What makes a great CEO?

We have been fortunate over several decades of investing to have met hundreds of CEOs, across a vast range of industries and businesses. The benefit of time, and seeing the relative outcomes these leaders have produced, has given us some pattern recognition on the common threads as to “what great looks like” when it comes to CEOs.

At TDM, our investable universe is vast. We are industry and geographically agnostic, and invest in both public and private companies. However, we invest in a very concentrated manner — we only own 10 to 15 businesses at any one time. We are very clear about our circle of competence and incredibly selective; we want to invest in global category-leading businesses. Businesses that, in our eyes, are some of the best growth companies in the world.

We are of the deep belief that people and culture are the beating heart of these great businesses. And it is great leaders who create these cultures. We have observed this first hand over many years. Ethan Berman (founder and CEO of RiskMetrics who famously wrote a letter to his board requesting they pay him less, having not in his opinion been deserving of his remuneration) opened our eyes to the power that culture can have in shaping business outcomes. It was around this time, just after the turn of the new millennium, when we would ask CEOs to describe the culture they were trying to build within their business, many would stare at us, glassy eyed, unable to respond. How times have changed!

The businesses TDM invests in are growing fast but vary in size. Inevitably, the biggest challenge for these fast growing businesses in our portfolio is successfully scaling people and culture — whether its a $5bn revenue business growing at 30% or $50m business growing at 100%. Regardless of where they are on the growth curve, all share many of the same issues and also a common solution — a great CEO.

So, what does a great CEO look like to us? There are table stakes for both character and competence. With regard to character, it is simply summarised as— “are we proud to be partners with this CEO?”. In terms of competence, there are attributes such as the ability to attract the best talent and domain-specific expertise. But it is the four attributes below that we believe distinguishes the great from the good.

As an aside, a quick shout to Didier Elzinga, CEO of Culture Amp, who inspired us to use the “what does great look like” framework. Didier uses this framework for his executive hires. Incidentally, Didier is an exceptional founder / CEO and we believe he will prove himself to be one of ‘the greats’.

A great CEO is…

… A passionate leader of the mission;

How much the organisation cares about the mission is a direct reflection of its leader. There are three distinct traits that above all else that determine this.

1/ A great CEO sets the ethos — the beliefs, values and standards that the business holds itself to. They are unwavering in vigilantly holding the organisation accountable. They eat, live and breathe the ethos. All day. Every day.

2/ Grit — passion and persistence (thank you to Angela Duckworth for this new-age definition). It is a long, hard road no matter where a business is at in its growth journey. These challenges and adversities need to create strength in an organisation. This is what we like to call an ‘anti-fragile’ culture — a principle originally written about by Nassem Taleb, but popularised and operationalised by Tobi Lutke, the founder and CEO of Shopify.

3/ Courage — to be a great leader takes great courage. Courage to make the hard decisions, to have the hard conversations and to own accountability for the successes and failures of the business. Our beliefs about courage have been very much shaped by Brené Brown’s work on vulnerability and courage. Like Brené, we believe that;

“vulnerability is not weakness; it’s our greatest measure of courage”.

Great CEOs demonstrate vulnerability both within the organisation and externally. They are proactive in acknowledging mistakes. They are focused on ‘getting it right’ rather than ‘being right’.

…An inspiring story-teller;

The power of storytelling — from early stage growth to global category leaders, is a core capability of great CEOs. Founders of start-ups need to be able to convince their first employees and investors to take the leap of faith. CEOs of larger businesses need to create a sense of one-ness and common purpose across potentially hundreds or thousands of employees globally.

1/ Authenticity — people are inspired by courageous leaders they trust. Trust is not built with false bravado but with honesty and selflessness. In his book “Eleven Rings: The Soul of Success”, legendary Chicago Bulls coach, Phil Jackson, shares his belief of “leading from the inside out — the more I spoke from the heart, the more players could hear me and benefit from what I gleaned.” We look for CEOs who speak from the heart, whose passion for the mission is genuine, who unquestionably put the interests of their people and the organisation ahead of themselves.

2/ Empathy — Great CEOs not only speak from the heart but they understand what it is in the heart of the people around them. They are patient, thoughtful listeners. They have high levels of emotional awareness and are deeply connected with the feelings within their organisation. Empathy for customers, employees and investors becomes paramount as businesses scale and balancing the interests of stakeholders becomes more complex.

3/ Create clarity, purpose and belonging — there is nothing more powerful and more fundamental to enduring success than a strong sense of clarity, purpose and belonging across the organisation. Great CEOs reiterate the mission, strategy and values over and over, both internally and externally. They ensure that employees know how their role contributes to the mission. They are able to create an environment where everyone has a sense of purpose and belonging. This is the DNA of a great culture. And great culture is the beating heart of great companies.

… An empowering super-coach;

A CEO can’t do everything. As a business scales, increasingly a leader's role will be to coach rather than to do, with success relying on the team and the culture that they have built. We believe that the transition from good to great as a CEO requires embracing a servant leadership approach as a business grows.

1/ ‘Team builder’ and ‘player developer’ — Great CEOs optimise for the team and culture. Every recruit and every decision to let someone go is for this end. They create an environment that nurtures talent and fosters creativity. They have the ability to make decisive calls on the wrong and the right people. They can see and harness the potential in people and teams. They give and receive real-time feedback with openness and compassion. They know that Brene’s maxim that “clear is kind” brings out the best in people and the team.

2/ Great CEOs care passionately about the detail but don’t get caught in the detail — this is especially challenging for founders as they transition the business into much larger organisations. It requires high levels of self-awareness, trust in the culture and keeping their ego in check. In large part, the importance of caring about every detail is to inspire every team member to care about every detail, rather than sweating the details themselves.

3/ Be in control but don’t be controlling — associated with the previous attribute, great CEOs are constantly striking a balance between empowering the team and steering the ship. They know when to “disagree and commit” and they role model this behaviour to the team. They know that psychological safety fosters trust and creativity. Their job is to empower and to wholeheartedly distribute ownership and responsibility.

… “A paradoxical combination of personal humility and indomitable will”;

The foundation of our belief on what a great CEO looks like was originally inspired by Jim Collins’ book “Good to Great”. He explicitly describes what he calls ‘Level 5 leaders’. This final attribute is central to Level 5 Leadership. I felt it best to leave this explanation to this great business thought leader;

“They’re incredibly ambitious, but their ambition is first and foremost for the cause, for the organization and its purpose, not themselves. While Level 5 leaders can come in many personality packages, they are often self-effacing, quiet, reserved, and even shy. Every good-to-great transition in our research began with a Level 5 leader who motivated the enterprise more with inspired standards than inspiring personality.”

You are setting the business up for long term and durable success, and at some stage, to continue on without you. That takes real humility. It is slightly paradoxical — you are the most important element for success, but at the same time, you must be so successful that you are replaceable.

I will say that it is the attribute we care about the most. It is the attribute that was so self-evident in Ethan when we first met and it is the attribute that is common in every CEO across all the businesses we own.

Finally…

As businesses grow, increasingly it is the players ‘on the field’ who are making the plays and it is the CEO’s job to give them every chance for success. Such is the nature of servant leadership. An aside here; I often talk to my buddy and work colleague Ed Cowan about his experiences as a professional athlete. Interestingly, his best coaches all had some formal teaching qualification (as well as gained domain expertise in sport). It makes perfect sense, as to ‘coach’ is to ‘teach’. The same qualifications and experiences of communicating ideas and theories to a classroom of students, is the same skill needed to help athletes learn a new skill or to oversee the development of your team as a CEO. Think of the best teachers you had — their compassion for their students, their nurturing and selfless nature, weaving themselves into your journey, all the while commanding respect through their actions. They didn’t demand to be followed, they were worth following.