In March 1998, Xiao was elected President (Chief Justice) of the Supreme People's Court, succeeding Ren Jianxin. He was re-elected in March 2003 for a second term.
Starting in 1999, he initiated a series of reforms, the most important being the restoration of the Supreme Court's right of review for capital punishment. In the 1980s, the National People's Congress had passed legislation to grant provincial high courts the final say in death-penalty cases. Provincial judges, many of whom were former police or military officers without formal legal training, often imposed overly harsh punishments. This resulted in high numbers of executions, including some that later proved to be wrongful. Xiao's proposal to reduce executions met significant opposition, as capital punishment enjoyed wide support both within the government and among the general public in China. One of Xiao's tactics was to encourage the use of death sentence with reprieve (which is typically commuted to life sentence) as an alternative to death sentence. He also seized upon the signature rhetoric, "Harmonious Society", of then-CCP general secretary Hu Jintao, and argued that a harmonious society called for fewer executions. In 2006, he won a key change in the law that restored the Supreme Court's right of final review for death penalty. With the implementation of Xiao's reform in 2007, the number of death sentences plunged by 30% in that year, and many cases were sent back to provincial courts for retrial. The number of executions in China has been further reduced since then, by half to two-thirds in some provinces as of 2019, compared with before the reform.
Another reform by Xiao was to professionalize China's rank of judges, who were formerly appointed like normal politicians, with little regard to their education and experience in law. Xiao's efforts resulted in the National Congress amending the Judges Law in 2001 to require all new judges to pass the National Judicial Examination. Except for presidents of the courts, who remain political appointees, all other judges are henceforth required to have legal qualifications.
Other reforms implemented by Xiao include opening most trials to the general public (since 1998), and some trials were even televised. He also advocated but failed to make the court independent from political influence. Despite his efforts, the Communist Party retains absolute control of China's judicial system, and after his retirement in 2008, none of his successors have advocated judicial independence again.
Xiao was a member of the 15th and the 16th Central Committees of the Chinese Communist Party.