NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Which CEO Characteristics and Abilities Matter?


Success and performance are more strongly correlated with execution-type skills than with interpersonal and team-related skills.

In Which CEO Characteristics and Abilities Matter? (NBER Working Paper No. 14195), authors Steven Kaplan, Mark Klebanov, and Morten Sorensen study the characteristics and abilities of CEO candidates for companies involved in buyout (LBO) and venture capital (VC) transactions and relate those characteristics to hiring decisions, investment decisions, and company performance. The candidates are assessed on more than 30 individual characteristics. The authors find that two primary factors - one for general ability and one for team-related interpersonal skills versus execution skills - are important. Both LBO and VC firms tend to hire and invest in CEOs with greater general abilities. However, success is more strongly related to execution skills than to team-related skills. Also, the researchers find, success is only marginally related to incumbency.

The authors suggest that their results have several implications. First, it is possible to measure individual CEO talents and skills over and above the usual observable variables like age, industry, and college SAT scores. Second, CEO talents and skills appear to matter because they are consistently correlated with hiring, investment, and performance. Third, success and performance are more strongly correlated with execution-type skills than with interpersonal and team-related skills. In other words, CEOs like Jack Welch appear to be more successful than CEOs like Jeff Immelt. This is consistent with other researchers' results (in non-CEO contexts) showing that steadfastness -- and traits such as unwavering resolve, fanatical drive, and workmanlike diligence -- is more important than being a good listener. The authors' findings are also consistent with results in the psychology literature that suggest that "conscientiousness" is the best predictor of performance, but they do not support previous findings that successful CEOs exhibit compelling modesty, build strong teams, give credit to others, and take blame on themselves.

Finally, the authors point out that their results reflect buyout and VC-funded companies only. While these are two quite different groups, these types of companies may have specific needs and, therefore, the results may not generalize to all companies. Second, the performance data are coarse and potentially "noisy." But, that said, the authors' results correlate strongly with Peter Drucker's description of the effective executive. The attributes Drucker describes are largely execution-related and appear to correspond well to the "efficient," "persistent," "proactive," "commitment," and "analytical" skills in this study.

-- Lester Picker


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