Are CEOs Different? Characteristics of Top Managers

Abstract

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. * University of Chicago Booth School of Business and NBER and ** Copenhagen Business School and CEPR. We thank Geoff Smart, Randy Street and Alan Foster of ghSMART for providing the data and for helpful discussions and comments. We thank Roland Benabou and seminar participants at the Stockhom School of Economics for helpful comments. We also thank Donald Chi, Grace Duan, Fan Jiang, Arthur Klisz, Elaine Tang, Elyse Wummer, Emily Xiao and Stephanie Xiao for able research assistance. This research has been supported by the Fama-Miller Center, the Center for Research in Security Prices and the Booth Initiative on Global Markets. Morten Sorensen gratefully acknowledges funding by the Danish Council for Independent Research (“Det Frie Forskningsrad”) under the Sapere Aude program through grant number: DFF–4003-00095. The authors can be reached at skaplan@uchicago.edu and mso.fi@cbs. 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 1 For other work Bandiera et al. (2015), Benmelech and Frydman (2015), Bennedsen et al. (2008), Bertrand and Schoar (2003), Colbert et al. (2014), Falato et al. (forthcoming), Malmendier and Tate (2005 and 2009), Mintzberg (2013), Ulrich et al. (2009), and Yammarino et al. (2005).