The Changing Path to Corporate Leadership
In today's more competitive environment, Ivy League connections are less important, top executives are more likely to come from outside a company, job tenure is much lower, and executives get to the top faster by holding fewer jobs.
The executive suite at the world's most powerful corporations has changed substantially over the past twenty years with the leaders of today's global behemoths younger, more likely to be women, and less likely to be Ivy League educated than they were in the 1980s. Furthermore, the rise to the top is faster for today's executives and requires holding fewer jobs along the way.
In The Path to the Top: Changes in the Attributes and Careers of Corporate Executives, 1980 to 2001 (NBER Working Paper No. 10507), authors Peter Cappelli and Monika Hamori examines career histories and personal characteristics of people at "the top ranks of the world's largest and most stable business operations, the Fortune 100." The authors believe that it's important to study the path to power at these companies, given that most of them have more assets than do many countries and can take actions that "can alter the fate of entire nations." Furthermore, analyzing the ascension of the modern executive illuminates a long-standing American interest in the dynamics of social mobility and the individual journey to success within the corporation.
Cappelli and Hamori remark that, to a certain extent, they simply wanted to know "whether individuals with different attributes are getting to the top now." The answer turned out to be a definitive yes. For example, in 1980, the average age of executives -- high-level figures who include company presidents, chief executive officers, chief financial officers, and senior vice presidents, among others -- was 56 while in 2001 it was 52. In 1980, the Fortune 100 featured no women executives, while in 2001, 11 percent were women.
In addition, Cappelli and Hamori point out that it used to be a given that the "Ivy League undergraduate education played a central role as a gatekeeper for a Fortune 100 executive career." They report that in 1980, "a full 14 percent of top executives in the Fortune 100 companies attended one of eight Ivy League institutions for their undergraduate education" and only 32 percent attended public or state-sponsored schools. But in 2001, only 10 percent had Ivy League pedigrees while almost half -- 48 percent -- had attended public institutions.
Cappelli and Hamori also report substantial change in the executive as the "Organization Man," the type who builds a career by joining a company at a young age and, over decades, secures a position of power by methodically and slowly navigating the corporate hierarchy, climbing the classic "ladder to success" one rung at a time. These authors discovered that the executives of 2001 were much less likely to have "spent their entire career at the same company" than their counterparts from1980.
Furthermore, over the 20-year period the average tenure of executives at their current firm dropped "by almost a full five years." Cappelli and Hamori note that executives were able to rise to the top in less time because they held "fewer jobs on their climb up the corporate ladder." Essentially, a single promotion in 2001 brought one closer to the executive suite than it did in 1980.
In addition, Fortune 100 firms were more inclined to hire executives from outside the company in 2001, rather than focusing so heavily on promoting from within. Cappelli and Hamori believe the changes they discovered are evidence that the post-1980 period was "an important breaking point" for the corporate career model, given that the executive career pattern in 1980 was relatively similar to what it had been since the 1950s.
As for the reasons behind the changes, the authors note that the early 1980s ushered in a "watershed moment for the U.S. economy and for corporations in particular." A severe recession, a wave of deregulation, intensified global competition, and new shareholder demands for better financial performance sparked a spate of corporate restructurings. As a result of this upheaval, the "nature of executive career paths has changed," Cappelli and Hamori assert. In today's more competitive environment, Ivy League connections are less important, top executives are more likely to come from outside a company, job tenure is much lower, and executives "get to the top faster by holding fewer jobs."
In addition, not only are women now a presence in the power structure, but women executives tend to be younger (47 years versus 52), less likely to be lifetime employees (32 percent versus 47 percent), have spent less time in each of their jobs before being promoted (3.4 years versus 4.0), and broke into the executive ranks "much quicker (21 versus 25 years) than did their male counterparts," the authors find.
Cappelli and Hamori acknowledge that the kind of companies that make up the Fortune 100 evolved over the past twenty years and that the changes observed in executive career paths could be a reflection of different corporate cultures dominating the group. For example, manufacturing concerns have gone from 17 percent to one percent of the Fortune 100, while financial services firm have risen from zero to 17 percent. But the authors find that the 26 companies that were in the Fortune 100 in both 1981 and 2001 exhibited many of the same changes in executive attributes that were found in the relative newcomers. This result, they write, "suggests that the changes are likely to be systematic and widespread and not simply the result of changes in the type of companies that make up the Fortune 100."
Cappelli and Hamori also point out that Fortune 100 companies, by virtue of their size and influence, are the firms that would "most likely persist in the traditional organizational career model." Therefore, any changes in executive career paths at these relatively conservative institutions are likely more pronounced at other companies. "If we see changes in these firms, then there are good reasons for thinking that changes may be even more likely in other corporations, which are smaller, younger and less invested in the 'Organizational Man' approach to management," they conclude.
-- Matthew Davis