Maximizing shareholder value: Tips for board directors and CEOs

by Athena member Alessandra Yockelson

Creating long-term shareholder value is a core goal of boards. And CEO appointment, assessment, and succession are core to the board’s advisory responsibilities. But how can boards be certain their CEO is the right one to create the highest economic value for the organization? And, as a sitting or aspiring CEO, how can you maximize your odds of leading your company to extraordinary performance?

Finding answers to these questions has been a passion of mine for many years and the focus of my PhD research. Below, I share the findings of my research and practical insights on how to apply them in the boardroom or C-suite.

The importance of the CEO for shareholder value creation

It’s inarguably true that CEOs matter (for good or for ill) to shareholder value creation. The chief executive is one of the strongest predictors of performance variance among companies in the United States, be it measured in terms of revenue growth, operating profit, ROA, or market-to-book ratio. The largest study conducted to date on CEO effect showed the CEO influence accounts for 15–25% of the gap between high-performing organizations and the rest. This holds true particularly in high-velocity industries where demand changes rapidly, feedback from markets obsolesces quickly, and one cannot quite ascertain who they are competing against.

Intuitively, as a board director or a sitting CEO, you know how impactful the role of CEO is to the success (or failure) of organizations. Therefore, the important question is not whetherCEOs can influence company performance, but how the CEOs who generate above-industry performance do so.

Successful CEOs excel at 4 interdependent domains

High-performing CEOs excel at four interdependent domains that I called Individual, Relational, Organizational, and Reputational Capitals. Each domain has differentiating characteristics that are critical for their success.

The first domain: Individual capital

This is about the personal qualities of the CEO. Interestingly, some of the stereotypical traits often associated with CEOs such as ambition, drive for results, and stamina are not differentiating traits. Rather, the chief executive’s cognition was found to be way more important — specifically their ability to self-reflect, to articulate their vision clearly, and to sustain focus despite distractions. They leverage their memory, and their cognitive attention is oriented to the present and the future (not to the past).

CEOs are more likely to succeed when they have diverse lives and varied education and career experiences that help them be less susceptible to completely new-to-their-world situations. They also maintain a high bar for the caliber and performance of the top management team and act quickly to address gaps.

Most CEOs have vast social networks, but effective CEOs are not stuck with the relationships of the past. They excel at continually renewing their social interactions. Many CEOs spend a significant amount of time with customers, but the difference maker is their degree of customer obsession. Through an operating rhythm that includes interactions with current and potential customers and a tight execution loop in the company, they not only sense new opportunities outside but they execute changes to products and services, business models, and capabilities in line with these opportunities, which in turn drive growth.

Last is the importance of approachability and interpersonal skills. This is not about the chief executive being nice. This is about understanding the complex causes of others’ underlying attitudes and behaviors. It also includes the ability to predict other’s responses through understanding, listening, and observing, which enables them to leverage the individual capital of everyone they interact with, by creating conditions in which people feel comfortable being around them.

Individual capital in action:

At times CEOs are seen as heroes, other times as villains, and in most cases a bit of both. The attributes that qualified them to hold the top job cause both admiration and intimidation in others. If they get it right, direct reports will typically say the CEO was the most demanding, fast-paced boss they ever had — but also the boss from whom they learned the most. Their followership is so strong that individuals make immense discretionary efforts to support the CEO’s success. They create it by striking the ideal balance between challenging and supporting people around them.

The second domain: Relational capital

This is about the one-to-one relationships the CEO nurtures with individuals within and outside of the organization. Deep relational capital is the main catalyst by which effective chief executives provide direction toward outcomes to others, who in turn amplify the CEO’s vision and direction to the organization at large. The behavioral integration among members of the CEO direct team — the extent to which individuals share the vision, agree on the approach, and complement each other’s abilities — is just as essential for the amplification of the CEO influence to happen with conviction and alignment.

Achieving superior results requires constantly adapting the company’s resources in response to emerging opportunities. Strong behavioral integration at the top causes better sequencing of change events and reduces confusion. It is the glue that makes a group of individuals act as a single force toward results. Without it, functional and business unit leaders are likely to maximize their own areas of accountability. This isn’t achieved through the somewhat cliché off-site team building workshops with the executive committee. True integration starts with the right mix of individual capitals and moves to team rituals that force shared accountabilities, intense social interactions at work, and productive dialogue.

The best CEOs set expectations that risks are taken and make clear that lack of risk willingness is actually a riskier career move. These chief executives are personally involved in diminishing common power conflicts and politics over resources, and introduce features to their operating rhythm that break down silos by assigning enterprise-wide accountabilities to small, cross-functional subsets of the top management team.

Relational capital in action:

The CEO of a Brazilian digital retailer considers all executive roles and executive talent enterprise assets. As such, investment and appointment decisions on which roles to fill and who fills them are made jointly by the top management team. They operate with the assumption that resources should be invested with the lens of wealth creation potential for the enterprise, as opposed to being a consequence of functional political jockeying for headcount.

The third domain: Organizational capital

This is about the rituals the CEO and the top team adopt to lead the company, which in turn influence the behavior of large groups of people. Rituals are the invisible hand by which CEOs nudge the behaviors of teams, without necessarily interacting 1:1 with each person.

High-performing CEOs were intentional about the design and disciplined execution of their management model, focusing on the present and future concurrently, making individuals be in the balcony and in the dance simultaneously.

Equally important, effective CEOs excel at ensuring enterprise-wide efforts are well orchestrated timing-wise so they hit the company in a logical manner. Accountability is placed in small teams with performance transparency.

The individual and relational capitals of the CEO and top management team are critical for successful execution of the company’s management model. But I also found that the quality of the organization’s human capital matters. It’s not only the high-performing CEO who raises the bar on the individuals who interact with her one-on-one. But she also instills and inspects high-commitment human capital strategies that require leaders in the company at large to raise the bar on their talent as well.

A lot is said about culture and its importance to strategy and performance. High-achieving CEOs hardwire the behavioral shifts they want to see in their management model, which creates a very strong alignment and unit between culture and the company’s vision and goals.

Organizational capital in action:

Faced with legacy IT systems and go-live dates that were concentrated at the end of the fiscal year, one CEO made quarterly technology launches an expectation of the business leaders, not IT leaders. In another example, a CEO known for the strength of her management is referred to by her direct reports as someone who taught them that focusing long-term does not mean building scenarios two or three years out then leaving them in the drawer. It means you work today on all the things that need to be in place to win two or three years from now.

The fourth domain: Reputational capital

This is about what is felt, thought, or said about the CEO when she is not around. Most CEOs invest time talking about their strategic vision internally and externally, updating investors and other stakeholders on a regular basis.

In my findings, though, reputation is not a capital built just by corporate talk and communications. To be an attribute that leads to high performance, reputation is shaped by what transpires via relational and organizational channels. This way, people don’t only understand the company’s strategic vision, they also believe in it and see it put in practice by the CEO and the executive committee and reinforced by the organization at large.

The differentiated CEOs very visibly and compellingly tell the strategic story, stay consistent on message over time, and adapt the delivery according to the audience. They are very congruent between words, behaviors, and actions, which makes them masters of role modelling. This clearly signals to others the CEO’s vision, strategy, and commitment to sponsored behaviors and expected performance, attracting or sending away individuals and organizations depending on their own views of how things should be, which in turn accelerate the path to performance by enlisting more promoters and discouraging detractors.

Reputational capital in action:

Talking to employees about the company’s strategy is important, but that alone is not enough. High-performing CEOs ensure people have the tools and conditions they need to play their role in a company’s performance. Resources, policies, processes, decision rights, and tools cannot be incongruent with strategy — otherwise most people will eventually give up and leave or become passive change-blockers at best. This is reputational capital because CEOs cannot achieve this alone or by virtue of 1:1 relationships only. They need to publicly call out their expectations and use their power and visibility to create pressure for change among various ranks in the organization.

Applying the model in real life

This is how the integrative model looks:

But, how do you apply it in practice? It depends.

As a sitting CEO, are you investing enough time in your cognition by learning new things? Do you balance your time meeting new people, learning the views of potential customers, deepening relationships with the members of your leadership team? Do you tend to hire executives you worked with in the past, or do you use hiring as an opportunity to add varied backgrounds to the team? Is your operating rhythm aligned with the velocity of your industry? Does it create focus on executing the present and transforming for the future? Is the culture you sponsor congruent with your management system? How simple and consistent is the storytelling around your vision? Are you sending clear enough signals of the importance of continuously raising the bar on performance and talent in your organization?

If you are a board director, you already know that selecting the CEO is the most important decision a board makes. You also know that there is no rule for riches: the most suitable CEO depends on the business context and situation, and what the CEO’s role will be, as not all CEO jobs are created equal. Once there is alignment on these answers, ask yourself which of the above domains would be most critical to increasing the odds that the soon-to-be-hired CEO will be successful, and ensure those attributes are hardwired in the hiring assessment, including interviews, reference checks, psychometrics.

In conclusion, when it comes to CEO performance, it’s important to watch for excessive focus on the personality and fame of the CEO, and more on how they leverage these four critical domains of individual, relational, organization, and reputational capitals. Their ability to create extraordinary value for the company lies in these four areas.

Alessandra Yockelson — Chief Talent Officer @ Hewlett-Packard Enterprise

Alessandra leads global business and culture transformations to drive profitable growth for major multinational brands, including Hewlett Packard Enterprise, Diageo, Avon, Philips, and Volkswagen. A recognized leader in human capital management, digital transformation, M&A, and diversity, equity & inclusion, she serves as a trusted advisor to boards, CEOs, and executive committees on building high-performance cultures.

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