As for former CFOs, analysis shows that, although they often get off to a very strong start, their performance tends to lag beginning in their third year. For the full course of their tenure, they accounted for the smallest share of top performers, at just 8 percent. They also accounted for the highest percentage of bottom-quintile performers. In examining their performance according to measures in addition to TSR, including revenue growth, return on invested capital, and profitability, we found that their strong early performance is largely due to their experience with finding efficiencies. This often leads them to continue to focus heavily on driving growth in profitability by taking cost out of the business and shoring up the company’s balance sheet. The market generally rewards them in the first two to three years for those achievements. But over time, the emphasis on holding down costs versus driving revenue growth through product, marketing, and sales innovation, and revenue performance, which few CFOs have experience in, impedes growth.

3. Calibration

Recall that our CEO Life Cycle analysis found that three out of four (73 percent) CEOs with a successful start that beat the market in year one did worse in year two. On average, the dip in TSR was a whopping 21 percent, underscoring that a slump should be taken very seriously. That said, it’s also important to keep a clear head about why share price is being battered. Often, the slide— as with the honeymoon spike— is a market overreaction. Analysts and investors often overshoot in punishing shares, mainly due to sentiment rather than the facts of performance and company initiatives being undertaken.

We’ve found that appraising boards of our findings about the common honeymoon-to-slump pattern has also been helpful. In one instance, we were advising the board of a Fortune 50 company. The freshman-year CEO was enjoying a huge spike in share value. The board had selected her because of her long experience in executive roles in the company’s industry, and the market agreed with the board’s enthusiasm. The board was over the moon about the response. But having seen the high likelihood of a honeymoon-to-slump pattern in our modeling for this firm, we advised the board that they should expect a correction. When, sure enough, the share price dropped precipitously starting early in her year two, the board credited it to the predicted swing back from a honeymoon lift and didn’t turn up the heat on her as they might have. She’s gone on to thrive for five more years in the role, and counting.

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.

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.