Thousands of investors repeat the phrase that a company must have a competent management team. To me, that statement should be more precise. For several years now, I’ve asked myself the following question: Does the CEO’s skill set align with the current needs of the company? This reflection came to me while reading the book The First 90 Days by Michael Watkins, which offers various tools to help future managers and executives succeed in their new roles. I highly recommend the book.
In his book, Mr. Watkins explains that there are five typical situations in which a company may find itself. Here is a list of these five situations, along with the key actions a leader must take and the challenges they are likely to face:
Startup: Launching the company, establishing strategy, building systems from scratch, organizing, hiring, and motivating employees.
Turnaround: Reenergizing demoralized employees, making major decisions under pressure—such as implementing cuts—and saving the company from serious trouble.
Accelerated Growth: Managing a rapidly growing company, setting up structures and systems to support growth, integrating many new employees while maintaining the company culture.
Realignment: Breathing new life into an organization that, after initial success, is running into problems. Convincing employees that change is necessary and restructuring the organization.
Sustaining Success: Maintaining the vitality of a thriving organization and taking it to the next level, managing an effective and well-established team, and consolidating achievements before launching too many new initiatives.
As we can see, the challenges vary significantly from one situation to another. Consequently, a leader’s skills may be well suited to some phases, but the same strengths could prove to be liabilities in others. Here are a few typical examples.
Uber was founded by Travis Kalanick in 2009. Reading the book Super Pumped, we realize that Kalanick was essential to Uber’s success. His high expectations for employees, aggressive stance against competitors, and fierce desire to win were undeniably assets in the startup phase. Kalanick was the ideal person for that stage. However, when the company entered a phase of accelerated growth, these very strengths turned into weaknesses, sparking internal conflicts. As the problems worsened, Uber found itself teetering between a critical realignment and a turnaround. The issues were more ethical and cultural than financial. That’s why Uber hired Dara Khosrowshahi in 2017—to save the company and clean up the toxicity. Khosrowshahi was known at Expedia for his calm demeanor, solid leadership, and ability to manage a global business. Two styles, two different contexts.
This contrast in leadership styles also suggests the story of Apple. Steve Jobs was ideal for the startup and accelerated growth phases, but he probably wouldn’t have been the best candidate for the sustaining success phase. Tim Cook, hired in 2011 shortly before Jobs’s death, brought exceptional operational discipline, which allowed the company to consolidate its achievements and elevate the business to new heights. Two styles, two different contexts.
At Starbucks, Howard Schultz had the qualities required to lead during the startup and accelerated growth phases. After several years of expansion, Kevin Johnson took the helm in 2017, as the company entered a sustaining success phase. The goal was to elevate Starbucks while facing intensifying competition. The skills required for this phase are different from those needed in earlier ones. In hindsight, it appears that Johnson may have been too bold, particularly regarding expansion in China and his digital strategy. Did he really take the time to solidify the company’s foundation before launching too many new initiatives?
In 2022, Starbucks found itself in a realignment phase, looking for renewed momentum. Hiring Laxman Narasimhan was meant to address that need. His previous experience at Reckitt Benckiser suggested potential for success, as the realignment he led there seemed promising. However, weak financial performance and a lack of confidence in his abilities led to his departure in 2024. At that point, Brian Niccol took over as CEO. Niccol also has a strong background, having successfully led the turnaround at Chipotle.
An investor may therefore ask whether the person currently in charge—or the newly appointed leader—has the skills and experience necessary to navigate the company’s present phase. One can also look at the actions taken by the leadership team to ensure they are addressing the current situation appropriately.
Of course, many exceptions exist, and having the right experience does not guarantee success. Furthermore, this factor should be considered alongside many others before making a buy or sell decision on a stock. Still, I believe a company increases its odds of success when the person in charge has the right skills and experience for the typical phase it is in.
Jean-Philippe Legault, CFA
Portfolio Manager at COTE 100
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