After decades of studying organizations and CEOs, I believe that enterprise has now entered the 4th phase of business – The Transformative Organization. In the 1920s
This new breed of organization is lead by Transformative CEOs. I define a Transformative CEO as someone who “creates new value that reinvigorates a company, reinvents an industry or reboots society”. To understand attributes of Transformative CEOs Jeff Fox and I studied hundreds of CEOs and outline this new breed of leader in our book, The Transformative CEO (McGraw-Hill 2012).
But in the back of my mind was a nagging question: Does such transformative leadership produce superior financial results or not?
So I reached out to a research firm The Knowledge Agency® (TKA) to devise and execute a test of this key question. Following are their process and findings …
TKA used a fundamental benchmark — the change in the stock price during each CEO’s respective tenure in that role. Since market conditions varied widely over the differing time frames tested, they gauged the results against the return from the overall market, as measured by the return on the S&P 500 index. The S&P 500 is said to represent over 75% of the US equities market.
The benchmark metric was stock price return in excess of the return from the S&P 500. TKA tested all eleven of ‘transformative’ companies (identified in The Transformative CEO) that were publically traded and had market capitalizations over $1 billion as of June 1, 2012.
Of the eleven CEOs tested, ten presided over share appreciation greater than that of the benchmark during their respective tenures. In five of the cases, this was by a triple- or quadruple-digit percentage point margin! The median of these test companies exceeded the market by a significant margin of more than 44 percentage points.
These superior gains were achieved both in periods experiencing up markets (the strong expansion experienced by
When looking behind these numbers, TKA found that the single outlier,
Each of these CEOs had ample time to implement his or her agenda. The minimum CEO’s tenure in that role was about five years, the maximum over 23 years. (The return figures shown do not adjust for these variations. When we did that adjustment, the results were similar, with slight changes in the order of the companies. Transformation is more a matter of sustained superior performance than short-term windfalls.)
I asked TKA president and competitive strategy expert Tim Powell about the implications of his research. His comment was: “The CEO is really also the 'Chief Value Officer' of an enterprise. It's a key part of his or her job to set and monitor strategic value goals, to make sure that opportunities for value are maximized, and that threats to value are minimized. For a traded company, the single metric that summarizes success on all these dimensions is the stock price. We believe shareholder value incorporates all other forms of value that a company produces.
TKA measured the stock performance of companies selected previously based on the 'transformative CEOs’ criteria. We found that the results illustrated quantitatively that Reiss and Fox had captured so well qualitatively — that superior performance by a CEO can drive superior performance by a whole organization, which is then reflected in its stock performance relative to the market as a whole.”