“Home-Grown” CEO

by Fred G. Steingraber, Richard Magjuka and Chip Snively for ATKearney, April 2011.

One key to superior long-term financial performance is managing leadership succession

The fact that two-thirds of non-financial S&P 500 companies did not survive during the 20-year period from 1988 through 2007 attests to the rapidly changing nature of long-term success. In a country such as the United States that lionizes success, business leaders who achieve extraordinary short-term financial gains for their companies often become celebrities. Yet, behind the headlines, larger questions remain: How does a company secure long-term success and value for shareholders? Does corporate performance correlate with CEO leadership over an extended period? And more specifically, what do we know about the importance of effective succession management?

To answer these questions, the Kelley School of Business at Indiana University and Fred G. Steingraber, Chairman Emeritus of A.T. Kearney and Chairman of Board Advisors, examined the leadership of the most successful non-financial S&P 500 companies from 1988 through 2007. The 20-year duration was critical to the study because it minimized distortions of performance that could have occurred over shorter time spans of three, five or even 10 years. In addition, this two-decade period was characterized by different economic cycles, globalization, dramatic technology advances, shifting consumer preferences and changes in leaders competing under a wide variety of conditions.

The study found that 36 S&P 500 non-financial companies were consistent leaders over the 20-year span (see figure 1). These companies, representing 25 different industries, include Abbott Laboratories, Best Buy, Caterpillar, Colgate-Palmolive, DuPont, Exxon, FedEx, Honda, Johnson Controls, McDonald’s, Microsoft, Nike and United Technologies, among others. This group outperformed the remaining S&P 500 firms in seven measurable metrics: return on assets, equity and investment, revenue and earnings growth, earnings per share (EPS) growth and stock-price appreciation.1 The superior long-term performance reflected in each of the above metrics demonstrates the ability of “home-grown leadership” to consistently generate significant: (continue reading… )


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