The CEO Next Door

Chapter 1

Unlocking the Secrets of the CEO Genome

“You had the power all along, my dear.”

—L. Frank Baum, The Wonderful Wizard of Oz

You will never be a CEO. That’s the message most of us internalize from an early age. You may be extremely competent, work harder than anyone else, do everything right, but you are told that if you don’t look the part, don’t have the right institutional names on your résumé, don’t possess the right pedigree, your chances of reaching the top are slim. And so we assume that being a CEO just isn’t in the cards for “regular people” like us.

The world is changing faster than ever, but the narrative of leadership remains dominated by talk of such larger-than-life visionary prophets as Steve Jobs and such executive warriors as Jack Welch. This iconic CEO is powerful and patrician, a bold, charismatic extrovert with a flawless résumé. An oracle of business judgment who jets around the globe from Davos to Detroit with superhuman confidence. A brilliant strategist who shapes the reality in his path. It’s a story we, the public, have been absorbing for decades.

No wonder we assume that we are not CEO material! We know that this stereotypical character is nothing like us.

But then there’s Don Slager. When we first met Don in 2005, he didn’t see himself as CEO material either. Walking into the meeting with our team, Don stretched out the large hand of a laborer. Towering over six feet tall with the frame of an offensive lineman, Don looked formidable. Yet his handshake was surprisingly tentative. Don confided to us that he was uncertain he was cut out for the CEO job. He enjoyed his COO role and didn’t see himself as a CEO. He questioned whether he was a worthy candidate and didn’t think he would seriously be considered for the opportunity to be CEO.

Don is not what one thinks of when one thinks of a CEO. He grew up in a blue-collar community a short distance from Chicago and the Gary Works steel mills in Lansing, Illinois. He was surrounded by welders, truck drivers, and steel-mill workers—not college graduates. For Don at the time, there was no CEO next door. He went to vocational high school with aspirations to become a builder, but graduated into a bum market for construction. Instead, he started his career driving a garbage truck. For the better part of six years, he punched in at 2:45 a.m., started driving at 3:00 a.m., and endured the thankless monotony of his route for ten to twelve hours a shift. At the end of each week, he collected his paycheck and prepared himself to start the routine again.

But here’s the strange thing: Don is, in fact, a CEO. Don is a great CEO. Under his leadership, stock of Republic Services—a Fortune 500 powerhouse in the waste services industry generating over $9 billion in annual revenue—outperformed S&P average returns between 2012 and 2016. In 2015, Republic Services outperformed the S&P by eight times. Since Don took the top job, Republic Services’ market cap has nearly doubled from $11.5 billion to $22 billion as of midyear 2017. Based on anonymous and voluntary reviews by Republic Services’ employees, Don was recognized with the Glassdoor Employees’ Choice Award and named to Glassdoor’s 2017 highest-rated-CEO list. Don didn’t learn about leadership at Harvard Business School. He didn’t even graduate from college. The foundation for his leadership success was built on the sturdy platform of his blue-collar beginnings and his six years of driving garbage trucks around Des Moines, Iowa and Chicago, Illinois. Don’s leadership behaviors and choices—not his pedigree—propelled him to the top of the waste services industry. Don’s father, whose motto was “Show up every day,” had always given his son a long leash as long as his grades were good and his chores completed, planting the seeds for unwavering reliability, a key attribute of successful CEOs. Don’s reputation for always giving 110 percent attracted the notice of powerful mentors who pushed him to aim higher. Long hours that ended only when the trash bins were empty gave him the stamina not only to survive but to emerge as a leader during the dark days of restructuring at his company, when many others quit or were let go. More important, his roots gave him the authority to evolve the business in ways that the front line would have rejected coming from a more “typical” white-collar executive.

When Don became CEO of Republic Services, he had held almost every position in the company and had worked as the COO alongside four very different CEOs. In 2005, Don wasn’t sure he deserved or wanted to be a CEO. There were some things about the CEO role that he found off-putting, such as the need to cater to Wall Street. So when he finally said yes, it was for one simple reason. His vision for how to make Republic Services “America’s preferred choice” required him to be able to do what only a CEO can: Set the strategy and build the team and culture that would take the company there.

And so it is that a garbageman without a degree becomes a CEO who is recognized by employees and competitors as one of the most passionate, respected, and effective leaders. Don’s journey from the garbage truck to the corner suite may sound unusual, but it is not an anomaly. There are countless like him who came from unlikely backgrounds. CEOs such as Aetna’s Mark Bertolini or Lear’s Matt Simoncini. Seemingly ordinary people achieving extraordinary success. The CEOs next door. How do we know? We know because, between the two of us, we have coached, advised, and vetted over three hundred CEOs. We are leadership advisors at a firm called ghSMART. Leading boards, outgoing CEOs, and investors count on our objective counsel to help them select the right CEO candidates, prepare them for the role, and coach them to perform at full potential. We deploy a rigorous analytical approach to first help our clients define what future business success looks like and the leadership profile it requires, and after that we assess candidates to help predict how they would perform if hired. We conduct extensive, five-hour interviews to identify candidates’ skills, accomplishments, mistakes, motivations, and mind-sets. We ask questions in a precisely defined sequence that cuts through a clever executive’s artful spin. We hear the unvarnished truth of their greatest victories, their painful blowups, their challenges, and their regrets.

Our robust technique for data collection and analysis provides a “moneyball for leadership” solution that helps clients avoid the pervasive errors of gut feel that plague so many failed hiring decisions. Our clients’ independent analysis shows that our approach is accurate at least 90 percent of the time—compared to a 50 percent error rate in a conventional interview process. Since 1995, our team has advised and assessed over 17,000 C-suite executives, including over 2,000 CEOs and CEO candidates. Unlike a board member or a search firm, we analyze CEOs with a fully objective perspective, not invested in any particular outcome. When our analysis of a leader’s capabilities indicates a fit with a CEO or leadership position in a company, we recommend her or him, whatever her or his pedigree, much as we did with Don.

When you encounter as many exceptional but seemingly unconventional CEOs like Don Slager as we have, you begin to question convention. If many of these CEOs had bought in to the existing stereotypes of leadership, they might never have attempted to win even the first promotion. Looking at Don’s success today, nobody would guess that twelve years ago he questioned whether he belonged at the top. “You guys did my assessment and told me that I was a walking, talking symbol of the American Dream and that I had CEO potential. You are experts on CEOs. Thanks to your feedback, I changed my outlook, gained confidence and began to work on my gaps. I decided to go for it and see what I can do. The rest, as they say, is history.”

We found ourselves inspired by these CEOs’ stories of seemingly unlikely success. And that inspiration led to the foundational question behind this book: Are the “unlikely” CEOs we know simply lucky exceptions? Or did conventional wisdom get it all wrong about what a successful CEO looks like and what it takes to get there?

In our client work, we aim to solve a $112 billion problem. Hiring or holding on to the wrong CEOs costs shareholders an estimated $112 billion in lost market value annually, according to a study by PwC. In May and June of 2017 alone, CEOs of General Electric, U.S. Steel, Ford, and J. Crew all stepped down under pressure from shareholders, prompting the New York Times to call the end of the American era of the baronial chief executive. With this book, we aim to solve a much bigger problem. These prevailing stereotypes of CEOs—arguably the most prominent people in business—offer false role models and success guideposts for leaders at any level. Even worse, they deter millions of talented people like Don Slager from ever aspiring to senior leadership roles. Stereotypical CEOs look nothing like me, so why even try? they ask. That is the real tragedy.

One of the reasons for this is that we tend to limit our thinking to the companies and leaders that regularly appear in mass media. This view – typically focused on Fortune 500 companies— is very narrow. It is also very shallow: we know little about these leaders beyond their seemingly perfect public bios. We tend to ignore the vast universe of companies of all sizes. If you broaden the lens beyond the Fortune 500, there are, for example, over two million companies with more than five employees in the United States alone. This means over two million CEOs: a broad, rich set of leadership experiences that don’t often get talked about in the press. These smaller companies are an important engine of our economy, generating almost half of the U.S. non-farm GDP. When we expand our horizons to include companies of all sizes and apply a deeply analytical approach to understanding CEOs and their paths to the top, our profile of the “average” CEO changes radically, as do the odds of attaining the corner office. Instead of a 1 in 240,000 chance of becoming a Fortune 500 CEO, it means 1 in 50 odds of becoming a CEO if you broaden the company set.

On our mission to separate facts from fiction on what successful CEOs really look like, we started asking a few pointed questions: How does one become that 1 in 50 who gets the CEO seat—or, for that matter, the 1 in 240,000? What allowed Don Slager and others like him to beat the odds and get to the top? How did they excel? How did they get noticed? What can each of us learn from them? What distinguished those who succeeded at the top from those who flamed out?

If we could answer these questions, we thought, we could tell a far more accurate story of leadership, one that would blow open the doors of the CEO suite to any talented person who wants to reach his or her full potential and is prepared to do the necessary work. Even better, we could provide the map to get there.

What Makes a Great CEO?

To uncover the answers to these questions, we turned to the ghSMART data set of 17,000 leadership assessments. The assessment interviews we conduct typically last roughly five hours and reveal vastly more than one could gather from traditional interviews or psychometric assessments. The Wall Street Journal called this information “coveted” for its unique breadth and depth of leadership data. To mine this data, we engaged leading academics and researchers and deployed cutting-edge analytical techniques. For the first time ever, The CEO Next Door unveils insights on CEOs based on the world’s most comprehensive leadership data set, powered by twenty-first-century state-of-the-art data-mining techniques.

Ten years ago we partnered with professors Steve Kaplan and Morten Sørensen and their research teams at the University of Chicago and Columbia University to study our data set of 17,000 leaders. To do that, they extracted a subset of 2,600 leaders to analyze in greater depth. Kaplan’s research is based primarily on the thirty competencies measured in the ghSMART analysis. As we read through transcript after transcript, we found ourselves wondering whether behavior patterns of CEOs compared to those of non-CEOs, and of low-performing to high-performing CEOs, held deeper insights than the competencies data alone could offer. To uncover these patterns would require analyzing almost one hundred thousand pages of text transcripts—a daunting challenge.

Much like mapping the human genome, uncovering secrets of the “CEO Genome” required cutting-edge science and technology. The solution came from an unexpected place. In 2013, ghSMART founder Geoff Smart and Elena interviewed Dr. Jim Goodnight, cofounder and CEO of SAS, for Geoff’s book Power Score: Your Formula for Leadership Success. SAS text-analytics software powers the predictive tools that the IRS and major banks use to detect fraud, to name just one high-stakes application. In the conversation, it dawned on us that if the software could handle more than 238 million tax returns filed in the United States annually, it could handle thousands of CEO interview transcripts. And so we unleashed the world’s most powerful predictive-analytics software on a subset of what we believe to be the world’s richest data set of leadership behaviors.

What we came to call the CEO Genome Project broke new ground in understanding what drives leadership success, uncovering insights that typical regression analysis never could have picked up. What we discovered surprised and inspired us. Harvard Business Review found our research compelling and relevant for today’s leaders, featuring “CEO Genome Behaviors” in a cover article (“What Sets Successful CEOs Apart,” HBR May/June 2017). This article and related press coverage got downloaded over 250,000 times by readers globally. The portrait of the successful CEO staring back at us from the data looked nothing like the glossy, unattainable image we’d all come to expect. In fact, the data burst a number of the myths surrounding CEOs:

CEO Myths

• Only Ivy Leaguers need apply. In fact, only 7 percent of the CEOs we have analyzed graduated from an Ivy League college. Eight percent of CEOs in our sample did not even complete college or took unusually long to graduate. Ivy League graduates are more prevalent among the ranks of Fortune 500 CEOs, but outside of that small set of the largest companies, we see a much broader range of educational backgrounds and pedigree.

• CEOs were destined for greatness from an early age. Over 70 percent of the CEOs we interviewed didn’t set out to become CEOs early in life. Only when they came within reach of the C-suite—typically after fifteen-plus years of experience—did they start to feel that maybe they could achieve and thrive in the role.