It is true. Your CEO’s personality influences his/her ability to scale (among other things). It may seem self-evident. One’s intuition may suggest such a relationship between personality traits and workplace effectiveness. Well, it is more than a hunch. Published research demonstrates a relationship between CEO personality traits and company performance.
Gow, Kaplan, Larcker and Zakolyukina used the Big 5 personality framework to conduct their research. The Big 5 personality framework consists of the following 5 personality traits:
Openness: CEOs who score high in this area are intellectually curious, value uncommon thought processes, are creative thinkers, are less prone to selective perception bias, exhibit strategic flexibility and encourage experimentation and risk-taking.
Conscientiousness: CEOs who score highly in this segment are achievement-oriented, results and performance-driven. They also run the risk of selective perception bias and of having a narrow field of vision.
Extraversion: CEOs that score highly in this category are energetic, enthusiastic and forcefully communicate their ideas. They are more likely to initiate a change of strategic direction and are less likely to seek input and ideas from direct reports.
Agreeableness: CEOs in this category are typically trusting, avoid conflict, may avoid making difficult decisions, prefer flat organizational structures and seek to build consensus.
Neuroticism: CEOs overweight this category are more prone to psychological stress and are prone to anxiety and hostility. They may have a negative bias when digesting new information.
We have contemplated embedding CEO Personality Analytics into our CEORater platform for over a year. My view is that this capability could have broad application for institutional investors, Board members, executive recruiters and C-Level executives.
We are testing data as we speak. Personality trait assignment is executed using information readily available in the public domain (transcripts, public blog posts, etc.). I plan to share the output from our research in the coming weeks and months.
BlackRock (tkr: BLK) is going “activist” within the passive investment (i.e. index funds) side of their house. Regardless of whether or not you agree with the approach (we don’t entirely agree with the social activist element nor the activist approach to passive funds) there is great merit to the idea of holding public company management teams and Boards accountable from a strategic, tactical, operational and general Corporate Governance standpoint.
Additionally, both institutional investors and company management teams need to do a better job of engaging one another. BlackRock’s Corporate Governance effort should be a catalyst to kick start a more substantive and frequent dialogue between institutional investors and public company management teams. For that, we applaud BlackRock.
We share our perspective on this matter in CEORater Podcast episode 111:
Further, here is Larry Fink’s open letter to CEOs and Boards: Read Here.
We Have Entered an Unprecedented Era of Shareholder Tolerance It is interesting that corporate boards and institutional investors are willing to tolerate “Distracted CEOs” and founder CEOs who wish to exercise outsized control of the companies they founded. Both are examples of poor corporate governance. Our definition of a Distracted CEO is the CEO that…
GE CEO John Flannery has his work cut out starting with re-vamping GE’s Board. Our advice? 100% of GE’s BoD members should have experience within the industry verticals GE cares about. Equally important – GE BoD members should consist of a mix of Insiders and Outsiders with the weighting in favor of Insiders. More detail in CEORater Podcast Episode 81:
The Three “I”s for Selecting Board Members:
1.) Intellectual Curiosity
2.) Industry Experience
IBM lacks Board members that have Software industry experience other than CEO Ginni Rometty. We recommend that IBM turn over its Board and replace BoD members with new members who have significant Software industry experience given that Software – particularly a strategic M&A plan focused on Software/SaaS/AI/ML/Info Services acquisitions – is likely what will lead IBM out of its malaise. If IBM does not address its BoD and Executive shortcomings proactively it is probable that an Activist investor will make changes for IBM – with or without the latter’s consent. Click HERE for our CEORater Podcast episode concerning the 3 “I”s.
For those whom don’t know, the photo is of late/great Intel early employee (technically not a co-founder) and former CEO Andy Grove.
What is the most important factor in identifying companies that will be successful over time? Answer: the senior leadership team.
Quality leaders should be offended when they are referred to as “managers”. Effective senior leadership teams don’t “manage” – they “lead”.
Quality senior leadership teams have a greater influence on a given company’s success (however you want to define it) than any other one variable.
End market you say? Quality teams will capitalize on strong end-markets and have the courage to exit weak end-markets even when it may be politically difficult to do so.
Quality teams set the culture. Quality teams insist on hiring quality people and won’t sacrifice quality to satisfy a growth expectation.
Quality teams will push back on board members who have overly aggressive growth expectations that may jeopardize the company’s foundational core.
Quality leadership teams will pursue new, exciting product initiatives that have promise – even when data points and milestones are few during the early days of that product’s life cycle. Even when doing so may mean cannibalizing the core and pissing off investors.
Below is a post I wrote late last night and published to LinkedIn under CEORater. The post was in response to a Wall Street Journal article published about the use of an executive jet by former GE CEO Jeff Immelt which was not reported to the company’s Board. Short story is that too much is made of executive perks and insufficient attention is paid to executive performance and overall organizational performance.
“Let’s have a little clarity, honesty and transparency. An extra plane is small beans from an absolute dollar standpoint but speaks to a cultural/ political divide between GE‘s executive team and Board. By the way, shame on the Board if an extra plane was a “big deal”. At the end of the day performance is what matters. Operating performance/financial performance and stock performance with some balance between intermediate and long-term results (we are not advocates of “the next quarter”) matter. Beating “sand-bagged” financial targets is irrelevant. Achieving or almost achieving true stretch goals is relevant (which is why we hate the game of public companies publishing “guidance” much of which is sand-bagged). Every employee – CEO on down – whom contributed to performance/outperformance should be handsomely rewarded. This is why accountability matters. Otherwise, it is difficult to tie rewards back to those whom deserve them at the appropriate weighting. One size does not fit all when it comes to variable compensation.”