced this and made purpose an important cornerstone of their business strategy, embracing CEO 3.0. In a 2019 Fortune Magazine survey, only 7 percent of Fortune 500 CEOs said that their company should “mainly focus on making profits and not be distracted by social goals.”
The idealistic part of me would like to believe that is because more and more CEOs are realising that businesses do not exist in a vacuum. All businesses ultimately exist and thrive over time if they add value to the ecosystem around them- the communities they serve, and the environment they operate in. Economists talk of positive and negative externalities, and for years businesses had only looked at the numbers on their P&L sheets, not the negative externalities their emissions, waste management, or labour practices may have had, which in the long term will come back to bite them in terms of reduced demand or reputational risk.
Even if some CEOs didn’t do this out of the goodness of their hearts, what’s changed most fundamentally is that the 3Ps are now intertwined like never people.
Purpose matters to people. A 2019 McKinsey report said that 82% of employees stated that their company’s purpose was important to them. Then came COVID, and the ‘mass resignation’ and much introspection among all, CEOs, and interns alike, about what really matters. As things stand today, people want to work for organizations whose purpose and values match theirs and are willing to vote with their resumes if they don’t. An IBM study found that 70% of employees feel that an authentic environmental and sustainability-led purpose made employers more attractive, and a Gartner study found that two out of five Gen Z and Millennials had rejected job offers because the company’s values and purpose didn’t match theirs.
If there were still CEOs out there who would have held out saying that all this was a ‘fad’, then the reality hit that purpose matters to performance. Numerous studies have borne this out. As reported by McKinsey, “Research by author and professor Raj Sisodia suggests that purpose-led companies significantly outperformed the S&P 500 between 1996 and 2011. More than 2,000 academic studies have examined the impact of environmental, social, and governance propositions on equity returns, and 63 percent of them found positive results (versus only 8 percent that were negative).”
Coming back to the original question.
What does a good CEO do?
A good CEO does not start with the P&L and performance. H/she starts with Purpose, inspires and grows People, and Performance follows. Yes, it takes many leaders many years and much coaching to figure this out, but perhaps all we need to do is go back to wisdom that has always been there among us, for thousands of years.
After all, in the Bhagavad Gita, Lord Krishna says, “You have control over your karma alone, never on the fruits of your actions” and “Do your karma, not for getting a reward, but for the greatest good of society.”
Leaders need to focus on having an authentic purpose of making a positive difference through their actions, of serving their people to help them succeed, and focus on doing that karma, instead of getting lost in their drive for personal performance, progress, perks, or prestige.
It’s hard to do, but at the end of the day, when you strip it all away, that’s what a good CEO is – a karmayogi.
An alumnus of IIM-Ahmedabad, Mainak’s corporate career has spanned 27 years with organizations like P&G, General Mills, and Kimberly-Clark, including 10 years in CEO roles. He’s also a bestselling author with close to half a million copies sold of his books worldwide.
