Global study finds many CEO's not up to the job

Nearly a fifth of CEOs at large manufacturing companies across the globe are the 'wrong fit' for the organisations they serve, according to research by leading business schools at universities in the US and Great Britain.

Academics at Imperial College Business School in London, Harvard Business School, Columbia University and the London School of Economics found that 17% of chief executives were not ideally suited to the companies they served.The research paper, 'CEO Behavior and Firm Performance', was based on an analysis of the daily schedules of 1,114 CEOs of manufacturing firms in Brazil, France, Germany, India, the UK and the United States.It found that the behaviour of chief executives could be broken down into two categories: leadership and management. While managers focused on undertaking tasks and took a hands-on approach to their job, leaders prioritised high-level functions within an organisation.Imperial College, which coordinated the research, said, "The research suggests that CEOs whose behaviour constitutes that of a leader generally run companies that are more productive and profitable."The researchers found this to be the case by comparing the performance of firms before and after appointing a CEO whose leadership style was closely aligned to the organisation’s mission and values and discovered that appointing such a leader resulted in an increase in sales after hiring."

Why are almost 20% of CEOs not suited to their organisations?

The study said that about 17% of CEOs were not ideally suited to their organisations, mainly due to the shortage of leader-type CEOs in the market. The researchers found that the greatest difference in the supply and demand of this type of CEO existed in low- and middle- income countries - a fact that could account for up to 13% of cross-country differences in labour productivity.But the paper added, "Our results, however, should not be taken as evidence that all CEOs should behave like leaders, for two reasons. First, the evidence indicates that CEOs affect firm performance but that this effect is due to matching: that is, CEO behaviour that maximizes performance is firm specific.

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"Second, our data do not allow us to disentangle the effects of behaviour — what CEOs do — from other CEO traits that are unobservable to us. For example, it may be that only CEOs with specific personality traits, say charisma or vision, can successfully implement the leadership behavior."If a CEO who does not possess those qualities tried to 'play' the leader, firm performance might be even worse than it is when she behaves as a manager, as she may not possess the complementary qualities that make leader behaviour effective."

No one-size-fits all CEO

Stephen Hansen, associate professor of economics at Imperial College Business School and lead researcher for the study, said, “The most important message is that there is no one-size-fits-all CEO. Modern machine learning methods applied to data on leadership can help identify CEO styles and how they match firm needs.”Overall, the study collected data on 42,233 activities covering an average of 50 working hours per CEO. In particular, researchers recorded the same five features for each activity: its type (eg, meeting, plant/shop-floor visits, business lunches), its planning horizon, the number of participants involved, the number of different functions, and the participants’ function (eg, finance, marketing, clients, suppliers).

Read more news and views from David Sapsted.

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