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| From the Editor's Desk
Short-term pain for long-term gain: The new CEO's dilemma New CEOs often hear two conflicting messages: first, get out of the gate quickly because your honeymoon will be short and you need to show results; second, play for the long haul. Can you do both? The answer is yes, but it's hard, and the results can be bittersweet. The companies of new CEOs who shifted their focus to the long term underperformed their counterparts at first and outperformed only after the CEOs had left.
We cross-referenced two robust data sources to get a better view of this problem. The first is our database of almost 600 CEOs and the details of their tenures and performance. Earlier research using this data showed how the companies of new CEOs who make bold moves early on are likely to outperform their counterparts. The second source is data from our colleagues at the McKinsey Global Institute (MGI) in collaboration with FCLTGlobal. Research based on these data found that when companies look forward and manage over a long-term horizon, they outperform their industry counterparts on key financial measures. We define a long-term focus by five measures of a company's orientation, including sustainable margin growth, earnings that track cash flow, and investments that are more consistent and larger than those of companies managed for the short term. By integrating these two data sources, we could assess not only the actions of individual CEOs who made the move to managing for the long term but also how these decisions played out.
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