Home -> Law Blog Directory -> Corporate Governance Blogs -> The Harvard Law School Corporate Governance Blog

Corporate Governance

: The Harvard Law School Corporate Governance Blog

Which CEO Characteristics and Abilities Matter?

By Harvard Law School Program on Corporate Governance

Given their leadership positions and compensation, CEOs likely have a significant impact on their companies? success. And, of course, there is a great deal of anecdotal evidence about what CEOs do and how they matter, particularly in the popular press. Surprisingly, economic theorists provide little guidance, and there is very little systematic, large sample, empirical evidence in the economics, finance and management literatures on how and why CEOs matter.

In ?Which CEO Characteristics and Abilities Matter?? Mark Klebanov, Morten Sorensen and I provide new evidence on CEO characteristics and abilities, and their relations to hiring, investment decisions, and firm performance. The problem, historically, is finding information on CEO abilities or characteristics at the time the CEO is hired. We were able to obtain detailed assessments of 316 CEO candidates for positions in firms funded by private equity (PE) investors ? both buyout (LBO) and venture capital (VC) investors. The candidates were assessed on more than 30 characteristics, including efficiency, teamwork, and analytical abilities. The assessments were performed from 2000 to 2006 by ghSMART, a firm that specializes in assessing top management candidates.

We find that abilities are generally positively correlated. The abilities can be organized along two important dimensions: (1) general talent and (2) team player and interpersonal talents versus fast, aggressive, and persistent behavior.

We then relate abilities to hiring, investment decisions, and outcomes. CEOs are hired based on general talent and incumbency (firm specific knowledge and skill). Many individual abilities, both team-related and execution-related, are significant, particularly for outsider hires.

Success is also related to general talent, particularly for LBOs. However, when considering team versus execution-related skills, success seems to be more strongly related to execution skills, particularly for LBOs, and not related or negatively related to the interpersonal, team-related skills. And success is not related to incumbency.

The results suggest that CEO talent can be measured and those talents are important for hiring, investment and success. General talent matters for success. However, on the margin, execution-related attributes, not team-related attributes seem to drive success. This suggests that team-related attributes may be overweighted in CEO hiring decisions.

The full paper is available for download here.

Full post as published by The Harvard Law School Corporate Governance Blog on July 31, 2008 (boomark / email).