Those in the top quintile of performance increased company efficiency at a much faster clip in their first two years than lower performers. In fact, they cut costs at twice the pace as those in the lower performance groups. This allowed them to achieve, on average, gains of 10 percent in operating income in their first year and 20 percent in year two. Top performers also engaged, on average, in fewer acquisitions in these years, and those they did were typically smaller scale.

High performers invest in growth vigorously. First, they fund growth by investing more in acquiring, upgrading, and maintaining their physical assets, such as property, plants, buildings, and technology. Their capital expenditure (CapEx) relative to sales rises considerably higher, from 12 percent in year one to 17 percent in year five. The low performers, but contrast, cut their CapEx spend from 9 percent to 6 percent in the corresponding period, attempting to save their way to prosperity. The high performers also invest more in innovation by driving up their R&D spend by 40 percent, from 10 percent to 14 percent by year five; the low performers’ R&D spend remains flat. Finally, after doing fewer M&A activities in their first three years, the high performers do more in year four, averaging roughly one acquisition annually from then on. The low performers engage in more M&A in the first three years, but it tails off, and the high performers overtake them in activity in year four.

When it comes to TSR over their full tenure, marathoners were hands down the strongest performers, accounting for eighty-eight out of the top one hundred. But when it comes to CAGR, the sprinters were the winners with forty-five out of the top one hundred. The mid-distance group trailed on both of these measures. These findings reinforce the observation that during the years of the Complacency Trap, years six through nine, CEOs’ performance may be less than stellar, dragging down the overall performance numbers for CEOs who stay on through those years.

Much less focus, however, has been put on the problem of more gradual deterioration, or stagnation, of performance. Our Life Cycle research reveals that this is a particularly common development beginning approximately after the first five years of a CEO’s tenure. Company performance was lower on many fronts in years six to ten for two out of three CEOs than in their first five years. The rate of revenue increase slowed in these later years. Both EBITDA and ROIC slackened relative to earlier years, companies often became less efficient, and growth in operating income stalled.

6. Legacy

As opposed to large spikes up and down in TSR often seen in earlier stages, in the Legacy years results tend to be steadier. Although a CEO’s highest performance throughout their tenure might occur in earlier stages, resulting from, for example, the honeymoon lift or the beginning of the Reinvention stage at about year three, the Legacy years are distinctive for their reliability. Leaders in their Legacy stage more consistently deliver strong results.