Are CEOs Different? Characteristics of Top Managers
H/T Abnormal Returns
What does value investing really mean? Q1 2021 hedge fund letters, conferences and more Some investors might argue value investing means buying stocks trading at a discount to net asset value or book value. This is the sort of value investing Benjamin Graham pioneered in the early 1920s and 1930s. Other investors might argue value Read More
University of Chicago – Booth School of Business; National Bureau of Economic Research (NBER)
Copenhagen Business School; Columbia Business School; Centre for Economic Policy Research (CEPR)
We use a data set of over 2,600 executive assessments to study thirty individual characteristics of candidates for top executive positions – CEO, CFO, COO and others. Candidate characteristics can be classified by four primary factors: general ability, execution skills, charisma and strategic skills. CEO candidates tend to score higher on all four of these factors; CFO candidates score lower. Hired candidates score higher than all assessed candidates on interpersonal skills (for each job category) suggesting that such skills are important in the selection process. Scores on the four factors also predict future career progression. Non-CEO candidates who score higher on the four factors are subsequently more likely to become CEOs. The patterns are qualitatively similar for public, private equity and venture capital owned companies. We do not find economically large differences in the four factors for men and women. Women, however, are ultimately less likely to become CEOs holding the four factors constant.
Number of Pages in PDF File: 51
Are CEOs Different? Characteristics Of Top Managers – Introduction
Large management, popular and anecdotal literatures describe what traits, skills and abilities characterize CEOs and other leaders. These literatures imply that CEOs differ from other executives. They implicitly, and often explicitly, suggest what types of activities aspiring CEOs should undertake in order to increase their chances of becoming a CEO. For example, Collins (2001) argue that great CEOs have unwavering resolve and are compellingly modest. George et al. (2007) argues that leaders should “demonstrate a passion for their purpose, … establish longterm, meaningful relationships and have the self-discipline to get results.” Waldman and Yammarino (1999) argue that CEOs need to be charismatic. Ones and Dilchert (2009) summarize the industrial psychology literature as finding that successful executives have high cognitive ability, conscientiousness / achievement and extraversion / assertiveness. Pfeffer (2015 and 2016), on the other hand, criticizes some of these and other works as “leadership BS,” not describing what leaders and CEOs actually are like, and argues that “leadership is not about winning popularity contests or being the most beloved person in a social organization.”
Because it is difficult to obtain detailed information on a meaningful sample of CEOs, there is little large sample systematic work on this topic. Work in the management literature generally uses publicly observable measures such as job tenure, college attended and career path (see Hambrick 2007) or studies a small, specific sample of CEOs (95 credit union CEOs in Colbert et al. 2014, or 32 technology firms in O’Reilley et al. 2014).
Adams et al. (2014), Kaplan, Klebanov, Sorensen (2012) (henceforth “KKS”), Palaiou and Furnham (2015) and Green et al. (2015) are recent exceptions. Adams et al. use cognitive and non-cognitive test data measured at age 18 on a large sample of Swedish men. They find that CEOs score higher on the cognitive and particularly non-cognitive tests than other highcaliber professionals – doctors and lawyers. Furthermore, larger companies hire the more talented CEOs. KKS (2012) study 316 CEO candidates for venture capital and private equityfunded companies using detailed assessments of the CEOs and find that CEOs characteristics are best explained by two primary factors – overall talent and execution skills (versus team or interpersonal skills). Subsequent success of the CEOs in their sample is related to execution skills and talent. Palaiou, and Furnham (2015) study the (self-reported) personality scores of 138 CEOs and almost 8,000 other employees of UK companies administered by a psychological consulting firm. They find that CEOs are more extraverted, more agreeable, and, particularly, less neurotic and more conscientiousness than other employees. Green et al. (2015) use linguistic algorithms to measure the extraversion of company executives during earnings conference calls. They find that extraverted CFOs and CEOs earn higher salaries and extraverted CFOs are more likely to be promoted to CEO.
This study extends KKS (2012) by expanding the dataset to over 2,600 assessments of CEOs, COOs, CFOs and other top executives considered for positions in a wide variety of firms. The assessments, based on four-hour structured interviews, were performed by ghSMART, a firm that specializes in assessing top executives. Each interview resulted in a report with a detailed description of the candidate’s background and characteristics. The reports include ratings of thirty specific characteristics and abilities (see Table A-1). As in KKS (2012), most of the assessments were completed at the time the executives were candidates for managerial positions. The assessing firms include companies governed under different ownership forms – venture capital owned and private equity owned (as in KKS), as well as publicly traded and other privately owned companies. We also track the candidates’ subsequent career paths including whether they were hired for the positions for which they were considered and whether they ultimately became top executives, particularly CEOs, of any company.
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