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.

More evidence of a lift from exuberance during the Launch stage is that the lift in the stock price is often followed by a sophomore slump. Of those CEOs who enjoyed a honeymoon period, 73 percent realized lower results in their second year. The CEOs caught in such a downdraft on average relinquished 21 percent of TSR. For Paz, the share price slid 14.56 percent, despite the fact that no significant problems arose to trigger concerns. Also, market growth overall was strong that year, with the S&P 500 rising 12.34 percent.

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.

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.