Shareholder Value Must Top the CEO’s Agenda

New CEOs, mindful that poor stock performance is the primary reason boards fire chief executives, might be tempted to boost stock price immediately by adding a few pennies to earnings per share. But that would be a mistake.

The main thing a new boss should do in the first 12 months is motivate the organization to create measurable long-term value for shareholders, according to our research on what highly successful CEOs did in their first year. From day one, the new leader must put shareholders’ interests first and establish objectives and rules that promote value creation. That’s the best way to lay the groundwork for longterm success.

Our study looked in depth at 16 CEOs of large U.S. corporations who were appointed four to eight years ago and whose companies produced compound annual shareholder returns greater than 20% from 2003 through 2008. We relied on third-party research and, for five of the CEOs, face-to-face interviews. Though they worked in a variety of industries, the CEOs were remarkably consistent in their behavior during the first 12 months. Here, then, is the ideal agenda for a CEO’s first year:

Source: Harvard Business Review, January 2009; for full article visit www.hbr.org.