September 14, 2020 – COVID-19 has created a massive humanitarian challenge: millions ill and hundreds of thousands of lives lost; soaring unemployment rates in the world’s most robust economies; food banks stretched beyond capacity; governments straining to deliver critical services.
The pandemic is also a challenge for businesses — and their CEOs — unlike any they have ever faced, forcing an abrupt dislocation of how employees work, how customers behave, how supply chains function, and even what ultimately constitutes business performance, according to a new report by management consulting firm McKinsey & Company.
Confronting this unique moment, CEOs have shifted how they lead in expedient and ingenious ways. The changes may have come of necessity, but they have great potential beyond this crisis. In a recent report, McKinsey & Company explored ways in which CEO shifts in leading are also better ways to lead a company. If these shifts become permanent, they hold the potential to thoroughly recalibrate the organization and how it operates, the company’s performance potential, and its relationship to critical constituents.
“Only CEOs can decide whether to continue leading in these new ways, and in so doing seize a once-in-a-generation opportunity to consciously evolve the very nature and impact of their role,” the report said. “Part of the role of the CEO is to serve as a chief calibrator — deciding the extent and degree of change needed. As part of this, CEOs must have a thesis of transformation that works in their company context. A good CEO is always scanning for signals and helping the organization deliver fine-tuned responses. A great CEO will see that this moment is a unique opportunity for self-calibration, with profound implications for the organization.”
McKinsey & Company spoke with and counseled hundreds of CEOs since the pandemic first hit. “It is clear to us that they sense an opportunity to lead in a new, more positive and impactful way,” the report said. “If a critical mass of CEOs embraces and extends what they have learned during the pandemic, this CEO moment could become a CEO movement — one that is profoundly positive for the achievement of corporate, human, and societal potential.”
“This will be a true inflection point,” Rajnish Kumar, chairman of the State Bank of India, told the firm. “I think that this pandemic, in terms of implications, will be as big an event as World War II. And whatever we learn through this process, it must not go to waste.”
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The global health crisis and its resulting business dislocations have unlocked change at a pace and magnitude that has made even the boldest and most progressive of CEOs question their assumptions. From what McKinsey & Company has observed, there are at least two related areas that are ripe for innovation: goal setting and the operating model.
Companies should think bigger and faster, the McKinsey & Company report said. During the pandemic, many organizations have accomplished what was previously considered impossible. Cincinnati Children’s Hospital Medical Center, for example, scheduled 2,000 telehealth visits in 2019. It is now handling 5,000 a week—a goal that, prior to the pandemic, it had estimated would be accomplished several years from now and only after a largescale transformation.
In four days, Unilever converted factory lines that were making deodorants into ones making hand sanitizer. Life insurers have wrestled ingeniously with a unique COVID-19-related problem, said Jennifer Fitzgerald, CEO of Policygenius, an online insurance broker: “Some consumers don’t want the examiner in their house. We’ve seen a lot of flexibility from carriers. Some have moved quickly on the electronic medical record side. We’ve also seen carriers increase the face amount that they’re willing to underwrite using data instead of the medical exam. Overall, I think this has pushed the industry to adopt some changes much more quickly than it otherwise would have.” In a week, companies went from having 100,000 people working in offices to having 100,000 people working from home — a shift requiring systems and policy transformation that under normal circumstances might have taken years.
Research by McKinsey’s strategy and corporate finance practice has long shown that CEOs making bold moves is vital to achieving outstanding performance, which itself is elusive — only one in 12 companies goes from being an average performer to a top-quintile performer over a 10-year period. Making one or two bold moves more than doubles the likelihood of making such a shift; making three or more makes it six times more likely. Their research has also shown that CEOs who are hired externally tend to move with more boldness and speed than those hired within an organization, partly because of the social pressures that constrain internally promoted CEOs.
In addition to the mindset shifts, there are any number of more tangible reasons why companies have been able to drive this kind of progress so quickly. Some CEOs, such as Vivek Sankaran of Albertsons and Lance Fritz of Union Pacific, have noted that remote work and bans on travel have opened up banks of time that give them the opportunity to focus more on what really matters. As Natarajan Chandrasekaran, chairman of the Tata Group, said: “[As a consultant,] I used to fly to meet a customer, even if it took all day or more, for a one-hour meeting. Now I know that the amount of time that goes into traveling is not necessary. That’s the way people used to live, but I think that that will come down now.”
A significant drop in sentiment about the state of the economy is behind the decline, says the latest report by The Conference Board. Eighty percent of the CEOs surveyed say the coronavirus has substantially impacted their business. Leaders at Solomon Page, Furst Group, Cejka Search and Slone Partners also weigh in.
Beyond personal time and energy management, McKinsey & Company pointed to organizational adjustments that CEOs have made to decision making and execution hold great promise for the future. Arvind Krishna, the new CEO of IBM, told the consulting firm that his company has recently relied on a two-speed model of decision making. “Your CMT [crisis-management team] will handle all of the stuff around health, safety, employee confidence, and client confidence,” said Mr. Krishna. “That lets the others focus on running the business. I think it’s a reasonable model for three to nine months. The bigger question is, ‘How do we learn from this and evolve better for the future? What structural changes do we make?’”
McKinsey & Company said that one significant aspect of structural change that most CEOs are grappling with is how much of a physical footprint their companies need, now that the ability to work virtually and productively has, by and large, been proved. If companies do move to a more virtual model (50 percent or more virtual, up from 20 percent, for example), what does that mean for team building, compliance, distribution channels, and so on?
In a moment of crisis, everyone looks to their leader. McKinsey & Company said that CEOs have felt this acutely during the pandemic. David Schwimmer, CEO of London Stock Exchange Group, told the firm: “People are looking to me for a different kind of leadership. In a normal environment, it’s about business leadership and setting up strategy, as well as culture and people decisions. In this environment, it’s about helping people maintain morale. It’s about people being prepared for whatever may come in the face of uncertainty.” As a result, leaders have shown up differently and have starting using a different lens to take notice of how members of their senior team show up, said McKinsey. They see both of these areas as candidates for permanent change in the future.
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“COVID-19 has absolutely impacted the role of the CEO,” said Wendy Murphy, managing partner and global practice leader at ZRG. “It has rocked some to quickly pivot, and for others this pandemic has further confirmed the path already underway. However, every CEO has become more commercially honest. Honest with themselves in how they now need to lead, honest with their leadership teams about priorities and accountability, honest and seeking feedback from customers, challenging their commitment to markets, and most have been much more vulnerable and authentic with their employees.”
“Board of directors are looking for ambidextrous leadership — being an operator and a creator at once,” Ms. Murphy said. “Most CEO’s of large, global organizations are skilled operators and administrators. This is the era of growth. The CEOs I am working with are most interested in getting the growth engine going and are now willing to look at new ways of doing things.”
The talent agenda is at the forefront now more than ever, said Ms. Murphy. “Be it in retail, with direct to consumer, or in life sciences where the mission of the work has accelerated and talent is the competitive advantage. CEOs are moving quickly to get the best talent available, and not accepting mediocrity, even with aggressive remuneration that is now demanded. This has been the time for human resources officers to work with CEO’s to re-invent the workplace,” she said. “Never before has the future of work been so masterfully accelerated. CHROs have further cemented their impact on organizations, and most CEO’s have depended on this partnership for the quick definition and future evolution of how we work.”
“I think it is just now, six months into this crisis, that you are seeing a bit of separation happening between the CEOs who have firmly grasped the idea that this pandemic is going to change life for all of us for a long time, and those who have clung to a ‘let’s just ride this out and it will pass mentality,’” said Judith M. von Seldeneck, founder and chair of Diversified Search. “You’re also seeing that those organizations that were forward-thinking enough to engage nimble leadership able to pivot quickly are reaping the rewards of that decision.”
Ms. von Seldeneck said that one of her favorite remarks was from Roger Crandall, the chairman, president and CEO of MassMutual, who told Forbes a few months ago that the pandemic “has really brought home the value of knowing our purpose as an organization…If you know your purpose, it’s much easier to determine what you are best positioned to contribute in difficult times.”
Who are the CEOs who are now leading with a sense of purpose? Ms. von Seldeneck said those “who have managed to keep their employees uplifted and engaged, and tamped down anxiety; those who have been able to keep shareholders and stakeholders calm and invested, laying out a clear vision around what steps are being taken and what contingency plans are being made and remade each passing day; and those who are balancing an optimistic message of ‘this will all be fine’ with a slightly more sober ‘we must remain vigilant and committed to weather this storm.’”
“I think a lot of companies have been caught flat-footed, in that they thought they had responsive, nimble leadership and then discovered, brutally, that they didn’t,” Ms. von Seldeneck said. “No one wants to shake up the executive team in the middle of a storm. But once the storm passes – and no one knows yet when that will be, but it will – I think you are going to see a lot of C-suite movement. The CEOs who passed this crisis with flying colors are going to be in high demand, and there is going to be a lot of competition for that talent. And I think that is going to keep the executive search industry very, very busy,” she said. “The executive search firms that will thrive will be those with a proven track record of placing the most forward-thinking and forward-looking executives.”
Because the COVID-related challenges facing businesses were at once sudden in their onset and existential in their implications, CEOs have had to fully commit themselves to implementing strategic and operational shifts that, in the pre-COVID world, would have taken years of planning, testing and cultural habituation, said Steve Potter, U.S. CEO of Odgers Berndtson. “Not all of these changes are going to persist into the next few decades but many important changes will persist — and the most important of these changes, in my opinion, will be the ones that the crisis has had on leadership mindsets,” he said. “Thanks to COVID-19, CEOs in just about every industry have learned that previously ironclad business assumptions — assumptions about what their business does, how they relate to stakeholders, how they measure success, how they define the purpose of their organizations, and how they engage their employees — are far less ironclad than they’d assumed.”
“There are benefits to working from home, of course, but it’s also pretty clear that remote employees build more limited social and professional networks than they do when they’re working in the office,” Mr. Potter said. “It’s not that they don’t form relationships; it’s that these relationships tend to be siloed: employees communicate with their superiors and with pertinent team members, but they don’t trade water-cooler time with people working on other teams, projects or functions.”
This is a problem for two reasons. “First, cross-functional communication tends to give employees a wider understanding of the business, which helps contextualize their own role and teach them the skills they need to grow into more senior roles in the organization,” said Mr. Potter. “Secondly, cross-functional conversations tend to result in new business ideas and insights; in our firm, we often find that when you get someone from the industrial practice talking to someone from the technology practice, you often find serious and unexpected overlaps that lead to business opportunities. CEOs, COOs and managers, therefore, need to find a way to replicate the water cooler in an online environment.”
Mr. Potter said businesses are doing this in a variety of ways: Some are shuffling team compositions on a routine basis, rotating talent through different projects and roles; others are developing informal, cross-functional conversational platforms, in which people from different sectors get together and share projects, goals and perspectives with each other.
Odgers transitioned overnight to a 100 percent work-from-home firm, and for many employees the move was isolating. “To offset this, we’ve urged office heads to continue hosting their weekly in-office happy hours, and we’ve made check-ins a bigger part of the leadership team’s daily tasks,” said Mr. Potter. “But we’ve also worked hard to give the impression — a true one — that we’re all in this together. Everyone in our firm has seen some pay reduction, including the management team and partners,” he said. “And when I talk to leaders in other firms, I’ve seen them doing the same kinds of things: they’re communicating transparently with their employees, they’re giving one-on-one check-ins, and they’re being honest about what the numbers are and how the implications of these numbers are being distributed throughout the business.”
David Heron, group CEO at Wilton & Bain, said: “Since before we were even locked down, I have had the following words from my chairman (Piers Marmion) ringing in my head – ‘David, make sure we come out of this crisis at a higher altitude than we entered it.’ Each stage of the crisis has required different types of leadership – ‘strong, clear, decisive’ – ‘available, empathetic, human’ – ‘reassuring, positive, upbeat, growth focused.’
Mr. Heron said that these “different types of leadership all require a shift in communication style recorded: video messages, all hands company updates, level-by-level comms, 121 comms, delegated authority to business unit leaders. Everything geared at providing assurance, energy and confidence, whilst being acutely conscious of delivering mixed messages, or being overly optimistic given the changing world in front of us.”
“It’s been a time to recreate operating models, to reimagine the future, to innovate, but to also live in the moment, not getting too far ahead of a crisis that arrived fast, but will likely be slow to go away,” Mr. Heron said. “And you have to remember the human elements: illness, bereavement, disease, financial, mental health, job security, the people that have gone above and beyond to support society all across the world. We cannot get away from the fact that we are watching a global pandemic unfold in front of our eyes and there is no playbook to follow.”
Mr. Heron said he believes CEOs have been torn between their natural desire to get down in the trenches, to be with their people and to lead today’s fight vs. taking on the higher value task of building their firms for tomorrow. “It’s been a test for leadership teams to pull together with everyone having different pressures,” he said. “For example, CFOs are more prevalent than ever, providing mission critical information to inform real time decision making and CHROs are leading people, culture, during a time of immense change and uncertainty. Everyone is evaluating the capability they have in their teams for the next phase of the journey.”
“CEOs have had to demonstrate enhanced empathy, agility and the ability to communicate in an authentic and consistent manner with their organizations to build trust, energy and direction in a time of great turbulence and disruption,” said Laura Mantoura, a member of Russell Reynolds Associates’ board and CEO advisory partners. “They have also had to rethink their decision-making processes, given the need for organizational responsiveness, often in a highly localized manner. Successful CEOs have empowered their C-suite and the broader organization with decision-making authority, to take advantage of opportunities that have arisen as a result of macroeconomic trends; examples include the unprecedented and instantaneous shift to ecommerce which has upended many business models.”
CEOs have also reflected on how their organizations are showing up and evidencing their value statements and culture, Ms. Mantoura said. “This is particularly important in sectors facing significant upheaval where some pretty difficult decisions have been required vis-a-vis the employee base and overall operations,” she said. “While pressures on executives at home and in the workplace have never been so extreme, standout CEOs have invested in employee support mechanisms to support their workforce at this time. This is especially critical because we’ve found that culture and leadership buy-in are two of the top barriers to employee wellness.”
Beyond COVID-19, many CEOs have also proactively taken a public stance with regard to the social unrest experienced on a global scale, said Ms. Mantoura. “Beyond value statements, this moment in time has also triggered a heightened focus for CEOs on topics such as diversity, equity and inclusion at all levels in the organization (both board and within their employee base),” she said.
“Lastly, the relationship between the board and CEO has evolved. There’s been a greater degree of communication, collaboration and advice-seeking and sharing during this time,” she said. “Greater emphasis has been placed on board composition and ensuring it is fit for purpose to mirror an organization’s strategic context, while also ensuring diversity of thought is fully embraced in the boardroom.”
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media