The CEO’s Agenda: A Strategic Analysis

The CEO’s agenda is chock-full of urgent global business concerns—and is only getting more so. Apart from overseeing the day-to-day blocking and tackling of the business, the chief executive must mobilize everyone in the organization to react quickly to evolving technologies, changing capital and talent markets, emerging geopolitical concerns, and a raft of other challenges to the business.

Through it all, the CEO must find ways to capture value-creating opportunities and grow the company. M&A (alongside portfolio momentum and market share performance) remains an important lever for doing just that—particularly as deal activity begins to recover from a decline in 2023. “It’s always part of the toolbox,” says the CEO of one global consumer product goods company. “It’s a twofold strategy: You have to be good at what you do, but you also have to look around corners and think about the next three to five years.”

But when exactly does it make the most sense for CEOs to engage in M&A? How can they help their organizations pursue strategic dealmaking while ensuring business continuity? To find out, we conducted a series of interviews with ten CEOs who’ve had substantial experience in M&A. We supplemented their insights with findings from decades of McKinsey research on the mindsets and best practices that distinguish the best CEOs from their peers, as well as previous McKinsey research on best practices in corporate transactions.

Define M&A priorities as you define the overall long-term corporate strategy

Experienced CEOs take the time to consider how M&A priorities fit within the long-term corporate strategy. When M&A priorities are clearly communicated, the business can quickly identify deal opportunities when they emerge and mount a strategic response. The CEO needs to work with business unit leaders, other C-suite leaders, and the board to establish their M&A strategy and priorities early on—for instance, devising an M&A blueprint that outlines deal themes and deal criteria, including what types of deals the business is seeking to target or determining whether a programmatic approach to dealmaking is warranted.

An M&A blueprint involves conducting an internal assessment, a market assessment, and a review of boundary conditions, all of which can help executives determine why and where they will look for growth and transformation opportunities that, in many cases, cannot be achieved organically. The M&A blueprint prompts executives to come up with a plan for how they will seize and capture the most value from those opportunities (by delineating the high-level business case and preliminary integration plans). In this way, leaders can tell a compelling story (inside and outside the company) about the company’s dealmaking strategy and vision for the future.

One CEO of a global food company told us his nature was to get involved very early on in setting M&A priorities in line with corporate strategy—but also noted that the main role of the CEO should be to focus on the strategic considerations of a deal and leave the valuation, detailed integration planning, and other details associated with executing the transaction to specialists. “It’s really about holding everyone accountable on the value point,” he said.

Spearhead large, transformational deals—delegate the rest

Size and strategic scope matter when it comes to the CEO’s role in M&A. Early on, one travel company CEO reminded us that a lot of people are sharing information about a lot of deal opportunities with the CEO: “It’s better for the CEO to engage with a short list of opportunities—and even then, the CEO should not be the lead negotiator. The CEO should be a coach.” Additionally, it’s critical that this short list reflects the corporate and M&A strategy—not just the opportunities that happen to be available.

For truly transformative large deals—think of a consumer company moving into the health and wellness space—the CEO should stay directly involved, serving as deal champion. This will mean leaning in at all phases—for instance, helping to convince the target company to enter the deal, defining the integration strategy and the pace and degree of change, and taking any other steps required to get the deal over the line. As the CEO of one large conglomerate explained, when large-scale transformation was the goal, he and the board would engage the whole way through, starting with the negotiation phases.

For smaller add-on or tuck-in deals, the business units, often led by a top-notch integration leader, are likely best positioned to drive the transaction. The CEO will still need to stay involved in these less-transformative deals but in a targeted way. Their primary role here will be to ensure strategic alignment and full value creation; this is where the core work of setting a precise M&A strategy and aligning it with long-term corporate strategy really pays off. In these smaller deals, the CEO should reiterate the M&A priorities, set permission structures, and create mechanisms for measuring progress against integration goals—but they should let deal teams and other leaders bring their own dealmaking skills to bear.

The CEO can obviously step in when substantial roadblocks emerge or when other issues arise. One pharmaceutical company CEO we spoke with noted his continued involvement in a bolt-on deal in which there was a lot of value at stake and intense scrutiny from investors and analysts. He helped shape the due diligence process, was directly involved in getting board approval, and stayed close to the integration planning discussions throughout to ensure swift decision-making and progress.

Be the ‘chief stakeholder officer’

Perhaps the most important of all the tasks outlined here is that of convenor—or as one CEO termed it in our conversations, serving as the “chief stakeholder officer.” This is not a new role for CEOs; decades of McKinsey research on CEO excellence have found that the best chief executives pay close attention to stakeholder relationships, building a case for change and focusing on the “why.” This crucial task is magnified tenfold when considering the consensus building required to get large transactions over the finish line and bring two organizations together as one. The CEO must carefully and continually manage expectations about deals among leaders and employees in both the parent and target company. The chief executive should also encourage trust-based communications with the board, investors, suppliers, regulators, and other business partners.

Managing expectations with the target CEO

It’s important for the CEO of the acquiring company to spend time with the CEO of the target company so they can understand each other’s position, key challenges, and corporate cultures. The CEO of one multinational organization pointed to the central role he played in the negotiations for several strategically important deals: in one case, scheduling private meetings with owners to align on details, and in another large deal—one involving a family-owned business—engaging with family members. Personal networks matter quite a lot in these situations. M&A transactions are about dollars and cents and synergies, but they are also about emotions, one CEO told us. “It might mean jumping on a plane to talk to the other CEO and get his conviction.” This cannot be delegated. For their part, the CEO of the target company can play a critical role as translator—for instance, giving the CEO of the acquiring company an overview of how the target company works, how it creates value, and who its key stakeholders are.

Managing expectations with the board of directors

Of course, the board of directors is among the most important stakeholders in the M&A process. Some board members may favor organic growth over M&A, so bringing them along is important for ensuring a smooth integration and full value capture, particularly at a time when boards are more risk averse than ever.

The CEO’s work in this regard should start early—as soon as the initial discussions about M&A strategy, the M&A blueprint, and M&A priorities. The CEOs we spoke with pointed to the need for clear and frequent communications with the board. They have regular dialogues with the board and provide early indications of potential deals. Some CEOs offer quarterly updates on potential targets; companies that treat M&A as a capability tend to keep a running short list that they track and refresh regularly. Others conduct weekly check-ins with the board about aspects of transformative deals that are already underway. These CEOs don’t just show up in front of the board looking for deal approval; they continually pressure-test the business case for transactions with the board—in some cases even relying on board directors to help make introductions and connections.

One CEO we spoke with noted that to foster trust and transparency around the company’s dealmaking strategy, he would take 15 to 20 minutes at every board meeting to update directors on the status of the team’s efforts to cultivate potential targets. Another CEO said he scheduled regular one-on-one discussions about the deal pipeline with the board chair. In fact, the CEO’s trust in the board and vice versa was mentioned repeatedly as a key factor in deal success—especially in large deals affecting multiple business lines.

Managing the expectations of other stakeholders

CEOs should also keep other key stakeholders on speed dial, including critical customers, regulators, authorities, media, and shareholders. In the case of customers, for instance, it’s incumbent upon the CEO to help explain how a deal will result in, say, more product or service options or other value-adding advantages for them. In the case of regulators, for instance, it may be helpful for the CEO to stay engaged in discussions about antitrust approvals, particularly in the case of larger deals that, because of regulatory requirements, tend to have a higher risk of being rejected.

Secure the three C’s: Conviction, capacity, and capabilities to execute on M&A

A deal won’t achieve its full potential—or may not even see the light of day—if critical stakeholders inside the organization and the board of directors are not convinced the deal is worth pursuing. The responsibility for securing this organizational conviction from employees, managers, and board directors falls squarely on the CEO. “I wanted all the facts,” the CEO of a global multinational organization told us when asked about his conviction about M&A. “I wanted to develop the rationale, but more important, I wanted everyone in the organization to understand the rationale.” He also understood that he could not tell a compelling M&A story to prospective targets, investors, the market, and others without that data.

A technology company CEO offered a cautionary tale about what can happen when conviction is lacking: He initiated an acquisition but left the company shortly after the deal was announced. The CEO had thought the board was committed—and initially, it was—but after he left, the board’s priorities changed, the deal was criticized by some shareholders, high-end talent jumped ship, and one board member went public with his negative opinion of the deal. The new CEO could not turn it around without this commitment from the board, and the deal faltered.

The CEO should also focus on two other C’s: building a management team with the capacity and capabilities to support the execution of the deal. A company’s ability to execute its strategy often comes down to whether it has enough financial, talent, and organizational capacity, plus clear processes and playbooks for all phases of M&A. One large financial organization was able to act quickly on deals, even during the shaky times of the 2008 credit crisis, because the CEO had built up conviction among key stakeholders to pursue deals that matched the company’s priorities. The CEO and senior-leadership team had also established a strong capability-building program to ensure they had the right negotiation, due diligence, and integration talent in place when opportunities emerged. In our experience, establishing an integration office, led by a chief integration officer, can be a critical success factor—regardless of the size or scope of the deal.

As many of the leaders we spoke with noted, if the CEO is not committed and cannot support the conditions required to increase capacity and capabilities, it’s probably better not to pursue the deal at all.

Be a culture champion

Culture goes beyond ideas about how to act or what to wear; McKinsey’s research on organizational health points to several critical cultural attributes in high-performing organizations—including talent attraction and retention, role clarity, performance management, customer focus, and decision-making. Separate McKinsey research highlights the financial advantages of building and maintaining healthy organizational cultures—namely, a 5 percent increase in excess total shareholder returns (TSR) two years after deal closing in companies with healthy cultures, compared with a 17 percent decrease in excess TSR in companies with unhealthy cultures.

In any size deal, the CEO must play a significant role in working with HR, business unit leaders, and others to assess the culture of both the parent company and target and to determine which aspects would work best in the combined organization. As one technology CEO told us, to set the right cultural foundation for the combined company, the organization needs “a really good understanding of its own DNA as well as that of the acquired asset”—a learning process that should start during due diligence.

The CEO can work with other business leaders to take inventory of the skills and capabilities required, identifying gaps and reassigning people to the most valuable roles. A multinational company CEO noted that he spent significant time with the CEO of the target organization to assess cultural compatibility, build relationships, and find alignment. He used surveys and gathered feedback from employees to help inform the culture and ensure buy-in. His advice? Build a new culture for the combined company based on the existing context and reshape where needed. Another CEO added, “Don’t be afraid to back away if you sense a cultural divide.”

Although senior HR leaders will need to assist in this fact-finding process, the dedicated time spent by CEOs—at both the parent and target organizations—reconciling the organizational missions and values and communicating the vision for the combined company’s culture (through town halls and other forums) can pay off over time. As one CEO concluded, “You can’t overinvest in culture.”

With a focus on these five M&A actions, CEOs can directly influence the direction and success of deals—and preserve their own time and energy as well. They can set the strategy and nurture the stakeholders but delegate the rest to a crack team that can execute the diligence, find the targets, manage the negotiations, and run the day-to-day integration. According to the CEOs we spoke with, the most important task is to establish the guardrails—for the team and for yourself. “Find a mirror, look into it, and ask yourself if you really feel this deal is the best for the company and for yourself. If there is a little bit of doubt, you need to buy more time.”

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