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.

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.

Although extremely clear and compelling communication about results is always imperative, it’s especially important as recalibration unfolds. Actual results are, of course, paramount in assessing performance. But the perception of those results and of whether the CEO and leadership team are on top of the situation is at least as important.

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.