A survey reveals what makes leaders successful
In new research, we use survey data from over 1,000 CEOs across six countries and the financial performance of their companies to explore this question. And our evidence suggests that hands-on managerial CEOs are, on average, less effective than leaders who stay more high-level.
Our data set includes every activity a CEO undertakes in a week, as well as whether it was planned ahead of time and who else was involved. We used machine learning to determine which differences in CEO behavior are most important. In effect, we asked the algorithm: If you had to explain CEO behavior by dividing them into two types, how would you do it?
Although the algorithm is completely agnostic, the classification it generates closely resembles John Kotter’s distinction between “managers” and “leaders.” The first type of behavior — managers — includes relatively more plant visits, interactions with employees in supply chain management, and meetings with clients and suppliers. The other type — leaders — includes relatively more interactions with C-suite executives, personal and virtual communications and planning and meetings with a wide variety of internal functions and external stakeholders.
WHAT DO CEOS DO ALL DAY?
On average, about one-quarter of CEOs’ days are spent alone, including sending emails. Another 10% is spent on personal matters, and 8% is spent traveling. The remainder (56%) is spent with at least one other person, which mostly involves meetings, most of which are planned ahead of time. About one-third of the time CEOs spend with others is one-on-one; two-thirds is with more than one other person.
WHICH TYPE IS BETTER FOR COMPANIES?
We looked at before and after data for firms where a new CEO was appointed, and we found that the appointment of a leader CEO was followed by higher productivity. The effect showed up three years later, which suggests that leaders are doing the hard work of changing companies.
IS ONE TYPE ALWAYS BETTER?
Leaders tend to be more prevalent in larger firms and in industries that are, on average, more skill-intensive and complex, while managers tend to run smaller and, to some extent, simpler organizations. Some companies need great in-the-weeds managers as CEOs, and others need high-level, vision-setting communicators. But, because the market for CEOs is far from perfect, sometimes managers — who are more abundant in our sample than leaders — end up in a leader role, and thus negatively affect the performance of the firm they run.
Leaders who set the vision, convene key functions, and communicate effectively can, overall, have a meaningful impact on firm performance, when the setting requires these skills. But just as important is understanding and finding the right fit between the CEO’s leadership style and what the company actually needs.
(Oriana Bandiera is a professor at the London School of Economics. Stephen Hansen is an associate professor in the economics department at Oxford. Andrea Prat is a professor of economics at Columbia. Raffaella Sadun is a professor of business administration at Harvard.)
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