Exploring the relationship between CEO characteristics and performance
Abstract
This article examines the relationship between CEO characteristics and firm performance with a sample formed by the best performing CEOs in the world according to Harvard Business Review. The empirical analysis is based on descriptive statistics techniques and studies the universe of CEOs included in the 2016 ranking “The Best-Performing CEOs in the World” released by Harvard Business Review. Moreover, it addresses performance at various levels: financial performance, environmental, social and governance performance (ESG) and overall performance. The findings of the study show: 1) a strongly negative association between financial and ESG performance; 2) outsider CEOs outperform insider CEOs in overall performance; 3) CEOs with engineering degrees show significantly higher ESG performance; 4) CEOs with longer tenures in the firm present stronger financial performance though weaker ESG performance; and 5) the CEO’s country of origin emerges as an important driver to explain the different types of performance. Results in this field contradict the conventional wisdom of Anglo-Saxon CEOs as the best performers CEOs.
Keyword : financial performance, ESG performance, cross-country differences, insider/outsider CEO, educational background, CEO’s age, CEO’s tenure
How to Cite
Garcia-Blandon, J., Argilés-Bosch, J. M., & Ravenda, D. (2019). Exploring the relationship between CEO characteristics and performance. Journal of Business Economics and Management, 20(6), 1064-1082. https://doi.org/10.3846/jbem.2019.10447
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Capelle-Blancard, G., & Petit, A. (2017). The weighting of CSR dimensions: one size does not fit all. Business & Society, 56(6), 919-943. https://doi.org/10.1177/0007650315620118
Cornell, B., & Shapiro, A. C. (1987). Corporate stakeholders and corporate finance. Financial Management, 16(1), 5-14. https://doi.org/10.2307/3665543
Crossland, C., & Hambrick, D. C. (2011). Differences in managerial discretion across countries: how nation‐level institutions affect the degree to which CEOs matter. Strategic Management Journal, 32(8), 797-819. https://doi.org/10.1002/smj.913
Culpan, R., & Kucukemiroglu, O. (1993). A comparison of US and Japanese management styles and unit effectiveness. Management International Review, 33(1), 27-42. Retrieved from https://www.jstor.org/stable/40228139
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Dechow, P. M., & Sloan, R. G. (1991). Executive incentives and the horizon problem: An empirical investigation. Journal of Accounting and Economics, 14(1), 51-89. https://doi.org/10.1016/0167-7187(91)90058-S
Favaro, K., Karlsson, P., & Neilson, G. (2013). Portrait of the incoming class. Booz & Co. Retrieved from http://www.strategy-business.com/article/00184?gko=235be
Finkelstein, S., & Hambrick, D. (1996). Strategic leadership: Top executives and their effects on organizations. Minneapolis: West Publishing.
Flammer, C. (2015). Does corporate social responsibility lead to superior financial performance? A regression discontinuity approach. Management Science, 61(11), 2549-2568. https://doi.org/10.1287/mnsc.2014.2038
Friedman, M. (1970). The social responsibility of business is to increase its profits. New York Times Magazine, September 13, 32-33.
Godfrey, P. C. (2005). The relationship between corporate philanthropy and shareholder wealth: A risk management perspective. Academy of Management Review, 30(4), 777-798. https://doi.org/10.5465/amr.2005.18378878
Gottesman, A. A., & Morey, M. R. (2010). CEO educational background and firm financial performance. Journal of Applied Finance, 2, 70-82. Retrieved from https://ssrn.com/abstract=2693079
Halikias, J., & Panayotopoulou, L. (2003). Chief executive personality and export involvement. Management Decision, 41(4), 340-349. https://doi.org/10.1108/00251740310468072
Hambrick, D. C., & Fukutomi, G. D. (1991). The seasons of a CEO’s tenure. Academy of Management Review, 16(4), 719-742. https://doi.org/10.5465/amr.1991.4279621
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Henderson, A. D., Miller, D., & Hambrick, D. C. (2006). How quickly do CEOs become obsolete? Industry dynamism, CEO tenure, and company performance. Strategic Management Journal, 27(5), 447-460. https://doi.org/10.1002/smj.524
Hoitash, U., & Mkrtchyan, A. (2018). Recruiting the CEO from the board: Determinants and consequences. Journal of Financial and Quantitative Analysis, 53(3), 1261-1295. https://doi.org/10.1017/S002210901800011X
Holliday, S. (2010). An interview with Chad Holliday, (former) CEO & chairman, DuPont the relationship between sustainability education and business. Academy of Management Learning & Education, 9(3), 532-541. https://doi.org/10.5465/amle.9.3.zqr532
Ioannou, I., & Serafeim, G. (2012). What drives corporate social performance? The role of nation-level institutions. Journal of International Business Studies, 43(9), 834-864. https://doi.org/10.1057/jibs.2012.26
Jensen, M. C. (2001). Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance, 14(3), 8-21. https://doi.org/10.1111/j.1745-6622.2001.tb00434.x
Karaevli, A. (2007). Performance consequences of new CEO “Outsiderness”: Moderating effects of pre‐and post‐succession contexts. Strategic Management Journal, 28(7), 681-706. https://doi.org/10.1002/smj.589
Karaevli, A., & Zajac, E. J. (2013). When do outsider CEOs generate strategic change? The enabling role of corporate stability. Journal of Management Studies, 50(7), 1267-1294. https://doi.org/10.1111/joms.12046
Kaul, A., & Luo, J. (2018). An economic case for CSR: The comparative efficiency of for‐profit firms in meeting consumer demand for social goods. Strategic Management Journal, 39(6), 1650-1677. https://doi.org/10.1002/smj.2705
LaPorta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and finance. Journal of Political Economy, 106(6), 1113-1155. https://doi.org/10.1086/250042
Levinthal, D. A., & March, J. G. (1993). The myopia of learning. Strategic Management Journal, 14(2), 95-112. https://doi.org/10.1002/smj.4250141009
Miller, D. (1991). Stale in the saddle: CEO tenure and the match between organization and environment. Management Science, 37(1), 35-52. https://doi.org/10.1287/mnsc.37.1.34
Miller, D., & Xu, X. (2019). MBA CEOs, short-term management and performance. Journal of Business Ethics, 154(2), 285-300. https://doi.org/10.1007/s10551-017-3450-5
Mintzberg, H. (2004). Managers not MBAs: A hard look at the soft practice of managing and management development. San Francisco: Berrett-Koehler.
Navarro, P. (1988). Why do corporations give to charity? Journal of Business, 61(1), 65-93. https://doi.org/10.1086/296420
Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization Studies, 24(3), 403-441. https://doi.org/10.1177/0170840603024003910
Porter, M., & Kramer, M. (2011). Creating Shared Value. Harvard Business Review, 89(1/2), 62-77.
Prasad, B., & Junni, P. (2017). A contingency model of CEO characteristics and firm innovativeness: The moderating role of organizational size. Management Decision, 55(1), 156-177. https://doi.org/10.1108/MD-02-2016-0071
Preston, L. E., & O’Bannon, D. P. (1997). The corporate social-financial performance relationship: A typology and analysis. Business & Society, 36(4), 419-429. https://doi.org/10.1177/000765039703600406
Tyler, B. B., & Steensma, H. K. (1998). The effects of executives’ experiences and perceptions on their assessment of potential technological alliances. Strategic Management Journal, 19(10), 939-965. https://doi.org/10.1002/(SICI)1097-0266(199810)19:10<939::AID-SMJ978>3.0.CO;2-Z
Vance, S. C. (1975). Are socially responsible corporations good investment risks? Management Review, 64(8), 19-24.
Van den Heuvel, G., Soeters, J., & Gössling, T. (2014). Global business, global responsibilities: Corporate social responsibility orientations within a multinational bank. Business & Society, 53(3), 378-413. https://doi.org/10.1177/0007650311424724
Wang, Q., Dou, J., & Jia, S. (2016). A meta-analytic review of corporate social responsibility and corporate financial performance: The moderating effect of contextual factors. Business & Society, 55(8), 1083-1121. https://doi.org/10.1177/0007650315584317
Wu, S., Levitas, E., & Priem, R. L. (2005). CEO tenure and company invention under differing levels of technological dynamism. Academy of Management Journal, 48(5), 859-873. https://doi.org/10.5465/amj.2005.18803927
Zhang, Y., & Rajagopalan, N. (2003). Explaining new CEO origin: Firm versus industry antecedents. Academy of Management Journal, 46(3), 327-338. https://doi.org/10.5465/30040626
Baumol, W. J. (2016). On the appropriate social responsibilities of successful entrepreneurs. Business & Society, 55(1), 14-22. https://doi.org/10.1177/0007650314523087
Belenzon, S., Shamshur, A., & Zarutskie, R. (2019). CEO’s age and the performance of closely held firms. Strategic Management Journal (in press). https://doi.org/10.1002/smj.3003
Bergson, Y., Ore, S., & Diver, T. (2008). CEO values, organizational culture and firm outcomes. Journal of Organizational Behavior, 29(5), 615-633. https://doi.org/10.1002/job.499
Bertrand, M., & Schoar, A. (2003). Managing with style: The effect of managers on firm policies. Quarterly Journal of Economics, 118(4), 1169-1208. https://doi.org/10.1162/003355303322552775
Boone, C., Lokshin, B., Guenter, H., & Belderbos, R. (2019). Top management team nationality diversity, corporate entrepreneurship, and innovation in multinational firms. Strategic Management Journal, 40(2), 277-302. https://doi.org/10.1002/smj.2976
Capelle-Blancard, G., & Petit, A. (2017). The weighting of CSR dimensions: one size does not fit all. Business & Society, 56(6), 919-943. https://doi.org/10.1177/0007650315620118
Cornell, B., & Shapiro, A. C. (1987). Corporate stakeholders and corporate finance. Financial Management, 16(1), 5-14. https://doi.org/10.2307/3665543
Crossland, C., & Hambrick, D. C. (2011). Differences in managerial discretion across countries: how nation‐level institutions affect the degree to which CEOs matter. Strategic Management Journal, 32(8), 797-819. https://doi.org/10.1002/smj.913
Culpan, R., & Kucukemiroglu, O. (1993). A comparison of US and Japanese management styles and unit effectiveness. Management International Review, 33(1), 27-42. Retrieved from https://www.jstor.org/stable/40228139
Datta, D. K., & Guthrie, J. P. (1994). Executive succession: Organizational antecedents of CEO characteristics. Strategic Management Journal, 15(7), 569-577. https://doi.org/10.1002/smj.4250150706
Eccles, R. G., Ioannou, I., & Serafeim, G. (2014). The impact of corporate sustainability on organizational processes and performance. Management Science, 60(11), 2835-2857. https://doi.org/10.1287/mnsc.2014.1984
Dechow, P. M., & Sloan, R. G. (1991). Executive incentives and the horizon problem: An empirical investigation. Journal of Accounting and Economics, 14(1), 51-89. https://doi.org/10.1016/0167-7187(91)90058-S
Favaro, K., Karlsson, P., & Neilson, G. (2013). Portrait of the incoming class. Booz & Co. Retrieved from http://www.strategy-business.com/article/00184?gko=235be
Finkelstein, S., & Hambrick, D. (1996). Strategic leadership: Top executives and their effects on organizations. Minneapolis: West Publishing.
Flammer, C. (2015). Does corporate social responsibility lead to superior financial performance? A regression discontinuity approach. Management Science, 61(11), 2549-2568. https://doi.org/10.1287/mnsc.2014.2038
Friedman, M. (1970). The social responsibility of business is to increase its profits. New York Times Magazine, September 13, 32-33.
Godfrey, P. C. (2005). The relationship between corporate philanthropy and shareholder wealth: A risk management perspective. Academy of Management Review, 30(4), 777-798. https://doi.org/10.5465/amr.2005.18378878
Gottesman, A. A., & Morey, M. R. (2010). CEO educational background and firm financial performance. Journal of Applied Finance, 2, 70-82. Retrieved from https://ssrn.com/abstract=2693079
Halikias, J., & Panayotopoulou, L. (2003). Chief executive personality and export involvement. Management Decision, 41(4), 340-349. https://doi.org/10.1108/00251740310468072
Hambrick, D. C., & Fukutomi, G. D. (1991). The seasons of a CEO’s tenure. Academy of Management Review, 16(4), 719-742. https://doi.org/10.5465/amr.1991.4279621
Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9(2), 193-206. https://doi.org/10.5465/amr.1984.4277628
Harvard Business Review (staff) (HBR). (2016a). The best-performing CEOs in the world. Harvard Business Review (november), 41-57.
Harvard Business Review (HBR). (2016b). How we calculated the ranking. Retrieved from https://hbr.org/2016/11/the-best-performing-ceos-in-the-world
Henderson, A. D., Miller, D., & Hambrick, D. C. (2006). How quickly do CEOs become obsolete? Industry dynamism, CEO tenure, and company performance. Strategic Management Journal, 27(5), 447-460. https://doi.org/10.1002/smj.524
Hoitash, U., & Mkrtchyan, A. (2018). Recruiting the CEO from the board: Determinants and consequences. Journal of Financial and Quantitative Analysis, 53(3), 1261-1295. https://doi.org/10.1017/S002210901800011X
Holliday, S. (2010). An interview with Chad Holliday, (former) CEO & chairman, DuPont the relationship between sustainability education and business. Academy of Management Learning & Education, 9(3), 532-541. https://doi.org/10.5465/amle.9.3.zqr532
Ioannou, I., & Serafeim, G. (2012). What drives corporate social performance? The role of nation-level institutions. Journal of International Business Studies, 43(9), 834-864. https://doi.org/10.1057/jibs.2012.26
Jensen, M. C. (2001). Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance, 14(3), 8-21. https://doi.org/10.1111/j.1745-6622.2001.tb00434.x
Karaevli, A. (2007). Performance consequences of new CEO “Outsiderness”: Moderating effects of pre‐and post‐succession contexts. Strategic Management Journal, 28(7), 681-706. https://doi.org/10.1002/smj.589
Karaevli, A., & Zajac, E. J. (2013). When do outsider CEOs generate strategic change? The enabling role of corporate stability. Journal of Management Studies, 50(7), 1267-1294. https://doi.org/10.1111/joms.12046
Kaul, A., & Luo, J. (2018). An economic case for CSR: The comparative efficiency of for‐profit firms in meeting consumer demand for social goods. Strategic Management Journal, 39(6), 1650-1677. https://doi.org/10.1002/smj.2705
LaPorta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and finance. Journal of Political Economy, 106(6), 1113-1155. https://doi.org/10.1086/250042
Levinthal, D. A., & March, J. G. (1993). The myopia of learning. Strategic Management Journal, 14(2), 95-112. https://doi.org/10.1002/smj.4250141009
Miller, D. (1991). Stale in the saddle: CEO tenure and the match between organization and environment. Management Science, 37(1), 35-52. https://doi.org/10.1287/mnsc.37.1.34
Miller, D., & Xu, X. (2019). MBA CEOs, short-term management and performance. Journal of Business Ethics, 154(2), 285-300. https://doi.org/10.1007/s10551-017-3450-5
Mintzberg, H. (2004). Managers not MBAs: A hard look at the soft practice of managing and management development. San Francisco: Berrett-Koehler.
Navarro, P. (1988). Why do corporations give to charity? Journal of Business, 61(1), 65-93. https://doi.org/10.1086/296420
Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization Studies, 24(3), 403-441. https://doi.org/10.1177/0170840603024003910
Porter, M., & Kramer, M. (2011). Creating Shared Value. Harvard Business Review, 89(1/2), 62-77.
Prasad, B., & Junni, P. (2017). A contingency model of CEO characteristics and firm innovativeness: The moderating role of organizational size. Management Decision, 55(1), 156-177. https://doi.org/10.1108/MD-02-2016-0071
Preston, L. E., & O’Bannon, D. P. (1997). The corporate social-financial performance relationship: A typology and analysis. Business & Society, 36(4), 419-429. https://doi.org/10.1177/000765039703600406
Tyler, B. B., & Steensma, H. K. (1998). The effects of executives’ experiences and perceptions on their assessment of potential technological alliances. Strategic Management Journal, 19(10), 939-965. https://doi.org/10.1002/(SICI)1097-0266(199810)19:10<939::AID-SMJ978>3.0.CO;2-Z
Vance, S. C. (1975). Are socially responsible corporations good investment risks? Management Review, 64(8), 19-24.
Van den Heuvel, G., Soeters, J., & Gössling, T. (2014). Global business, global responsibilities: Corporate social responsibility orientations within a multinational bank. Business & Society, 53(3), 378-413. https://doi.org/10.1177/0007650311424724
Wang, Q., Dou, J., & Jia, S. (2016). A meta-analytic review of corporate social responsibility and corporate financial performance: The moderating effect of contextual factors. Business & Society, 55(8), 1083-1121. https://doi.org/10.1177/0007650315584317
Wu, S., Levitas, E., & Priem, R. L. (2005). CEO tenure and company invention under differing levels of technological dynamism. Academy of Management Journal, 48(5), 859-873. https://doi.org/10.5465/amj.2005.18803927
Zhang, Y., & Rajagopalan, N. (2003). Explaining new CEO origin: Firm versus industry antecedents. Academy of Management Journal, 46(3), 327-338. https://doi.org/10.5465/30040626